BACKGROUND: Georgia’s foreign debt has increased to more than US$1,700 million. At the same time, Georgia\'s trade deficit in the first six months of 2005 was more than US$500 million. The country is not making hard currency while its debt to foreign creditors is growing. In September 2005, the World Bank approved another cache of loans for Georgia in the amount of US$143 million for the 2006-2009 period. The loan is earmarked for economic growth, job creation, and strengthening of public sector. While the fulfillment of these projects is a theoretical possibility, Georgia faces a real danger of falling into a debt spiral, which would further undermine the country’s economic base. The current debt, accumulated over the 14-year period since 1991, is at the rate of more than $120 million a year. Less than 10 percent of this amount would have been sufficient to improve job creation and eradicate poverty. In June 2005, the International Monetary Fund cited \"real GDP growth of 6.2 per cent in 2004.\" However, with a growing foreign debt and a disproportionately large trade deficit for a small country, this economic growth is mostly fuelled through loans and aid coming from foreign sources. According to the publisher of the Resonance daily, there is almost no internal investment and business development in the country. Georgia experienced growth in domestic business enterprises in 1997-1999, but since then there has been a steady decline, and the revolutionary regime of Mr. Saakashvili has not been able to reverse it. The Government’s reconstruction projects mostly include non-productive infrastructure: rebuilding roads, repainting buildings, and repairing schools. Although all these help to improve the basic infrastructure of the country and the image it presents to visitors, they are not nearly enough to address the real issues of economic devastation, deep poverty and hardship. Georgian regions outside Tbilisi have suffered a tremendous economic decline since the beginning of the 1990s. The economic situation has gotten even worse with the Saakashvili administration, with unemployment rising and residents of rural areas getting further impoverished. According to residents of the Guria region in western Georgia, they mostly survive through subsistence farming, and whatever little cash they make comes from the hard work they perform for a very little pay during summer months. Guria was one of the wealthiest regions in Georgia and the former Soviet Union; now the vast majority of its residents make less than one dollar a day. According to Georgian press, the agricultural sector in the country faces a serious crisis. There is a danger that farmers and peasants in eastern Georgia will abandon the tradition of grape harvesting. In 2004, a lot of grape harvest went to waste, and this year the farmers are facing the same prospect. In western Georgia, similar problems exist for growers of citrus cultures, especially in the Ajara Autonomous Republic, which until last spring was under the authoritarian rule of Mr. Aslan Abashidze. Mr. Abashidze, who is in self-imposed exile in Moscow, was deposed through the efforts of local population and pressure from Tbilisi. The people of Ajara invested a lot of hope and trust into the new government of the region, appointed by Mr. Saakashvili. However, so far this government delivered very little to rural residents of the autonomous region.

IMPLICATIONS: To escape hardship and poverty, the rural population pursues illegal and extralegal logging operations. Georgia, as a mountainous country, is wealthy with forests and rivers. However, clear-cut logging operations are often conducted without any planning and nearby densely populated villages. This contributes to the rise of flooding and landslides in the country. This year witnessed the highest number of major floods and landslides in Georgia’s recent memory. In spring, the second largest city, Kutaisi, was flooded by rising waters. In spring and summer, flooding and landslides were experienced in almost all parts of Georgia. In Svaneti, the regional centre Lentekhi was almost completely destroyed, and some villages were fully erased from the map. In August, major floods and landslides were registered in Guria and Ajara. Ironically, in one case in Guria floods and landslides damaged and destroyed property of local small logging companies. Illegal logging is fueled by demand in neighboring Turkey, very cheap Georgian labor, and rising local demand for firewood. Increasing numbers of city residents, and the vast majority of rural residents, use firewood for winter heating. Eighty percent of residents in Georgia’s regions do not have access to natural gas – which is either unavailable or unaffordable. Natural gas will become even more expensive before this winter: as retaliation for the aborted privatization of the Georgian gas pipeline system, the Russian gas giant Gazprom is planning to double the price of natural gas it is supplying to Georgia. Hardship and economic devastation is accompanied by the spread of illiteracy and crime. Many families in rural areas cannot afford to send children to school – they don\'t have winter shoes and/or clothing, do not have access to school supplies, or children have to work to support their families. Georgia had close to 100 per cent literacy in the beginning of the 1990s. According to research published by Prime-news agency in August 2005, currently about 20 per cent of young people cannot read and write. Crime is on the rise as well. A significant number of crimes committed are basically thefts of food and minor property – anything that could be sold at local markets for few laris. Violence among family members is also rising significantly, and the major cause of this is quarrels over money or material resources. According to the Ministry of Interior, in 2004 there were 302 murders registered in Georgia, and in the first three months of 2005 there were 65. The Ministry of Interior does not offer separate statistics for domestic violence, but Georgian news media estimates that a large number of these murders are committed among family members vying for limited resources.

CONCLUSIONS: Despite all these facts, there are developments that give reasons for optimism. The signing of a compact between the governments of the United States and Georgia under the U.S.-sponsored Millennium Challenge Corporation (MCC) on September 12, 2005, during the visit of the President of Georgia to the United States for the UN summit, will no doubt help to alleviate certain problems that mainly stem from bad administrative and managerial decisions by the Georgian government. For instance, the compact, which allocates more than $295 million over a five-year period, prohibits selling of the main Georgian gas pipeline, and earmarks about US$49 million for its rehabilitation. Earlier in 2005, the Georgian government had been getting ready to sell this strategic pipeline to Gazprom. The compact, which also addresses problems of economic development of Georgia’s regions as well as private enterprise, is the most important economic aid project offered to Georgia since its gaining independence from the Soviet Union in 1991. In its scope and magnitude, the Millennium Challenge Corporation is the most important global economic initiative by the U.S. government since the creation of the Bretton Woods system in 1945. The success of the program will depend on the effective management of the projects not only in Georgia but in other beneficiaries of the MCC: these nations are not only very poor, they are also very corrupt. AUTHOR’S BIO: Dr. Lasha Chantouridze is as Research Associate with the Center of Defence and Security Studies, University of Manitoba.