Adjara Hopes to Get a Special Economic Zone

Authorities of the Adjara Autonomous Republic propose to create a free trade zone in the region. The initiative has already met objections of number of the political parties, national experts and IMF.

The Revival faction of the Parliament, backed by the leader of the Adjara Autonomous Republic Aslan Abashidze introduced the draft law on “Special Economic Zones” (SEZ) that has been a subject of major dispute.

Government of Adjarian Autonomous Republic has been pushing the issue for many years. The initiative on free trade area was first discussed by the Parliament in 1997, but rejected following the strong objection of the central government.

“A free trade zone is a state in a state. Today Georgia cannot afford a luxury of economic experiments. We must not also forget that the government is unable to fully control its economic and political borders,” Roman Gotsiridze, head of the Budgetary Office of the Parliament and member of the opposition National Movement, told Civil Georgia.

Opponents also say that the creation of the free trade zone would worsen already strained financial retaliations between the central and regional governments. Tbilisi has been accusing Batumi for evading taxes due to the central budget, and even quoting this circumstance as the main reason for the persistent budgetary shortfall. According to the Georgian Finance Ministry tax evasion from the Adjara Autonomous Republic cost the central budget some 30 million Lari (USD 13 million) deficit in 2002. Considering this situation, Tbilisi probably will remain strongly against creation of the free trade zone in Batumi.

The International Monetary Fund also expressed its objection towards the creation of the free trade zones in Georgia.   A mission of the International Monetary Fund, which visited Tbilisi in late February, expressed its position after request of the Chairperson of the Parliament of Georgia Nino Burjanadze. The IMF mission said that the law couldn’t solve a dispute on distribution of incomes between Adjara and the central authorities.

“Creation of special economic zones facilitates corruption and creates possibilities for generating illegal incomes, reduces the taxpaying base and might also result in asymmetric economic development of Georgia,” the IMF letter to Georgian Parliamentary Chairperson reads.

The Georgian Finance Ministry has quite moderate position towards the initiative, saying, “implementation of the law would be very difficult”.

“The Finance Ministry’s position is not completely negative. But it must be said that [the law] would fundamentally change the economic policy of the country,” Levan Chrdileli, Deputy Finance Minister told Civil Georgia.

Some experts say that creation of a free trade area is pointless, as Georgia already has very liberal economic policy.

“I consider myself among those people who oppose the idea of the free economic zone. But I do not regard the zone as a threat to our economy. This draft law is unnecessary because we already have liberalized economic regime,” economic expert Lado Papava told Civil Georgia.

Despite strong resistance, the Revival faction cherishes the hopes for success. Leader of the Revival faction Jemal Gogitidze told Civil Georgia that this time “the draft law will not have the same fate as six years ago, because situation in the Parliament is quite different from the situation in 1997.”

Some observers say there was a political trade-off struck between the Revival faction and the United Democrats. The Revival supported a proposal to increase the minimal salary, in return of the United Democrats votes for the SEZ draft.

“We will not have a default negative position regarding the free trade zone. We will be open for cooperation,” Zurab Zhvania, leader of the United Democrats says.

It is anticipated that the proposal on free trade area would become a major issue in the Parliament in April. Observers emphasize that due to current balance of the political forces, the Parliament is quite unpredictable. Considering pre-election horse-trading among the political forces, it is hard to predict what would be position of each of them when the motion is voted on.

By Nino Khutsidze, Civil Georgia