National economic strategy of protectionism

Kh. Bebnadze, M. Chikobava
The notion of production powers’ structure occupies the central place in the theory of mixed economy. The structure of the country’s production facilities determines whether the given country is a developed industrial state with a high level of individual consumption or a colonial feed adjunct of the developed western countries, while the structure of production powers forms the social-class structure of the society.
The motive force of the mixed economy’s mechanism is the end product – “consumer goods”, it provides for rotation of all rollers and cog-wheels of the real economy. And we shall not achieve anything if we do not overcome the stereotypes existing in us: we shall have neither science, arms, nor adequate living standard, happy families, healthy and cheerful generation. The current that feeds this economic electric motor and provides for its rotation is the population’s solvent demand. What can be the flow of current in the economic motor? – Sales. In market economy conditions financing of enterprises is implemented by means of sales only. Provision for selling of the domestically produced goods on the home market is possible only by implementation of a strict and consecutive protectionist policy.
The national economic strategy of protectionism is necessary so that to establish at least a partial control over the domestic markets and not to lose the still remaining technologies once and for all. However, the national economic strategy of protectionism is clearly insufficient for a complete revival of the economy destructed as a result of a faulty economic policy. The destruction is so large-scale that we shall not improve the situation only by means of manipulations with macroeconomic factors. We shall have to directly restore the production facilities by means of technical-economic projects, balanced enabling of the facilities and five-year plans.

the strategy of electronic commerce
Kh. Kakauridze, M. Sosanidze
Phenomenal development of the Internet that took place in 1990s is an unprecedented phenomenon in the history of communications and information technology. According to its content, the Internet represents a computer network’s chain and the number of its users currently makes up 300 million people in 170 countries.
The Internet has thoroughly changed many people’s thinking, their attitude towards fulfillment of work. Electronic commerce – a product of business activity, which applies digital means of communication.
Any product can represent the subject of “e-commerce”: various kinds of goods and services, real estate, bank product, information product, etc. The advantage of electronic commerce for consumers consists in the fact that it considerably saves their time spent on searching and purchasing of necessary goods. Electronic commerce creates a new form of organization of mercantile business – virtual shops, and offers selling of new goods and services under the effect of permanent competition. The structure of Internet shops is arranged so that a consumer is given a virtual basket in case he wishes to purchase more than one item, which makes it possible that a consumer should not order things separately. In our country electronic commerce appeared in 2002-2003. It is one of the most important Internet services.
One of the directions of electronic commerce is when relations are maintained between the companies. They can be large producers and medium distributors. Transactions in an electronic firm are conducted on so called electronic trade spots, the way it takes place with B2C scheme.
It is noteworthy that this kind of trade spots can already be found in Georgia as well, in particular it concerns the export-import market of wheat and grain, web site – In conclusion it should be pointed out that, from the viewpoint of consumers, electronic commerce is profitable and effective, since, by means of it, one can easily choose and purchase goods.

Investment environment in Georgia
N. Bebiashvili
The investment environment existing in Georgia is considered in the article. Eradication of the following negative phenomena contributes to creation of a favorable investment environment: political uncertainty, macroeconomic instability, high taxes, poor legal base, high level of corruption.
Georgia is a country with a low average level of incomes, but certain radical changes for the better in the GDP growth rates have been observed of late, which has been mainly achieved thanks to the construction of Baku-Tbilisi-Jeikhan oil pipeline and the South Caucasian gas pipeline. It should also be pointed out that GDP growth rates in the world are much lower than in Georgia.
According to the data of Heritage Foundation, in 2006 Georgia moved the 100th to the 68th place as far as the economy’s freedom index is concerned.
According to the data of Transparency International, in 2005 Georgia held the 130th place in the list of 160 countries according to the level of non-corruptibility, but other CIS countries occupy lower positions in this list.
Charts and diagrams depicting different ratings are also given and analyzed in the article.

Prevention of Currency Crisis in Developing Countries and Countries in Transition
Samson PKhakadze
On the foreign exchange market of almost every country from time to time have been usually observed the wide fluctuations in exchange rates. In some of the cases this could be explained by fundamental reasons, at some cases the cause is coming from non-fundamental reasons. Meanwhile, worsening of the situation on the foreign exchange market doesn’t always necessarily result in currency crisis. Still, sometimes economists have hard time to differentiate currency crisis from sharp worsening of the situation of the foreign market.
In developing courtiers and countries in transition is widely regarded currency crisis to define as a situation when domestic currency is devalued by not less than 25 % – which means that nominal exchange rate is depreciating vis-à-vis foreign currency and this exchange rate decrease is in access of 25 %. Though in some countries we have been observing that there was a significant pressure on the domestic currency, but local central bank wasn’t ready to devalue it’s currency and they it was defending exchange rate through depletion of foreign exchange reserves. Another tool that was applied by central banks in such scenarios was the increase in domestic interest rates, which, on the other hand, hampers the development of the real sector of the economy.
In general, one of the vehicles that prevents currency crisis is the return to the situation that was existed in 1960’s. This period was characterized by the restriction of capital movements within borders of the countries, so there are no movements of the large volumes of “hot money” between countries.
Second alternative in order to defend countries from currency crisis is a produced economic policy that should be executed by the country in search of elimination of crisis. Mainly, there should be no deviation in policy between exchange rates and fundamental data. Secondly, economic agents should trust the economic policy executed by government institutions. One of the reasons of economic and financial stability in 1990’s was not only prudent economic policies, but trust by marker players to the policy run by governments of concrete countries.
Third alternative for elimination of currency crisis is the movement to flexible exchange rate systems from fixed exchange rate regime. In such a case exchange rate may fluctuate within wider borders, though it won’t cause currency crisis as there was no obligation from the central bank to maintain exchange rate within fixed, agreed margins.
The fourth alternative shall be to create “Currency Boards” in which case central bank is loosing its independence to set up monetary and exchange rates policies. Ideal case for elimination of currency crisis will come when there is a single “world” currency used by all countries, though this won’t happen at least in a foreseeable future.

Cost of money in time. Six functions of compound interest
L. Kokiauri, Professor, N. Bebiashvli
Money has temporal cost, i.e. a ruble received today costs more than a ruble received tomorrow. It is so not only because inflation can lower its purchasing power, but also because a ruble invested today will bring a competitive income tomorrow. Temporal cost of money is an important aspect in taking of decisions in financial practice in general and in appraisal of investments in particular.
Calculation on the basis of a compound (cumulative) interest means that the interest added on to the original sum is joined tom it and adding on of the interest during the subsequent periods is made to the accreted sum. In this case the process of capital accretion takes place with acceleration. It is described by the geometric progression. The mechanism of accretion of the original sum (capital) by compound interest is called capitalization. In financial and economic terms capitalization is determined as the income rate on the invested capital. In appraising of real estate and investments this term acquires a somewhat different meaning, which is considered in the article.

the state system of guaranty and restriction for foreign investment
I. Kolbaia
From the viewpoint of stimulation foreign investments in the Georgian economy, provision of clear guarantees for foreign investors represents one of important issues, which, in its turn, implies protection of rights and interests of foreign investors. Protection of investors against possible expropriation and nationalization of property can be considered as the key component of the system of state guarantees to them.
Unhampered transferring of profit and other incomes abroad represents another form of provision of guarantees for foreign investors. Noteworthy is such a form of state guarantees for foreign investors as determination of the order dispute settling.
From the viewpoint of the country’s economic security, particularly noteworthy are the limitations that are determined by the corresponding standard acts and regulate the sphere of foreign investors’ activities.
On the basis of the analysis of the international experience and the Georgian legal base, the system of state guarantees and limitations for foreign investors can be considered, one the one hand, as the factor stimulating foreign investments, and on the other – as the mechanism for creation of a solid mechanism of the country’s economic security. At the same time, it should be fairly pointed out that, in spite of the legislation corresponding to the international requirements, attraction of the sufficient amount of foreign investments in Georgia does not take place. This problem, first of all, is related to formation of a favorable investment climate in the country.

result oriented budgeting as the basic principle of the new state managment
Tamar Zaalishvili
Based on the experience of other countries, preconditions and main postulates of inculcation of “the new state management” and one of its basic principles – result oriented budgeting – are considered in the article. The international practice shows us that the measures planned in the framework of the reform should be implemented in clear consecution taking into account the peculiarities of certain spheres and close coordination of the reform of the budgetary system with reform of the administrative structures (first of all – of public service) is necessary.
The new stage in reformation of the budgetary system by the Georgian authorities started with enabling of the Georgian Law on Georgia’s Budgetary System dated April 24, 2003. For the first time in the Georgian reality separate regulations of the mentioned law contain preconditions for inculcation of the state management and the of medium-term forecasting. However, taking into account the fact that the Georgian Law on Georgia’s Budgetary System is not an organic one and the general concept of the reform was not adopted passing of the law, the authorities’ decisions in relation to reformation of the budgetary system are taken in the process of elaboration and adoption of annual budget laws and by means of introduction of separate amendments in the budgetary legislation. In these conditions, the consecutive scientific analysis of reformation of the Georgian budgetary system becomes particularly relevant with the purpose of effective realization of the result oriented budgeting mechanism and, based on the requirement, consecutive inculcation of the new principles of state management. It is necessary to elaborate an effective mechanism for the appraisal and specification of the basic conceptual approaches of the reforms, with the purpose of which, first of all, the concepts of reformation of the budgetary process and administrative structures should be elaborated and adopted by the state bodies.

the essence, goals and tasks of the regional economic policy
N. Orjonikidze, Ts. Duruli
Independence regained by Georgia in 1990s stipulated orientation for absolutely different political, economic, social and legal values for the country’s further development. With the purpose of consolidation of the statehood, in the matter of provision for the country’s development process great importance is attached to implementation of the corresponding effective regional policy in the aforementioned directions. Among the mentioned factors, successful implementation of the reforms is very important, which, first of all, envisages creation of the institutional system characteristic of market relations.
During the Soviet period the economic policy was based on ideological norms. At the same time, the economic processes were mainly controlled by the central authorities and, correspondingly, participation of separate republics in this process was minimal. Thus, the necessity of independent determination of the economic policy for the first time emerged in Georgia during the transitional period. A fundamentally new approach to consideration of the problems related to economic development became necessary. At the same time, the process of post-soviet countries’ transition to market relations was not fixed prior to 1990s and, for this reason, in this respect there was no experience from either scientific or practical point of view.
Proceeding from the above-stated, very problematic and relevant is such an important direction of the economic policy as the regional economic policy and the corresponding formation and realization of its market requirements, concerning which there is a discussion in the given article.