SAAKASHVILI UNVEILS NEW ECONOMIC STRATEGY

Opponents have long criticized Georgian President Mikheil Saakashvili for not adopting a consistent strategy for the country’s economic development. The past five years have brought unprecedented levels of unemployment, rising prices, and declining standards of living to many households. Salaries in Georgia are reported to be among the lowest in the Commonwealth of Independent State (CIS). Average salary is GEL 50 (about $28.20) and the average pension totals GEL 33 ($18.60) per month.

Saakashvili and his team have always blamed the financial troubles on the temporary downturn that is inevitable after post-revolutionary reforms go into effect. However, Saakashvili came into power in January 2004 and the promised economic growth for ordinary citizens has still not materialized (see EDM, November 15, 2005). According to a nationwide poll conducted this April on behalf of the Georgian branch of the International Republican Institute, only 32% of those polled reported that the economic situation in the country has improved over the last three months, while the rest noted that the situation has either worsened or remained the same. Over the last three months, the financial condition of 85% of the polled households has either remained the same or grown worse (www.iri.org.ge).

In response to growing public discontent with the economic situation in the country, Saakashvili has offered new economic initiatives to subdue the discontent ahead of this year’s local elections.

On August 4, at a widely televised special meeting of the government in Batumi (Ajaria), Saakashvili said that although the achievements since the Rose Revolution are “still fragile,” it is “time to move to the next stage of economic development.” Saakashvili admitted that unemployment is the major challenge for Georgia. Therefore, he announced a new plan to halve unemployment by 2009 through the creation of more a business-friendly climate. A new law, taking effect September 1, will exempt 87% of goods imported into Georgia from customs duties. Despite the expected initial loss of GEL 100 million (about $56.4 million) from losing import duties, the government hopes that this initiative will improve the investment climate in Georgia and boost business (Messenger, August 7).

Saakashvili’s concern about unemployment conflicts with the recent boasts by Prime Minister Zurab Nogaideli, who claimed at the government meeting on July 5 that more than 80,000 new jobs had been created in Georgia during the first half of 2006 (Kavkaz Press, July 5).

The president also raised economic issues, including the pending reforms to create a more “efficient” tax administration, which means combing the tax and customs departments and financial police and reestablishing tax arbitration venues.

Saakashvili also called for a “decriminalization of financial relations” between the state and entrepreneurs, obliquely confirming the long and widespread allegations that the new authorities had harassed business (see EDM, April 12).

The government will launch a micro-credit program next year to stimulate small businesses and entrepreneurship, especially in the agrarian sector, and offer programs to train citizens for entrepreneurial activities. “We are ready to allocate funds for this program,” Saakashvili said. He, however, cautioned that the economic reforms would take “many months.” Saakashvili admitted to the lack of qualified cadres in various sectors, which his opponents frequently hold up as an example of improper personnel policies by the government, which downsized many state and public bodies, firing some highly qualified staff in the process.

One of the most interesting — and most controversial — dimensions of Saakashvili’s new economic strategy is a state-funded internship program. It envisions a three-month internship in private companies for at least 50,000 citizens this year and 100,000 citizens next year. The program will cost the state about GEL 22.5 million ($12.8 million) and the government will pay a monthly stipend of GEL 450 ($254) to each of the participants (Civil Georgia, August 5; TV Rustavi-2, August 4).

While officials and pro-governmental pundits offered optimistic assessments of Saakashvili’s new economic strategy, local independent analysts and some opposition leaders are skeptical. They argue that the strategy to reduce unemployment is not well thought out and is designed primarily to gain political mileage before the local elections, rather than to find a lasting solution to this problem. “The presidential initiative will tackle the problem only temporarily,” said analyst Demur Giorkhelidze. Niko Orvelashvili, director of Georgian Economic Development Institute, concurred saying, “This is an ill-considered initiative and unfortunately it is taken out of context.” He said the government was unable to elaborate a workable state program to tackle unemployment. Analysts also questioned the correctness of Saakashvili’s statement that Georgia has the lowest taxes in Europe. They said that the ambiguous Georgian tax code manages to squeeze money out of entrepreneurs, including unofficial payments (Alia, August 5).

Yet Saakashvili’s state-funded internship initiative is expected to be popular among the public, because 50,000 unemployed individuals will receive temporary jobs at a time of rampant unemployment in the country (Prime News, Alia, August 5; Resonansi, August 7).

Meanwhile, the government plans to change the methodology of defining poverty and now calculate the poverty line based on its comparison with welfare indicators (GHN, August 4).

The new strategy will be implemented against a backdrop of increasing tension in Georgia’s secessionist regions, an economic embargo from Russia, rising inflation (which reached 10% in July), and rising prices for food, consumer goods, and medical services. (Kavkaz Press, July 5; Interpressnews, August 5).