EurasiaNet Business & Economics - Georgia: US 'Challenge' Aid For Tbilisi Seen As Catalyst For Development

BUSINESS & ECONOMICS

GEORGIA: US ’CHALLENGE’ AID FOR TBILISI SEEN AS CATALYST FOR DEVELOPMENT
Robert McMahon 4/29/05
A EurasiaNet Partner Post from RFE/RL

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For more than a decade, Georgia fostered a reputation as one of the most corrupt states of the former Soviet Union.

But the leaders who took power after the 2003 Rose Revolution impressed officials running a new U.S. aid agency focused on rewarding poor countries fighting corruption.

Georgia is now near the top of the candidate list for the alternative U.S. aid program -- the Millennium Challenge Account -- and is likely this summer to sign a compact for up to $200 million aimed at infrastructure improvements.

Paul Applegarth is chief executive of the Millennium Challenge Corporation (MCC). He told a U.S. Congressional panel this week that Georgia’s leadership change made a crucial difference.

"You had true leadership clearly reinforcing the principles of the Millennium Challenge -- to fight corruption, to clean up the government, to put effective procedures in place," Applegarth said.

Under the Millennium Challenge program, the Bush administration says it will give money only to poor countries with proper governance. The program chooses states that maintain rule of law, pursue sound economic policies, and demonstrate a commitment to investing in their people. Local officials decide how to use the grants but must show some impact on economic growth.

Madagascar signed the first agreement in April and will receive $110 million for initiatives that include a reform of land-title procedures.

Sixteen other countries, including Armenia, have been invited to submit proposals.

Georgia, like Madagascar, devised its development plan after a thorough consultative process. It included organizing eight regional forums, establishing a website for public input, and involving local civil society. The government received more than 600 proposals for projects to spur economic growth.

Lasha Shanidze, chief executive of the body organizing Georgia’s effort to sign with the MCC, told RFE/RL during a recent visit to Washington that the nearly year-long campaign has created new thinking in the Georgian government about development. He said the process has also drawn the interest of private banks and other international funding sources.

"MCC is becoming a catalyst within the country of not only organizing and [bringing a] more focused approach to particular projects, but bringing more financing into a country -- and that is visible even without having this compact signed," Shanidze said. "People are in line to be with you to co-finance projects, because they believe in it."

MCC and Georgian officials expect to sign a compact by this summer. After talks in April with MCC officials in Washington, Shanidze was hopeful that Georgia will get approval for a five-year, $200 million package.

The country’s proposal includes a road project to connect the isolated southern Akhalkalaki region with the rest of Georgia. Shanidze said the project is designed to open the region for development as well as facilitate trade routes between Turkey and Armenia.

Another project would use MCC funds to rehabilitate the north-south gas pipeline from Russia. The Georgian government earlier this year had discussed selling the pipeline to Russia’s state company Gazprom. But Shanidze said the government is now committed to refurbishing the crucial pipeline itself with the help of the U.S. program.

"It’s problematic. We’re losing a lot of gas; Armenia is dependent on this pipeline’s gas," Shanidze said. "Our electricity-generation companies are dependent on this gas, and generally investors -- to attract foreign investors into Georgia, large investments -- are always looking for reliable gas supply. It’s all interlinked, this chain, which we need to put in shape and it’s of course better if put into shape and owned by us."

Georgia is also proposing to use a portion of the MCC funds to provide equity capital for investments in agriculture and tourism in the country’s rural regions.

Louise Shelley is director of the Transnational Crime and Corruption Center at American University in Washington, which has reported extensively on corruption in Georgia. She told RFE/RL she is impressed by the list of initiatives the government has proposed for the Millennium Challenge funds.

"I think in terms of what they’re targeting -- in terms of rebuilding their agricultural sector, tourism, transport, and energy -- those are just absolute priority areas for Georgia’s development," Shelley said. "[They are] things that we’ve been identifying as what is possible and what is key if it’s going to get out of this cycle of poverty."

Shelley and other Georgian monitors argue that the government has begun to show its seriousness through crackdowns on money laundering and reform of police patrols.

The World Bank’s country manager for Georgia, Roy Southworth, credited Tbilisi with developing a home-grown process to identify the most crucial areas for reform. Southworth told RFE/RL the Georgian government is sending the right signals on correcting years of abuses.

"It would be naive to say that Georgia in one year has managed to eliminate corruption, because it was endemic before under the old government and it existed pretty much at all levels of government," Southworth said. "But what the new government has come in on is essentially a mandate from the population to fight corruption. And they have made, I think, very good progress in that in a year."

Georgian and World Bank officials are discussing cooperation between the bank’s Municipal Development Fund, which has already created a structure for funding urban infrastructure, and the anticipated Millennium Challenge funds.

Overall, the World Bank has spent nearly $800 million on development projects in Georgia during the past 10 years. One-third of that amount has gone to infrastructure improvements.

Editor�s Note: Robert McMahon has been RFE/RL’s UN correspondent since January 2000. He served previously as RFE/RL’s director of news and current affairs and helped to guide the division’s move to Prague in the spring of 1995. He joined RFE/RL in Munich in 1992 after working as an editor on the international desk of the Associated Press in New York.

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