Home / Economy / Georgian Banking system is based at “Lombard Mathematics” to the consumers’ detriment and lacks key components that other developing economies already adopted

Georgian Banking system is based at “Lombard Mathematics” to the consumers’ detriment and lacks key components that other developing economies already adopted

“Regulation of the banking sector is one of the major tools for any government to reinvigorate production growth. Today this ill-treated segment of Georgia’s Economy requires fundamental reshuffling”. This statement was made by Mr. Kakha Chargeishvili, US based Investment Banker. Mr. Chargeishvili proposed comprehensive strategic economic plan to “Georgian Dream’s” government but his efforts were met with surprising silence. The plan should have been known to the previous and current Prime Ministers. However, due to inertness and unprofessionalism of the country’s economic management, discussions never occurred.

Commersant contacted Mr. Chargeishvili in New York regarding recent economic developments in Georgia. During post-soviet period, last 25 years, political management could not advance Georgia’s economy from the pre-existing model. Subsequently, current situation still entails socio-economic problems and income levels that are below to similar indicators from other developing nations.

International economists agree, that nothing has been done to really improve Georgia’s economic infrastructure, excluding maybe some cosmetic changes that characterizes reforms at third world country. Plan that Kakha suggested in 2012 was comprehensive and required immediate action.

His strategy included high level vision as to what type of Economy we needed as well as tactical steps that would entail improvement of the socio-economic situation in the shortest period.

Specifically, lower unemployment and real wage growth that would allow every Georgian family decent quality of life.

“Generally, change of political power is positive event in a democratic society. After 2012 parliamentary elections, “Georgian Dream” had historic chance to revamp country’s economy. I considered this period as a very important crossroad and laid out vision for economic future to the

government. However I was surprised by indifference and lack of coordination at this team. Year 2012, as a legacy of previous government, can be characterized by astronomical unemployment level and criminal banking system. Today, we have analogous situation with strengthening stagnation signs. Thus immediate action still very much is needed”.

Georgia lacks basic banking regulation, and therefore Georgian Banking is similar to other handicapped systems, including Russia. As a general observation, 15 out of 20 banks in Georgia are foreign, and majority owners of remaining 5 banks are not Georgian. Besides obvious problem associated with this paradigm, following conclusion can be reached: National Bank does not understand basic premise of country’s financial management and thus cannot facilitate to the economic growth.

Kakha Chargeishvili’s plan, about which Mr. Ivanishvili and Mr. Garibashvili should have been notified by their advisors, was comprehensive and required coordinated execution of macroeconomic policies. Plan included list of reforms that would decrease unemployment level to 10% and substantially increase real wages and pensions. Positive changes could be felt by population within first year.

At this stage, according to Mr. Chargeishvili, priority should be given to progressive taxation,

functional banking system and consistent monetary policy. Macroeconomic tools should be deployed extensively to define real value of national currency and interest rates that in turn will support job creation and GDP growth. Clearly, such policies in Georgia are non-existent!

Among other problems Kakha also mentioned lack of intra-bank liquidity and currency hedging instruments that preclude creation of financial market and growth of foreign direct investments.

During last two decades, global capital markets changed fundamentally. In globalizing economy, it is important to consider international trends to successfully plan country’s economic growth.

Many economists from 90s do not have such knowledge.

Kakha indicated that main reason for existing economic problems is the lack of professionalism in Georgia’s Public Administration. Lack of competency and knowledge in some cases reaches levels where case for criminal responsibility can be made as it relates to the consequences of existing policies. Conclusion has deep implication – Government did not meet people’s expectation to achieve economic growth.

“Georgia’s Economy needs to move to different orbit and considering country’s potential, substantial economic growth can be achieved. Strong economy is powerful tool that will support restoring territorial integrity and expedite Euro-Atlantic integration. Unfortunately, government could not amend previous economic model and tries to only maintain status quo. It is imperative priority to completely change government’s finance/economy teams and build system from the scratch. Everything needs to be started from the clean page.” – says Mr. Chargeishvili.

About Author

Mr. Kakha Chargeishvili has 15 years of professional background in International Banking. Kakha spent career with Global Financial Companies: Citigroup, Bank of America, and Merrill Lynch. During his career, Mr. Chargeishvili also managed “BCS Global Investment Bank”, one of the largest European Financial Groups with more than 500 Billion USD annual turnover. He is frequent speaker at CNN and other international media.