Accessibility links

Experts Pan Georgian President's Economic Freedom Act

On October 6, Georgian President Mikheil Saakashvili presented to parliament a draft Economic Freedom Act that, he explained, will impose constitutional constraints on the present and future governments' leeway to restrict economic freedom.

While the parliament majority from Saakashvili's own United National Movement greeted that draft with acclaim, the opposition National Democratic Party questioned whether it can in fact be implemented, and economic expert Lado Papava dismissed it as "a combination of populism and traditional errors."

According to Saakashvili, the proposals encompass pegging the maximum ratio of budgetary expenditures to gross domestic product (GDP) at 30 percent, and the maximum permitted budget deficit at 3 percent of GDP. They also bar the creation of new regulatory agencies in the spheres of financial services, communications, and energy, and the introduction of additional licenses and permits. And any increase in taxes or the introduction of new taxes must be put to a nationwide referendum. Saakashvili said Georgia is already in fifth place worldwide in terms of its liberal tax regime.

Finance Minister Kakha Baindurashvili for his part explained that the proposals will make the reforms Georgia has implemented so far "irreversible," and bestow "unprecedented freedom" on the private sector. Economic Development Minister Zurab Pololikashvili said they will form the basis for a detailed new economic-development plan.

Opposition members of parliament were skeptical, however. Deputy parliament speaker Levan Vephkhadze noted that Saakashvili did not once mention the global economic recession as a factor to be taken into account. Guram Chakhvadze described the proposals as obscure and marred by internal contradictions.

Economic expert Gia Khukhashvili was quoted by Caucasus Press as arguing that the proposals cannot be implemented until the government creates the necessary "strong economic foundation." Respected legal expert Vakhtang Khmaladze was quoted on October 9 by "Akhali taoba" as expressing concern that unscrupulous investors could seek to take advantage of the liberal tax regime to turn Georgia into "an off-shore zone with all its negative aspects, such as money laundering."

Economic expert Papava for his part pointed out that in some respects, such as full convertibility of the Georgian lari, the document simply reaffirms existing reality. The provision concerning the unrestricted repatriation of profits too is nothing new, Papava said.

As for the proposal to put tax increases to a national referendum, he compared it to allowing a sick man, rather than his doctors, to determine the most appropriate course of medical treatment for his illness. He also queried the expediency of abolishing regulatory bodies, pointing out that it could hinder Georgia's aspirations for membership of the European Union given that "the European market is a regulated market."

Former Prime Minister Zurab Noghaideli, who now heads the political movement For A Just Georgia, went so far as to argue that the proposals restrict, rather than expand, economic freedom. He did not elaborate.

About This Blog

This blog presents analyst Liz Fuller's personal take on events in the region, following on from her work in the "RFE/RL Caucasus Report." It also aims, to borrow a metaphor from Tom de Waal, to act as a smoke detector, focusing attention on potential conflict situations and crises throughout the region. The views are the author's own and do not represent those of RFE/RL.