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Georgia
The Development Challenge
A flawed parliamentary election resulted in mass demonstrations and the resignation of President Shevardnadze in November 2003 - without bloodshed, and installation of an interim government. A new presidential election was held on January 4, 2004. Parliamentary elections will be held on March 28, 2004. USAID's strategy (FY 2004-2008) has focused on working more at local government and community levels, but USAID hopes to engage increasingly with the new Government of Georgia (GOG). The new leadership may create a favorable environment to resurrect reform proposals and USAID programs will support reform efforts of the new government. A major challenge will be ensuring political stability, economic growth and security. There will likely be a thorough reassessment of U.S. bilateral assistance. The government has formulated its immediate priorities and goals and is seeking donor support. As these goals are consistent with U.S. foreign policy interests, USAID will respond positively in areas where assistance will generate maximum impact. This approach will support Georgia's development as a stable, democratic country, increasingly integrated into the global economy, and a key U.S. national interest at this crossroads linking Russia, Iran, and Turkey.
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The peaceful transition of power was a very positive development. However, much work lies ahead. Georgia's business and political environment continues to be challenging. Corruption is rife, legislation is poorly enforced, and the industrial sector is beset by frequent power outages. In addition, special interests exert a marked influence over the government, and powerful vested interests continue to block reform efforts. Furthermore, Georgia's territorial fragmentation deters foreign investment. Political stability has been negatively affected by the unresolved territorial conflicts with Abkhazia and South Ossetia that displaced 250,000 persons. Relations with Russia have been strained. These factors have adversely affected the living conditions of the population. Today, 61% of Georgians live below the poverty line. The quality of basic social services such as health and education continues to decline. The energy sector is paralyzed by embezzlement, technical inefficiency, a low rate of collection, payment arrears, and heavy dependence on external sources of energy.
Strong economic growth of 8.6% in the first half of 2003 reflects construction work being carried out on the Baku-Tbilisi-Ceyhan oil pipeline. Growth is expected to remain at 8% in 2003, and rise to 10% in 2004. Despite the temporary boost to the economy from pipeline construction activity, the prospects for sustained, broad-based growth remain poor as investment is deterred by predatory tax enforcement, lack of adequate legal protection, pervasive corruption, arbitrary application of regulations, and unreliable energy management. The country's foreign debt has stayed roughly constant, at just under 55% of GDP, owing to the weakness of fiscal performance and to high trade and current account deficits. Fiscal performance still remains one of Georgia's most intractable problems, with tax revenues remaining among the lowest in the region.
The USAID Program: The Program covers six strategic objectives for which USAID is requesting FY 2004 and FY 2005 funds. These six objectives concentrate on: economic growth (agriculture, banking and financial sector reforms, and private sector development); energy sector reform; democracy and governance (promoting electoral reform, efficient and responsive local governance, civil society, and independent media); social development and health; human resources development; and special initiatives; e.g., anti-corruption and anti-trafficking. FY 2004 funds will be used to implement the current programs in agriculture, micro-finance, banking sector reforms, energy sector reforms, strengthening electoral processes, improving local government management, rule of law, community development, health and human resources development. Most of these programs have cross-sectoral implications. USAID also will use FY 2004 funds to start new activities in energy security, local government management, agricultural business development, and micro-finance. Increased programmatic emphasis will be put on anti-corruption activities, support for the 2004 parliamentary and presidential elections, anti-trafficking, and community development in potential conflict areas. Specific activities to be funded by FY 2004 and FY 2005 appropriations are described in more detail in the following Program Data Sheets.
Other Program Elements: Other programs funded by the Department of State and via FSA transfers to other USG agencies complement USAID's Georgia strategy. These programs include activities in public diplomacy, border security, rule of law, banking sector reforms, as well as tax and fiscal reforms.
Other Donors: Other donors in Georgia are the World Bank, the International Monetary Fund, the Government of Germany, the United Nations Development Programme, the European Bank for Reconstruction and Development (EBRD), and the European Union (EU). While donor coordination remains uneven, it has been satisfactory in the following general areas: poverty reduction/economic growth initiative, free and fair elections, banking sector reform, energy security, and health care reform. The World Bank supports projects in energy (including electricity and oil transportation), municipal infrastructure, and institution building. These programs complement several elements of USAID's programs. Similarly, EBRD programs in banking, small- and medium-sized enterprises, micro-finance, and the energy sector complement USAID activities in these areas. EU activities support institutional, legal, and administrative reform, food security, health care, border guards, and transport infrastructure. UNDP programs complement USAID activities supporting poverty reduction, democracy, and capacity-building of government institutions.
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