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georgia

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GEORGIA



REPUBLICAN REFERENCE

Area (sq.km)
69,700 

Population 
4,989,285 

Principal 
ethnic groups 
Georgians 68.8%
Armenians 9% 
Russians 7.4%

Capital 
Tbilisi 

Currency 
Lari

President
Eduard Shevardnadze

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Background:
Georgia was absorbed into the Russian Empire in the 19th century. Independent for three years (1918-1921) following the Russian revolution, it was forcibly incorporated into the USSR until the Soviet Union dissolved in 1991. Russian troops remain garrisoned at four military bases and as peacekeepers in the separatist regions of Abkhazia and South Ossetia (but are scheduled to withdraw from two of the bases by July 2001). Despite a badly degraded transportation network - brought on by ethnic conflict, criminal activities, and fuel shortages - the country continues to move toward a market economy and greater integration with Western institutions. 

Update No: 266 - (27/02/03)

The Georgian republic has had a significant political realignment of late, which could portend great changes. Ostensibly it is all about passing the 2003 draft budget, which failed at its first reading. It is really about the succession to President Eduard Shevardnadze, the veteran of the Gorbachev years as Soviet Foreign Minister, but with a career stretching way back as head of the KGB and the communist president of Georgia.

Shevardnadze nears the finishing line
It is obvious to all that 75 year-old Shevardnadze is nearing the end of his tenure of office. He is a tough fighter, the intrepid survivor of several attempts on his life by rogue KGB elements in Russia, who regard him as a black traitor to their cause which they assume he once shared.
There they are almost certainly totally wrong. Shevardnadze has always played the political poker game close to his chest and manoeuvred himself brilliantly; he resigned, for instance, as Soviet foreign minister in December 1990, while warning of an impending coup. He was then well placed to take over when Zviad Gamsakhurdia, his predecessor, a Georgian, blew a fuse in 1992.

Political re-alignments
A new pro-government majority has formed, which promises to pass the 2003 draft budget and keep Shevardnadze in place, exactly where his would-be successors want him to remain.
The factions that came together are the Citizens Union of Georgia (CUG), the Alliance for a New Georgia, Tanadgoma, the Socialists, Abkhazeti, the New Abkhazia-Christian Democrats, the Majoritarians (who are in favour of a first-past-the-post parliamentary elections system) and the Industrialists. Together they can count on a majority in Georgia's 235-seat parliament. This should ensure the ratification of the budget, which has become a bone of contention between the government and the opposition.
Recently the CUG, led by Minister of State, Avtandil Jorenadze, cobbled together 116 votes in favour of President Eduard Shevardnadze's 2003 draft budget, two short of the required majority. This came as a blow for Jorbenadze who wanted the budget passed on first reading.
The newly-formed pro-governmental parliamentary majority seems sure to secure its passage. But it will now have to defend the budget against a proposal by United Democrats leader, Zurab Zhvania, to raise the minimum monthly salary from 25 to 115 laris.
According to Economy, Industry and Trade Minister, Giorgi Gachechiladze Zhvania, the proposal is unrealistic. It was also described as a "dishonest" proposal by Zhvania's political ally and leader of the National Movement, Mikhail Saakashvili. Thereafter, Zhvania modified his demand to raise the minimum wage to a "sensible" level. Arguing against this increased social spending is likely to put Shevardnadze's allies in an awkward position.
However, it appears unlikely that the new majority will succeed in pushing through other proposed reforms, like adoption of an election code, implementation of constitutional reforms and a solution to the country's administrative territorial arrangement. This would require a larger majority than the coalition can command.

Economy recovers from very low base
Georgia is still endeavouring to recover from the collapse of the Soviet Union, which cut the country off from both suppliers and customers and left it unprepared for the transition to the market economy. Georgia plunged straight into civil war and strife after independence. When it emerged from this prolonged period of turbulence in 1994-5, its economy had completely collapsed and crime was widespread.
Loans and credits awarded by a spectrum of international financial institutions in 1995-96 enabled Georgia to stabilise its financial system, to sharply reduce inflation and to start structural reform of the economy (although even now many state enterprises remain to be privatised or are still in the hands of their former Soviet-era managers). In 1996-97 Georgia attained high GDP growth rates, of 10.5% and 10.8% respectively, albeit from low levels, but the Russian financial crisis of 1998 adversely affected Georgia's performance which already was suffering from sluggish structural reform and poor management and administration. That year, GDP grew only by 2.9%, followed by 3% in 1999 and 1.9% in 2000, when the country suffered from drought.
Smuggling and tax evasion (regulations are such that working outside regulations is less difficult for most enterprises than staying inside them) reached such levels that the IMF and World Bank suspended their projects for some time at the end of the 1990s although by now they are back.
Georgia's most attractive areas for investment are potentially agriculture (especially viniculture, tea, citrus and nuts) and tourism. But growth of the tourist industry is hampered by the region's perceived instability. To reduce its dependence on agriculture Georgia had been recommended to diversify its economy, without altogether forgetting about agriculture, and especially to stimulate the development of small- and medium-sized businesses in the country. IMF and the World Bank have urged that regulations be changed to make it more profitable to work inside the legal framework rather than outside it. This in turn, the argument goes, should increase tax collections and diminish the importance of smuggling.
Yet most experts agree that the most important task Georgia could set itself in the coming years is to develop its investment and business climate. This seems to be the only durable solution significantly to reduce poverty in the country and strengthen the power of the state. Increased state revenue in turn could be used to gradually pay off the country's huge debt burden, which amounts to more than 50% of GDP.
The most recent news is reasonably encouraging. In 2001 GDP grew by 4.5% to 6.5% and in the first half of 2002 growth of 4% was recorded, far from a poor performance given the collapse in exports to Turkey due to no fault of its own, but entirely to Turkish crisis and contraction.
GDP growth is planned at 4.5% for 2003, while inflation (5.4% in 2002) is expected to be 5%. All in all the economy is doing rather well.

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ENERGY

Georgia fights electricity shortage with Armenian imports


Georgia has resumed seasonal imports of electricity from Armenia in an effort to alleviate its chronic power shortages. The power supplies averaging two million kilowatt/hours a day are carried out by Armrosgazprom, a Russian-Armenian joint venture that runs Armenia's natural gas distribution network, Armenian Liberty reported recently.
Armrosgazprom said that the supplies began on January 1st and continued through to the end of the month. She said the electricity was again being delivered to the US firm AES Telasi, which runs the power grid of the Georgian capital, Tbilisi. AES Telasi had previously imported it from December 2001 through March 2002. Other sources said power is also separately supplied to Georgia's Armenian-populated Javakheti region by Hayenergo, Armenia's state-run central power grid. It ws noted that Georgia's debt to Armenia for past power imports was US$4.4m in 2002. The debt was subsequently assumed by a Russian energy company, which was due to negotiate a barter agreement with official Yerevan.

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FOREIGN LOANS

World Bank shrinks aid to Tbilisi

Financial aid for Georgia from the World Bank and the International Development Association (IDA, a World Bank structure), planned at US$215m in 2004-2006, may be more than halved, Interfax News Agency reported. 
During the first day of a working visit to Tbilisi by the World Bank mission, headed by the bank's regional director for the South Caucasus, Donna Dowsett-Coirolo, bank experts met with representatives from the Georgian Finance Ministry, the National Bank and also with State Minister, Avtandil Djornenadze. During the talks the Georgian side was informed of a World Bank decision to redirect financial aid to other, more needy regions. Investment in projects in Georgia in 2004-2006 will fall to US$91m.

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