Georgia

Georgia embarked on independence earlier than some parts of the USSR but did not escape the vicissitudes of its collapse. From 1995 it had a long period of on-off stabilisation and structural reform, with periodic reversions to exchange rate stabilisation. Its attempts to pursue inflation targeting from 2009 were vitiated by the underdevelopment of its financial markets amongst other factors.

YearsTargets and attainmentClassification
1991-4independence (from USSR) declared April 1991, new President May 1991 but deposed in coup at end of year; major earthquake 1991; conflict over breakaway regions of Abkhazia and South Ossetia 1991-3, and 1992-3 with supporters of deposed President; 1991 some structural reform including move to two-tier banking system with local branches of USSR central and specialised banks ‘nationalised’, but currency remains ruble and country undergoes economic and financial disruptions of collapse of USSR, including hyperinflation and cash (banknote) shortage; many new small, undercapitalised, commercial banks but banking system dominated by specialised banks; rapid expansion of credit to government and SOEs; 1993 coupon issued alongside ruble in April, becomes sole legal tender in August (after demonetisation of pre-1993 rubles in Russia), but monetary policy remains accommodating with directed and subsidised credits from central bank; fall in confidence in coupon which depreciates sharply, and currency substitution from coupon into ruble as medium of exchange and into USD and other convertible currencies as stores of value, while central bank lacks independence and expertise needed for stabilisation and bank supervisionunstructured discretion UD
1995-2017political normalisation 1994 allows sharp turn September towards fiscal and monetary stabilisation, including end of directed credits and enforcement of reserve requirements, with appreciation and then stabilisation of coupon vs USD; payments system improved, central bank autonomy raised, prudential regulation of banks strengthened; financially weak specialised banks need rehabilitation and upgrading; new currency introduced October 1995, stabilised vs USD within relatively liberal market arrangements, leading to strong reversal of currency substitution; key monetary instrument is forex interventions, which offset central bank lending to government; interbank credit auction started mid-1995 becomes more active, with larger central bank participation; ongoing banking sector reform; external debt  rescheduling; overall level of monetisation remains low; issue of treasury bills by auction from 1997; 1998 Russian crisis and drought, sharp rise in dollarisation, exchange rate allowed to depreciate in short term but recovers in part; loss of fiscal and therefore monetary control late 1999; treasury bill market development, held back 1998, resumes but slowly; crisis 2001 in major trading partner Turkey; continuing issues of tax evasion, low ratio of tax revenue to GDP, lax fiscal control, and corruption; 2003 credit auctions restarted and become, together with reserve requirements, main instrument of monetary control; Rose Revolution 2003, new government with ambitious reform agenda; efforts to reduce dollarisation; consolidation of banking sector 2000s but dollarisation remains high and monetisation low; 2006 target for reserve money; 2008 August war with Russia, GFC, strong fiscal but ineffective monetary response, leading to devaluation November; 2009-10 monetary and exchange rate reforms: ban on central bank direct lending to government, new auction mechanism for forex market, better liquidity forecasting, and reforms to standing facilities, as part of planned move to inflation targeting; inflation targets undershot 2009, overshot 2010-11, undershot 2012-14, undershot 2016, overshot 2017; periodic reversion to stabilising exchange rate; ongoing improvements in monetary operations, to strengthen monetary transmission and communication and to encourage dedollarisation; 2017 full dedollarisation plan, some success; statistics adequate by end of periodloosely structured discretion LSD

Selected IMF references: RED 1993 pp2-4, 15-22, 74-7, 86-7; RED 1994 pp13-17, 21-2, 81-4; RED 1995 pp19-22, 26-9, 88; RED 1996 pp26-28, 30-1, 39-40; RED 1997 pp35-40, 42, 44; REDSI 1998 pp19, 24, 46-52; REDSI 2000 pp21-2, 57-61; REDSI 2001 pp9-11, 61-3, 73, 75-6, 80-2; SISA 2003 pp26-7; SR 2003 pp8-9, 13-14; SI 2006 pp6-11; SR 2006 pp13-15; SR 2009 pp5-7, 10-12; SR 2011 pp16-17; Ex Post Assessment of Longer-Term Program Engagement update March 2011 pp5, 7-8, and Appendix §§2, 5; SI 2013 pp5-7, 19-20; SR 2013 pp6, 11, 25-6; 1st Review under SBA 2014 pp9-10;  Request for Extended Arrangement under EFF 2017 pp7, 13-15; SR 2018 pp13-15.

Other sources: National Bank of Georgia website for Annual Reports and inflation data.