New Initiative of Georgian President

On Tuesday, Oct 6, 2009 Georgian President announced about new initiatives to liberalize further the economy of Georgia. Here is the list of the proposals with our comments:

Act of Economic Freedom

In general the initiative is positive; it can improve general feeling about business climate and create better expectations. Even though there is a need to work further for best and clear formulations, as well as adding to them some important ideas.

1. Limit the public spending to 30% of GDP. In general this is good idea to limit the spending, even though 30% is very high level of spending to any country which desires economic growth, especially for the very poor countries like Georgia. We offer 15% (Andrei Illarionov’s recommendation of 2006 to Georgian parliament).

2.  Limit the budget deficit to 3% of GDP. This is simply bad. This is also a serious back-step after last year’s announcement of the Government to abolish deficit spending. We would offer to abolish deficit spending gradually during 3-5 years. 

 3. Limit the public debt to 60% of GDP. Public debt is generally bad idea – this is to shift the responsibility to future generations and use debt for increasing of current government spending. This eliminates chances to find best public policies. 60% is very high for Georgia which is very poor but also if somebody thinks of current Georgian government as of disciplinized institution in future this opportunity can be used by a new government discipline of which can be much lower. Anybody can predict the results.

4. Prohibit implementation of new licenses. This is good, but there must be promise that all the existing licenses and permissions will be abolished in near future.

5. Prohibit establishment of new regulatory agencies. This is also good, but there must be promise that all the existing regulatory institutions will be abolished in near future.

6. Prohibit governmental ownership of shares of commercial banks. This is of course good idea but not really important for this moment because nowadays Georgian government doesn’t have in property any shares of commercial banks.

7. Social assistance must be strictly targeted. This is of course important even though very uneasy to execute idea. There is a need to restrict the limit of the social spending. *Andrei Illarionov’s recommendation 8% of GDP).

8. Vouchers for both public and private schools. I think implementation of vouchers is late measure to improve the schooling. Nowadays public schooling is in a strong crisis with no chances to improve, vouchers will be discredited very soon. Generally it is also contradicting to the previous (7) proposal. Therefore there is a need also to limit this kind of policy. Main policy must be Education to those who value it more.

9. Assistance money to individuals but not to the institutions. This also needs very strict and scrupulous approach not to convert it into an object of political speculations. Here again we need certain restrictions and limits, terms etc. In future any assistance have to be based on private and voluntary charity.

10. Implementation of any new tax or increase of rate will be possible only through referendum. This is acceptable but with the addition that work of new tax or rate can be started only after two years after adopting.

Very important notes:

a)      Nothing was said about inviolability of property

b)      It seems decreasing of taxes is not in the agenda of the government which is very bad. Decrease of VAT is too important.

c)      Issue of fiscal discipline is more wide and here we need very radical measures

d)     Monetary discipline is bringing not less problems and loss than even property issue even though sometimes we don’t’ feel them immediately,

e)      Nothing was said also about improvement of customs and tax rules, administrative burden which are very often illogical but sometimes contradicting to the constitution.

f)       I would rather call this initiative Act of Economic Stability, but here again for economic stability protection of property is more important.

Below you can find and download official version of the initiative.