Georgian economy: healthy or not?16.02.2010 | 18:15
The International Monetary Fund mission presented a statement on economic situation in Georgia claiming the republic's break through the first wave of the economic crisis. According to the experts the country's banking sector has returned to profit though Georgia is still strongly dependent on foreign investments. GeorgiaTimes correspondent discussed validity of IMF's conclusions with politologists and economists.
In Georgia the International Monetary Fund's representatives completed preparations for the 5th Stand-By Arrangement review presented last week. They held meetings in government, with prime minister, in the National Bank and Finance Ministry.
On the whole IMF's statement is positive highlighting Georgia's success in economic program implementation and restoration of investors' trust. Moreover, the economic growth was registered in the second half of last year. According to Edward Gardner, head of IMF mission in Georgia, if the republic keeps following the developed program this year will be marked by a 2% GPD growth. He also recommends that budget deficit be reduced in order to avoid future problems when the country stops having international donor aid, Business Georgia reports.
But is Georgian economy really so sound? GeorgiaTimes correspondent discussed adequacy of IMF evaluations and prospects of the republic's financial sector with experts.
Sergey Demidenko, expert at the Institute for Strategic Analysis and Evaluation
Here the IMF is careful with the wording. It is true that according to the fund's statement Georgian economy seems to be getting back to life but it still relies on Russian and CIS markets considerably. Thus foreign trade turnover with the Commonwealth is around 40%. Turkey's positions are strong too, but cooperation with Ankara can't be equal to cooperation with CIS. Georgia continues to be dependent on Russia in terms of energy supply. These two elements of Georgian economy are still here. Under the circumstances it's not totally right to say that Georgian economy is seriously growing, I believe. Certain animation may start but it's too early to expect breakthroughs. As we know last year the privatization program failed in Georgia and it's hard to make progress without such reforms. It should not be forgotten that Georgian economy is greatly dependent on foreign aid appropriations - from the EU and the USA. By the way a short time ago Washington transferred 1 billion dollars to the republic.
All these components show no change in Georgian economy. If so, let's not speak about breakthroughs so far. Timid recovery is a typical post-crisis phenomenon. The thing is that Georgian propaganda takes advantage of these figures somehow trying to hyperbolize the situation.
Giorgy Khukhashvili, Georgian economy expert
IMF's evaluation seems fair - in part. Today there are no operative risks in the country. Georgia's problem is long-term and deals with the system. I think that the fund's statement is optimistically exaggerated and the bureaucratic background is strongly palpable. Continuation of IMF's program does Georgia good. But I would like the mission to be more critical on the problems of Georgian economy that emerged through the fault of authorities that pursue incorrect economic policy aimed at collapse, not growth. A dead-end policy in other words. We are simply used to the IMF's formal approach to these problems and mainly political, not economic logic.
Georgia was seriously affected by the crisis though the share of economic problems connected with the global crisis is not so great in the country. The system errors committed by the authorities as well as the war in 2008 that increased political risks in the country's economy account for our problems. Recession is underway. Now that considerable aid is received from international donors the problems are postponed, not resolved. No system changes are evident so the peak of economic crisis has not been overcome in Georgia like in the rest of the world.
What is the outlook for Georgian economy in these conditions?
There are prospects but Georgian economy remains dependent on CIS market as the main sale ground for its products. Raw materials and power supply come from these regions too. If economy in most CIS countries starts growing the Georgian economy will catch up too. If the situation remains quite gloomy it's difficult to think about prospects - then the economic situation in Georgia is likely to worsen.
It's extremely difficult to discuss prospects due to a number of subjective factors. In this situation all will depend on political will since Georgia's and Russia's economies both depend on political decisions that - ideally - must boost economic growth and foster healthy competition. So far the authorities do nothing to guarantee protection of the economic system. Objectively there are no economic processes going on in the country, things are solved in one office.