Puzzles of IMF and WB decisions

Mari Tsiklauri

The new government of Georgia started its work with loud statements that make it possible to drawa conclusion about the political and economic course of the country.

The first task of former oppositionists is struggle with corruption, improvement of investment climate and provision of jobs. Zurab Zhvania said, the new government tried to stimulate internal as well as external financial resources in order to pay pensions and salaries and to provide functioning of the army. The State Minister has also mentioned that the government would do its best to prevent energetic destabilization though given the present situation in Georgia specific mechanisms for realizing this indispensable, but hardly executable measures have not yet been determined.
The foreign relations programme of the new government is of no less interest. Nino Burjanadze says, it provides for integration into European structures ? staged integration into NATO and European Council, preservation of friendly relations with the US and improvement of relations with Russia.
It is clear that weakened Georgia needs external support after the 90s events when it lost control over Abkhazia and South Ossetia. After coming to power the new State Minister asked the West for support. The West is certainly interested in preserving stability in Georgia, but it does not intend to support any particular presidential candidates in the upcoming elections.
“The United States will not support any presidential candidates in the elections” ? US vice Secretary Lin Pasko said after a briefing with interim president Nino Burjanadze and Zurab Zhvania. Despite the US position with regards to support of candidates, it stands ready to provide Georgia with financial and moral assistance in the upcoming elections, as free and fair elections are important, Pasko said.
The US promised 5 million dollars’ aid to the new government of Georgia.
Besides, aid was also promised by the World Bank.
It is noteworthy that after coming to power, the new state minister informed IMF, the World Bank and heads of European countries that he was going to start talks with them on delaying payment of old credits. If the negotiations fail, Georgia will certainly face the danger of economic collapse. As the state minister says, there is a catastrophic economic situation in Georgia. Budget debt amounts to 270 million GEL (135 million dollars). Representatives of the World Bank and IMF visited Georgia in early December. They said they were going to continue co-operation with Georgia.
Earlier on Wednesday, the IMF representative in Georgia said the fund would do its best to be helpful to the country.
Emerging from talks with Interim President Nino Burdzhanadze, the fund’s country representative Jonathan Dunn told reporters: “I should say we look forward to working with the interim administration and the next administration. We will do our best to be helpful to Georgia in this period.”
DONA DOWSETT COIROLO, World Bank Director in the South Caucasus region, made an official visit to Georgia. After the meeting with Irakli Managadze, president of the Georgian National Bank, Dana DOWSETT COIROLO said they talked about the economic situation of Georgia and perspective relations with international financial institutions. The principal objective of the meeting was to clear out current processes. Managadze said, during the meeting with the World Bank representatives special stress was made on trust towards all donor organisations, the necessity of restoring co-operation and further financial aid. The World Bank representative said, negotiations were held with the new government of Georgia about financial aid. The World Bank hoped that decisions would soon be taken together with the Georgian government.
“The World Bank is enthusiastic about the transformations and novelties and it is goint to providing financial aid for Georgia”, – said DONA DOWSETT COIROLO. The World Bank representative also said, the Bank was going to finance “frozen” as well as new projects.
Natia Turnava, vice minister of Economic Ministry of Georgia speaks to us on perspective relations with the world financial organisations.
– There have been great difficulties in co-operation with the World Bank, IMF and other donors. Programme with IMF have been stopped for almost a year. Nor did they pay any attention to the way Georgian party fulfilled its responsibilities. Unfortunately, the government did not produce any positive results in spring of this year, so chances to restore the programme were, in fact, ruined. Other terms were set, but they were postponed due to objective reasons, too. Today, the new government, economic group has chances to regain favourable dispositions of the organisations. We have no other alternative in this stage. We should do our best to restore the programme with the fund and to establish stable relations with the World Bank and other donors
– What will be the terms for restoring relations with the organisations?
– There will undoubtedly be terms. The main term is respect towards the organisations. They will certainly take into consideration the fact that new finance minister and any other members of the present government have met with a difficult situation. Yet, I believe that programme with the Fund will be restored. We have no other alternatives. In this stage all departments as well as ministry of Economy, Finance Ministry and other economic departments should be aimed at the main tasks, i.e. at normal relations of Georgia with international donor organisations. Our primary problem is not generally economic one, but rather financial, budget problem. This is likely to affect economic situation in general. If relations with the World Bank and funds are not restored, this will also affect relations with private investors. If international organisations are dubious about their relations with us, there will, certainly, be no talk of normal investment environment. Sources close to the Paris Club said Georgia would have to mend fences with the IMF before it has any chance of debt relief. If IMF acts as our guarantor, other governments will also agree to our request of another restructuring of our external debts. It will be of great importance to us as next year there is payment date of many debts. The situation has not arisen suddenly, but it has existed for a long time. Yet, Finance Ministry had not paid due attention to it before. The issue had repeatedly been raised in government sessions, yet no measures had been taken in this direction. IMF was also pessimistic towards the policy pursued by the Finance Ministry. The situation has changed now and we have the chance to achieve restructuring of our debts in the Paris Club by restoring the programmes.
Being WTO new members, we have the chance to receive aid for the normalization of our payments balance. The World Bank has strong intention to provide such aid not only to Georgia, but also to countries that have recently accessed the WTO. Measures have been taken in this direction as our payments balance is critical and deficit might deepen even more in the crisis. Thus, the liabilities undertaken before the WTO might worsen the situation so we should use the chances. It would be unjustifiable if we do not use the chance now that all international organizations, all democratic governments stand ready to support our country and extend a helping hand to us.
– What do you think will be the amount of the World Bank aid for Georgia? What spheres will priority be attached to?
– I cannot name the exact sum, as there are different variants. The World Bank can provide either wide-scale or limited aid depending on the development of events in Georgia. There are pessimistic prognoses as well as optimistic ones. Thus, everything will depend on us.
As for main priorities, they are determined in poverty reduction programme. I do not think they will be changed greatly despite the fact that all documents need revision. The World Bank pays considerable attention to credit allocation in the energy sector that is our hope in export. However, the most important task is settlement of budget problems, budget mobilization and prioritization of expenditures in the strictest regime of economy. This was reflected in poverty reduction programme, but this was not accentuated. Now time has come to pay attention to the issues.
– Does the World Bank intend to finance new programmes in Georgia in 2004?
– We can not yet say anything about new projects for 2004 as the most important thing in this stage is to raise funds to avoid accumulation of new debts as the state already has much indebtedness ? salaries, pensions, healthcare programmes. The primary task is to balance the budget. One should not think that the enormous deficit can be overcome in one day. However, we should do our best to minimize the negative effect on the budget. Then it will be possible to speak about new priorities.