U.S. SENATOR DESCRIBES GEORGIA AS LEADER IN CIS ECONOMIC REFORM.

U.S. senator John McCain (Republican from Arizona) was recently quoted by the press in Tbilisi as saying that, in terms of progress in economic reform, Georgia "surpasses the other CIS countries". (Russian agencies, August 12) McCain’s remarks, which were made in the context of a positive assessment of the accomplishments of President Eduard Shevardnadze’s administration and of prospects for increased U.S. aid for Georgia, underscore the favor in which Georgia increasingly finds itself in U.S. foreign policy circles. It also reflects the fact that Georgia’s was the most rapidly growing CIS economy last year — GDP increased by some 11 percent during 1996 — and that preliminary estimates place GDP growth during the first half of the year at an annual rate of 15 percent. Inflation is running at under 5 percent, and the lari has stayed nearly constant (in nominal terms) against the dollar for more than a year.

But while much is clearly going right with the Georgian economy, it is important to keep this progress in perspective. Georgia’s rapid growth during 1996-1997 results in part from the fact that official GDP during 1991-1994 fell by an almost inconceivable 80 percent, the worst economic collapse recorded anywhere in the world for that period. An economic recovery at some point was therefore inevitable, and years of rapid growth of the type recorded during 1996-1997 will be necessary merely to regain the levels of economic activity recorded in 1990. Moreover, the development of Georgia’s financial system remains well behind that of Russia, Ukraine, and Kazakstan, not to mention the Baltic states or the Central European countries. Georgia has no treasury bill market to speak of, for example; banking reform is in its infancy; and the government has difficulty collecting more than 10 percent of GDP in taxes. Moreover, the current-account deficit in 1996 was a whopping 11 percent of GDP, a figure which was expected to fall to only 7 percent this year. The average monthly wage in Tbilisi is not much over $100, and 70 percent of the population lives below the official (albeit misleading) poverty line. Finally, much of the country remains out of the central government’s control.

In light of Shevardnadze’s role as Soviet foreign minister in helping to end the cold war, it is perhaps appropriate that Georgia belatedly receive the praise due its reform efforts. However, the country clearly has a long way to go before it can claim to be a CIS leader in economic reform.

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