Georgia May Lose IMF Lifeline

Georgia could face financial ruin if it fails to meet certain economic conditions set by the International Monetary Fund, IMF.

The fund’s Georgian programme, which has been operating since 2001, could - along with the remaining 75 million US dollar tranche of a 141 million dollar IMF loan - be in jeopardy if the August 15 deadline is not met

Four tranches have already been transferred to Georgia’s National Bank to replenish the nation’s hard-currency reserves and bolster its balance of payments.

But after the last instalment was paid in July of last year, a succession of IMF missions have recommended that further payments be suspended for as long as Tbilisi failed to comply with the fund’s requirements.

A delegation which visited Georgia from June 24 to July 8 this year indicated the IMF had finally lost patience.

Under the fund’s recommendations, Georgia is required to slash its current national budget by 65 million dollars. The country’s fiscal code should also be amended to allow the authorities to collect an extra 17 million dollars in tax revenue.

The fund has also asked the government to come up with a plan for repaying its enormous backlog of unpaid wages and pensions for the past few years and, specifically, to issue treasury bonds maturing in 2006.

The IMF’s veiled threat to withdraw if the country does not take real action by August 15 has caused panic in the government. President Eduard Shevardnadze, speaking at a government meeting on June 25, said, “How can they stop helping a country they have been helping for the past 10 years?

“If we are at fault, let’s dismiss the government, and elect a new one. But it’s not fair to abandon Georgia now, after so many years of cooperation with IMF.”

Tbilisi has been struggling for a year to comply with these recommendations, as every measure has controversial consequences. The amendments to the fiscal code would cause certain taxes to be increased, and new ones to be introduced. And the proposed budget cuts have sparked a controversy in both government and parliament, as any reductions would primarily affect the law enforcement and defence ministries as well as economic development programmes.

Interior Minister Kakha Narchemashvili has warned that the recommendations could lead to a rise in lawlessness. “If we have to take a cut, we will no longer be able to buy equipment to fight crime,” he said.

But perhaps the most controversial IMF condition relates to electricity rates, which must be raised to meet the requirements of AES-TELASI, a US company that has established a virtual monopoly over Georgia’s power sector. In February, Georgia’s constitutional court ordered a reduction in the tariff, arguing that the majority of the population struggled to pay it.

Georgia’s deepening energy crisis and its monumental backlog of overdue public sector wages and pensions are leading to social tension. The opposition, with an eye on November 2 parliamentary elections, seizes every opportunity to criticise the government about the power supply and outstanding payments.

The problem has been exacerbated by the 50 million dollars Georgia owes to its Paris Club creditors, and which is due for repayment at the end of the year. Tbilisi had been looking to the IMF to broker a period of grace over the debts.

Furthermore, many international donors, who tend to assess a nation’s economic environment by how IMF behaves, may also discontinue their grants and investments in Georgia, causing a further projected loss of around 30 million dollars.

“A growing budget gap would soon cause our domestic and external debt to snowball, resulting in higher domestic social tensions. Georgia would necessarily default on its debts, and may be declared insolvent,” government official Giorgy Isakadze told IWPR.

However, some analysts believe the IMF will eventually relent on the issue of Georgia’s compliance and let Tbilisi negotiate with the Paris Club. “There is a good reason to be nice to Georgia, which was zealously supportive of the US military operation in Iraq,” said Roman Gotsiridze, chairman of the parliamentary budget office and member of the radical opposition group National Movement.

But others see no solution to Georgia’s problems without a major government reshuffle.

Economics analyst Mikhail Jibuti believes that incompetence rather than corruption is the main problem facing the authorities. “Given the current state of affairs, the IMF recommendations are unlikely to be fulfilled, because this would require internal discipline from the government,” he told IWPR.

Gennady Abarovich is an economic analyst for the Black Sea Press news agency in Tbilisi.