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Saakashvili proposes Act of Economic Freedom

By Mzia Kupunia
Wednesday, October 7
President Mikheil Saakashvili has proposed a new package of economic reforms, including amendments to the Georgian Constitution, envisaging “further liberation of the Georgian economy.” The initiative, voiced by the President at the Georgian Parliament on Tuesday, involves “minimising” the Government’s interference in the country’s economy and putting each proposal to increase or impose taxes to a referendum.

Speaking to lawmakers, Government members and foreign diplomats, the President said that the aim of the proposed package is to ensure the “minimal interference of the Government in the economy and maximally open up the economic environment.” “We should never turn away from this path, and in order to make this liberal course irreversible, not allowing any Government to change it, and to defend our achievements I propose to constitutionally enshrine the economic steps that we have been taking in recent years,” he noted.

The President said that the proposed Act of Economic Freedom would be based on the values of “freedom of opportunity, equality and honour.” “This is the cornerstone of our liberal economic vision,” Saakashvili stated. According to the President the “Act of Freedom” will define constitutionally the “strict” and “transparent” rules, which “will restrict the possibility of the executive branch of Government overlooking the liberal economic rules.”

Saakashvili noted that if the package is approved increasing taxes or establishing new ones will be decided through a referendum. “The Georgian Government has decreased taxes, which has promoted new jobs and investment. Our duty is to ensure that this policy is not changed. Every Government has the temptation to adopt new regulations, we should exclude this. I believe that the power to increase or establishe taxes should not be used without the consent of the people,” he stated.

Other elements of the new economic package include fixing budget expenditure at a rate of not more than 30 percent of GDP and outlawing a budget deficit projection of more 3 percent of GDP. The President added that overall state debt should not exceed 60 percent of GDP. Saakashvili also proposed that Parliament should restrict increases in the numbers of licenses and permissions required to run a business. This, he said, would free the owners of businesses from extra regulation and “unjustified” bureaucratic interference.

Ruling party MPs said shortly after the President’s speech in Parliament, that the proposed package is “a very important declaration.” “It indicates that Georgia is not going to change the direction chosen more than 4 years ago of liberal reforms and decreasing regulation,” National Movement MP Pavle Kublashvili said. “The Constitution will now guarantee that regulation will not increase, Government interference in the economy will not grow and no Government will be able to increase taxes without holding a referendum. This is very important for attracting investment and creating a stable economic environment in the country. I hope the Georgian Parliament will start discussing this package very soon,” he noted.

Parliament Speaker David Bakradze said that the President had “outlined the philosophy of our future economic development.” “When there is a world economic crisis there is also a temptation in many countries to introduce more Government interference in the economy. We remember very well that this has previously created corruption and bribery in the country, and it was very important to draw up an economic philosophy to counter this. Today, in conditions of economic crisis, Georgia will remain a country pursuing a liberal policy and this will be a signal for all foreign investors who want to put their money in a country with a free economy, not one where the economy is regulated by Government interference,” Bakradze stated.

Opposition MPs say that economic liberalisation is important but liberalisation of political will more so. “Today in Georgia there is very liberal legislation for starting a business, however there are no means to protect this business and the President did not say anything about the influence of the courts in this matter. We were expecting that there would be initiatives concerning property rights, but nothing was said in this respect,” Christian Democrat MP Giorgi Targamadze said.

The leader of the Georgian Troupe, MP Jondi Baghaturia, criticised the President for the lack of “social justice” in his speech. “Social justice is very important and the President’s speech lacked this component. There was nothing said about increasing the minimum pension,” Baghaturia said.

Some analysts say the initiatives voiced by the President are important but look more like painting the facade of an already constructed building. Independent economic analyst Gia Khukhashvili said that there are much “deeper” problems in Georgia’s economy and some “systemic problems” which are the root of all the other difficulties. He cited the court system, which should protect business owners from the Government, as one of the factors. The analyst said that a lack of competition is also creating problems. “The mood of the proposal suggested that probably we will never restore the Anti-Monopoly Service, which is one of the main instruments for ensuring a competitive environment. In this respect the President’s speech can be considered a step backward,” he noted.

The head of the Young Economists Association David Narmania said the issue of holding a referendum on increasing taxes should be handled carefully. “As soon as the State declares that the people’s agreement is needed to increase taxes, it will never be able to increase any tax even slightly, because society will never agree to increase taxes,” Narmania said, however he said it is good that the population will be asked its opinion during the decision making process.

The Georgian Foreign Ministry has said that the President’s proposal is a “new word in terms of economic development.” Deputy Foreign Minister David Jalaghania called it a “bold step” in terms of the country’s fiscal policy and noted that “with this innovation Georgia will approach the EU more quickly.” “This reform is very important in terms of improving the internal economy, realising our investment potential and strengthening cooperation with EU,” the Deputy Foreign Minister said.