Cut the coat according to the cloth…

By Ambrosi Grishikashvili

After the Social camp split up and the countries that made it up chose liberal economic policy as a way for their development, payments deficit was one of the most important problems for almost all of the countries including Georgia,.

Exceptions are the two countries (Russia and Turkmenistan), that own an unlimited number of natural resources (oil, gas) and that due to the export of these resources, manage to overcome negative deficit in the payments balance and in some cases, to preserve positive balance,
Georgia is a classic example of the country with this kind of deficit in payments balance. Ever since our country reached independence, each year ended in an impressive deficit that increased yearly.
The negative balance of export-import in 1994 made up 363 million dollars, in 1995 it made up 421 million, in 1996 ? 488, in 1997 ? 703,7, in 1998 ? 693 million US dollars. The mentioned index has decreased of late years. Namely, in 1999 it made up 363,8 million dollars and in year 2000 it amounted to 370,3 million US dollars (we will later point out that the quick improvement of this index was not so much caused by an increase of economic activity and export production, but rather by other non-economic factors).
As a rule, export revenues must serve as a source of import. The country has no other source of import. In other cases, there is a possibility of import cover through foreign loans (with this purpose, loans from the Currency Fund are assigned to stabilize the exchange rate of GEL). Of course, these loans are by no means presents and will prospectively turn into burden for the Georgian population.
As for covering import by export in Georgia, the index is as follows: in 1996 export revenues covered import expenses by 28,9%, in 1997 ?by 25,4%, in 1998 ? 21,7%, in 1999 ? 39,6%, and this year by 42,7%.
In view of the fact, we should say the following: In Georgia, as well as in the whole world (the number of it is even higher in our country), the movement of unregistered goods either in export or in import field should be taken into consideration. So, the fiscal burden lies principally on import (almost in all countries it is taxed comparatively higher than export. The latter is tax exempt with the purpose of stimulating this sphere), unregistered imported exceeds unregistered export.
As mentioned above, the deficit of payments balance is caused not so much by an increase of economic activity, but rather by other factors. But for these factors, the negative payments balance would be high. Actually, in year 2000 payments deficit exceeded the figures indicated by Statistic Service of our country. Strange as it is, operations like export of Russian military technique were referred to the country’s export potential. The cost of the Russian military technique ? 44 million dollars, will not influence positively our country’s payments balance (all this testifies to the fact that our statistics is behind the time so it is difficult to make analysis in accordance with these figures).
Proceeding from the above-mentioned, we have to view the situation as alarming and to take measures that will help us to avoid undesirable consequences. In view of this unfavorable situation the country has to obtain external bonds, which serves to deteriorate its economic situation and to threaten its independence (domestic and external debts of Georgia have already exceeded $2 billion. External debts make the “lion’s share” ).
In this situation it is necessary to take protective measures that must be aimed at imposing high tariffs on some kinds of goods ( f.e. luxury goods). Our population will not purchase a large quantity of these goods. In case it will do so, the budget will gain profits out of it.
In view of the fact, we would like to mention a well-known English economist James Hilding. In his book “A way to the customer” he says: … we need imported goods. There is nothing bad in it. But it is hard to put up with such an expansion of imported goods. There are many reasons for it. The most important problem is lack of qualitative production that would be able to meet competition of the production of Japan and other countries.
It is noteworthy that in the 20-th years authorities of independent Caucasian Republics (in the period when all the three countries ? Georgia, Armenia and Azerbaijan formed part of one federal state) were aware of the danger of such a situation. Namely, in 1918 leaders of the mentioned states considered restriction of luxury goods import and prohibition of capital outflow as one of the principal financial economic measure. They were well aware that as the Enlightenment Representative Montesque wrote: “The state which exports more than imports, keeps balance at the expense of its impoverishment. It will import less and less goods until, completely impoverished, it will not be able to import anything.
Incidentally, this practice is quite popular in the countries that promote the development of national economy and avoid dependence on foreign states. F.e. the US President Roosevelt resorted to such economic policy in the 30-th years. When the country was in the crisis, he was the first in the epoch of “Pure Capitalism” who thought it necessary to strengthen the role of state in regulating economic processes. He used principles of planning and he banned foreign rivals from penetrating onto the US market, etc. Roosevelt gave priority to the production of domestic products, appropriated subsidy to the farmers. The country managed to overcome the crisis by means of this policy.
It is noteworthy, that in the new time “Asian tigers” pursued such a policy until they managed to overcome economic crisis and achieve recovery. In the 60-th years in the initial stage of economic recovery, import became restricted in the South Korea. F.e. in this period there was only one American car in the country that belonged solely to the Embassy. The rest of the cars were of national production. All other goods were Korean – they were displayed in the commodity markets. You could also find Japanese goods in the shops. Yet, hardly anyone could afford buying them on account of high prohibitive taxes. F.e. if you wished to buy a Japanese television, you had to pay the cost price and 150% tax. As for American cars, you had to pay the double price plus 250% tax.
Yet, Koreans never denied imported production. A great number of joint ventures (Korean-Japanese, Korean-American, etc.) were established. F.e. American or Japanese goods (cars, televisions, etc.) that were manufactured in the South Korea were sold at an agreeable price.
South Korean policy could serve as an example for Georgian national economy. We do not at all oppose the acquisition and consumption of imported goods (national production is far from this level nowadays).
Yet, in this state of affairs, when one part of the population buys imported goods and another part of the population cannot even afford buying food, this situation cannot be described as incorrect economic policy, but rather as a social injustice. Foreigners in Tbilisi can hardly imagine that a great part of population struggles with poverty in the country which abounds in foreign expensive cars and where almost every passer-by has a mobile in his hand. We can not but call to mind the old moral saying:
Dunghill, put together, stinks
Dunghill, scattered, fertilizes the breeze
When I write this, I call to mind recollections of a Georgian businessman: During Shadman Valav’s (representative of the Currency Fund) visit here, businessmen came to him to discuss the question of reducing taxes. During one of the entractes, Valavi came up to him, led him to the window and said: Look, the street is full of cars, and you say that there is a severe economic crisis in the country.
We would like to finish our conversation with this Chinese saying: It is a shame to be rich in a poor country and it is a shame to be poor in a rich country.
Restriction and rationalization of the country’s import policy is important in order to protect some priority branches of national economy. Autarkic economy is a damage to the country. It keeps national production from becoming competitive, but I am deeply sure that this kind of liberalization will not give the country a chance of development. The overseas experience as well as ours is an example of it. But for some sort of protectionism, could the local agricultural industry withstand competition of that of America or European Union where half of the production cost is subsidized; could the light industry withstand competition of French and Italian production that was developed in the conditions of laissez faire and acquired a great experience of producing goods. Almost all developed capitalist countries used this policy during the initial stage of capitalism development. Nowadays, they produce all kinds of production in surplus; the most important problem for them now is realization of the goods. Thus, they force us as well as the whole world to pursue liberal economic policy.
In conclusion, we would like to give another example: in the beginning of the 80-th, Ireland that was already a member of European Union, developed a package of measures that, on the one hand, were aimed at protecting the local market from imported production and on the other hand, at stimulating export.
Namely, in accordance with this program, the government of Ireland gave the necessary free information on business sphere to all legal and physical persons, provided assistance in advertising manufactured goods, etc. In parallel, customer reclamations of local goods were registered with the purpose of making basic analysis and improving the level of service. Yet, the government of Ireland did not make any prohibitions against the purchase and consumption of imported goods. In spite of it, the European Commission blamed the Irish Government of breaking the rules of the Union (we mean the rules of free trade among the Union members).
The European Commission referred the matter to the tribunal of European Court which decided that in this case priority should be attached to the laws of Euro commission.