EurasiaNet Business & Economics - In Georgia's "Rose Revolution", Red Ink Remains

BUSINESS & ECONOMICS

IN GEORGIA’S "ROSE REVOLUTION", RED INK REMAINS
Mark Berniker 12/12/03

Most discussion of Georgia since President Eduard Shevardnadze stepped aside on November 23 has involved military and strategic variables. As opposition leader Mikhail Saakashvili campaigns for January 4 presidential elections, he offers no new economic vision. And international lenders are still wondering how to collect this destitute country’s debts.

Chronic debt has plagued this resource-poor, landlocked country’s 11 years of independence. Interim president Nino Burjanadze has promised to pay pensions and teachers. But Georgia’s foreign creditors, chiefly Turkey and Russia, have no such assurance. The United States, the World Bank and International Monetary Fund, all of which have rescheduled Georgia’s repayment due dates in the past, are trying again to plan the return of this country’s more than $1.7 billion in debt. Tbilisi’s political uncertainty � despite Saakashvili’s popularity, January 4 elections may not draw adequate turnout to be in force � makes that debt riskier.

The World Bank, which has invested some $700 million in Georgian projects, announced on December 10 that Shigeo Katsu, its vice president for Europe and Central Asia, would meet with "new authorities, donor representatives, non-governmental organizations, private sector and media representatives." The bank is officially "very supportive of the current leadership," according to senior spokesperson Merrell Tuck-Primdahl, who notes that Bank programs "nurtured" Saakashvili and others during Shevardnadze’s presidency. Saakashvili participated in the Bank’s judicial reform effort, which produced a report in 2002.

Saakashvili and Burjanadze, both young reformers who have spoken out against corruption, cultivate such confidence in the abstract. "I think there will be some aid for Georgia, because a lot of people believe a page has been turned, and there are now younger, energetic and gifted people poised to take over," offers Charles William Maynes, president of the Eurasia Foundation, which supports programs pursuing political and economic reform.

It is impossible to predict aid amounts and terms, though. Corruption and a lack of transparency are ingrained in Georgian business, and it is not clear if organized crime syndicates will respect the new government or challenge it. It is also not clear how free of patronage a Saakashvili administration would be. Given these and other question marks, experts say it will take months for a comprehensive aid strategy to emerge.

"I do think Georgia will get extensive aid, and I also think it is likely the Georgians will be disappointed with the amount it will be," says Charles Fairbanks, director of the Central Asia-Caucasus Institute (CACI) at Johns Hopkins University’s Paul H. Nitze School of Advanced International Studies. Fairbanks advises against expecting "massive" numbers. That reflects a consensus that the presumptive new government, which pressured Shevardnadze to resign three weeks after widely condemned November 2 parliamentary elections, still has much to prove.

"There are questions about how the funds will be spent," says Cory Welt, visiting fellow at the Center for Strategic and International Studies (CSIS), a potent Washington think tank.

For the country’s people, more than half of whom are poor, economic growth is as urgent as political reform. The economy cannot stabilize until donors become confident that aid will not go into players’ pockets. The World Bank, says Tuck-Primdahl, wants to help Georgians "come to grips with corruption and�diagnose a fundamental problem in the country." While some analysts expect Saakashvili to fulfill promises in that spirit, it is hard to say how even spirited reform efforts will translate into jobs.

The United States, which like the European Union had provided over $1 billion to Georgia since independence, had planned to reconfigure its aid before Shevardnadze stepped aside. Deputy Assistant Secretary of State B. Lynn Pascoe told journalists in early December that Washington will allocate $5 million for "post-revolution rehabilitation" in Georgia and another $2 million for paying winter heating bills and emergency food aid.

For more comprehensive packages, Georgia’s next administration may have to show strides toward treaties with the separatist regions of Ajaria, Abkhazia and South Ossetia. [For background see the Eurasia Insight archives.] "In a market of five million [people], a million are in separatist regions," says Maynes, the foundation director. Abkhazia and South Ossetia seek annexation by Russia, which Georgia has fiercely opposed. Ajaria, led by strongman Aslan Abashidze, may become a hornet’s nest for Saakashvili since Abashidze had allied with Shevardnadze in the November standoff. None of the separatist regions coordinates its economy with Tbilisi’s. And any settlement of their status would probably involve Russia and Turkey, touching off other diplomatic sensitivities.

There are some things a new government can do immediately to lessen the country’s debt burden. One would be to improve the treasury’s tax collection record. [For background see the Eurasia Insight archives.] "The new people who will be administering the aid are more competent and less corrupt and also under much more pressure from their supporters," says Fairbanks. While he acknowledges that such pressure can foster violence, he stresses that it is "more surprising that there have been relatively few [violent] incidents" during the interim government.

Whatever aid Georgia receives, its primary economic hopes still lie in pipelines. The Baku-Tbilisi-Ceyhan pipeline, a 1,093-mile oil route from Azerbaijan to Turkey’s Mediterranean port, has begun construction. [See the Eurasia Insight archives.] It and a planned gas pipeline from Baku to Erzerum could lift Georgia’s economic growth rate from five percent in 2003 to ten percent in 2004 and 12 percent in 2005, according to a December 10 report from the Economist Intelligence Unit. Such promise has aligned Georgia’s reformists closely to Azerbaijani president Ilham Aliyev. [See related story.] Amid worries about protecting the oil pipeline, Azerbaijani oil chief Natiq Aliyev has promised that the corporation building it will sign a series of credit agreements in January.

By then, Saakashvili may well hold the presidency. To gain broader financial commitments, he will have to show some initiative. The International Monetary Fund cut off new loans until the government could rein in corruption and start collecting taxes. While some lenders are seeking ways to help Georgia, all will ultimately demand that it show some progress of its own

Editor�s Note: Mark Berniker, a freelance writer, covers Eurasian economics and risk analysis for several publications.

The Central Eurasia Project aims, through its website, meetings, papers, and grants, to foster a more informed debate about the social, political and economic developments of the Caucasus and Central Asia. It is a program of the Open Society Institute-New York. The Open Society Institute-New York is a private operating and grantmaking foundation that promotes the development of open societies around the world by supporting educational, social, and legal reform, and by encouraging alternative approaches to complex and controversial issues.

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