IMF, Georgia in Hard Talks Over Future Cooperation

Georgian authorities will face uneasy talks with the mission of the International Monetary Fund (IMF), which arrived in Georgia on June 23 to evaluate implementation of the fund’s recommendations by the country’s government.

IMF might withdraw its support for Georgia in talks with the Paris Club on rescheduling its foreign debt, in case the country’s failure to fulfill the IMF’s recommendations.

President Shevardnadze expressed the hope that the IMF will continue cooperation with Georgia, as the government does its best to fulfill the fund’s recommendations. “Situation is not as disastrous as many claim,” Eduard Shevardnadze said in his Monday radiobroadcast on June 23.

However on June 10 at the meeting of economic team of the government President Shevardnadze delivered tough warnings.

“If the IMF delegation will not see each of their recommendations met, they will suspend cooperation with Georgia. And this will cost dearly not only the country but the government too,” Shevardnadze said on June 10.

The main demand of the IMF is to avoid budgetary shortfall and improve administration of the energy system. IMF recommends to reduce the expenditures of the budget by 113 million Lari ($53 million) to avoid deficit; to improve the energy system administration and increase the electricity tax; conduct an independent audit of the Poti Port, Georgian Railways and Madnuili (mining) companies; to settle the tax transfer issues with Autonomous Republic of Adjara; to adopt the laws preventing the money laundering law. Only this latter condition was fulfilled so far, as the Parliament passed the bill on June 6. 

“Success of President Shevardnadze’s administration in achieving economic stability and structural reforms is apparent. However there is much more to be done to ensure financial support of the international community. If recommendations will be fulfilled, we will resume talks about restoring our program to Georgia,” the conclusive part of the IMF memorandum set in February reads.

Although the government was informed about provisions, set forth in the recommendations of the IMF in February, almost nothing was done during the next four months and the officials started paying due attention to the issue only two weeks before the visit

“We have predicted that the government will face economic collapse one month ago, but nothing has been done to avoid this,” said former Minister of Tax Revenues and member of the United Democrats opposition party Mikheil Machavariani told Civil Georgia.

Experts say that there are four major points, why the IMF’s cooperation with Georgia is vital for the country.

“The most important is money. Georgia will not receive grants and loans from the fund; it is up to USD 30 million in 2003. Secondly, cooperation with other donor organizations greatly depends on IMF’s relation with the country, if the fund withdraws from Georgia other donors, including the World Bank, will also suspend cooperation with us. Thirdly, it will lead to lack of trust towards Georgia by the foreign investors; and fourthly – no help from IMF to reschedule our foreign debts,” head of the Budgetary Office of the Parliament Roman Gotsiridze told Civil Georgia.

If the government fails to convince the IMF on cooperation with Georgia the Paris Club of lenders may refuse to reschedule Georgia’s foreign debt payment. IMF is an official partner of Georgia in the Paris Club. Georgia annually receives grants and loans from the IMF to repay foreign debts. If this partnership is disrupted, Georgia’s budget will have to find additional USD 50 million to service its foreign debt. In this case, the experts say, the country might face even severer budgetary deficit and default. Georgia’s foreign debt totals USD 2 billion.

The government has already started to cut the expenditures for this year in order to reduce the budget deficit, which according to the Georgian Treasury Department reached 65 million Lari (USD 30 million) in the first five months of 2003. The last year’s budgetary shortfall reached 113 million Lari.

The plan of reducing the budget by 85 million Lari was introduced by the Minister of Finance at the government session of June 10. According to his plan, ministries’ funding will be cut. The Defense Ministry budgets will by tightened by 3,5 million Lari, while the Fuel and Energy Ministry – only by 60 thousand. Naturally, such disproportionate cuts create rifts within the government.
 
“IMF does not care how much money will be cut for the defense or social spheres. What they expect to see is macroeconomic stability,” Roman Gotsiridze, head of the Budgetary Office of the Parliament said.

As Roman Gotsiridze says the IMF mission “might decide to turn a blind eye on failure to meet certain recommendations, like audit of Poti Port and Railways, and continue partnership with Georgia in the Paris Club, in case the Georgian authorities will be able to cope with the budgetary problems and avoid shortfall.”
 
Resumption of the IMF program to Georgia in 2003 will depend on the final verdict of the IMF mission.

By Nino Khutsidze, Civil Georgia