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Section 5. Regional economy
DOI: http://dx.doi.org/10.20534/EJEMS-17-3-36-39
Tsimintia Kakhaber Venediktovich, Sokhumi State University, Doctor of Economics, associated Professor, E-mail: [email protected]
RESULTS OF ECONOMIC TRANSFORMATION IN GEORGIA: A BRIEF RETROSPECTIVE ANALYSIS
Abstract: The Georgian economy has undergone significant transformation over the past 25 years. socialist economic system was implemented into the market economy and the systemic economic crisis has been overcome. In this thesis the achievements and results of the process are evaluated.
Keywords: Economy of Georgia, The transformation of the economy, Post-socialist economy
Georgia as a small, post-socialist country in the Caucasus with open economy strives to become a democratic country based on European values and carry out political and economic integration into Euro-Atlantic structures.
In the last decades of the 20th century, radical changes are characteristic to the political and economic life of Georgia; namely, processes of historical and, accordingly, mental changes of restoration-strengthening of political independence and establishment of market-based economic relations which are difficult and important for any society began simultaneously in the country.
In 1990, Georgia met the restoration of independence as a more or less developed republic of the Soviet Union with economic structures and level of living characteristic to this system. The first years of restoration of independence and development of the economic system based on market principles appeared the most difficult for the country. In addition to broken economic relations, loss of the old, traditional markets and suppliers, the country appeared to face civil discord and ethno-political wars which, of course,
exerted essential, significant, negative influence on the country's development. The country appeared in prolonged and chronic phase of systemic crisis.
In 1990, after the announcement of restoration of independence, the directions of economic reforms were elaborated which recognized the reasonability of application of the theory of convergence in social-economic development [6, P. 10], though as the result of the discord and violent change of the government, accordingly, the attempt to carry out the above mentioned failed. The created extreme situation, of course, exerted a negative effect on the country's economic development, deteriorated the problems of the state which was on the way of formation and resulted in the extremely negative indicators; in particular, in 1990-93, the gross domestic product was decreasing by 28% annually and, considering the parity of purchasing power, fell from 4,433 US dollars per capita in 1990 to 1,437 US dollars per capita in 1993 [9]. Moreover, while recession lasted for 7 years in post-Soviet countries and the decrease of cumulative production equaled to 51%, the mentioned index in Georgia reached 5 years and 78% [5, P. 9-10] The
economic fallout in Georgia took place quickly and during a short period the country's economy fell to the lowest level than in post-Soviet countries.
The scales of the economic crisis are shown especially clearly by the following indices: In comparison with 1988, in 1994, GDP amounted to 27.8%, industrial production - 15.6%, agricultural production - 49.3%, capital investments - 2.8%, goods turnover volume - 33.3% [6, P. 11]. In 1990-95, hyperinflation reached average 3310.6% [8], to be concrete, in 1994, the level of inflation exceeded 7,800%. The level and quality of living fell significantly; the population was appreciably differentiated based on incomes.
In such difficult situation, radical and essential reforms were necessary to be carried out in all aspects of social life in order to overcome the crisis, so at that stage it was impossible to impalement those reforms. It is worth noting that the currency reform carried out in 1995 (change of the former surrogate of currency — Kuponi, into the national currency — Lari (GEL)) laid foundations to reaching macroeco-nomic stability in 1996-97 and increasing gross domestic product with 24% [7, P. 98], however it did not shift into a more long-term tendency, the growth rate decreased, the budget and energy crises, sharp social differentiation could not be overcome, the employment still had critical parameters. Among the achievements of that period it is worth noting the commencement of construction of one of the longest pipelines (1,768 km) — Baku-Tbilisi - Geyhan (BTC) pipeline.
Thus, Georgia met the 21st century as a typical post-Soviet country: with economic backwardness, undeveloped political and economic structures, unemployment, high level ofpoverty, corruption and crime.
Since the new government practically began to build a new state in a style of European democracies. Accordingly, from the very first days since coming to power the emphasis was put on carrying out reforms and establishing order.
Among the achievements in the sphere of economy, scientists-economists and experts pay the special
attention to: establishing financial-budgetary discipline, overcoming budget and energy crises, fighting against corruption, setting legal rules of economic game, improving business environment (orientation of reformist endeavor towards improvement of business environment), significant decrease of tax load thanks to the new tax code, improving tax administration, accelerating processes of privatization and emphasizing support of private investments, simplifying customs procedures and improving their administration, great success in banking sector, telecommunications and international trade [1; 4, P. 73-74, P. 39-40].
The attitude in the Georgian society and among them in economists is different in relation to the important economic reforms carried out after the Rose Revolution [2, P. 18]; the presented positive and negative events, lights and shades of economy of the past period are subjects of a long dispute. At the same time, today when it is possible to make a numerical and qualitative evaluation of the past period it is evident that President Saakashvili's government has managed to revive economy among other spheres of social life, overcome the systemic crisis and provide the trajectory of growth.
In 2003, the real and nominal gross domestic product in Georgia was 8.6 billion GEL ($3.4 US dollars). By 2012, real GDP had equaled to 14.5 billion GEL which means that it increased 1.7 times, and nominal GDP was 26.2 billion GEL or 3 times more.
Throughout this period (excluding 2009), the tendency of growth (quite impressive in certain years) was characteristic to real GDP, and, in 20042012, it amounted to 6.1%.
We have the same picture in relation with real GDP per capita which, according to the parity of purchasing power (PPP), increased up to $5,903 PPP for 2012 from $2,961 PPP in 2013 [11, according to the data of International Monetary Fund].
The budget crisis was overcome which resulted in granting pensions and salaries of the state sector employees not have been allocated for years; as the
result of improvement of various events including tax and customs administration and decrease in corruption, budget incomes (up to 7.1 billion GEL in 2012 compared to 0.93 billion GEL in 2003) were significantly increased; this enabled the country to increase pensions (more than 10.7 times) and salaries (more than 4.5 times) and carry out infra-structural and other types of projects.
The tendency of growth was characteristic to one of the most important indices necessary for development of the country — investments. Namely, direct foreign investments had increased up to $2 billion by 2007 compared to $340.1 million in 2003, and in 2012 they amounted to $911.6.
Also, it must be noted that in spite of all the above said, the poverty was not eliminated in the country, unemployment was still high which increased from 11.5% (2003) to 15.0% (2012) and the number of employees decreased in the period of study.
The same can be said in connection with the elimination of poverty: in spite of the economic growth, it is evident that the pace of the existing growth was insufficient for rapid permutation of the situation and essential rise in the level of living of the population, final elimination of poverty.
From 2013 the accent is being made on the social orientation in the economy, on the stimulation of local production and on the priority of the agrarian sector as on a traditional and significant field in the history of the development of the country. With the help of the development of the mentioned fields the financing of social programs has significantly increased and significant projects for the development of local production have been initiated (for example, "Produce in Georgia", "Implement the Future"). A strategy for the development of the agrarian sector of Georgia for 2015-2020 has been developed and the financing of the sector has significantly increased. Despite this, the adequate effect has not been achieved yet: the intensity of the growth of the real GDP has decreased (2013-16 averagely 3,4%), the poverty and unemployment is still high and there is a tendency of decreasing separate projects in the agrarian sector. It is clear that the results of the activities carried out in 2013-16 years will show themselves in the far future. Besides, it is clear that there already exist optimistic conditions in the country in order to ensure high level of the economic development in the form of accelerated economic growth and overcoming the poverty in the country.
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