GEORGIA: PENDING CHANGE AT NATIONAL BANK OF GEORGIA

C O N F I D E N T I A L TBILISI 000379 SIPDIS E.O. 12958: DECL: 08/25/2018 TAGS: ECON EFIN PREL PGOV GG SUBJECT: GEORGIA: PENDING CHANGE AT NATIONAL BANK OF GEORGIA Classified By: AMBASSADOR JOHN F. TEFFT. REASONS: 1.4 (B) AND (D). ¶1. (C) Embassy Summary/Comment: Acting head of the National Bank of Georgia (NBG),David Amaglobeli told us that he will be replaced by the current head of the Financial Sector Authority, Giorgi Kadagidze. Amaglobeli believes the decision is in connection with his view that the National Bank of Georgia should float the lari, which is at odds with President Saakashvili, Prime Minister Gilauri and others' view that the lari should be defended at its current level, primarily by spending down Georgia's foreign currency reserves. The personnel change has not been announced publicly, but at least one leading banker was unconcerned by the report, arguing that Kadagidze would be a capable replacement at the Bank. End Summary/Comment. Upcoming Change ¶2. (C) Amaglobeli has been the acting head of the National Bank of Georgia since November in 2007 and will be replaced by Giorgi Kadagidze who currently heads the Financial Sector Authority (an autonomous agency which regulates all financial institutions). Amaglobeli surmised that his dismissal was a direct result of his belief that the lari must either float or be devalued again to slow expenditures of foreign reserves. According to Amaglobeli, President Saakashvili, Prime Minister Gilauri, and others want the currency to be maintained at its current rate, believing that a stable lari is key to attracting and keeping foreign direct investment. Amaglobeli has been offered the job of head of the macroeconomics section in the NBG and has temporarily agreed to accept the position. Key Banker Not Worried ¶3. (C) Badri Japaridze, Vice Chairman of the Supervisory Board of TBC bank, one of Georgia's largest, was unconcerned with the news. Japaridze thought the change of leadership would simply reflect the actual reality of the NBG's decision making processes. Japaridze said that he has been in regular consultations with the NBG about the effect of a currency devaluation and predicted that a devaluation would not affect his bank negatively. However, he acknowledged that the potential political effect of a devaluation was real. Japaridze said that Georgians do not have strong faith in the lari and a devaluation could trigger a panic and ensuing run on dollars (or euros). Japaridze said that he has been told that the NBG has enough reserves to buy every lari in circulation so even a run on foreign currencies could be dealt with, but the psychological effect on the public and investors would be difficult to manage. Japaridze knows Kadagidze personally and says he thinks he is a smart, able, and solid choice to replace Amaglobeli. TEFFT