THE IMF IN GEORGIA: EVALUATING THE FUND’S UNIQUE VISION OF ECONOMIC SUCCESS
Abstract
Many things have changed in Georgia after the Rose Revolution of November 2003. Certain changes are very positive
and praiseworthy, such as the abolition of deeply corrupt and universally hated traffic police, and its replacement with the Western style patrol police. Reforms in the armed forces are also heading toward a positive direction. However, the economy does not seem to be the new government’s priority. The leader of the Rose Revolution and the current president of Georgia Mikhail Saakashvili has made it clear a number of times that he was not interested in solving economic problems of the country as much he was interest-ed in dealing with security and defense issues.
hen presenting a newly composed government in February 2005, Saakashvili was quoted by saying: “I can build the army, I can build the police, but development of the economy is up to the entire society.”1 Prior to that President of Georgia voiced similar sentiments at his address to the country’s parliament. 2
Indeed, compared to reforms in the military and law enforcement agencies economic reforms in Georgia have fallen far behind. This was partially acknowledged by Saakashvili in his above-mentioned address to the Parliament.
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References
“Saakashvili Speaks of Successes, Presents New Cabinet,” civil.ge [www.civil.ge], 15 February, 2005.
See: “Saakashvili Addressed the Nation, Parlia-ment,” civil.ge [www.civil.ge], 10 February, 2005.
See: “Sakartvelos mosaxleobis naxevarze meti gharibia,” Rezonansi, No. 260, 29 September, 2005.
“Statement by IMF Managing Director Rodrigo de Rato at the Conclusion of His Visit to Georgia,” The Inter-national Monetary Fund [http://www.imf.org/external/np/ec/pr/2005/pr05140.htm].
See: 2005 Index of Economic Freedom, The Herit-age Foundation [http://www.heritage.org/research/features/
ndex/countries.cfm].
See: “Doing Business in 2006: CIS Economies Pick Up the Pace of Reform,” The World Bank news sec-tion, 12 September, 2005 [www.worldbank.org].
See: “Economic Freedom of the World,” The Cato Institute [http://www.cato.org/pubs/efw].
See: “Sakartvelos mosaxleobis naxevarze meti gharibia.”
See: Bulletin of Monetary and Banking Statistics (January-August 2005), The National Bank of Georgia [http://
ww.nbg.gov.ge/].
Various sources estimate Georgia’s population to be more than 5 million. This figure derives from the 1989 So-viet census, and now seems to be much exaggerated. At the 1989 census, Georgian authorities artificially inflated popula-tion numbers of their republic to get higher allocation of funds from Moscow—the Soviet system depended on the centralized distribution of funds for almost all aspects of life. Further, after the collapse of the Soviet Union, out-migration from Georgia achieved staggering proportions. More conservative estimates put the number of those who left the country at one million.
inally, Georgia’s separatist regions of Abkhazia and South Ossetia also experience demographic problems of their own.
ore than 300 thousand people have been either expelled or left Abkhazia and South Ossetia since 1991, most of them were Georgians the majority of whom remained in Georgia, but among them were ethnic minorities as well (Jews, Greeks, Ukrain-ians, Russians), and there were Ossetians who left the Tskhinvali and other regions for the Russian Federation. Therefore,it is unlikely that the population of Georgia currently is much higher than 4 million people.
See: Bulletin of Monetary and Banking Statistics (January-August 2005).
See: “World Bank Approves USD 143 Million for Georgia,” civil.ge, [www.civil.ge], 16 September, 2005.
See: “Annual Reports” for 2003 and 2004, The National Bank of Georgia.
See: Bulletin of Monetary and Banking Statistics (January-August 2005); “Annual Reports” for 2003 and 2004.
Ibidem.
See: Th.D. Lairson, D. Skidmore, International Political Economy: The Struggle for Power and Wealth, Thom-son Wadsworth, Toronto, 2003, p. 24.
See: Bulletin of Monetary and Banking Statistics (January-August 2005).
“Analysis of Recent Growth in Low-Income CIS Countries,” IMF Working Paper No. 04/151, p. 7 [www.imf.org];
IMF Mission Assesses Fiscal Situation in Georgia,” civil.ge, 10 June, 2005.
Interview with Mr. Zurab Macharadze, Tbilisi, 25 August, 2005.
A. Cohen, “Our Challenge in Georgia,” The Heritage Foundation [http://new.heritage.org/Press/Commentary/
d011504a.cfm].
Interviews with Guria residents in Poti, Ozurgeti, and Lanchkhuti districts, July 2005.
According to City of Tbilisi officials, no one really knows what is the current population of Tbilisi. Conservative estimates put it around 50 percent of the country’s total.
TV and newspaper reports in September 2005.
The Ministry of Agriculture of Georgia tried to convince the grape farmers that their lot will improve “next year.”They are projecting increased wine exports for 2006. The grape harvest in 2005 was more than 145 thousand tons in the Kakheti Region only, while winemakers only need about 70 thousand tons (see: “Kurdzeni iafdeba,” Rezonansi, No. 242,11 September, 2005).
Newly appointed governor of Guria, Mr. Irakli Giorgadze has pointed out that the authorities are aware of the problems related to illegal loggings, and that they will address it in due time. “This country was looted for 14 years, and now you cannot demand it to be restored in one,” he told Guria-News weekly (see: “Irakli Giorgadze: khe-tkis problema mogvarebulia…” Guria-News weekly, No. 32-33, 13 September, 2005.
Georgian TV reports, 25-27 August, 2005.
See: “Sakartveloshi cxovreba 30-40 protsentit gadzvirdeba: mosaxleoba masobrivad sheshis ghumelze gadadis,”Rezonansi, No. 243, 12 September, 2005.
Ibidem.
See: “Ruseti bunebriv airs gvidzvirebs,” Akhali Taoba weekly, No. 251, 11-17 September, 2005.
See: “15 Years Old Boy Cannot Afford Himself To Get Education,” The Prime-News agency [http://
ng.primenewsonline.com/?c=134&a=1588], 27 July, 2005.
See: “Zaza lomidzem sakutar dedas keli gamochra,” Akhali Taoba weekly, No. 250, 10 September, 2005; “Roman potskhverashvilma shelaparakebisas sakutari dzma mokla,” Akhali Taoba weekly, No. 253, 13 September, 2005.
See: “Sakartveloshi ojaxuri mkvlelobebis faqtebi katastrofulad matulobs: khashurshi shvelma dedas keli gamochra,terjolashi dzmam dzma sanadiro topit mokla,” Rezonansi, No. 244, 13 September, 2005.
See: “Millennium Challenge Corporation Signs $295.3 Million Compact with Georgia.” For more detailed infor-mation on the MCC Georgia program, and information about the Millennium Challenge Program itself, see: [http://ww.mca.gov/].
Besides Georgia, MCC has signed Compacts with Madagascar, Cape Verde, Honduras, and Nicaragua.
According to Professor Joseph Stiglitz, a Nobel Prize winner in Economics, and former Vice-President of the World Bank, the IMF is very fond of such taxes, since they are regarded as sure ways to raise revenues (see: J.E. Stiglitz, Globali-zation and Its Discontents, New York: W.W. Norton & Company, 2003).
See: O. Kandelaki, “Georgia: Economic Policy After the ‘Revolution of Roses,’” Central Asia and the Caucasus,No. 5 (29), 2004.
See: H. de Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, Ba-sic Books, New York, 2000, p. 69.
The institution of the “roof” or “krysha” in Russian, are a sets of arrangements between a business or a group of businesses and influential politicians or civil servants. According to such arrangements, government officials provide a cover for businesses under their protection. Such covers could protect businesses from warranted or unwarranted investigations,harassments, etc. by government agencies. This institution in Georgia is not nearly as big and violent as it is in Russia, where “roofs” are needed to protect businesses from both government agencies, and organized crime.
See: Bulletin of Monetary and Banking Statistics (January-August 2005).
Interviews with Georgian business people, end of August 2005. The importer brought a container of soft toys from China. His entry point to Georgia was Poti, a sea port at the Black Sea. There he was asked to pay GL 1,000 ($560)duty per cubic meter of imported goods, for which he paid approximately GL 4 ($2.20) in China. The importer knew this demand was illegal, and probably an innovation of local customs officials. He decided to clear customs in the capital city,Tbilisi, which is legal under Georgian law. However, he was asked to pay the same duty in Tbilisi. Unable to meet such demands, the importer decided to keep the imported goods at a customs terminal. Subsequently he cleared customs through his friend, a government official, who negotiated a duty equaled to 35 percent of the product value (an average import duty in Georgia).
Interviews with Georgian business people, and government officials. Customs officials frequently exaggerate the value of imported products. In one case, a businessman was importing blankets. He had paid for each blanket approximately GL 2 ($1.11), but the product was evaluated at GL 35 ($19.4) by Georgian customs (although such blankets retail for GL 7 ($3.90) each in Georgian shops). Therefore, the importer was required to pay GL 12.25 ($6.80) duty per GL 2 blan-ket, which made no economic sense. Unable to meet such demands, the importer offered the blankets to the state, he ex-pressed his willingness to donate the imported blankets to some worthy cause. Georgian customs refused to accept the do-nation. In the end, the importer cleared the customs through an influential friend, who negotiated the price down to GL 8,which was still higher than the retail value of the product, but much better than the original demand.
Such cases were reported by an English language Georgian Business Week in July and August 2005.
Interview with the Deputy Chief of City of Tbilisi Service Department, 1 October, 2005.
See: Bulletin of Monetary and Banking Statistics (January-August 2005).
A former Minister of the Economy of Georgia, 1994-2000, Vladimer Papava has provided critical examination of IMF’s activities in Georgia in his “On the Role of the International Monetary Fund in the Post-Communist Transformation of Georgia,” Emerging Markets, Finance, and Trade, Vol. 39, No. 5, 2003; and Splendours and Miseries of the IMF in Post-Communist Georgia, Laredo, TX: we-publish.com, 2003.
See: “The WB’s Forecasts are Not Consoling,” Prime-News Agency [www.primenewsonline.com], 29 September,2005.
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