IFLR 1000
The Guide to the World's Leading Financial Law Firms

Between 2006 and 2008, thanks to the credit boom and a liberal economic policy, Georgia enjoyed an influx of foreign investment. For law firms in Georgia this meant lots of securities, infrastructure and finance deals....

Between 2006 and 2008, thanks to the credit boom and a liberal economic policy, Georgia enjoyed an influx of foreign investment. For law firms in Georgia this meant lots of securities, infrastructure and finance deals.

The credit crunch halted banking work and shifted the legal market's focus to restructuring. The client landscape changed too, with key international financial institutions replaced by venture capitalists and foreign investors, particularly from Israel.

The Russian-Georgian war that took place in August 2008 caused further damage to the Georgian market's reputation. "When 30% of your homeland is occupied by Russian forces, investors should have quite remarkable courage to make long-term investments," says one lawyer. However others note that the long-term effects of the war have been mitigated by the inflow of foreign donations.

The government is attempting to attract new foreign investors by undergoing regulatory reform. Efforts include tax reform and the simplification of construction licences and labour laws for employers - "to the point of being unethical" according to one local lawyer.

But some lawyers are sceptical about whether reform can go beyond the theory and into practice. "The government inherently lacks the ability to regulate," says one partner. A liberal economic policy, say lawyers, might just be the best Georgia can do.

Still, there are things to be cheerful about. Thanks largely to high reserve requirements (20% in contrast to the usual 5% to15% requirement in Western banks) Georgian banks escaped a liquidity crisis. One lawyer also predicts that Georgia's favourable interbank lending rates could kick the financial market back into action: "The lending rate is so high that even on an interbank interest rate, one gains very high returns. Banks have a 24% lending rate, when 18% is already huge, which means that there is 8-10% effective interest rate that banks can profit from."

Finally, even though large-scale infrastructure projects have all but halted, the government reports buyers acquiring unfinished construction sites - buying them cheaply in hope of making a profit if the market recovers.

Opinions are mixed about Georgia's future. Some lawyers hope that there will be no more downward trends in the market. Some lawyers declare that the credit crunch gave the market a much needed trimming, rewarding good businesses and aiding in the development of the market. Others believe that the country will eventually recover and that once the Western economies have stabilised, Georgia's status as an emerging market will attract investors again.