SCIENCE

FROM THE REDACTION

Evening of the GDP Dynamic Line by Means of Rectilinear and Parabolic Approximation
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G. Bedeluri, N. Abesadze,
L. Beridze, Sh. Metreveli

In the presented article there considered the tendencies of Georgia’s social and economic development in 1999-2003 based on the data of 2004 statistical annual. The trend of the GDP rectilinear and parabolic approximation is studied, and the rates of increasing of the dynamic line are analyzed.
Calculation of forecast indicators of the GDP is made by means of dynamic line evening analytic method.

Trade liberalization and economic growth Some theoretical and practical aspects
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Tamar Beruchashvili

Increased participation of the developing countries in international trade and it’s effect on economic growth have become a topic of interest over the past two decades. International trade has grown twice as fast as worldwide income during this period. Advances in information technology promoted growing share of trade in services rather than goods, and international direct and portfolio equity investment has also increased tremendously during the same period.
What are the implications of international integration for economic growth and poverty? This particular subject has mobilized the interest of different economists all over the world.
The article of T. Beruchashvili has explored this question by analysing some theoretic and practical aspects of this issue.
Trade policy and opennes works by inducing substitution effects in the production and consumption of goods and services through changes in prices. These effects, in turn, change the level and composition of exports and imports. In particular, the changing relative prices induced by trade reform cause a re-allocation of resources from less efficient to more efficient uses. In addition trade reform expands the set of economic opportunities by enlarging market size and increasing the effects of knouledge spillovers. These are the key components of the effects of trade reform, which together induce growth of output.
Experiences of a group of developing countries that have significantly opened up to international trade during the past two decades provide evidence that increased trade and opennes has strongly encouraged growth and poverty reduction.
Although a large body of literature has examined the positive effects of trade on growth, this evidence has recently been subjected to criticism, most influentially by Rodriguez and Rodrik (2000).
The developing countries are often decrease trade barriers as more effective way of achieving higher sustainable rates of growth than tightening trade restrictions. But, especially since the Bhagwati-Krueger country studies, it should be also emphasised the need for a stable and non-discriminatory exchange-rate system and usually also the need for prudent monetary and fiscal policies and corruption-free administration of economic policies for trade liberalisation to be effective in the long-run. The various country studies do support this type of policy advice and that the cross-country statistical studies do not overturn this conclusion.
As practice has shown the only developing countries, which have achieved significant declines in poverty (ex. China, India, Vietnam) are those that also have integrated faster into the world economy on the dimensions of liberal trade and direct investment. It is hard therefore to agree with the critics of freer trade that globalization damage economic growth and increase poverty, when the empirical evidence is exactly the opposite.

The Issues of Improvement of Georgia’s Foreign Trade Strategy
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Gela Aladashvili

Georgia has a potential for development of effective foreign trade activities. In order to realize these possibilities, it is necessary to elaborate a long-term strategy of Georgia’s foreign trade, which will play a role of a certain reference point.
Optimum inclusion of Georgia, as a post-socialist country, in the world economy implies elaboration and consistent implementation of a strategy, reorganization of this sphere’s administration, carrying out of export promotion arrangements, protection of own promising brunches, development of import- replacing production. It is necessary to increase the country’s competitive ability on the international market, based on the brunches and productions that have good conditions for it.
Based on the analysis and studying of the experience of supporting and stimulation of export in other countries, it is possible to single out some directions that are profitable for our country.
First of all, the systems of preferences existing in the international trade should be used. Our country faces the task of not only making export more effective and increasing of currency onflow but also of raising economic return from import. These two aspects are interrelated from the viewpoint of the country’s inclusion in the world economy.
Within the framework of membership in the WTO, we should correspondingly act by means of anti-dumping customs duties and special protective measures, the purpose of which is import’s restriction in case it inflicts damage to some domestic brunch.
The state support for export promotion, if it takes place, should be of open and transparent nature.
Creation of a modern system of protection of export activities and export operations is important for the development of export in our country.
It is necessary to form an effective crediting mechanism with the purpose of provision of export development in Georgia. Low interest intermediate and long-term credits will stimulate exporters’ activity. It is purposeful to promote the investment projects that give export products.
The sphere of the state’s strategic interests should include formation of special export promoting structures which, using information technologies, will contribute to promotion of Georgian products on the world market, etc.
Noteworthy is inculcation and studying of models of export associations that are widespread abroad. Georgian companies will easily find foreign partners by means of this kind of unions and associations.

Concerning the Issue of Reformation of the Legal Base in the Sphere of Relations between the Commercial Banks and the Tax System
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Revaz Lursmanashvili

The success of the reforms being carried out in the country in conditions of market economy to a considerable extent depends on how well the government will solve the problem of collection of tax proceeds. This problem is rather a many-sided one, and its solving, from our point of view, consists only in large-scale revision of legislative and statutory acts.
The legal base is an essential but not a single factor that will have an effect on formation of financial results of commercial banks. The technologies that are used by banks in their activities will be expressed in the results of their activities. With the purpose of improving of this situation we can take the following measures as far as credits are concerned: first, we should reduce assignments of credit organizations to the obligatory reserve fund; second, requirements for registration of small business should be simplified; third, a change should be introduced in the Civil Code with the purpose of giving depositors the right of concluding a period contract on deposits, without the right of withdrawing of deposits ahead of schedule, but with a comparatively high interest; fourth, credit organizations should be exempt from profit tax for the period of 5 years, and these funds should be directed at increasing of equity (capital); fifth, based on the requirements of bank legislation and the Tax Code, it is purposeful that the National Bank and the Ministry of Finance should prepare a joint instruction on the issue of taxation of bank and non-bank operations.

Unemployment Problems in Georgia in Conditions of Transitional Economy
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Tamila Arnania, Candidate of Economic Science
Iulia Oniani, Candidate of Economic Science
Nodar Khasaia, Candidate of Economic Science

It is pointed out in the work that unemployment is a social-economic phenomenon characteristic of market economy, which, according to its economic essence, expresses excess supply of labor force in relation to the demand for it. This discrepancy can be expressed from both qualitative and quantitative points of view.
It is noteworthy that in Georgia structural unemployment becomes apparent not in the traditional sense, but is a result of regress of employment, while cyclic unemployment in present-day Georgia acquires an increasingly chronic character according to both its scale and duration.
A high unemployment rate that has an increasing tendency is characteristic of the labor force market of Georgia. Under these conditions the labor force in Georgia is undergoing a growing disqualification, the unemployed have less opportunities of finding a job and they have less confidence in capabilities of placement services. All this intensifies disproportions on the labor force market and inhibits its development. Various social-demographic and professional-qualification groups of the country considerably differ according to unemployment levels.
All this has a negative effect on social, economic and psychological state of the country’s population and requires taking urgent and effective measures for overcoming of these problems.

Government Regulation of Regional Construction during the Transitional Period
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Paata Chaganava

The purpose of the government’s interference with the regional construction is creation and maintaining of conditions under which maximum meeting of economic subject’s construction requirements with scarce regional resources would be possible.
Based on it, regional government should accomplish several tasks:
1. Protect a customer against low-quality products;
2. Create conditions for normal functioning of construction companies;
3. Create administrative-normative base for functioning of the regional construction base.
The forms of the state influence on the construction market can be conditionally divided into three parts:
1. Institutional policy (privatization, creation of regional administration bodies, guaranteeing of contracts, property protection, etc.);
2. Demand stimulation policy (placing of state orders for construction, creation of investment climate, etc.);
3. Demand stimulation policy (competition support, stimulation of technological progress, etc.).

The Issues of Indicated Planning of the Region’s Social-Economic Development
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M. Chanidze

The transitional period confirmed that in the process of transfer to market relations, which is contradictory and characterized by a number of peculiarities, the issue of the state’s economic role and its functions becomes especially relevant.
In order to impartially assess the role of economic planning and forecasting, it is necessary to consider some of its peculiarities. Why is economic planning necessary?
Against this background it is expedient to consider the peculiarities of indicated planning and its significant role in market relations during the transitional period.
The analysis of social-economic development of Ajarian Autonomous Republic of Ajara convinced us of relevance of the task of drawing up and realization of indicated plans for the regions’ development. In this connection I will touch upon some aspects. Indicated planning for social-economic development of the regions will give us an opportunity to fully study the local resources and the factors of acceleration of economic development. Forecasting of the ongoing processes makes it possible to more impartially determine the main reference points and practical mechanisms.
The above-mentioned method should be taken as a conceptual and methodological basis of the indicated plan. At the same time, taking into account the regions’ peculiarities, it is expedient to introduce certain corrections into it. In our opinion, it will be right to elaborate an indicated plan of social and economic development of Ajarian Autonomous Republic for 2006-2010, and set an economic objective in it. The analysis of social-economic development should precede it, which includes quantitative parameters, peculiarities (trends) of development of production and the social sphere. Based on it, forecasts of the resource potential, technical progress and integrated development will be elaborated.
The main objective of the indicated plan should be the priority of economic growth. The year 2005 should be considered as the reference point. The forecast determines the actual parameters of economic growth, which provide for sustainable growth of the economy, for instance, creation of favorable environment for the development of free enterprise, stimulation of export and import substituting production, attraction of investments, measures for social protection of the population, regulation of economic processes.
Planning and regulatory part of the indicated plan is very important. Special programs are central here, which in fact have the function of a connecting-link between the indicated plan and the state budget. That is why they contribute to increasing of program financing and purposeful use of state and other means.
The project of indicated plan of social-economic development of Ajarian Autonomous Republic should be elaborated by the Ministry of Finances and Economy of Ajarian Autonomous Republic together with other ministries and territorial administration bodies. Indicated planning requires coordinated activities. For this purpose it is necessary to create a department for forecasting and strategic planning under the ministry. After the approval of the indicated plan by the Supreme Council of Ajarian Autonomous Republic, it should be adopted by the Council of Ministers.

Peculiarities of Grouping in the Process of Social Studies
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R. Kinkladze

In the work, which deals with one of the important methods of social phenomena’s statistical research – peculiarities of grouping, the relevance of the subject is given, the nature of the signs, out of which a sign that is to be grouped should be chosen, is explained; the kinds of grouping methods are characterized, such as typological, structural, analytical ones, as well as the specificity of each of them in the process of grouping.
In our opinion, taking into account the aforementioned, quantitative and qualitative signs are used in the process of grouping, and grouping is characterized by a number of peculiarities. At the same time, noteworthy is the fact that, according to qualitative and quantitative signs of social data, in grouping it is necessary and purposeful to carefully select an interval (equal, unequal, big or small).
From our point of view, in social reality practice, the mentioned as well as other peculiarities should be given special attention and become the subject of research.

Georgia’s Fiscal Policy and its Effect on the Business Environment
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Romeo Saria

For proper analysis of the entrepreneurial environment it is necessary to consider the fact how the state contributes to the improvement of the business environment in the country.
There is a direct relation between economic policy of any country and the country’s economic condition, the level of its development. First of all, the country must have a realistic concept of economic development and a model orientated for economic development. All directions of the economic policy should be based on this concept.
Unfortunately, Georgia has not chosen a single model of economic growth. It is not fixed in any of the state platforms or economic document. General principles of the economic policy declared by the government’s economic team are identical to the so called “Washington Consensus Doctrine”, this doctrine was adopted in 1990s by the IMF for post-soviet countries. According to the doctrine, the task of the state is to provide for stability of the national currency, establishing of strict monetary control and implementation of mass privatization, in all other cases the state should at most refrain from interfering with economic processes. It is clear that implementation of this concept was justified in 1995-1998, but at the current stage it is not sufficient. The existing policy secures market equilibrium only, but it does not provide for supply of domestic product, positive trade balance and raising of the employment level.
The rate of social inequality in Georgia is very high, as early as in 2000 the research carried out by the UN revealed that 10% of wealthy people control 80% of the economy, while the rest of the citizens have to live on 20% of the GDP; more than a half of the population is on the verge of poverty. In short, the country has a sharp deficit of middle class citizens, and there can be no talk of creation of a self-regulating economy without formation of the middle class. That is why support of small and medium business should become the main economic priority so that broad stratums should have worthy incomes and could actively participate in market economic processes in order to provide for formation of a self-regulating economy by means of competitive and pluralistic environment.
The situation is complicated by the imperfection of the budgetary policy, it does not serve the purpose of rational and essential distribution of the GDP. It is true that the volume of the state budget has considerably increased in comparison with the past years, it exceeds 3 billion GEL, however, the structure of the supply has practically remained the same and is identical to the period of the former authority, the same percentage shares in financing of different spheres have been retained.
Nearly the largest specific share in the budget is occupied by the article that is officially called “expenses that do not relate to the main items” making up 16%, its volume is larger than it is envisaged for health protection, agriculture, energy, construction and manufacturing industry taken together. And what is most important, the budget does not envisage support for small and medium business.
According to the forecast of the Ministry of Finance, the volume of the state budget in 2009 will exceed 4 billion GEL. However, for the time being, business is hardly developing, the number of employed people and incomes of the population are not increasing. While the number of units that can be sold, which was an important source of budget replenishment, is constantly decreasing.
The existing tax policy has an undesirable effect on entrepreneurial environment. In spite of the fact that a new Tax Code has been adopted, the situation for broad groups of entrepreneurs has not improved. Georgia is the only country among the neighboring ones whose tax policy stipulates for rising in price of energy resources, fuel and modern technologies and makes them less available for the population and business.
Even in our old code the import of some kinds of modern technologies and agricultural machinery had privileges and was exempt from VAT. However, there is nothing of the kind in the new document.

Once Again Concerning the Issue of Better Use of Samegrelo’s Economic Potential
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Phati Shengelia, Candidate of Economic Science

The revolutionary events that have taken place in Georgia stipulated for transition of the economy of the country and its regions to secure development, which, in fact, means more effective use of our region’s economic potential and provision of its stable development from the angle of Georgia’s national economy.
Development of private enterprise and small business is the most important direction for inculcation of market relations in the region. With the purpose of stimulation of private enterprise, the country’s tax policy should be improved, more information should be given to both foreign and local investors concerning concrete investment programs, which will contribute to increasing of the volume of foreign investments and development of private business.
The region has a unique potential for the development of tourism – rich recreational resources, historic monuments, cathedrals, caves, waterfalls, mineral and balneal, resorts: “Tsaishi”, “Lebarde”, “Otsindale”, “Mukhuri”, “Menji”, “Anaklia”.
If the aforementioned resorts are organized in accordance with modern requirements, this factor will contribute to attraction of holiday-makers and increasing of both the local and the central budgets. For this purpose, the corresponding economic services should make do their best for attraction of funds to this sphere.
Unfortunately, a once much-talked-of issue of development of Anaklia port was disregarded in spite of the fact that it could make a big contribution to the development of the region’s economy due to advantageous geoeconomic and geopolitical location. According to specialists’ calculations, construction of a port complex with 5 million tons goods turnover and with practically unlimited economic territory is possible in Anaklia. From our point of view, the construction of Anaklia port will settle a lot of problems in the country, in particular: Georgia’s port potential will increase, since the port will be intended for handling of cargoes that require deep water. At the same time, the region’s scientific-technical potential will be employed, the issue of importing and exporting of goods from the region will be solved; the territory adjacent to the port will be improved, “Anaklia” resort will be revived, and, which is most important, budget revenues will considerably increase, which will promote the country’s economic progress.
The resource potential existing in the region gives a possibility to carry out the following arrangements: to organize processing and selling of drinking water from springs located in the region; it is known that water reserves in the region are practically unlimited and, as it has been established by laboratory examinations, it complies with the international standards. At the same time, now there is a great demand for fresh water on the international market. Transportation of water is possible through Poti port. In case of necessary financing, the country will make big profits out of exporting of fresh water. It is purposeful to establish production of organic fertilizers on the basis of large reserves of peat, dolomite and other clays in the region.