Научная статья на тему 'The world economic crisis and Georgia'

The world economic crisis and Georgia Текст научной статьи по специальности «Экономика и бизнес»

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The Caucasus & Globalization
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GEORGIA / THE KEYNESIAN THEORY / WORLD ECONOMIC CRISIS / GEORGIAN ECONOMY

Аннотация научной статьи по экономике и бизнесу, автор научной работы — Pavliashvili Solomon

This article examines the special features of regularly occurring economic crises, the emergence of which forms a consistent pattern. It also studies their differential influence on the national economy of different countries, particularly Georgia. Adhering to the Keynesian theory, the author believes that the state should participate more actively in the economy, which envisages using corresponding mechanisms for overcoming the consequences of crises (drop in the production level, unemployment, and so on). For example, the economic crisis of the 1930s was overcome by the direct use of state regulation instruments.

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Текст научной работы на тему «The world economic crisis and Georgia»

THE CAUCASUS & GLOBALIZATION

Solomon PAVLIASHVILI

D.Sc. (Econ.), Professor at the Georgian Technical University

(Tbilisi, Georgia).

THE WORLD ECONOMIC CRISIS AND GEORGIA

Abstract

This article examines the special features of regularly occurring economic crises, the emergence of which forms a consistent pattern. It also studies their differential influence on the national economy of different countries, particularly Georgia.

Adhering to the Keynesian theory, the author believes that the state should par-

ticipate more actively in the economy, which envisages using corresponding mechanisms for overcoming the consequences of crises (drop in the production level, unemployment, and so on). For example, the economic crisis of the 1930s was overcome by the direct use of state regulation instruments.

Introduction

The current world economic crisis was directly caused by the irresponsible and, in many cases, unpredictable actions of American mortgage companies, as well as the incorrect use of financial derivatives (futures, swaps, forwards, and so on) and the erroneous assessments of international rating agencies (Standard&Poor's, Fitch, and Moody's). Moreover, the economic policy conducted by the U.S. government in 2000-2007 in fact led to a dangerous gap between the volume of large

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investment banks' equity and the resources drawn by them, the sale of low quality mortgage bonds, and so on.

This article shows that the world economic crisis had an insignificant effect on Georgia. This was mainly due to the country's low integration into the global economic processes and the assistance it received from the international community and world financial institutions (totaling $4.5 billion).

The article looks at the positive aspects of economic crises and also gives recommendations for overcoming them and creating a model of crisis management.

Economic Crisis as a Consistent Pattern and the Keynesian Approach

Economic crises affect different countries in different ways. This largely depends on the level of their integration into the global economic processes, their foreign trade balance (price ratio of export to import), the existence of transnational companies, and the financial-economic state of neighboring countries. Such factors as geopolitical position and whether the authorities have developed mechanisms and ways to protect the country from economic threats are also very important.

The severity of an economic crisis in any given country is indicated by the real growth rates of the gross domestic product (GDP), the inflation and unemployment level, the population's confidence in the financial-banking system, the volume of investments and revenue received from them, the degree to which government obligations are carried out, and so on.

As we know, "in conditions of stagnation, a relatively lengthy slowdown in production and trade occurs accompanied by an increase in the number of unemployed, a decrease in salaries, and a drop in the standard of living. The government is expected to withdraw the economy from this state and tries, by means of budget financing, to keep the country's banking and entire economic system afloat."1 When the drop in the above-mentioned indices is prolonged (two quarters in a row), the economy is said to be in a state of recession; if these indices decline even further, this leads to a depression.

The economic crises that began during the first half of the 19th century occurred every 8-10 years, but in the 20th century they began to last longer. In the 1930s, British economist John Maynard Keynes developed a theory which claimed that the economy develops in cycles. He also precisely defined the main principles of crisis: a drop in the profit rate, ambiguity in the securities market, and various objective and subjective factors relating to loss of confidence in the future.

John Maynard Keynes authored the theory of macroeconomic balance. His General Theory of Employment, Interest and Money was based on macro-sectoral research. He focused particular attention on the problem of dynamic balance and stability.

The main thought in General Theory is that the market mechanism is unable to resolve all economic growth problems, while wages and prices are not flexible enough. In his work, John Maynard Keynes also focused attention on the balanced ratio of investment to saving and profit. In his opinion, government intervention in the functioning of the economy is needed to avoid an acute crisis, devaluation, and unemployment.

John Maynard Keynes believed that after World War I capitalism was characterized by a low income level which, as he explained it, led to the accumulation of a huge amount of capital and the failure of lucrative investments. The trend toward a decrease in general consumption prevented profit from reaching even the minimum level for ensuring capital efficiency. Such specific conditions in a "rich society" lead to mass unemployment, while existing production capacities are not exploited to their fullest extent. These factors are the direct reason for a crisis.

1 V. Papava, "Problema zombirovaniia postkommunisticheskoi nekroekonomiki," Vestnik Instituta Kennana v Ros-sii, Issue 15, 2009, p. 38.

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According to Keynes, the Great Depression was also caused by the shortage of efficient demand, since savings were not spent on consumption (including investments) and remained in currency form. He came to the conclusion that monetary management is of absolutely no use in overcoming a crisis. Investment must be encouraged with the help of a government budget policy (increase in government investments); this is precisely the way to determine the volume of must-take resources and establish taxes for their owners.

Keynes also recognized that the government's involvement in the economy and an increase in its functions was the way to avoid crisis and achieve successful functioning of the market economy.2 But for many years the International Monetary Fund and World Bank insisted that the former Soviet countries stop all donations from the state budget and eliminate all tax exemptions,3 which entirely contradicts Keynes' theory.

Dynamic equilibrium and the neo-Keynesian theory of economic growth were developed on the basis of Keynes' theory. The models elaborated by Roy Harrod, Evsey Domar, Nicholas Kaldor, and E. Hansen are extremely important. They are based on Keynes' idea that the main condition of mac-roeconomic balance is equilibrium between investment and saving.4

In 1936, John Hicks published an article called "Mr. Keynes and the Classics: A Suggested Interpretation," in which he looked at the possibility of combining the Keynesian view with the traditional provisions of neoclassicism. Hicks assessed the Keynesian model as a particular case of the economic theory in crisis conditions.5

The Keynesian principle of economic regulation by the state was based on a synthesis with the neoclassical economic theories. Budget policy was recognized as a regulating instrument, particularly in issues relating to aggregate income and expenditure, demand for and regulation of monetary management, acquisition of profit in the open market, and the use of taxation. Use of this kind of regulation in today's economy is called the "structural-production (gradualist) model of macro stabilization ... it combines in a unique way both Keynesianism and the main postulates of the neoclassical theories."6

Along with Hicks, Paul Samuelson, Don Patinkin, Franco Modigliani, and James Tobin also deserve recognition for developing the idea of neoclassical synthesis. In his book, Paul Samuelson notes that neoclassical synthesis unites monetary and fiscal policy, which slows down a severe economic slump, and ultimately eliminates the enormous difference between the macroeconomic and microeconomic theories.7

The economic crisis of the 1930s proved to be the first extremely instructive lesson for the world economy. The reasons for the Great Depression differed from those that led to today's global economic crisis and, what is more, the consequences of the latter have been much more severe.

In the 1930s, demand abruptly fell (mainly due to the population's low purchasing power), which led to the accumulation of a large amount of unsold "spoiled" goods. This led to the mass bankruptcy of commercial, industrial, and transportation companies, as well as large banking structures; there was a catastrophic drop in the cost of securities. In 1932, the volume of U.S. industrial production fell by 46%; iron production decreased by 79%, steal output by 76%, and car manufacturing by

2 See: R.F. Harrod, K teorii ekonomicheskoi dinamiki, Moscow, 1959, pp. 118-137 (R.F. Harrod, Toward a Dynamic Economics, Macmillan, London, 1948).

3 See: V. Papava, "Finansovyy krizis i postkommunisticheskiy kapitalizm," Mirovaia ekonomika i mezhdunarod-nye otnosheniia, No. 8, 2009, p. 91.

4 See: J.M. Keynes, Obshchaia teoria zaniatosti, protsenta i deneg, Moscow, 1995, p. 62 (J.M. Keynes, General Theory of Employment, Interest and Money, 1936).

5 See: E.G. Dolan, C.D. Campbell, R.G. Campbell, Dengi, banki i denezhno-kreditnaia politika, Moscow, 1996, pp. 332-339 (C.D. Campbell, R.G. Campbell, E.G. Dolan, Money, Banking, and Monetary Policy, Harcourt Scholl, Orlando, 1987).

6 R. Asatiani, "The Georgian Economy in an Impasse of Non-Market Capitalism," Ekonomika, 2009, p. 27 (in Georgian).

7 See: P. Samuelson, Ekonomicheskaia teoriia, Moscow, 1964, p. 396.

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80%. In 1929-1933, 135,000 commercial, industrial, and financial companies collapsed, 5,760 banks went bankrupt, and in 1932 alone, corporate losses amounted to $3.2 billion. Foreign trade also dropped 3.1-fold, half of the country's population was unemployed, and the economic indices returned to the 1911 level.

After arming themselves with the Keynesian theory, the U.S. authorities actively intervened in the economy and began to carry out radical measures. In particular, the government began "saving" the financial-banking system by taking steps to raise its stability (the banking system was optimized, the number of banks dropped from 25,000 to 15,000); the export of gold was prohibited. The state took charge of regulating the national economy; to accomplish this, corresponding services were created in agriculture, industry, and other branches.

Carrying out the above-mentioned complex measures enabled the country to withdraw from its catastrophic situation.

Reasons for Today's World Economic Crisis and Ways to Overcome It

The U.S. mortgage crisis is considered the direct reason for today's world economic crisis. The lack of market transparency, as well as the merging and intermixing of credit and investment functions made it easier for consumers to obtain loans and caused an abrupt increase in the dollar mass in circulation; complete collapse of the banking sector followed. There was also a crisis on the stock exchange caused by the incorrect use of financial derivatives (futures, options, swaps, forwards, and so on), a noticeable increase in the price of oil, and not always correct assessments by international rating agencies (Standard&Poor's, Fitch, and Moody's). It should be noted that the Federal Reserve System and other U.S. regulating structures remained completely inactive during the crisis.

The economic policy carried out by the U.S. in 2000-2007 helped the crisis along to a certain extent.

In 2004, well-known economist and Nobel Prize-Winner Paul Krugman pointed out directly in his monograph The Great Unraveling that "the U.S. government has made inconsistent promises— promises of benefits to future retirees, repayment to those who buy its debt, and tax rates far below what is necessary to pay for all of it. Something will have to give, and it won't be pretty. In fact, I think the United States is setting itself up for a ... financial crisis."8

Just when the U.S was celebrating greater economic stability and Milton Friedman and the Chicago school of economics believed that the "central problem of depression prevention has been resolved," signs of a crisis began to show (beginning in 2006). As Paul Krugman noted, "at that time, the professionals of the economic sector were dozing off."9

But American neo-Keynesian economist, Nobel Prize-Winner Joseph Stiglitz upholds a different point of view; he thinks that globalization and interpenetration of national economies has been an additional factor in aggravating the crisis. He gives great importance to maintaining the transparency of world, national, and private financial institutions, adhering to general standards, and creating single world currency reserves.

The crisis that unfolded demanded synchronous actions from the G-20 countries. But some European countries did not think it necessary for the state to intervene in the economy; nevertheless, they were compelled to take certain steps.

! P. Krugman, The Great Unraveling, WW Norton, 2003, p. 136. ' R. Asatiani, "The 2011, p. 45 (in Georgian).

8 ]

9 R. Asatiani, "The World Economic Crisis and the Mainstream of Economic Theory," Social Economics, No. 1,

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For example, Germany, which had no intention of forking out large sums, planned to spend 31 billion Euros at the first stage to stimulate the economy, but this amount was rejected as being too small. Later a stimulation packet for 50 billion Euros was offered, plus the guarantee of 100 billion Euros for those banks that could issue loans to help private companies. The state did all it could to save the huge Opel car industry. Talks were held with General Motors, Chrysler, and others to accomplish this. Other steps included reducing income tax from 15.5% to 14.9%, granting 18 billion Euros to develop infrastructure (for two years), allotting each family a one-time benefit of 100 Euros (for each child), and increasing subsidization in order to allow temporarily closed enterprises to give their workers leave. Moreover, a program started in the country that envisaged paying 2,500 Euros to people who turned in an old car (9 years and older) and purchased a new one.

Even though the German Chancellor was a little late in taking the above-mentioned steps, they raised her rating and promoted her victory at the elections.

On 13 February, 2009, U.S. Congress approved the 100-day plan proposed by newly elected President Barack Obama to reduce taxes and issue additional resources to save the economy. This plan was estimated at $787 billion and envisaged carrying out the following measures: streamlining the financial and banking structure, assisting large car companies, creating more than 4 million jobs, purchasing non-liquid assets, and lowering interest rates for a certain contingent of citizens.

However, despite the measures taken, unemployment in the U.S. today has reached a level of 9.4%; over the past 50 years, this index has never been higher than 5%. The number of work hours was reduced from 39 to 36, and in September 2009 alone, 263,000 people lost their jobs.

In terms of overcoming the consequences of the crisis, Japan, despite its liberal policy, is not that far ahead of the above-mentioned countries. The country's government issued banks $270 billion in order to extend the terms of loans taken out by the population and various companies; $20 billion was rendered in the form of one-time assistance to families with average and low incomes. But Japanese experts say that the state has done nothing to resolve the problems related to the crisis that began as early as 2007.

There can be no doubt that the investment policy conducted by several states has invigorated the global economic environment, but there is another side to the coin expressed in higher inflation. For example, in the 1940s-1950s, the role of monetary management was totally ignored. It was thought that there was some tenuous connection between investment and money supply. So the economic stabilization programs primarily envisaged investment in the state budget, which, in turn, gave rise to a new wave of inflation in the 1970s-1980s.

On the one hand, mass investment injections promote a revival of the economy and reduction in unemployment, while on the other, they stimulate an increase in the inflation processes we are seeing today. The many years of experience of countries with a market economy shows that the market ensures an increase in economic efficiency, on the one hand, while it places exorbitant social outlays on people, primarily manifested in an increase in the unemployment level, on the other.10

Several G-20 summits were held in order to elaborate a unified approach to overcoming the global financial crisis. Despite some differences in opinion, the countries' leaders managed to reach a consensus on the most important issues, in particular state stimulation of the economy, tighter regulation of and greater transparency in the activity of international financial institutions, and minimization of protectionism in trade and other industries.

Five trillion dollars were allotted to save the world economy and more than $1 trillion went directly to the International Monetary Fund.

In addition, it was decided that the IMF would use part of its international reserves to assist poor countries.

It is worth noting that the crisis helped to bring separate regions of the world closer together, intensify cooperation among already existing associations, and promote unified coordinated deci-

10 See: S.P. Pavliashvili, "Osnovnye priznaki regulirovania rynka truda v regione," Sotsialnyy vestnik (Moscow), No. 3 (17), 2004, p. 92.

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sions. For example, the OPEC countries (Iran, Iraq, Qatar, Algeria, Angola, Venezuela, the UAE, and others), which control more than 70% of the world oil reserves, are trying to draw Mexico, Russia, and others into their fold.

Prospects have also been noted for creating large transnational companies; for example, the Shanghai Cooperation Organization is advancing the idea of creating a unified energy market with Europe.

Influence of the World Crisis on the Georgian Economy

Since 1990, the economic and political system in Georgia has been undergoing changes that resulted in the economy transferring to market methods and the beginning of a chronic economic and social crisis, which is still going on in one form or another today.

For example, compared to 1990, the volume of the country's GDP in 2010 amounted to only 65%. The size of GDP per capita amounts to 82%, while employment reaches 55%. There is no point talking about salaries, real incomes, or other indices of the standard of living. This crisis, which has been manifested in one way or another throughout the entire 20 years of Georgia's independence, has been directly inherited from the economic situation of the Soviet Union; the same processes are also going on in some of the East European countries.

The data presented above show that since the beginning of the 1990s, there has been an unprecedented drop in production in Georgia (by almost four-fold), which was caused by the destruction of external and internal ties, the inefficiency of the current economic mechanism, unfavorable political events, the civil war, ethnic conflicts, and so on.11

In this way, the centralized economy and undemocratic management have been replaced with political and economic independence. It is no secret that the recommendations of international financial institutions have frequently been mandatory, while the economic changes in the country have been distinguished by their absence of pattern. Georgia was not ready for rapid economic changes; it did not have the necessary experience or corresponding legislative base, not to mention market institutions. The radical changes brought with them an extended economic slump, which was caused by several objective reasons (there were also subjective reasons, but their influence was not as significant).

The world economic crisis did not hit Georgia as hard as it might have, which is largely due to the country's relatively low integration into the world economy. Georgia is a net importer country (its import is almost five times higher than its export), while the products the republic exports do not enjoy particular demand in the world market.

Georgia has received a large amount of aid ($4.5 billion) from the international community and financial institutions, which made it possible to retain the lari exchange rate, deflate the inflation processes, and reach a certain level of economic stability. It should be noted that the country's economy has suffered more from the combat action than from the global economic crisis.

One expert justifiably said that the country was saved by the conference in Brussels, at which many European states expressed their willingness to help war-torn Georgia. This gave rise to the "Paradox of War."12 "Georgia did in fact need [this assistance] since not only the war, but also the global financial crisis and some other factors had placed the country's economy in the most difficult circumstances... This money helped to stave off serious misfortunes," thinks economic expert Nodar Khaduri.13

11 See: G. Malashkhia, Ekonomika chelovechnaia, St. Petersburg, Tbilisi, 2009, p. 245.

12 V. Papava, Economic Transformation and the Impacts of the Global Financial Crisis in the Southern Caucasus, in: Non-Traditional Security Threats and Regional Cooperation in the Southern Caucasus, ed. by M. Aydin, IOS Press BV, Amsterdam, 2011, pp. 23-25.

13 See: "Ekonomiku Gruzii spasla voina," available at [http://rpy30BHK.su/article.php?ID=13771].

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In 2004, foreign direct investments in Georgia amounted to $499 million, in 2005 to $450 million (the reduced amount was related to completion of the construction of the Baku-Tbilisi-Ceyhan oil pipeline), in 2006 to $1,190 million, and in 2007 to $2,041.

In 2008, the investments coming into Georgia amounted to $1,564, which was $600 million less compared to the previous year. The reason for this was the August hostilities.

In 2009 and 2010, the volume of investments significantly dropped and amounted to $658 and $500 million, respectively. This was due to the global economic crisis which led to a 30% cutback in foreign investments throughout the world.

In the past few years, the state's political will has been instrumental in increasing the amount of investment. All of the state institutions took part in resolving this issue. Economic reforms were carried out in the country aimed at reducing and optimizing taxes, managing inflation processes, simplifying and reducing the number of licenses and permits, alleviating the registration of real estate and taxes, as well as full engagement of the law on bankruptcy. In order to avoid double taxation, corresponding agreements were drawn up with 26 countries, which helped to raise the country's investment appeal.

This was confirmed by the IFC Doing Business-2010 report that presents quantitative indicators on business regulations and the protection of property rights that can be compared across 183 economies, among which Georgia occupies 11th place; Armenia ranks 43rd, Azerbaijan 33rd, and Russia 120th. The U.S., Hong Kong, New Zealand, and others are the leaders.14

The fact that the President of Georgia often acts as the political guarantor for implementing serious projects is extremely important.

In order to stimulate the economy, there are plans to make investments amounting to $750 million from the Georgian budget in 2011; up to $320 million of them will be spent on road infrastructure.

The program that envisages including the banking sector in the project to rehabilitate Old Tbilisi, stimulating building companies, keeping jobs, and so on is extremely important. Making investments from the budget may not be entirely institutionally correct, but we should not forget that the country is facing difficult economic challenges and must do everything possible to overcome the consequences of the crisis and promote economic growth.

It should also be noted that all the leading countries of the world (beginning with the U.S. and ending with Japan) at one time used some form of economic stimulation. So it is not entirely correct to say that the state should not intervene in the investment process.

Despite the above-mentioned positive changes being made in recent years and the recovery of the investment climate, we cannot help but note some negative factors that are partially hindering the development of business and inflow of investments and are therefore of detriment to the country's economy. They include: the unresolved problem of Georgia's territorial integrity, the hostilities in August 2008, the protracted domestic political tension, the Russian trade embargo (on alcoholic beverages and mineral water), the infringement on private property, the underdeveloped stock exchange, the elimination of the anti-monopoly service (it was restored only in March 2011), the weak business associations, and so on.

The biggest problems facing the country's economy are the high inflation and unemployment growth rates. Despite the investment boom, since 2004 inflation has been expressed in single digits (if we do not count 2006, when it reached 11%). In April 2011, annual inflation amounted to 13.5%; such a high level has not been seen for almost 15 years. The price of food has increased enormously (up to 28%): for vegetables and legumes by 36.5%, for vegetable oil and fats by 34.5%, and for bread and cereal products by 25.8% (while meat also went up by almost as much). Prices also went up on transport, and the cost of medication and fuel has also risen significantly.

14 Among the former Soviet countries, Georgia was in first place, while Tajikistan and Ukraine are at the bottom of the list; China ranks 83rd, outstripping the other BRIC (Brazil, Russia, India, and China) countries. It should be noted that the rating was compiled on the basis of indicators that reflect a company's (or enterprise's) business activity in terms of starting a business, protecting investors, paying taxes, trading across borders, and closing a business.

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Inflation is largely caused by dependence on import, since the domestic market cannot provide consumers with locally manufactured products. The situation is also aggravated by the fact that both import and the consumer market are monopolized, since "after elimination of the antimonopoly service, not only were state guarantees cancelled, but lucrative industries were legally monopolized."15 For example, the medical sphere is a closed production cycle that includes the manufacture (import) and sale of medical preparations, as well as a network of medical institutions and insurance companies. In order to regulate prices and not fall victim to "conspiracy," certain sectors must be demonopolized. In so doing, it should not be forgotten that the country's per capita GDP amounts to $3,000, which is three-fold lower than the average world index.

What is more, the unstable political situation in Georgia's separatist territories is preventing it from fulfilling its function as a transit country, that is, the republic cannot fully realize the opportunities related to its advantageous geographic position.

All the above-mentioned factors are having an unfavorable effect on the economic status of the republic's population.

Conclusion

We believe that in the context of the economic crisis, the state could create new budget stimuli for supporting and implementing innovation processes. The positive aspects of the crisis will make it possible to carry out full democratization of state institutions, make progress toward and search for new ways to manage the economy that envisage free price formation and healthy competition, as well as de-monopolization of certain industrial enterprises. "For Georgia (as for any other country), it is important that international financial institutions not only patch up the holes in the budget, but also hold intelligent consultations. Whereas suffering the government's mistakes is clearly detrimental to the country."16

In order to prevent anticipated crises and avoid their negative consequences, Georgia much have a precisely formulated anticrisis program that focuses primarily on developing national production and substituting imported goods with locally manufactured products. Monetary management must be developed that will promote a decrease in interest rates, stimulate business development, and create new jobs (today's interest rates are almost 8-10-fold higher than the corresponding indices of advanced countries, which is hindering the country's economic development).

In order to ensure its economic security, the country must draw up a strategy in which both the present reality and the future processes, both in the region and in the world, are taken into account.

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Economic entities must have detailed information about the policy of the government and Central Bank in order to draw up a painless anti-inflation policy. This policy should be made public before inflation expectations are formed; the state must in no way lose the economic entities' confidence in the government and Central Bank.

Georgia's membership in the World Trade Organization (WTO) was of immense importance in promoting full-fledged integration into the international economic system and bringing the country closer to Western standards. This was preceded by lengthy preparatory work. The republic's main goal is to ensure freer trade movement and avoid undesirable by-effects, one of which is the existence of non-trade barriers.

A positive result of Georgia joining the WTO is that domestic goods and services have easy access to the world market. Its membership in the organization has given the republic most favored nation status in trade with 152 countries.

15 T. Akubardia, Economic Policy: Theoretic and Practical Aspects, Tbilisi, 2008, p. 46 (in Georgian).

16 V. Papava, "'Rozovye oshibki' MVF i Vsemirnogo banka v Gruzii," Voprosy ekonomiki (Moscow), No. 3, 2009,

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Rapprochement with Europe, whose GDP amounts to approximately $13 trillion, should be a priority strategic benchmark for Georgia. It must become more actively involved in the European integration processes. This could be promoted by attracting investments, participating in the activity of transnational organizations, intensifying trade and economic relations, and creating joint ventures. It would also be expedient to join the EU's economic policy decisions relating to agriculture, trade, transport, and other branches.

The European Union initiated speeding up the transfer to a free trade regime with Georgia, which is extremely important since it will help the republic's products to gain access to the European market.

The Charter of Strategic Partnership drawn up between the U.S. and Georgia also deserves a positive assessment. In addition to other things, this document envisages intensifying trade and economic cooperation, which will promote market reforms and liberalization, help to stabilize economic growth, and ensure the creation of new jobs. Moreover, the U.S. will help Georgia to carry out postwar reconstruction and financial stabilization.

According to the Charter, Georgia will gain greater access to the U.S.'s preferential trade system and the possibility of entering a free trade agreement between the two countries will be considered, which will promote a rise in Georgian export. An agreement will also be reached on expanding, protecting, and encouraging bilateral investments.

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