Thursday, October 25, 2007, #204 (1471)

Georgia suffering from Dutch disease, former economy minister argues
By M. Alkhazashvili
(Translated by Diana Dundua)

The strengthening of the GEL, while inflation and consumer prices increase, leads some economists to suggest Georgia is experiencing symptoms of the economic “Dutch disease.”

Dutch disease is the notion that a large inflow of foreign currency into a country will strengthen the local currency, in turn de-industrializing the economy by putting manufacturers at a disadvantage.

Since the Rose Revolution in 2003, Georgia has seen an influx of foreign currency investments, mostly in USD. The government is not managing the effects of this properly, former economy minister MP Lado Papava claims.

The National Bank of Georgia limits the flow of foreign currency into Georgia to prevent a rapid strengthening of the GEL and, in theory, reduce inflation, the newspaper Akhali Taoba writes.

However, Papava suggests the administration should be doing more to maintain a budget surplus and help curtail the apparent economic symptoms of the condition.
 
“Unfortunately the government does not do this. It continues running a state budget deficit, spending the amount gained from the privatization drive,” Papava explains in the newspaper Ekonomikuri Palitra.



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