Georgia’s central bank spends $60 million to support lari amid political crisis

By Thomson Reuters May 16, 2024 | 8:10 AM

By Felix Light and Gleb Stolyarov

TBILISI (Reuters) – Georgia’s central bank said on Thursday it had spent $60 million in reserves to support the lari after a surge in demand for foreign currency, its largest such intervention since May 2021.

Georgia has been mired in a political crisis over a bill on “foreign agents” passed by parliament on Tuesday, which critics say is authoritarian and Kremlin-inspired. A senior U.S. diplomat suggested that day that Washington might sanction some Georgian officials if it ultimately becomes law.

On Wednesday, the lari lost 4.9% of its value against the dollar to trade at 2.78, an almost two-year low, before paring losses to end the session up 0.65%. As of 1200 GMT on Thursday, the lari had shed 2.83% from its close on Wednesday.

The National Bank of Georgia said the decision to intervene was taken amid “excess demand for currency, which created additional pressure on the exchange rate of the Georgian lari”.

It said that the decision to provide liquidity had been made due to “agitated processes that have developed in the currency market in recent days”, but that Georgia’s economic fundamentals remained healthy.

Georgia has been grappling with the political crisis since the country’s ruling party said it would reintroduce a bill on “foreign agents” it dropped last year after major protests.

The bill would require organisations receiving more than 20% of their funds from abroad to register as agents of foreign influence, or face punitive fines. It has sparked mass demonstrations and drawn condemnation from the West.

Critics of the draft law compare it to Russian legislation used to crack down on opponents of Vladimir Putin and see it as a test of whether Georgia will retain its traditional pro-Western foreign policy, or pivot back to Moscow, from which it gained independence in 1991.

On Tuesday, U.S. Assistant Secretary of State James O’Brien said during a visit to Tbilisi that Washington could impose financial and travel restrictions unless the bill underwent change or if security forces forcibly broke up protests as has occurred in recent weeks.

O’Brien said otherwise “we will see restrictions coming from the United States. Those tend to be financial and/ or travel restrictions on the individuals responsible and their families.”

The European Union, which gave Georgia candidate status in December, has said that if enacted, the bill will not help Tbilisi’s hopes of membership in the bloc.

Billionaire ex-prime minister Bidzina Ivanishvili, founder of the country’s ruling party Georgian Dream, said that the law is necessary to assert Georgian sovereignty against Western powers which he said wanted to drag the country into a confrontation with Russia.

Both Ivanishvili and his party say that they want Georgia to join the EU and NATO, ideas which remain broadly popular in the country.

Georgia’s president Salome Zourabichvili has said she will veto the bill, but parliament is likely to override the veto. Opposition groups have called for more protests.

At a rally on Wednesday, before the currency intervention was announced, student protester Giorgi told Reuters that he was worried about the impact of possible sanctions on the national currency.

He said: “The Georgian lari is already losing its power. It will of course affect prices of products in the country as well. So it will affect each and everyone of us, our daily lives.”

(Reporting by Felix Light and Gleb Stolyarov; Additional reporting by Vladimir Abramov; Editing by Andrew Osborn, Guy Faulconbridge and Jane Merriman)