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Georgia 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 (see
table 22, Appendix). 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.
Data as of March 1994
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