Inflation and the Georgian Economy
Lali Chagelishvili
The world economic changes that started in summer 2005 and which were stipulated by the catastrophic rising in price of the “black gold” did not passed around the Georgian economic space. What kind of impact it will have on the Georgian economy and the development of events – we will get the answer to this question based on the dynamics that exists now.
According to the August’s data, the price of 1 barrel of oil at the New-York Commodity Exchange has become 66 USD, while at the end of July this indicator made up 55 USD for a barrel. This catastrophic rising in price of the “black gold” will bring nothing good for the countries like Georgia. The forecast could be not pessimistic but for a quite calm statements of Georgian government’s high-ranking officials that the oil prices will rise still more reaching 2 GEL for 1 liter of petrol.
Instead of taking certain steps for keeping the prices at the existing level, the government in advance puts the idea into the population’s mind that the struggle for self-preservation will become more intense, but they do not take into account the fact that this kind of statements confirm the danger of administration of the oil business at the governmental level.
As to the events on the world marked related to oil, it can be explained by the loss of balance between the demand and supply, in particular, by reduction of supply in conditions of the increased demand. These phenomena is the continuation of the processes that took place in relations between Iran and the US even before the American-Iraqi war. Imposing of restrictions for the Iranian oil on the world market on the part of the US will in its turn cause rising of oil price if Iran continues its work at its nuclear program.
The US had problems related to oil in the past as well (the problems with Kuwait in 1970s), but they did not inflict a considerable damage to the country, since the US had enough economic levers for containment of the crises, and secondly, thanks to its political orientation it did not lose international economic links to the outside world. Now, in a similar manner, the “war for black gold” will not strike a blow to the US economy. Here, in spite of high oil prices, the demand for patrol is still big.
A rapid economic growth is observed in China as well, but it cannot be said about European countries. According to the experts of the International Energy Agency in Paris, compared to the previous indicators, in the year 2005 the demand for petrol will be 150 thousand barrels less. But in spite of it the prices go up again.
Russian Ministry of Industry and Energy also tries to restrain petrol prices and inflation, though it does not plan to drastically influence the oil prices. Today the price of crude oil on Russian domestic market exceeds 40 USD.
The Georgian government sets hopes on launching Baku-Jeikhan oil pipeline. According to Nogaideli’s statement, launching of this project will have an impact on the world prices and stop further price rising. I think that it is improper to make this kind of statements. Launching of the Baku-Jeikhan oil pipeline cannot and will not be able to eradicate the problem. Inflation and the attendant processes are already on hand. Now the main thing is for the Georgian government to implement efficient arrangements in order to avoid a social catastrophe that can cause uncontrollable processes. I think the time has come not to follow other’s decisions and not to wait for somebody’s help to improve the situation, but to act ourselves and understand that until the abandoned but still existing economic levers are enabled in the country, until the Georgian industry starts to work full force, for which first of all the government’s good will is necessary, nothing will help us and everything will be temporal.
It is known from the economics theory that one economic cycle is followed by the second one, the second one – by the third one; a crises is followed by a rise and after a certain period of time, based on the reserves enabled by the I-st world, the supply and demand will be balanced again, and we should not deceive ourselves thinking that we have adjusted the processes stipulated by increasing of oil price. Let us face the truth and think of how to create our own reserves in order to be independent so that another crises should not strike us a blow. We cannot agree with A Mr. Chogovadze’s opinion who believes that it is useless to enable the abandoned enterprises. If Georgia wants to have a status of an equal partner in international relations, it should think of enabling of own resources and stocking. In the meantime, the world economic processes have had the following impact on our economy:In July 2005, compared to June 2004, the inflation rate made up 6%, and in 7 months of 2005, compared to the average indicator of 7 months of 2004 – 108,9%. According to the data for 8 months of 2005, the total price level has increased for alcoholic drinks and tobacco – by 17,6%, for meat and meat products – by 16,3%, for soft drinks – by 9,9%, for petrol – by 6,4%, for diesel fuel – by 6,0%. The total inflation rate for this period made up 7,2%.
