Crime and Political Instability Obscure Georgia's Investment Prospects

The impression is growing among foreign investors that Georgia is a difficult, even dangerous place to do business. With the government unable to contain rampant crime and corruption, international financial institutions, including the World Bank and the International Monetary Fund, have raised the possibility of a cut-off in operations in Georgia.

The head of an IMF mission to Tbilisi, Paulo Neuhaus, expressed concern over Georgian government economic policies during a meeting with Minister of State Avtandil Jorbenadze, the Iprinda news agency reported February 21. Specifically, Neuhaus criticized the government's decision to lower electricity tariffs and its failure to collect taxes. [For background, see the EurasiaNet Business and Economics archives]. The IMF representative indicated that the fund may opt not to continue its programs in Georgia if existing problems remain unaddressed.

The remarks by Neuhaus came only weeks after a top World Bank official reportedly voiced harsh criticism over the government's management of the economy. Georgia's Rustavi-2 TV broadcast a report January 26 saying Donna Dowsett-Coirolo, the bank's regional director, had sent a letter to Jorbenadze concerning the country's economic trends.

"Management and governance [in Georgia] are deteriorating compared with other countries of Europe and Central Asia. Corruption remains one of the main problems," the letter said, according to the Rustavi-2 report. "According to the Business Environment and Enterprise Performance Survey, in 2002 the number of firms saying that they often have to pay bribes increased compared with 1993. That happened at a time when in Armenia and Azerbaijan, the corresponding figure halved over the same period."

Jorbenadze has denied the existence of the World Bank letter. Nevertheless, Rustavi-2 reports that the Bank has decided against making a $40 million loan available to Georgia in 2003 under the auspices of its fourth structural adjustment credit.

"The IMF and World Bank have gotten severely disillusioned in the Georgian government," says Jaba Devdariani, editor-in-chief of Civil Georgia, an online magazine based in Tbilisi.

Many corporate investors share the World Bank and IMF view. "The laws of Georgia are often not implemented. Misinterpretation of laws and regulations sometimes leads foreign investors into legal battles with their local partners. On top of this, the legal system is not considered to be fair and unbiased, which has a negative impact on the overall investment climate," says Amy Denman, executive director of the American Chamber of Commerce in Georgia.

Georgian President Eduard Shevardnadze, speaking in his weekly radio interview February 24, admitted that crime, including kidnapping and attacks against businessmen, was deterring investment. The president ordered law-enforcement agencies to increase efforts at promoting security. [For background see the Eurasia Insight archives].

"If we do not launch an uncompromising fight against criminals