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INTERVIEW-Georgia says currency will weather Turkey, Ukraine fall-out

Source: Reuters - Mon, 17 Feb 2014 10:36 GMT
Author: Reuters
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* Georgia says can keep currency stable

* Lari has depreciated in recent months

* Wary of Russia but eyes European integration

By Margarita Antidze

TBILISI, Feb 17 (Reuters) - Georgia will be able to keep its currency stable even though it may be hit by fallout from financial problems in nearby Turkey and Ukraine, its economy minister said.

Georgy Kvirikashvili also said in an interview with Reuters that the former Soviet republic would press on with attempts to deepen ties with the European Union without upsetting Moscow, a goal that has eluded Ukraine's leaders.

Ukraine's hryvnia currency lost 3 percent of its value last week and is trading near a 4-1/2-year low. The Turkish lira lost more than 10 percent in a month after a government corruption scandal became public in mid-December.

Both are also under pressure from general fund flows from emerging markets following the U.S. Federal Reserve's cutback on the stimulus that has boosted the emerging asset class over the past few years.

Georgia's lari currency has also depreciated in recent months.

"We monitor events in Ukraine with big interest and concern ... (and) the Turkish lira has depreciated," Kvirikashvili said in Tbilisi, capital of the South Caucasus country of 4.5 million which lies on a transit route for Caspian oil and gas to Europe.

"The situation in countries around us has an impact on the Georgian economy, of course."

"But we have a rise in exports and imports, and the current account deficit is going down. This, and our decision to help the agriculture sector, gives us hope that there will be no surprises in terms of our currency stability," he said, referring to recent government moves to boost agriculture.

The lari had fallen to 1.78 against the U.S. dollar by Jan. 31, compared with 1.66 in October. It now stands at 1.73.

Georgia's central bank chief told Reuters this month that he did not expect any more major fluctuations by the lari and added that the central bank had enough currency reserves to protect the currency.

Georgia's currency reserves fell by 1.7 percent in 2013 to $2.8 billion.

EMERGING MARKET TURMOIL

The World Bank expects Georgia to register economic growth of 6.3 percent in 2014. The International Monetary Fund has suggested growth will be 5 percent.

But with the lari depreciating since November, Georgia's central bank last week raised its key refinancing rate to 4.00 percent from 3.75 percent, even though inflation is currently below the government's annual target of 4.0 percent.

Georgia initialled an agreement on free trade and other ties with the EU on Nov. 29 and intends to sign the deal in August 2014.

The deal is expected to boost investment in Georgia, which has appointed a new prime minister and president in the past few months and hopes a period of political instability is over.

"The biggest rise in terms of exports last year was to the EU countries and we expect a further rise this year," Kvirikashvili said.

He voiced hope that Russia would not be alarmed by Georgia's European integration. The two countries fought a five-day war in 2008 over two breakaway regions in Georgia, and Russia is wary of any moves that might reduce its ability to have influence in former Soviet republics.

"We need to be cautious (with Russia) as major political problems between our countries are still unresolved and we don't expect a quick solution any time soon," Kvirikashvili said.

Kvirikashvili said foreign direct investment would exceed $1 billion in 2014 and growth was likely to increase to 5 percent this year from 3.1 percent in 2013. He identified the energy sector, the processing industries, transport and tourism as the sectors of most interest to foreign investors. (Editing by Timothy Heritage Editing by Jeremy Gaunt)

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