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U.S. DEPARTMENT OF STATE
GEORGIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                             GEORGIA

                     Key Economic Indicators


                                     1992       1993      1994

Income, Production and Employment:

GDP (1990 prices/bil. rubles)        9.87       5.92       N/A
GDP Growth (pct.)                   -50.1      -40.0       N/A
GDP (current prices/bil. rubles)    149.2    1,522.9       N/A
By Sector:
  Agriculture                        77.7        N/A       N/A
  Industry/Manufacturing             26.1        N/A       N/A
  Energy/Construction                 9.3        N/A       N/A
  Rents                               N/A        N/A       N/A
  Financial Services (crediting)      6.8        N/A       N/A
  Other Services                      N/A        N/A       N/A
  Government/Health/Social
    Security/Education/Defense       48.3        N/A       N/A
  Net Export of Goods & Services      N/A        N/A       N/A
Per Capita GDP
  (current prices/rubles)          27,300    280,800       N/A
Labor Force (000s)                  3,138      3,100       N/A
Unemployment Rate (pct.)              6.1        8.4       N/A

Money and Prices:  (annual percentage growth)

Money Supply (M2/bil. coupons)         72      1,834       N/A
Base Interest Rate (pct.)               0         40       700
Personal Saving Rate                  N/A        N/A       N/A
Wholesale Inflation                   N/A        N/A       N/A
Consumer Price Index                  846     11,372    40,601
Exchange Rate
  Official (rubles/USD)             193.2          0         0
           (coupons/USD)                0     12,280   824,928

Balance of Payments and Trade:
(Millions of U.S. dollars unless otherwise noted)

Total Exports (FOB 1/               86.80        466       465
  Exports to U.S. 2/                    7          0         0
Total Imports (CIF) 1/             183.20        795       739
  Imports from U.S. 2/                 15         37      87.6
Aid from U.S.                           0        159         0
Aid from Other Countries                0          0         0
External Public Debt                  N/A        860       N/A
Debt Service Payments (paid)          N/A        N/A       N/A
Gold and Foreign Exch. Reserves       N/A        N/A       N/A
Trade Balance 1/                   -96.40       -329      -274
  Trade Balance with U.S. 2/           -8        -37     -87.6


N/A--Not available.

1/ Figures for 1993 and 1994 are U.S. Treasury Department
estimates.
2/ 1994 Figures are estimates based on January-October data.


1.  General Policy Framework

    The economic reforms being carried out by the Government of
Georgia aim to reduce inflation to single digits by the end of
1994, arrest the decline in output by accelerating systematic
reforms, promote private sector activities, improve the gross
external reserve position of the National Bank, and provide
social assistance to society's most vulnerable groups.  The IMF
granted Georgia a $40 million Structural Transformation
Facility loan in December 1994 to support its reform program.

    However, in 1994 economic decline continued in Georgia.  In
July, only 80 percent of 1,362 registered industrial
enterprises reported to the government.  Total industrial
production fell by 49.5 percent compared to the same period
last year.  Production of paper, manganese, wool yarn, milk,
and soap increased, while production of the 70 remaining
Georgian products decreased.  Production declined due to
interruptions in energy supplies from Russia, Azerbaijan and
Turkmenistan.  In October 1994, Turkmenistan cut the delivery
of gas on a credit basis because of unpaid Georgian bills. 
According to most estimates, the underground economy is greater
in size than the official economy.

    The crisis-in-payment system in Georgia and between Georgia
and other NIS countries made it very difficult to maintain
trade links with other countries of the former Soviet Union. 
At the same time, a chronic fiscal deficit and the National
Bank's subsidizing monetary policy led to hyperinflation with
prices increasing roughly 60 percent a month from mid-1993
through mid-1994.  About 80 percent of the deficit was caused
by spending on electricity, natural gas and bread.  Spending on
education, science, and administration did not exceed three
percent of GDP.  Under the IMF program, the cash budget deficit
was to be reduced to 3.8 percent of GDP, bringing the deficit
for the year down to 9.1 percent of GDP, still quite high but
about a quarter the 1993 figure.

    Since September the value of the coupon has fluctuated
significantly, but has maintained an upward trend, rising from
2.5 million coupons = 1 USD to 1.5 million coupons = 1 USD. 
High inflation was responsible for the currency's collapse in
value during the first three quarters of 1994, which increased
the use of rubles and U.S. dollars in Georgia.  Improved
financial policies seem to have begun to reverse this trend, as
reflected in the improved exchange rate, and may increase the
public's willingness to use the national currency.


2.  Exchange Rate Policy

    In July 1993 the National Bank of Georgia modified its
fixed official exchange rate system after the Central Bank of
Russia withdrew Soviet rubles from circulation and moved to a
floating exchange rate regime.  The official exchange rate of
the interim currency, the coupon, against other major
currencies is determined by the Interbank Currency Exchange. 
This is the only currently operating exchange market, 
established in April 1993 as a counterbalance to the Caucasian
Exchange, where the actual exchange rate was defined.  The
banknote rate is defined at the currency exchange kiosks, which
need to have special permission to do so.  The banknote rate
exceeds the cash rate usually by 15-18 percent.

    In October 1993 the coupon traded at 21,000 = 1 USD, and in
October 1994 the rate was 2.4 million coupons = 1 USD.  The
Interbank Exchange operates twice a week.  Gross volume of
coupon-dollar trading increased from 50,000 USD to 250-300,000
USD a week.  There is a requirement to surrender 35 percent of
foreign exchange earnings at the exchange rate determined by
the Interbank market auction.  Nonresidents may hold both
foreign exchange and local currency accounts and may freely
transfer these balances offshore.  However, individual Georgian
banks may have difficulty transferring large amounts due to a
foreign exchange shortage.

    As a rule, the National Bank of Georgia is the only seller
of hard currency on the exchange market.  However, trends since
September 1994 show that since Interbank Currency Exchange is
the only operating currency market, banks are more willing to
participate as sellers.

    Neither the foreign exchange system in Georgia nor exchange
controls have any impact on the price competitiveness of U.S.
exports.


3.  Structural Policies

    Pricing Policies:  The government freed most prices in
February 1992.  In response to IMF and World Bank requirements,
the Cabinet of Ministers of Georgia increased prices of
electricity and natural gas to world market levels, and bread
prices are scheduled to be raised to reflect full market cost
by the end of December.

    Tax Policies:  The parliament adopted a new tax system in
December 1993 which is composed mainly of four taxes:  a 14
percent value-added tax (VAT); a corporate profit (income) tax
with a 20 percent rate for enterprises, a 10 percent rate for
construction enterprises, and a 35 percent rate for banks;
excise taxes of up to 90 percent on the price of goods; and a
personal income tax, progressive in nature but not strictly
enforced.  Other important sources of government income are
customs duties, a two percent import tax, an eight percent
export tax rate, a 20 percent tax for bartered goods, and a
fixed tax levied on the currency exchange kiosks.   The
government plans to increase VAT up to 20 percent, import tax
up to 12 percent, and to eliminate export tax.

    Tax collection is severely undermined because of inflation,
decline of government authority and corruption.  In the first
quarter of 1994, VAT and excise taxes constituted only 2.3
percent of GDP.  In 1994 the government ruled without an
adopted budget, with a 46 percent of GDP deficit in the first
half of the year, basically financed by borrowing from the
National Bank.  In response to the demands of the IMF and the
World Bank, the Government of Georgia presented a zero deficit
budget for the fourth quarter of 1994.  However, about 50 
percent of income is contributed by grants and from borrowing
abroad.

    Government investments are still high, contributing
67 percent of total investments, though reliable information on
private investments is not available.  New investment
regulations remain in draft form.  In March 1994 the Bilateral
Investment Treaty was signed with the United States.  The
treaty is pending ratification by both countries.

    Only 25.8 percent of the enterprises approved for
privatization by the State Property Control Ministry were
privatized by May 1994.  A total of 1,152 enterprises, mostly
in the trade or service sectors, sold for 11 billion coupons
(roughly $40,000).

    In order to accelerate the privatization process, a new
decree by the head of state on privatization allows employees
to directly purchase 51 percent of company shares (except in 
strategically important industries).  About 380 large
enterprises were privatized by November 1994.

    The government regulates the export of strategic
commodities produced in Georgia by a system of quotas and
licenses, which limit or prohibit export of certain types of
goods.


4.  Debt Management Policies

    Official statistics on the national debt do not exist. 
Some officials have set the amount of debt at $870 million,
including $380 million owed to Turkmenistan, $71 million owed
to Russia, $141 million owed to the EU, $86 million owed to
Austria, $40 million owed to Turkey, $24 million owed to
Kazakhstan, $11 million owed to Armenia, $8 million owed to
Azerbaijan, and $1 million owed to the Netherlands.


5.  Significant Barriers to U.S. Exports

    Georgia's policy of encouraging imports has meant few
established barriers to U.S. products.  Georgia maintains
import licenses on a number of goods:  medical equipment,
medicines and raw materials for medicines, vegetation
protection chemicals, industrial scrap materials, drugs, and
weapons and ammunition.

    According to an executive decree, all commodities imported
to Georgia must have an insurance certificate from the Georgian
insurance company Aldagi.  This decree contradicts another
government decree on the limitation of monopolistic activity
and development of a competitive environment, and is expected
to be opposed by the Prosecutor General's office.

    Import Licenses must be obtained through the Committee on
Foreign Economic Relations on the basis of a preliminary
decision by the proper branch ministry.  Once ratified, the
U.S.-Georgia bilateral investment treaty will provide
substantial assurances to U.S. investments.

    The exporting company must also submit to the customs
office at the border and to the customs district office at the
cargo's destination the following:  pro forma invoice or bill
of lading for sea transport or bill of board for air transport,
export packing list, and a contract for exporting goods.  The
documentation from cargo origin country, certificate of quality
and sanitary certificates for food products may also be
required at the customs office.  In addition, according to the
new decree, persons taking abroad more than $500 must submit a
certificate from a bank.

    Importers pay a two percent customs duty and a 0.2 percent
processing fee, as well as applicable VAT and excise taxes on
goods from outside the Commonwealth of Independent States (CIS).

    The Georgian Customs Department has submitted to the
parliament newly proposed customs tariffs and draft laws on
customs duties and on transit taxes, and a customs code.  The
import tax is expected to be increased from 2 to 12 percent.

    The effect of barriers to U.S. trade and investment in
Georgia is minimal.  The current law on foreign investment does
not specifically hinder U.S. investment.  The only barrier to
foreign investments is lack of appropriate legislation and
absence of a law regarding owning land.  Currently land cannot
be purchased by a foreign investor.  A new law on investments
is planned for passage by the parliament by the end of 1994.  A
U.S.-Georgia trade agreement providing for reciprocal
most-favored-nation status was signed and entered into force in
late 1993.  Outmoded and inadequate infrastructure and the
absence of first-class bank guarantees create barriers to trade
and investment in Georgia.


6.  Export Subsidies Policies

    Georgia is not a member of the GATT Subsidies Code.  The
government does not provide any type of significant export
subsidy.  On the contrary, it discourages exports through
licensing requirements and quotas on a number of products.  The
export of some types of goods is prohibited.


7.  Protection of U.S. Intellectual Property

    Laws protecting patents and trademarks are adequate, but
copyright protection is nonexistent.  In accordance with
decrees issued in March 1992, a patent office under the
Committee of Science and New Technologies administers and
approves patents and trademarks, utilizing the classic system
of patent inspection.  Georgia is a member of the Patent
Cooperation Treaty and the Madrid Agreement of 1929 on
Trademarks.  There is currently no copyright protection law in
effect, and the Georgian government, while working on one, does
not expect to issue it by the end of 1994.  Georgia is not
listed on any special 301 watch lists, nor is it identified as
a priority foreign country.

    In January 1994 Georgia became a party to the Paris
Convention for the Protection of Industrial Property, a member
of the World Intellectual Property Organization, and a party to
the Patent Cooperation Treaty.  The new adjusted laws have not
been completed.

    Patent and trademark protection do not appear to pose
substantial problems in Georgia.  Systematic cases of patent
infringement do not exist, although brand counterfeiting is
known to have taken place, though not on a large scale.  Patent
terms are for the standard twenty years, although after four
years there is compulsory licensing to domestic firms of rights
held by foreigners.  No important sector is excluded from the
availability of a patent.  Registering a trademark costs $520
and this can be renewed every five years.  There are no
procedural barriers to obtaining a trademark, although Georgia
operates on the first-come first-serve system, where the first
to register the trademark obtains the right, unless the
trademark is internationally known, or registered under the
Madrid Agreement.

    The absence of any legal protection on copyrights has
allowed for some pirating of U.S. motion pictures, although not
on a large scale.  Because of the very low levels of U.S. trade
and investment with Georgia, the impact of any of Georgia's
intellectual property practices on U.S. trade and investment is
minimal.


8.  Worker Rights

    Georgia relies on old Soviet legislation which guarantees
most major labor rights, although efforts to refine these laws
began in late 1993.  Resources devoted to investigation of
complaints and enforcement of rights, centered in the Labor
Ministry, are slim.  In 1993 there was little interest in labor
activity, and in 1994 there were few worker strikes demanding
salary increases.

    a.  The Right of Association

    The labor code allows workers to form unions and
associations freely.  These associations must be registered
with the Ministry of Justice.  In late 1993, the Georgian
government had planned to implement specific legislation that
would allow for strikes and prohibit management retribution
against striking workers.  A single confederation of trade
unions, made up of about 30 sector organizations, is active in
Georgia, but steadily lost membership throughout 1993 and 1994.

    b.  The Right To Organize and Bargain Collectively

    The labor code also grants workers the right to organize
and bargain collectively.  This right is freely practiced in
the Georgia.   Anti-union discrimination is prohibited.

    c.  Prohibition of Forced or Compulsory Labor

    Forced or compulsory labor is prohibited under the labor
code.  Instances of this practice are rare.

    d.  Minimum Age for Employment of Children

    According to the labor code, the minimum age for employment
of children is 14.  Children between 14 and 16 years are 
allowed to work a maximum of 30 hours a week.  The minimum age
is widely respected, and Georgian officials know of no sectors
where the rule is violated.

    e.  Acceptable Conditions of Work

    Acceptable conditions of work generally follow the old
Soviet pattern.  A nationally mandated minimum wage applies to
the government sector.  In November 1994, it was revised to 
one million coupons a month.  The labor week is 40 hours,
although the government adopted 35 hour weeks for the winter
period from November 15 to February 15.  The labor code permits
higher wages for hazardous work and allows a worker to refuse
to perform if the work could become a danger to his life, but
otherwise, there are insufficient safeguards for worker
well-being.

    f.  Rights in Sectors with U.S. Investment

    Conditions in sectors where there is U.S. investment do not
differ from those in other sectors of the economy.

(###)


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