Georgia - Economic Reform

Economic reform

Like all the former Soviet republics, Georgia recognized the need to restructure its economic system in the early 1990s, using national economic strengths to accommodate its own needs rather than the needs of central planners in Moscow. The road to reform has been full of obstacles, however: poor political leadership, the economic decline that began in the 1980s, civil war, and a well-established underground economy that is difficult to control.

Price Policy

Gamsakhurdia understood little about economics, and he postponed major economic reforms to avoid weakening his political position. In an effort to maintain popular support, he stabilized fares for public transportation and prices for basic consumer goods in state retail outlets. In March 1991, a new rationing system bound local residents to neighborhood shops. In April 1991, price controls were imposed in state stores. Price liberalization began only after Gamsakhurdia's departure as president, and it did not cover several basic consumer goods and services. Continued food subsidies were an additional factor contributing to the national budget deficit. In the interest of stimulating competition, a government decree removed restrictions on trade in May 1992, and at the same time taxes were eliminated on goods brought into Georgia. Persistent shortages of bread led the government to introduce ration cards for bread in December 1992. Under these conditions, inflation soared in private markets in 1991-92, although prices remained substantially lower than in Moscow for similar items.

In 1993 wholesale prices increased especially quickly under the influence of falling productivity. In the second half of 1993, the construction industry was hit hard by increases in the cost of materials of up to thirty times, although gasoline prices rose only gradually. The prices of heavy engineering and ferrousmetallurgy products rose by three to five times in the second half of 1993.

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