The difficult financial cataclysms of the world ? on the one hand, depreciation of dollar (that, to experts’ mind, aims at the increase of declined US business assets and compensation of non-interference of Europe in the war) and on the other hand, growth of Euro notwithstanding the difficult situation in the economy of France and Germany (Euro growth has led to the expensiveness of European export and great problems of European firms in the international market) have had an effect not only on developed countries, but also on developing ones including Georgia.

In the conditions of permanent external trade problems of Georgia, our research has focused on the peculiarities of tax balance formation in Georgia and mystery of currency stability.
In accordance with the present situation, there is the following picture of the balance of current account and dynamics of its components in Georgia in 1995-2000 and in the first quarter of 2003.
As we can see form the analysis of the scheme, several trends were formed in 1996-1997 and in the first quarter of 1998 as in years of successful trade. The principal elements are the following: significant growth of export, but not at the expense of waste metal; export of service and currency inflow from abroad; growth of entrepreneurial import, low level of external debts ? stability of currency.
The second period ?the second half of 1998 and in the beginning of 2000 – international and financial crisis In Russia, decrease of GDP growth rates and fall of tax revenues.
The third period was when the world as well as Georgia have transited to the period of financial and business stagnation with there being permanent trade gap there. However, this trade gap has been ranging in the amount of 350 millions (dollars).
Naturally enough, budget revenues have been characterized by significant growth and unheard-off deficit of trade balance. Neither of the two records have yet been mentioned. What was this economic boom stipulated by? Was there anything positive in these figures? Scientists have not yet given answer to this question. Some of them assert that it is the result of IMF-initiated programs and economic reforms, others blame the “non-existence of corruption” and the “correct” policy of the government or the deepening of Georgian integration in international market. However, the fact is that this growth has not been caused by the development of production.
For one thing, it was liberal trade policy that promoted trade and for another thing, it was remarkably stable currency that led to import growth.
The low level of budget expenses, non-existence of pension and wage arrears (as to why it is so, it is a different topic of conversation) and the unheard-of de-crediting of international monetary agencies that promoted stabilization of lari and growth of import (116-million grant from monetary funds, 32-million municipal credit and 12 million grant, etc.).
The peculiarity of the second period consists in the deterioration of tax environment. Lari was not attractive due to the crisis in Russia and it did not fulfill the function of import stimulus. Foreign aid was not of the previous level. Privatization of economy reached its peak and the Y1999 budget was planned in accordance with inflated parameters, which covered the increase of wages and pension already in the previous project with money being spent on the Y1999 elections.
The third period was epoch of voluntarism, demagogue and stagnation from 2000 to 2003. However, in reality the first period was more destructive for Georgia than all others. The analysis has revealed that the basis for the present fiscal situation was laid by the time when we bought chocolates in Vienna with the borrowed dollars and distributed pensions on debt. It was chimera rather than economic boom.
It is confirmed by the GDP dynamics in Georgia (see table 4) and the permanent level of trade turnover in the second period.
At the same time, according to the bank data, 1 billion 383 million US dollars were sold in 2002 (monetary and statistic bulletin 49, p. 68) and 406 million dollars were sold in the first quarter of 2003. In the same period import made up accordingly 736 and 193 million. Judging by the data of Statistic Department, in the first quarter of 2003 the share of hide economy was 50%. As we can see, this figure is much greater.
It is also important that up to 2002 revenues from abroad exceeded revenues paid for abroad. In 2002, the balance of revenues became negative (see table 5).
This can be explained by the change in reports of the Statistic Department:
Principal component of income credited accounts falls at the share of earnings of residents in other countries while in debtor accounts these are incomes from property and capital: the first stream of Georgians went abroad a few years ago and they are not considered residents.
Thus, currency incomes becomes less from this viewpoint while the income derived by foreigners from our country increases. This will become a great problem for economy (especially in the part of currency security) unless the government changes economic policy and protects business interests of the citizens.
At last, the principal source and import structure of the existing currency inflow is important. This makes it possible for us to understand what awaits Georgia from the viewpoint of export and import.
We can conclude that stability of lari depends on the turnover of hide economy in the currency that comes from hide economy sector.
Export in legal sphere is in disorder . It consists of three components. The country will face catastrophe only because of the export of waste metal and encouragement of the export of mineral water and Borjomi. Debtors will declare the country insolvent. Thus, agencies formed for promoting export and investment are a complete fiction. Moreover, ministry of economy will not promote the development of business environment and trade, but creates such system when during the import of computers, wash-machines and other equipment one needs a special permission that is issued in 45 days.
It is nothing, but artificially created beurocracy. It is unclear why the economic environment does not improve. Radical decisions should be taken immediately. Stimulus and support would safe the economic safety of the country.