December 7, 1998
1. The International Monetary Fund supports the decision of the National Bank of Georgia (NBG) to halt intervention to support the lari beginning today. Given the high level of intervention which has taken place as a result of the Russian financial crisis and Georgia's budgetary problems, continued intervention would have depleted the international reserves of the NBG, and was therefore unsustainable.
2. The Fund believes the lari will quickly find a new market equilibrium if the exchange rate is supported by monetary and fiscal policy, that is, if the NBG limits the emission of lari and the collection of tax revenue increases. Discussions can begin on the 1999 budget once this new exchange rate is established.
3. The situation of Georgia is not unusual, in that all other members of the Commonwealth of Independent States (CIS) have experienced pressure on their exchange rates, except Armenia and Azerbaijan. Most have experienced depreciations on the average of 40 percent (measured in U.S. dollars per domestic currency).
4. The IMF stands ready to assist and support the authorities' structural and economic reform efforts, with the aim of building a strong economy characterized by sustained economic growth, price stability, and external viability. Mr. Sugisaki, a Deputy Managing Director of the Fund, will visit Georgia on December 11 at the request of the Georgian authorities to demonstrate the Fund's interest in continuing its relations with Georgia and to discuss the next disbursement of US$37 million from the Fund. In addition, a donors meeting will take place on the same day in Washington, DC to discuss additional assistance to the six countries most affected by Russia's financial crisis. On the basis of firm implementation of a strong economic program, the Fund will make every effort to assist Georgia in mobilizing greater concessional resources.
5. A mission from the Fund's Monetary and Exchange Affairs Department will visit Georgia during December 10-16 to assess the situation of commercial banks, and, if necessary, to provide advice to the Georgian authorities on assisting commercial banks.
6. The timing of disbursements by the World Bank, the European Union, and the Netherlands will be determined by those institutions, which should be contacted for further information.
Hunter Monroe
IMF Resident Representative
Tbilisi, Georgia