Old Song with IMF Refrain

Capital requirements for foreign exchange bureaus (FEB) – is not a strange? This small business entities work mostly only on small amounts from $5 to $50 operations. So their liabilities seldom take more than 5 minutes and $200.
So what for the Central Bank of Georgia (NBG) and the IMF are recommending to introduce capital requirements for FEBs?
These requirements are to support other genius inventions of NBG – requirement of fit and proper, minimum space, special machine to recognize false notes etc.
Georgian Government was ready to eliminate all the requirements but NBG insisted and IMF supported.

As Georgians say – I don’t know to laugh or to cry?!

Paying Taxes is Irrational! (a fable)

Fable about Spoilt Apple
One (or once upon a time) day a man came to the market to buy apples. Apple was expensive, 2 dinnars per pound. But there were also oranges for half of that price. So he decided to buy oranges. Sellers of the apple were sad.
Second day he came to the market and found out that apple became more expensive – 5 dinars. So he turned away and bought again oranges for 1 dinar. The sellers of the apple were sadder.
Third day surprised him very much – the sellers of the apples couldn’t sell their apple and the apples were already spoilt, but the price was again 5 dinars, so he of course bought oranges again for 1 dinar.
Forth day the man came and was astonished when seeing that all the market was full of cheap apple for ½ dinar, but there was the same problem with them – all apples were spoilt. The sellers of the apples were angry – he didn’t buy our apples for 2 dinars and for 5 too, but now we have very cheap apples – half of oranges price, why he is not buying our apples instead the twice as expensive oranges?
The man answered:
I don’t want to buy spoilt apple not for 5 dinars and not for ½ dinnar too.

The main idea:
You cannot convince taxpayers that paying taxes is rational if your government is ineffective.

EU and Free Movement of People

If you are a citizen of Georgia and decided to travel to EU - you are in great trouble: you need a visa! Ordinary way - you can say. But not for Georgians (I assume for many others too). And where is the principle of free movement – you can ask: it is for elite - EU citizens but not for Georgians.
If you have a business in Belgium for instance - you are lost - you can never have visa - because you are obliged to go to Moscow for it and you need a visa for Russia as well. And it is even worse - so forget about Belgium and business.
If you still want to apply for visa for Austria - it's not better. You have to go to Kiev - great deal. Return ticket for USD 250, hotel for USD 200 for 3 nights and a visa fee for EUR 35=USD 45 = USD 500. And there is no guarantee - you can return back to Georgia without visa and without any explanation.
The most important is that you have to go yourself to apply - you cannot send application and supporting documents by express mail or even diplomatic mail - the Ministry of Foreign Affairs cannot guarantee anything!
Free movement, democracy, freedom, openness, peace etc. Who believes?

Parade of Power

Many concerns are appearing seeing how "strong" Georgian Army is! But we need even stronger - they say. All the politicians are silent to show how patriotic they are.
So there are many questions very important to have answers from these politicians, like:
Why we need the army at all, whom we are going to fights with?
Can we really plan any war to win?
Can anybody win any war in Caucasus?
Is army the solution of any internal conflict?
Whom we are going to shoot?
Very simple and radical decision could be stopping any development and increasing of military spending. Then it can be reduced and minimized. But now my proposal is to:
move away all the parades from the city center and hold it out of the capital, somewhere desert place. If somebody desires to look at it necessarily I am ready to pay for his/her ticket to go to that place.
Peace to new generations!

PR vs Free Market Reforms

Have you already guess which one is winning?
Now the Georgian government is on its way to decide which is more important to continue reforms or press on the voters again with PR machine. The latter was frequently used very effectively showing the the face of the enemy of nation.
Approaching the local elections but also seeing very clearly the coming general elections not very many people believe the government that was not really successful in reorganizing public sector or giving more freedom to the private can change the situation in the second part of its term. And the opposition is also ready to criticise everything from the left or right sides (especially from the left). Government has real deficit of choice to be sure it can help. So we see there is very few chances. It's politics. Nothing to do!
Greatest chances are lost.

Labor Market, Unions and the New Labor Code

It seems Georgian government is very close to adopt a new Labor Code. The imitated debates didn't change anything in the approach that was announced by the officials. Only thing what can be seen very easily is emergence of some groups who call themselves Labor Unions. Labor Unions are still very funny in Georgia, along with very many socialist ideas unions are very unpopular in ex-communist countries and you need very strong efforts to return the population to them. This is really unbelievable. But there are of course very many people who work in this direction of convincing people to believe. Many of them are coming from the EU commissions and Labor organizations. They can't believe we really don't need unions. Or maybe they want to see we are as stupid as they are - this is a strong condition to be their friend. Unfortunately our government is not as strong in its ideas as is needed for refusing to this. And the opposition in this field is even worse. Nobody thinks about what kind of : - damage can bring to the labor market Labor Code - disadvantages creates the Labor Code to investors and management - danger can arise from the interventionism like labor regulations - discouragement creates uncertainty at the labor market for education - irresponsible motivations and activities appear from regulations of labor, etc. To listen to the government it is other private persons' duty to be responsible for pregnancy of a woman - they have to pay for her special vacations. Some others believe that a man who has 4 children cannot be fired - it is not just. Like in very many situations everybody try to forget that the main source of all of our wealth and opportunities is entrepreneur - businessman, who creates everything and there is no other money from nowhere and nobody. Government money is also very same money coming from entrepreneur, foreign money is also money of entrepreneur. So if we want employment, if we want services and goods, if we want to live - let's not make obstacles to entrepreneurs, let's give them freedom of choice.

'Fresh' Ideas - How To Punish Rich Consumers

After very long and very serious debates Georgian Government decided how to deal with electricity consumers. Hew idea is not simply socialist but a most socialist way of electricity distribution and pricing.
Yesterday, so called 'Regulator of the Energy Supply' (RES) issued its decree about new prices on electricity. By it consumers who use less than 100 kWt (per month) energy will pay 13.48 tetris, from 101 to 300 kWt - 16 tetris, and up than 300 kWt 17.69 tetris (1 US cent = 1.8 tetris).
So that means if you are rich and consume more you pay more. This blog is not a good place to explain why this is very bad for suppliers and especially for the producers of the electric energy. But it is very easy to see that the decision of the government (and of course not of the RES) is very stupid socialist idea.
Main problem is not really management or business difficulties. It is the wrong idea to regulate the price from the central bureau. Thus the new revolutionary government failed to go through this examination with such a sinful idea to govern economic activities from the center.
So the main principle of governance is still central planning Bolshevistic. They are sure that if central planning is permanently failing it is a fault of planners but not of the idea of central planning itself.
If somebody still believes in this kind of business - selling more for higher prices - they can look at the very famous world brand firms' manners of trade. One of the most known Coca Cola company (the same with Pepsi Cola or all the other successful businesses in the world). Price for 0.25 liter bottle of cola is somewhere GEL0.35; 1.5 liter - GEL1.5 and for the 2 liter - GEL1.8. So if you buy 8 bottles of 0.25 l cola you pay GEL2.8 but if you buy 2l - 1 lari less.Trust me readers, this law of economics works in every situation, revolutionary or non-revolutionary, socialist or capitalist environment. To understand this easier ask any seller on the street - they know!

Wine News - Georgia

Wine war - Russia against Georgia.
If you want to find all kinds of stupidities in one case - take wine war issue of Russia (n Federation - is not it funny?) against Georgia. Who is wrong? Of course Russian politicians who, instead of population adicted to Georgian (or "Georgian") wines for long time, decided to limit import of Georgian wines to the Russian market.
In reality the government cares only about peasants who are producing grapes for the wines - their share in elections is not less then 10 % of all the electorate. This will be great failure before local elections.
As for wines - most of them are falsified. This is a answer to unqualified demand and everybody new about. Unfortunately the new generation of wine producers are not as strong as to fight for the markets and the main export is merely alcohol added color water with some aroma. This is the old story and so popular business that entrepreneurs from Bulgaria, Russia and even Spain found their way to make money in Russia (and Ukraine, Belarus, Lithuania etc) falsifying Georgian brend name wines.
'But what if RF joins the WTO?' There was a question asked the minister of agriculture of Georgia a year ago. 'It would be obliged to reduce tariffs for all imported wines and so Georgia would lose the Russian market in any case?' 'Unbelievable', was the answer. 'Russians love Georgian wine'.
Now you can consider how they love it. To believe in this was not so easy but let's see what part of Moscow youngster prefers to drive Russian cars, or what part of them use Russian TV or players. So wake up!
We need a hard work, low price and high quality. Without this even friends are not able to support you.

"New" Old Initiatives of the Revolutionary Government

Our government does not give us time to think about all the new initiatives coming every hour. One of them, for instance, is buying 500 tractors for villages - no surprise but sorrow. There appearing several questions for this but let's limit our time vaste with the next "invention":
Price of electricity is increasing - 'at last' - can say suppliers - 'they understood we need a help'. In reality after 2002 the price already increased - 12,8 tetri in 2002 was 6 US cents but now it is 7 cents. Now it will be 8 cents. But let's leave this rethoric - it is not a main problem. The main problem is that it is not again market price! (Some "Austrians" would say it is not a price at all.)
Here is another big problem of magic circle:
- consumers - demanding from the government lower prices
- government - saying it is not its duty to approve prices
- regulator - checking price content and defending consumers
- supplier - trying to get more
And who believes the regulator is for consumers and against suppliers? Or is the regulator out of political control? Is free price really dangerous for consumers?
Command prices are good both for government and suppliers. The regulator is the only chance for suppliers to increase prices instead optimisation and improving effectiveness or quality. This is the only chance.
The second genius idea is to punish people for consuming more electricity - use more - pay more.
That is why democracy fails everywhere. Need more "power" but if more "power" is paid more next elections decide who is more "powerful".
Finish with it! Get free prices!

Heritage/Atlas meetings in Colorado Springs

Just after the visit to the US.
Very interesting conferences, speakers and speeches, participants and conversations. Especially very good was the seminar with three Caucasus libertarians in Washington Dc, just before the conferences, organized by Mr. Tom Palmer from Cato Institute.
Greatest interest was directed to Mr Illarionov former adviser to President Putin. He tried to warn the world societies about wrong changes in Russia and required attention to this. After his speech at the Resource Bank meeting some participants from former soviet union decided to write and then sign a special statement about the situation. Signature probably will happen in Vienna at European Resource Bank meeting.
Support Illarionov to support yourself!

De-privatization - What Can It Bring to Georgia

Recent development in Georgia (as well as in other revolutionary country Ukraine) hardly brought us any calm thoughts. Government is pushing the idea of illegal procedures and corrupt decisions and trying to return back the history, nationalizing (or re-privatizing) the property already privatized 3, 5 or even 10 years ago.

Even not bringing theoretic arguments here we can merely ask our government leadership:

- what do you think - what kind of actions are expected from next government - do you think they will be not able to find mistakes and illegal moments in your current privatization-deprivatisation activities?

- how do you think is this process of de-privatization encouraging or discouraging possible investors to bring money to Georgia?

Opposition Protests

Last months were very active for opposition in Georgia. There were organized 3 big manifestations on the main street in Tbilisi. The were protesting against overuse of power and violence of human rights, also implementation of cash-machines for street traders. The government answered only with blaming the opposition with epithets like Moscow agents, criminals and enemies of the nation.
After a while majority at the parliament counter-attacked the opposition. They started impeachment process against one of the opposition leaders accusing him in violation of laws (Mps by Georgian laws are not allowed to control directly any business enterprise.). The opposition answered with aggressive promises - there will be no peace if you do this.
What is always missing in the oppostition claims - economic policy issues (if not counting the Conservatives (!) complaints for introducing of more just social benefits to elderly. They unfortunately don't mention at all very many mistakes in economic policy of the government.

Good News

Good news from the government!
Georgan government decided to invite for consulting work famous Estonian reformer Mart Laar. He is supposed to work with Georgian government at least 1 year. Now the government is working on details.
Last January Mart Laar visited Georgia and was very successful = having very many workshops, meetings and lectures. After meeting with the President and the Prime Minister it was decided to invite him for longer consultancy.
As the NESG leaders were main initiators of Mr. Laar's first visit they are very happy seeing success of their effort.

Flat Tax in Georgia - First Results

Year of 2005 was one of the significant in Georgians life – the government introduced 12% fat tax instead of progressive 12-20%. This and some other steps forward were to change the taxation dramatically in this country – reduction of number of taxes from 21 to 8, social insurance tax rate reduction from 31% to 20% (it is paid only by the employer) and VAT from 20% to 18% (the second half of 2005) - was expected as huge relief to taxpayers. Even though tax administrative rules remained as stupid as it was before (it is anti-constitutional in very many cases) the new code (or new rates) already proved its ability to change radically the situation.
Here are some figures to compare 2004 and 2005 years. Sometimes appear other concerns that it was not as good idea to decrease these all rates because before they were high but less people were paying them.
It’s a funny that the current prime-minister Mr. Nogaideli was calling every person idiot if he/she said that reduction of taxes would give more results both for private and state sectors. Let’s hope he regrets about his stupidity now.
This may show how it really worked – tax liberalization in Georgia even there are some concerns about realness of the figures. Before, the government was very active in falsifying the statistic information. But business legalization process is easily seen through this table.

And the Governmental Counter-attack

During the meetings with Ruth Richardson, Mart Laar, Marc Miles and Tom Palmer every public official they met (prime-minister and other Ministers of Georgia) was showing his/her great support to liberalization ideas. They promised many things from tariff elimination, to privatization of pensions and further improvements to the business environment. But still there are some concerns coming from the society.
At first they are connected to very weak contact of the government to the people – in this kind of situation any even excellent program can fail and discredit itself. Especially there are very strong feelings of disappointment from three particular projections of the government: health care, pensions and education. All three are long run policy programs and need strong consent of the general public and political parties. Unfortunately we see the opposite – the government very effectively hides its plans from the society and makes everything to fail. Main concerns Georgian libertarians have here is that this government can easily discredit all the ideas of liberalization and of course the left-wing opposition is ready to fight.
After the president understood these political-circle problems he renewed his PR campaign. Few days ago he visited one of the villages in Kakheti (East Georgian province) brought to the peasants fertilizers and a tractor. After granting the fertilizers to villagers he announced about his generosity of presenting the tractor to the village.
The opposition immediately found some problems in his this action asking his secretary: to whom this tractor belongs now? There are no Kolhoz or Sovhoz in the village and even no executive body. Some reformers in the government hoped somebody in the village would take care (privatize himself) the tractor soon but if not in a week there would be no tractor or even parts.
A month before – during natural gas shortage from Russia – the president, the mayor of Tbilisi and the head of financial police announced about their promise to punish anybody who would sell kerosene for higher than market – speculative prices to the population. Unfortunately we couldn’t see any politician protesting against this stupidity – but no wonder, they, even so called right opposition, didn’t respond to 200% increase of central budget spending during last two years.
“Evil” voices are coming the government started again speaking about re-privatization (or nationalization) of some (they say 30) factories suspected as wrongly privatized. The same story again…
So, as one Bolshevik was saying: one step forward, two steps back!

Libertarian Attack

Libertarian Attack
Last 6 months have been very successful for libertarians in Georgia. They (the people of New Economic School - Georgia the think-tank) hosted very distinguished friends of liberty and famous reformers. Here you can see the calendar of events happened through this time period:
September 2005: Hardy Bouillon, philosopher, Germany
October 2005: Robert Nef, Switzerland, Liberal Institut, Zurich,
October 2005: Hon. Ruth Richardson, New Zealand, former Minister of Finance
January 2006: Mart Laar, Estonia, former prime-minister
February 2006: Marc Miles, USA, Author, Economic Freedom Index research, Heritage Foundation
March 2006: Tom Palmer, Senior Fellow, Cato Institute
March 2006: Richard Ebeling, Sheldon Richman and others, USA, Foundation for Economic Education
During the same period of time NESG organized several local seminars and international events in Georgia and Armenia. The main theme of the events was liberalization of the transition societies.

FEE Lecturing in South Caucasus

The leaders and lectures of Foundation for Economic Education (www.fee.org) are visiting this week (March 17-24 2006) South Caucasus . They will provide with public lectures in Georgia and Armenia and 4 day long seminar in village Shindisi, Georgia.
Main themes of lectures will be free market solutions of economic problems and advantages of free society. 30 students from Georgia and 7-7 students from Armenia and Azerbaijan are invited to the seminar in Shindisi. The lecturers are famous Dr. Ebeling (the president of FEE) and Dr.Richman (the editor of the Freeman).

Tom Palmer to visit South Caucasus

Tom Palmer, Senior Fellow, Director of Cato University at Cato Institute (www.cato.org) one of the famous American libertarian think-tank is visiting South Caucasus March 13-15, 2006. He was invited by Mr. Kaha Bendukidze and hosted by New Economic School Georgia. During his visit it is planned to organize sevaral public lectures and seminars. Mr. Palmer's and the organizers wish is to promote libertarian ideas in the region, explain young people of these countries how to implement free trade and limited govenrnment policies.
Mr. Palmer's plan includes visit all three South Caucasus countries evaluating the situation for organizing a regional Cato meeting in Tbilisi in Autumn this year.

In Tbilisi he meets with Mr.Bendukidze, some international institutions and think-tanks.

Marc Miles in Tbilisi

Marc Miles – the main author of famous research of Economic Freedom Index at Heritage Foundation (www.heritage.org – conservative think-tank in Washington DC, USA) visits Georgia the next week from Feb 15 to Feb 19, 2006. His mission is to explain the ideas and the importance of Economic Freedom and the methodology how the group of authors evaluate EF for different countries and especially for Georgia.
The last results of the research of EFI were published on January 4th, 2006 and emphasized great step forward for Georgian economy – that now has 68th place instead of 100th out of 160 countries in 2005.
After the publication the Georgian public opinion had divided in two – who agreed with this progress in the EFI and who look very skeptically on this.

Full description of the EFI research of 2006 you can find here.

New Seminar in Gurjaani

New Economic School - Georgia holds the next seminar in Gurjaani, Georgia from February 23 to February 26, 2006. Gurjaani is a small town in the east part of Georgia.
The seminar name is Liberty and Property and is designed for discussing the role of the property for a individual and a society.
Participants of the seminar will be chosen through applications. Most of them will be young politicians and students interested in Free Market issues.
All, who want to participate please contact Mr. Paata Sheshelidze through
e-mail: paatasheshelidze@gmail.com or
cell phone: 893305468