Q&A with Economic Expert Niko Orvelashvili

During past year the new authorities have clearly outlined new initiatives in the sphere of economy – a new tax code, financial amnesty and wide-scale privatization. The significant growth of budgetary revenues was fixed for the first time in the history of independent Georgia. Moreover, the government is actively trying to assure foreign investors that they will be provided with a profitable investment environment and an attractive business climate in Georgia.     

Civil Georgia interviewed economic expert Niko Orvelashvili regarding activities by the new authorities since the November ‘rose revolution.’ His assessments proved to be rather critical. In Orvelashvili’s opinion, this one year “has been a period of lost opportunities.” 

Before you assess the economic situation in the country, what can you say about the general tendencies observed in Georgia throughout the past year?

One year ago the Georgian state was so incapable that when it was attacked, neither police nor the security forces nor the army expressed a willingness to protect it.

Essentially, the revolution itself was a parting with the past and, secondly, it meant the appearance of new hopes and opportunities.

The society had great expectations, but limited opportunities. The young authorities, who had little experience in management and less trust towards other groups, came to power. So, they considered that their friends and relatives, regardless their knowledge or education, were better [suited for governmental positions] than others. 

The new authorities have not even started to work on long-term and strategic programs, since they lacked staff and did not consider this necessary at all. However, they knew for sure that they needed to preserve power.     

The new authorities amended the Constitution in conformity with their own interests, despite a number of remarks by the international community. It is impossible to concentrate power in the hands of one person, to trample judicial authorities and restrict the legislative authorities. A state can be considered strong enough only when all the three branches of the authorities are balanced. However, in our country everything is on the contrary – the executive authorities stand above the judicial and legislative authorities. The Parliament, which permanently faces dissolution, cannot be critical.  

What kind of results should we expect when we have an ineffective system and do not even try to make it effective?

On the other hand, salaries and pensions have increased. But I do not think that a three-Lari growth will change anything. It is necessary to create a serious social welfare system and implement radical reforms. Instead of this, the present authorities are very proud of having increased pensions by 3 Lari.

Arrests and confiscation of assets should occur legally and transparently. Over GEL 200 million (approximately USD 110 million) was transferred to the state budget in 2004 as a result of the confiscation of assets of corrupt officials. This figure is based on a reliable source, since such parameters have not been published anywhere. The most important thing is that the current situation in the country has frightened foreign investors – some of them have minimized their business transactions in Georgia, some have left the country all together. 

Unfortunately, a great part of the population still believes in a happy future.

What can you say about the current economic situation in the country?

The attitude towards economy is absolutely ridiculous. Nobody could say that they did not know what to do. Exactly two weeks after the revolution we submitted measures, developed by experts to the new government; however, everybody responded to our initiative – donors and businessmen – except the new authorities.            

It is also noteworthy that the Poverty Reduction and Economic Growth Program, which was elaborated by the previous authorities and endorsed by the World Bank and the International Monetary Fund, was neglected by the present government, who cited that the document is outdated. However, they did not even express a willingness to renew the document, which represents a strategic program for the country’s economic development.   

Strengthening of the Georgian national currency, the Lari, is not a result of economic growth in the country. This is simply an obligatory step taken by the National Bank. When the monetary and fiscal policies are not interlinked, when the Finance Ministry is responsible for the issuance of treasury obligations that do not lie within its parameters and the Finance Minister announces that everything that happens in his sphere is his affair only, the issue of macroeconomic stability is out of the question.     

Actually, the country does not face the problem of a budgetary backlog or collection of taxes. Isn’t this because of the present authorities?

Unfortunately, I am not familiar with the real situation, since exact figures have not been published and we face a deficit of transparency. Daily accounting regarding the revenues and expenditures of the Treasury was much more available a year ago. The budget was completed only at the expense of arresting corrupt officials instead of the implementation of effective activities for relevant financial agencies.  

When the authorities declared in August that they could not earmark funds or grant pensions and salaries, citing that the increased revenues were not reflected in the budget, there were much deeper reasons at work, since, when the Finance Ministry really wants to reflect something in the budget, two hours are quite enough to write a draft law and submit it to the Parliament for ratification.

If the budget was fulfilled, why do we still have a GEL 1.6-billion internal debt, not to mention external debts. We should not have any illusions that just because in Brussels we were promised that we will receive 1 billion Euros, we already have this money in the pocket.

Foreign aid is allocated partially by tranches with obligatory terms. But if everything continues in Georgia it has previously, this will trigger disappointment and irritation among donors and lead to their demarche. 

Economy does not mean only budget and budgetary revenues. When we speak about economic soundness, we analyze at least 5-6 parameters. If one of these parameters is absent, economic soundness is out of question. If we consider the current unemployment level, we will have a clear idea about the “economic revival” in the country.  

One of the initiatives of the new authorities envisaged wide-scale privatization in the country. How do you estimate this process?

If we speak about previously sold facilities, this is not called privatization or sale of state-owned enterprises. These facilities were transferred to private ownership long ago.

This process is a part of a PR campaign launched by the authorities. They have launched a wide-scale privatization process, which will never end or will end with insignificant results. What have we sold so far? The Tbilisi aircraft factory TbilAviaMsheni and several small facilities in Adjara.      

Starting from 2005 the country will have a new taxation system. How will this promote economic activity?

The President has often said that we will have a new tax code in this or that month, but nothing has been done so far.

In April Prime Minister Zurab Zhvania issued a decree on the setting up of an 18-member commission, which was instructed to prepare a new tax code within 16 days. Those who have any inkling about writing a tax code should know that such an approach regarding reformations in this sphere is inadmissible.

The key principle of the code remains unchanged. The tax official will still have more privileges compared with the taxpayer.

The fact that value added tax decreased by 2% is an insignificant problem. The main problem is that we lack honest relations and symmetric obligations between the government and a taxpayer.    

Do you think the investment climate has improved within the past year?

When the supremacy of law is neglected in the country and the court is obedient, the investment environment cannot be attractive. Hence, if this issue is not settled, Zhvania’s attempts to convince foreign businessmen that they will be provided with a profitable investment climate in Georgia will end in failure. When the investment environment is profitable it is obvious for everyone.

Under such conditions, we will fail to attract investments. Moreover, we will even lose those investors who already work in Georgia.      

What do you think about so-called financial amnesty, will it promote the growth of economic activity?

This was a necessary, single act to restore the trust of businessmen. One should not speak about amnesty so much. 

If you forgive a person something, you should do it quickly. What would you say to those people who honestly paid taxes within recent years? The more you speak about amnesty with such people, the more their sense of discontent will increase.

Amnesty should be a quick measure. Otherwise, it will even irritate even those whom amnesty affects directly.

What can you say about the current business atmosphere?

A businessman, first of all, needs a guarantee that his property and investments are protected. This guarantee should be provided by the law. However, in Georgia, businessmen have no such guarantee.

Businesses which worked in Georgia and transferred funds to the budget have become passive or do not work at all. As a result, the budgetary funds do not appear in business and are directly transferred to the consumer market; that creates the danger of inflation.

Where is the moist influential Georgian investor [Bidzina] Ivanishvili? When Ivanishvili leaves Georgia, local and foreign investors cast doubts over the current situation in the country.

Businessmen hope that the authorities will finally understand that these problems need to be settled.

Unfortunately, the government does nothing to promote the development of medium-sized businesses in the country, while large businesses are frightened.

This huge disappointment, which will be eventually be revealed, will be a harsh reality. I do not wish for these authorities to fail because their failure would mean a huge failure for the entire country.