Democracy and Governance in Georgia
The Development Challenge:
Georgia's "Rose Revolution" has significantly refocused the Georgian public, its government, and the international community on the promotion of democracy, good governance, the rule of law, and sustainable social and economic development. On November 23, 2003, Georgia's President Edward Shevardnadze resigned in the wake of mass demonstrations and peaceful protests following the November 2nd Parliamentary elections, which observers condemned as fraudulent.
Shevardnadze's resignation ushered in a new reform-minded administration led by Mikheil Saakashvili, who was elected President on January 4, 2004. This brought to power a young, energetic, largely Western-educated team of reformers who declared themselves committed to accelerating reforms. The new government focused first on eliminating government corruption. Several high profile arrests were made and large numbers of employees were removed from agencies such as the Ministries of Justice and Internal Affairs. The government also began efforts to legitimize the shadow economy. In late 2004, Parliament proposed a financial amnesty bill that would allow citizens to register their undeclared assets and incomes in return for freedom from criminal charges or investigation. Reforms of many outdated legal codes, including the Criminal Procedure Code and the Administrative Code, are underway. All of the government ministries and agencies are being reconfigured and downsized to reduce redundancy, and various functions are being reorganized so that they are placed under more appropriate structures.
Georgia's commitment to reform has raised confidence in its economic management and, in turn, has attracted large inflows of bilateral and multilateral loans. In 2003, Georgia's debt to gross domestic product (GDP) ratio was almost 50%, and the country was some $51 million in arrears. In June 2004, the International Monetary Fund approved a three-year Poverty Reduction and Growth facility equivalent to $144 million, which enabled debt rescheduling and reduced Georgia's Paris Club debt service from $169.2 million to $46.4 million for the years 2004 - 2006. Due to the new administration's efforts to curb corruption, revenue collections almost doubled in 2004. This is a dramatic change from 2003, when Georgia's tax revenues were around 14% of GDP and among the lowest in the Commonwealth of Independent States. However, economic growth and foreign direct investment per capita remain low because of territorial conflicts, pervasive corruption, deteriorating infrastructure, unreliable energy, a perceived lack of contracts and property rights protection, structural impediments, and administrative barriers.
Georgia's ability to restore a reliable energy generation transmission and distribution sector will significantly impact its long-term economic growth. Reform and capital investment are necessary to more fully commercialize the sector, attract outside investment, and improve services. The energy sector continues to be among the Government of Georgia's (GOG) highest priorities. Nonetheless, energy independence, or even reliable energy, is years away and highly dependent on capital investment. In 2004 the state-owned United Electricity Distribution Company streamlined its staff, increased its electricity collections by over $2.2 million, and almost tripled its payments to the Georgia Wholesale Electricity Market. Further progress in energy reforms is needed to achieve the ultimate goal of a reliable, financially stable energy supply. Until then, interruptions in generation and transmission will undercut economic growth and the quality of life.
The enthusiasm behind reform and the shift to the market economy has failed to meet the expectations for social improvements. Although the GOG has doubled monthly pensions from $8 to $16 and is now discussing needed systemic health and education reforms with donors, the country's low levels of new job creation and its low public health and education expenditures place its recent economic and political gains at risk. Fortunately, the current GOG welcomes assistance for social sector reform and has taken a much more proactive role in addressing these challenges.
The GOG has also made re-integration of breakaway territories a priority. In the spring of 2004 the autonomous region of Adjara was peacefully and rapidly reunited with Georgia. Over the long term, the GOG is also seeking solutions to the conflicts in South Ossetia and Abkhazia.
The U.S. Government's (USG) priorities in Georgia are to promote democratic reform, bolster regional stability, and foster economic growth. As a front-line state, Georgia continues to be a strong ally in the Global War on Terrorism and currently has over 800 soldiers serving in Operation Iraqi Freedom. USAID is working in close collaboration with its partners to incorporate minority communities into its activities while promoting ethnic tolerance and conflict prevention. Georgia's location at the crossroads for east-west and north-south transit of goods and services positions it to benefit from trade expansion within the region and with Europe and the United States. Other U.S. national priorities in Georgia include the containment of organized crime and the trafficking of persons, arms, and narcotics. Strengthening Georgia's weak governmental institutions and fostering broad-based economic growth are essential to combat these dangers and other threats to U.S. homeland security.
(Excerpted from the 2006 Congressional Budget Justification for Georgia)
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