Georgian Economy 2001 – Troubled and Neglected

The shadow economy, budgetary and energy crisis still haunted Georgian economy in the year 2001. While stormy political events overwhelmed the country, economy remained a hostage for the political agendas, hampering country’s development.

Energy pipeline projects still topped the political agenda. Ratification of the Baku-Tbilisi-Erzrum gas pipeline agreement by the Georgian Parliament on December 19, 2001 was among the central economic events of 2001. The pipeline will run 245 kilometers through the territory of Georgia.

According to the statement of the President Shevardnadze, Georgia will earn annual USD 175 millions from this pipeline once it is in full operation. The construction will start in 2002 and scheduled to be completed for the year 2004. David Onoprishvili, former Minister of Finance, believes that the pipeline will become a significant source of income, but more importantly will enhance state’s security.

Head of the budget office of the Parliament Roman Gotsiridze concedes to this opinion. However, Gotsiridze tends to attribute the contract more to the positive trends worldwide than brilliance of the Georgian political economists or attractiveness of the country for the investment. According to his words “this event was not depending on the Georgian side.”

Another former Finance Minister, Mikheil Jibuti joins the two experts to name the pipeline agreement the “main economic event of the previous year.”

Georgia’s heavy foreign debt is another source of concern for country’s economists. David Onoprishvili positively evaluates the agreement on rescheduling the foreign debts of Georgia reached in 2001 with the Paris Club of creditor countries. “Rescheduling of the debts, total amount of which is nearly 2 billion USD is vital for the country,” says Onoprishvili.

Georgian delegation, headed by the Finance Minister Zurab Nogaideli reached agreement with the Paris Club to reschedule repayment of the debts for two more years. In certain cases prolongation of the grant period for one more year is possible as well. The Finance Ministry continues bilateral negotiations with the creditors.

David Onoprishvili says, “The agreement with the Paris Club was critical in light of current financial situation in the country. Rescheduling of the foreign debts will allow us to improve our financial situation.”

Together with negotiations in the Paris Club, the Parliament of Georgia continued debates on another tough political issue – debts to Russia. Fierce debate followed on so-called “zero option,” according to which Georgia would give up its share in Soviet Union’s assets in favor of Russia, while Russia will take on servicing foreign debts of the Soviet Union. As a result “zero option” was ratified.

“Despite unfulfilled budget, energy and political crisis, we still had 4,5% growth of the economy in 2001. We maintain the growth from 1996. But the growth is unfortunately being achieved at the expense of expanding shadow economy. The government efficiency remains low and budgetary system flawed.” – says former Finance Minister David Onoprishvili. He believes that the situation will not change significantly in the nearest future.

“Unfortunately, negative economic events were much more than the positive ones in the previous year” – says Roman Gotsiridze and highlights main negative events:

“First of all, budgetary crisis has become a permanent problem. As a result of unrealistic planning the expenses had to be cut by almost 300 million Lari, which undermined our credibility and the country failed to receive additional foreign aid and credits. This affected national currency rate as well.”

The second main negative events, as Gotsiridze believes, was the explosion of the power generating unit of the Tbilisi Thermal Power Plant (AES-Mtkvari). “This accident threw us years behind and deepened our energy dependence on Russia.”

The third negative event is the government crisis, which was only temporarily defused. Former finance minister David Onoprishvili says that the crisis had significant negative impact on the economy.

All three experts stress lack of popular confidence in government. Although popular protests of November 2001 forced President Shevardnadze to dismiss the government, only the most resented police and security officials left the posts permanently. The ministers responsible for economy and finance were re-appointed by the Parliament shortly afterwards, but they maintain the stigma of popular mistrust.

Approval of the 2002 budget will become yet another serious test for the current economic team. Position of the legislature remains quite strict – the draft budget was sent back for review of the government and the demands for expenditure increase seem dominant.

But problems of tax evasion, inefficiency of the energy sector, corruption, low direct foreign investment and minimal rates of domestic savings leave little hope for decisive recovery in country’s economy in 2002.

By Giorgi Kalandadze, Jaba Devdariani, Civil Georgia