GEORGIA: ECONOMIC POLICY AFTER THE “REVOLUTION OF ROSES”

Otar KANDELAKI

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Otar Kandelaki, Deputy Head, Parliament of Georgia Budget Office (Tbilisi, Georgia)

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In 1989, influential financial and political organizations and well-known economists agreed upon the main lines of reform in economic policy, which became known as the Washington Consensus. Its ideas had a significant impact on the way of thinking and course of action in the countries of Eastern Europe and in the Soviet Union, although initially that policy was intended not for a restructuring of the postsocialist countries, but for already functioning markets, so that in some respects it proved to be inadequate to the needs of the transition period.

The Washington Consensus stressed the importance of liberalization, privatization, the opening up of postsocialist economies, and the necessity of maintaining fiscal discipline. But that approach did not take into account a number of important elements required for systemic transformation, stabilization and growth. This includes institution building, an improvement of corporate governance in the state sector prior to privatization, and a review of the state’s role in the economy, but without its complete withdrawal from economic activities (as the record of many countries shows, with excessive deregulation a society based on the principles of liberalism cannot prevent an increase in social inequity).

The assumption that emerging market forces can quickly replace the government in the field of institutional development, investment in human capital and development of the infrastructure resulted in a sharp contraction of the economy and growing social tensions. The lack of a basic market structure and financial intermediaries impeded accumulation and worsened the allocation of savings. Thus, the lack of proper control over the……………………

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