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Is Georgia's Currency Headed For Devaluation?

The precipitous fall in value of the Georgian lari vis-a-vis the U.S. dollar over the past week "does not give grounds for concern," and there "are no grounds for a devaluation," Georgian National Bank head David Amaghlobeli told journalists in Tbilisi on November 10.

From its July 2008 peak of 1.39 laris:$1, the lari has lost 13.4 percent in value in recent days, slipping from 1.428 on November 3 to 1.49 on November 7 and briefly to 1.71 on November 10. At that point the National Bank intervened, and the lari stabilized to close at 1.65.

Experts attribute the decline in the lari's value not to the global financial crisis, but to the ongoing repercussions of the brief August war with Russia, which scared off potential foreign investors.

Irakli Kovzanadze, a professor at Tbilisi State University, pointed out to RFE/RL's Georgian Service that "we have an enormous trade deficit, for every dollar in exports we import [goods to the value of] $4. Until now, that was balanced out by investments, but now investments have fallen and demand for the dollar has grown."

Amaghlobeli was nonetheless upbeat, assuring journalists that Georgia's hard currency reserves currently amount to $1.15 billion, which, he said, is sufficient to prevent a further fall in the value of the lari. He added out that Georgia stands to receive at least $250 million in U.S. aid for post-conflict reconstruction. Amaghlobeli also ruled out a sharp rise in inflation, which fell from 10.6 percent in September to 7 percent in October.

Unnamed analysts quoted by "The Financial" on November 10 were less sanguine, however, pointing out that the reconstruction aid will be disbursed only gradually, in tranches. Others voiced the suspicion that the National Bank has for some time been artificially supporting the lari until it became impossible to continue that policy.

-- Liz Fuller

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