Inflation the biggest challenge in 2011

It looks like the biggest challenge in 2011 will be inflation. Officials have already made several public announcements to this effect. This issue could possibly cause some serious instability in the country and could even play the same role as the issue of corruption did during the last years of the Shevardnadze regime. The prognoses of a decrease in inflation had already been made by the end of the last year. President Saakashvili even gave an order to the government to elaborate immediately anti inflation program. However on January 25 2011, during the Q&A live session he openly admitted that the government has no levers to fight inflation. He also mentioned that the reason for inflation is the situation abroad. As Georgian media reports there is an impression in the country that the government has lost control of the problem and the figures of inflation could become very dangerous. Of course, inflation mainly hits the lower layers of the population. Further aggravating social problems, some analysts even predict the possibility of social explosion and unrest. Generally such developments are not profitable for the ruling authorities; however some analysts think that this is the case when the Georgian ruling party drives the events in this direction: against the background of social problems the people will demand snap parliamentary elections. And here the ruling party really has an advantage. So instead of 2012, the elections could be held either later this year. Thus the ruling forces will secure their victory and prolong its presence at power for yet another 4 years. Meanwhile in 2013, Saakashvili will change presidential armchair into the PM armchair and things will flow in the same way.

Meanwhile, the opposition as well as independent analysts protest against such an approach. They do not ignore the foreign factor, increase of food price worldwide but they add that the internal situation in the country is another cause of inflation. First, there are unreasonable expenditures of budgetary money, then there is the absence of real antimonopoly tools, and finally the new year process, increasing demand on GEL.

New Rights opposition party even convened a special conference where anti inflation plans were discussed and suggested by the opposition party to the government. The first suggestion is the return of the 2011 budget to the parliament for further discussion, second is certain adjustments on VAT; third is encouraging competition in the market and limited monopoly on the most demanded products in the market. Next comes the facilitation of development of business and last the insistence that more attention be paid to the development of agriculture. Not everybody likes this program. E.g. former member of New Rights Irakli Iashvili thinks that it is a risky step to decrease VAT. Professor of Economy Lado Papava considers that tourism development also stimulates inflation process as tourists introduce USD into the country buying GEL, buying food and thus stimulate the inflation process.

What step the government will take and what are its plans are not yet known, but something should be done for sure.