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Georgia: World Bank Official Urges Crackdown On Corruption

London, 17 November 1998 (RFE/RL) -- A World Bank official has urged Georgia's government to do more to crack down on widespread corruption, saying the average cost to each Georgian household of unofficial payments is about $100 a year.

Joseph Owen, resident representative of the World Bank in Tbilisi, gave a keynote address yesterday to a conference in London entitled "Doing Business in Georgia." The two-day conference is being attended by a top-level Georgian government delegation.

Owen said Georgia must improve its fiscal position through better revenue collection, cracking down on tax evasion and corruption, and a more transparent management of expenditures.

He noted that a recent survey in Georgia found that police, customs and court officials, power companies and tax authorities all request 'ex gratia' --that is, illicit-- payments. But the survey also found strong public support for efforts to combat corruption.

"The issue of corruption has been long-standing. Policy-makers in Georgia are very aware of the impacts of corruption on the overall business environment. Senior policy-makers have identified it as a key area for efforts in the future, and some steps have been taken."

Owen gave an overview of the investment climate in the Caucasus country to an audience that also included financiers and businessmen. He said Georgia offers investment potential in agro-business, forestry and tourism. He said it also offers opportunities in services related to new pipelines needed to transport oil and gas from the landlocked Central Asian states, and as a Eurasian transit route.

But the writer and academic, Shirin Akiner, a leading expert on Central Asia, told our correspondent that much will hinge on the development of Georgia's Black Sea port of Poti. He said Georgia "has a great potential as a transit country linking Central Asia and Europe and vice versa. The main route would be across the Black Sea to Romania and then on further to Western Europe. However this really depends on the extent and the speed with which Poti can be built up as a port. At the moment it certainly has potential but it simply does not have the facilities."

In his remarks, Owen noted that Georgia's economy collapsed after the break-up of the Soviet Union with hyperinflation and a rapid build-up of external debt. The crisis was exacerbated by internal strife, secessionist wars and rampant banditry.

Over the past three years Georgia has stabilized economically, with a fall in inflation to single figures, the introduction of the national currency (lari), tighter fiscal and monetary policy, and a rise in foreign investment. But economic conditions appear to have deteriorated in recent months.

Owen said the government's reform-minded economic management team needs to show more cohesion, while the implementation of legislation passed by parliament remains weak.

Owen said the government needs to address such problems as the fact that the civil service is weak and underpaid; that bureaucracy is an obstacle; that the banking sector is weak; and that expenditure on public health is among the lowest in the world. He said remedying all of this will require political will and stronger economic management and institutions.

Owen also said the impact of the Russian crisis has put pressure on Georgia's foreign exchange earnings.

"Georgia has approximately between 25 to 30 percent of its trade with Russia which is much less than, for example, Belarus or Ukraine. But suddenly exports have become less competitive. The lari has appreciated 25 to 30 percent vis-a-vis the ruble which certainly makes exports much more difficult. (Russian) imports are flooding in since they are much cheaper now."

The conference is set to conclude today with a discussion of Georgia's access to capital markets, its retail banking sector, and oil and gas developments.