Controversies in Georgian economy

The Georgian authorities keep giving the public promising slogans and prognoses concerning economic development. They have made a big issue out of the Economic Freedom Act promoted by President Saakashvili last October. Independent analysts however say that the administration wants to build a Swiss model by introducing a Singapore one. It will take a long time to get to Switzerland via Singapore.

The Economic Freedom Act contains many 'liberalisations' of Georgian economic policy. It reduces state interference in business, limits the circumstances under which taxes can be increased and reestablishes the anti-monopoly service and many other issues as well. The President reckons that the Economic Freedom Act is a good example of economic democracy. But 6 months have passed since Saakashvili aired this initiative and not a single one of the constituent parts of the Act have passed through Parliament. The only issue even discussed, at a first hearing only, is the one about any proposed tax increases being subject to a referendum. This needs to pass through two further hearings before it can become law, and has been subject to much criticism from various economic analysts. The other parts of the Economic Freedom Act are lying dormant for all practical purposes. Some analysts think that this means that the administration has realised the incompatibility of the Economic Freedom Act with the requirements of European integration and is silently backpedalling on this flagship legislation.

Another issue which has created big controversy over the last 5-6 years is the abolition of the original anti-monopoly service. This was the idea of Kakha Bendukidze, the main ideologist of the Rose Revolution's economic policy, who was in charge of Georgia’s economy for several years. Georgia’s economy has benefited, or rather suffered, from this initiative ever since. Various European and world institutions have advised Georgia to restore the anti-monopoly system as an efficient means of regulating the market economy, but only recently has the Georgian leadership decided to do so. The Government is also talking about taking serious steps to control food products in various ways. Some analysts think that the Government is trying to catch two rabbits simultaneously, trying to harmonise incompatible things. Bendukidze’s vision of a liberal economic system, though ostensibly in line with EU orthodoxy, is rejected by the EU because it has learnt from experience that a completely unregulated economy is only free for those who can do the greatest harm to other operators.

There are two possible developments: either the adoption of the Economic Freedom Act will be delayed indefinitely or the recommendations of the EU and international financial institutions will be taken on board. The major problem with the present situation is that there is no clear vision of how the country should achieve the results it is targeting or what its ultimate target is. In order to achieve something you first need to work out what that is, then analyse international experience, then develop and fulfil your plan. Maybe the delays and uncertainty suggest that there is some divergence between what the Government is trying to achieve and what it is prepared to say.