Announcement of World Bank Support to Georgia's Economic Reform on March 31, 1995

The World Bank 1818 H Street, N.W., Washington, D.C., 20433, USA IDA News Release No. 95/50ECA Contact: Jan Pakulski (202) 473-1797 WORLD BANK SUPPORTS ECONOMIC REFORM IN GEORGIA WASHINGTON, March 31, 1995 -- The International Development Association (IDA) approved yesterday a credit of SDR 51 million ($75 million equivalent) to assist the Government of Georgia implement its reform program and foster economic growth. Georgia, among the first republics of the former Soviet Union (FSU) to declare independence, has a population of 5.4 million people in an area of 70,000 square kilometers, bounded by the Black Sea, Russia, Azerbaijan, Armenia, and Turkey. At the time of independence in April 1991, Georgia was a relatively well-off republic with good growth potential. Since independence, however, Georgia has suffered severe economic decline caused by the intense conflict in Abkhazia and other parts of the country. A cease fire is now in effect and an agreement involving Russia and the United Nations has been signed to resolve the civil conflict. In early 1994, the Government began to consolidate control over the country and renewed its efforts to rebuild the economy through market-oriented reforms. Over the last few months, the Government has demonstrated its commitment to reform and taken appropriate measures that include a sharp reduction in subsidies for bread and transportation, an adjustment of energy prices to cost recovery levels, tightening of monetary and credit policies, and an acceleration of the privatization process. The main objective of the proposed credit is to support the Government's economic reform program aimed at restoring macroeconomic stability, promoting growth and improving living standards. The reform program comprises three sets of policies that: (a) aim at reducing and redefining the role of the public sector in the economy; (b) foster the development and increased efficiency of markets; and (c) maintain a minimum social safety net through improved targeting of benefits. Among the key reforms are price and trade liberalization: phasing out of the state order system; restructuring of the Government sector; and private sector development; and improved targeting of social benefits. Other objectives include: (i) budgetary support to maintain the level of public expenditures, in particular for wages and the social safety net; (ii) foreign exchange for the purchase of vital imports; --- more --- Archives/Records Center, H B1-001 ( 1) (iii) improving the functioning of the foreign exchange market; and (iv) a framework for financial assistance from other donor agencies. The credit will be disbursed into a Ministry of Finance (MOF) foreign exchange account with the National Bank of Georgia (NBG). The NBG will withdraw the foreign exchange as and when needed to meet market demand from both the public and private sectors and will reimburse the MOF at that time with the equivalent local currency at the market exchange rate. The Deputy Prime Minister responsible for economic reform will oversee, coordinate and monitor implementation of the policy reform program and will be assisted by the ministries concerned, including those of Economy, Finance, Agriculture and State Property Management, Labor and Social Protection and the NBG. The credit is extended for 35 years, with a grace period of 10 years and carries no interest rate. IDA is an affiliate of the World Bank, established to provide assistance to the world's poorest countries on highly concessional terms. Georgia joined the World Bank in August 1992 and IDA in August 1993. ---0 ---