Georgian minister blames Brexit for lari’s recent depreciation

By bne IntelliNews June 28, 2016

The recent decline in Georgian lari is due to the results of the British referendum, Georgian Economy Minister Dimitry Kumsishvili said, according to The lari lost 2% of its value against the US dollar to trade at 2.29 on June 27. 

Britain's surprising decision to leave the European Enion hit developed and developing markets alike, causing loses to the tune of $3tn and a wave of currency depreciations in Europe - the euro, the Polish zloty, the Romanian leu, the Turkish lira. The small economies in the Caucasus - Georgia, Armenia, and Azerbaijan - however did not react promptly to Brexit, with no effects observed on the markets on June 24. Georgia is the first Caucasian country to report a Brexit windfall on its currency.

The Georgian lari was on a rebound, having appreciated by 15% against the dollar since its lowest rate of 2.49 reached on February 13. The currency had depreciated by 40% in 2014-2015, prompting worries among investors and the population, and drawing criticism of the central bank for its management of the currency crisis.

Kumsishvili advised the population to keep an eye on the exchange rates and only buy or sell foreign currency when necessary.  

The Brexit vote is expected to have political repercussions on Georgia as well, as the country prepares for parliamentary elections in October. A Western- and EU-friendly country with ambitions to join the bloc, Georgia has been eyeing EU membership ever since a 2008 war with Russia over the breakaway region of South Ossetia, and has made great strides in meeting accession criteria. Although the country was never invited to accede due to concerns over Russia's reaction, it has a free trade agreement with the EU and came close to a visa liberalisation scheme this year. On June 16, Georgian Prime Minister Giorgi Kvirikashvili visited Germany to lobby for the country's visa-free access to the EU following the bloc's decision to postpone it on June 1.

With the future of the EU in balance, the bloc in unlikely to proceed with the visa liberalisation scheme for Georgia or to make similar concessions to its partners in the Eastern Partnership (EaP), which include Moldova, Ukraine, Belarus, Armenia, Azerbaijan and Georgia. While the crisis in Ukraine has proven that the EaP had failed to steer the six countries under its umbrella towards democratic governance and away from Russia's economic and political sphere of influence, the entire project hangs in balance now as the fate of the union itself has become uncertain.

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