What can protect Georgia from world crisis of 2016
At economic forum in Davos, Joe Biden, one of the wisest men in the world told the businessmen not to export their capital, money from the country and conceal it in offshore banks for tax evasion and thus benefiting their shareholders and robbing and weakening the state, their country. They should return that capital back, to their country and benefit their co-citizens, the state and they would promote their business.
This was the key-note of Davos forums for last four years. Yes, there are additional questions at each meeting, for example, at this meeting the fourth industrial revolution 1 , the issue of climate warming in unusually frosty Europe, oil prices and expected deep financial crisis etc. But the main issue is offshore and concealed capital and amnesty!
It seems that the world crisis and a deep one is inevitable. I remember clearly, speech of the Lehman Brothers’ CEO, in 2007, at Davos meeting. He, the world’s smartest man shared his experience with the world and the entire world listened carefully and with great respect to him. In few months, the same world called him a fool and stupid and thought that he was the cause of all problems!
Crisis of 2007-2008 was basically a banking crisis. But the banks became smarter, they have gained some experience and reserves and a new crisis will not be a banking one! This will be a crisis of financial markets and companies, primarily the oil companies that are preparing to sell their assets and this is the part of their survival. The experts have even named the upcoming crisis – the leverage crisis! Only those who have cash will survive! 1 According to the experts’ prognosis, soon almost all electric equipment will be connected through virtual network and they will exchange information between one another. As a result, absolutely new management opportunities will appear, based on so called cyber-physical processes, so called smart production will further increase production effectiveness and accelerate technological development. Absolutely new services will be created for the client and this will further simplify human life. And the key of success will be these technologies-based information systems, as well as the source of new jobs in our epoch. Currently these are banks having “cash”, especially the US banks and these banks are getting ready to purchase the shares in oil companies and at low prices, in the crisis period.
All great experts recommend the businesses to convert to cash and close all and especially short positions, as far as possible. World declares full mobilization of “cash”. In such international situation, Georgia, placed in the most complex regional environment, due to currency & financial collapse in Russia and Azerbaijan, devaluation of Turkish lira, embargo from the side of Russia and sanctions against Russia, make the strict, maybe unpopular but necessary step – announce full financial, fiscal amnesty as of 1 January 2016 and retrieve Georgian capital from the offshore banks. This is discovering the continents again, example of Italy is the best one – Italy has implemented amnesty 4 times, since 2000 and in aggregate it has returned Euro 160 billion. One could say that this is giving up, to certain extent but there is no any other way out in this critical situation!
Though Italian and Georgian fiscal systems are entirely different, due to high political risk, significant capital was exported from Georgia for the last 25 years. And we should jointly implement amnesty for everything done for these 25 years according to the Italian scheme – i.e. 3% of imported capital will be subject to taxation at the bank where it is transferred to and the money is regarded as invested and amnestied. This repatriation will be performed by Giulio Tremonti, the Minister of Economics of Italy. Tremonti’s idea was that any Italian person, having money in offshore banks, could transfer it to Italy at 3% and invest it without any sanctions. Similarly, any Georgian could transfer 3% tax to the bank and be free of any sanctions. The document issued by the bank and 3% tax paid to the budget, at the same time, can be a declaration.
Declarations, produced by the banks on the basis of money transfer could be the basis for guaranteeing the tax amnesty and free management of the money. Together with the tax amnesty, this could be the act of overall conciliation of Georgians and contribute not only to strengthening of lari and creation of jobs but also creation of the legal business stratum of the middle class and expansion of democratic processes.
I think, in this way, at the first stage, Georgia will be able to raise about USD 3-5 billions and this will be quite sufficient to maintain lari exchange rate at 2.2 level, create 50.000 new jobs and economic growth reached 7% mark in 2016-2017 period. Opponents of this idea would say that this can impact the elections but this is not right – legal processes are much more acceptable than offshore bank accounts. Today, the issue of Georgia’s survival and its formation as a state is on agenda and in this respect, the only remedy is full fiscal & financial amnesty and this would allow full avoidance of the upcoming crisis.
Academic Doctor of Economics,
Professor, Tbilisi State University