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Georgia Grapples With Double-Digit Inflation


A woman sells fruit on a street market in Tbilisi.

A woman sells fruit on a street market in Tbilisi.

Inflation in Georgia reached 13.7 percent year-on-year in February, up from 12.3 percent in January, 11.2 percent in December -- a three-year high -- 10.5 percent in November, and 9.6 percent in October.

Moreover, as David Normania of the Center for Strategic Research recently commented to the website Caucasian Knot, it is the man in the street, rather than the business community, who is hardest hit by inflation, given the steady rise in the price of basic foods such as flour, sugar and bread.

The International Monetary Fund in its most recent program note for Georgia similarly noted that "in the short term, the authorities' main challenge is to limit the impact of the recent commodity-price shock on the most vulnerable, and contain inflationary pressures.

Addressing the cabinet on December 17, Georgian President Mikheil Saakashvili admitted that "prices are biting people every day." He said the high inflation rate was exclusively the result of increasing food and fuel prices on the world market, and rejected as "populist" the suggestion that it was the result of government policy. Saakashvili warned that inflationary pressure would continue to grow, and called on ministers to draft measures to keep it in check.

No such program has been unveiled to date, however, although National Bank officials claim to have been tightening monetary policy for the last six months. Instead, the government has started distributing to households across the country vouchers worth 30 laris ($17.5) to offset rising food prices.

During a televised phone-in on January 25, Saakashvili described inflation as "the main economic challenge," but again said it is exclusively the result of world prices rises over which Georgia has no control. He said accelerated economic development is the only remedy.

Some financial experts disagree, however. Speaking at a seminar convened in late January by the newspaper "Banking and Finance," economist Nodar Khaduri argued that the causes of inflation are twofold, external and domestic: rising prices on world markets, on the one hand, and the budget deficit and exchange rate fluctuations on the other.

A second participant, "Banking and Finance" journalist Giorgi Georgadze, pointed to a further internal factor, namely the existence of cartels controlling the import of such commodities as gasoline and certain basic foods, and that synchronize price hikes.

The opposition New Rightists Party unveiled at the seminar a five-point program for combating inflation, which entails:

  • Revising the 2011 budget to eliminate unnecessary expenditure. (Former Economy Minister Lado Papava suggested in that context abandoning plans for transferring the parliament to Kutaisi, which entails construction of a new parliament building.)
  • Alleviating the financial pressure on businesses by VAT and customs duties
  • Abolishing cartels
  • Alleviating the penalties for economic crimes
  • Introducing incentives aimed at boosting agricultural production in order to reduce food imports, specifically by abolishing all taxes on agricultural production for the next five years.

New Rightists leader David Gamkrelidze warned that by ignoring inflation, the government is "playing with fire," insofar as popular dissatisfaction at spiraling prices "could trigger political and social unrest comparable to that in Tunisia and Egypt."

Economy and Sustainable Development Minister Vera Kobalia, however, appears unfazed by that prospect. She was quoted on January 26 by the daily "Akhali taoba" as predicting that by the third quarter of 2011, inflation would have fallen to single digits.

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.

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