Wednesday, 27 November 2013

New Georgian Government Faces Political and Economic Uncertainties

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By Archil Zhorzholiani (the 27/11/2013 issue of the CACI Analyst)

On November 17, Giorgi Margvelashvili was sworn in as Georgia’s fourth president. Shortly thereafter, Georgia’s parliament confirmed Irakli Gharibashvili as new Prime Minister to replace billionaire Bidzina Ivanishvili on the post (see the 13/11/2013 issue of the CACI Analyst). In his inauguration speech, President Margvelashvili reasserted his commitment to democratic and Euro-Atlantic values. As he put it, Georgia has departed from its post-Soviet past and now is switching to a modern type of democracy that is centered on a European political culture.

Margvelashvili stressed the importance of international guarantees for the policies of non-recognition and de-occupation of the occupied territories. In this regard, integration with the EU and NATO as well as enhancing bilateral ties with the U.S. was declared priorities by the president. He also restated the new government’s pledge to engage in dialogue with Russia to underpin mutual confidence and overcome existing problems.

However, in an earlier interview with Russia’s Channel 1, the president-elect not only proclaimed his readiness to maintain an intensive dialogue with Russia but also completely ignored the question of the occupied territories. Moreover, he happily appreciated the congratulations from Patriarch Kirill, the head of Russian Orthodox Church, on his presidential victory, which in Margvelashvili’s words would encourage “people to people contacts between two orthodox Christian nations.” To the question of whether he was going to attend the 2014 Sochi Olympics, Margvelashvili responded that he had been considering the issue with his political team.

Meanwhile, PM Irakli Gharibashvili kept the cabinet of ministers intact, with the exception of the Interior Minister, and presented his government’s program to the parliament.

The parliamentary minority group, represented by the United National Movement (UNM), slammed the program, and especially its economic forecast. According to official figures, Georgia’s tax revenue will fail to reach the 2013 target as economic growth is far below the forecasted 6 percent, given the 1.7 percent growth of the economy in the first nine months of this year. In October, UNM anticipated a budget cut before the end of the year. Although the government eventually admitted the shortfall in revenues in November, the Minister of Finance, Nodar Khaduri, dismissed the rumors about an upcoming budget sequestration.

Against this background, Gharibashvili was asked numerous questions regarding the slowdown in economic growth at the parliamentary hearing. Reading out from his notes, the PM elucidated that the previous years’ economic growth was based on state-funded large-scale infrastructure projects with a one-time and short-term effect, and that economic growth started to plummet in summer 2012, before Georgian Dream (GD) came into power.

This assertion was, however, challenged by UNM MP Zurab Japaridze, who asserted that the indicator of economic growth was 7.5 percent in the third quarter of last year. Although the slowdown started in June, the figure fell to 2.8 percent in the fourth quarter of 2012 - not before but after GD held the office.

The new cabinet also argued that the economic difficulties are an effect of the difficulties of cohabitation process and the destructive actions carried out by UNM, a claim dismissed by UNM MPs as an attempt by the government to avoid responsibility as the opposition has not had the power to influence economic processes. 

The opposition also expressed concerns regarding the government’s decision to issue GEL 400 million worth of treasury bills on the domestic market next year. When asked by UNM to explain the purpose of the loan, Gharibashvili said that it would be released to “repay obligations taken by you.” However, the parliamentary minority insists that the government is taking an internal loan to ensure funding of healthcare and pensions. In sum, the opposition assessed the economic part of the new government’s program as ambiguous and failing to identify precise economic measures to address the economic stagnation.

While the economy is set to be the most crucial issue for the new government, the new government’s foreign policy also implies controversial choices. Margvelashvili’s inauguration speech did emphasize the non-recognition and de-occupation policies regarding Abkhazia and South Ossetia. However, his silence on occupied territories and the return of Internally Displaced Persons during the interview with Russian Channel 1 may suggest that, from a GD standpoint, intensive dialogue with Russia does not necessarily mean discussion of the most problematic security questions. Without a coherent standpoint on these issues, however, “normalization” of relations can only be considered at the expense of Georgia’s territorial integrity.

Moreover, the case of Ukraine suggests that Russia will never tolerate Georgia’s integration with the European economic space. Thus, it is not clear how the Georgian government is going to reconcile two contradictory foreign policy objectives, especially in light of the economic slowdown. 

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The Central Asia-Caucasus Analyst is a biweekly publication of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Transatlantic Research and Policy Center affiliated with the American Foreign Policy Council, Washington DC., and the Institute for Security and Development Policy, Stockholm. For 15 years, the Analyst has brought cutting edge analysis of the region geared toward a practitioner audience.

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