Saakashvili Offers further Liberalization of the Economy

by Giorgi Kvelashvili

On October 12 Georgian President Mikheil Saakashvili convened an extended session of the National Security Council (NSC) of Georgia. Present were permanent members of the president’s main advisory board along with the representatives of the parliamentary and extra-parliamentary opposition.

Apart from the usual themes of the country’s security and the situation in the Russian occupied Georgian provinces of Abkhazia and Tskhinvali, the Georgian president held a wide-ranging discussion with the ministers and the opposition about a new proposal aimed at further liberalizing Georgia’s economy.

The discussion in the NSC was a follow-up to Saakashvili’s appeal to the parliament on October 6 to adopt the Economic Liberty Act whose major values are “freedom, equal opportunities and merit.”

Describing his new proposal, the Georgian leader said “the Liberty Act will constitutionally guarantee the principles of a liberal economy by limiting the executive branch’s powers to deviate from these norms”.

In Saakashvili’s words, the laissez-faire bill will ban any increase in the number of licenses and authorizations required for economic activity as well as the creation of new national regulatory boards. The government will no longer have shares in commercial banks or have the right to regulate prices.

But as Saakashvili emphasized, the major innovations of the new bill will be curbing the government’s involvement in the economy and a constitutional provision that “any new taxes or tax increases will only be possible through a national referendum.”

The constitutional bill will also determine the budgetary expenditures/GDP ratio, putting it at 30%, as well as the budget deficit which should not exceed 3% of GDP and the national debt which should not be more than 60% of the GDP. The new bill will also make free convertibility of the Georgian national currency, lari, a constitutional norm.

In order to achieve a broader national consensus on the proposed Liberty Act, the Georgian leader used the example of the late 19th-early 20th century Georgian statesman Ilia Chavchavadze, widely acclaimed among Georgians as the founding father of the modern Georgian state, who was a strong supporter of small government, laissez-economy and free trade.

“Liberal economy was Ilia Chavchavadze’s unfulfilled dream,” said the Georgian president, “and soon Georgia will become a country where the irreversibility of the liberal economy is guaranteed by the supreme law of the land”.

One of the major concerns of the Georgian government is the ongoing world economic crisis and its dire consequences for Georgia. Saakashvili repeated in parliament what he has already claimed many times: “It was first and foremost the Russian invasion” in August 2008 that seriously slowed down Georgia’s economic development. For several years before the war Georgia had enjoyed double digit annual increases in GDP compared to a mere two percent this year.

Nevertheless, according to the World Bank, Georgia has recently been ranked 11th in the Doing Business criteria which, in Saakashvili’s words, is “a remarkable achievement given the country’s dismal 137th position just six years ago,” before the Rose revolution.

By making Georgia “the avant-garde of liberal economic ideology” at a time when “many governments across the globe adopt more protectionist policies and close up their economies,” the government hopes to give Georgia a relative advantage over other countries and attract more foreign direct investments in its economy.

We have our geography and we cannot simply take Georgia and place it in the heart of Europe. Not only do we live next to a ferocious neighbor, but she is already here in our small apartment, occupying two of our rooms”.

The political component of Saakashvili’s new initiative is significant. He hopes that the adoption of the “groundbreaking laissez-faire act” would not only have economic consequences but would also further distance his country from the Russian orbit. “Our natural state is liberalism and that makes us so different from the Russian state,” said Saakashvili adding, “Our tenets of freedom from corruption and freedom from the government-controlled economy and from the tyranny of bureaucracy are so different from the principles of our neighbor”.

Some non parliamentary opposition figures in Georgia, who usually ignore the extended sessions of the NSC, harshly criticized Saakahsvili’s new proposal. Zurab Nogaideli, former prime minister who now is one of the major critics of the government, called it “a farce” and predicted an imminent economic collapse.

Others, most notably those in the opposition National Forum alliance who usually chastise Saakashvili for his “anti-Georgian policies” concluded that the Economic Liberty Act “would be detrimental to Georgia”.

The opposition political alliance around Georgia’s former envoy to the UN Ambassador Irakli Alasania said that “the government’s new initiative could have dire consequences for the country” and called for a thorough analysis of Saakashvili’s proposal.

In November Georgia will mark the six-year anniversary of the Rose revolution and its declared principles of democratization, liberalization and modernization, hoping to turn Georgia from a failed state into a prosperous society. By enacting the Economic Liberty Act Saakashvili apparently wants to not only make liberalism a constitutional norm, attract foreign investments and distance the Georgian economy from Russia, but also to codify the principles of the Rose revolution.