BUSINESS & ECONOMICS GEORGIA: US ‘CHALLENGE’ AID FOR TBILISI SEEN AS
CATALYST FOR DEVELOPMENT

Robert McMahon 4/29/05
A EurasiaNet Partner Post from RFE/RL

For more than a decade, Georgia fostered a reputation as one of the
most corrupt states of the former Soviet Union.

But the leaders who took power after the 2003 Rose Revolution
impressed officials running a new U.S. aid agency focused on rewarding
poor countries fighting corruption.

Georgia is now near the top of the candidate list for the alternative
U.S. aid program — the Millennium Challenge Account — and is likely
this summer to sign a compact for up to $200 million aimed at
infrastructure improvements.

Paul Applegarth is chief executive of the Millennium Challenge
Corporation (MCC). He told a U.S. Congressional panel this week that
Georgia’s leadership change made a crucial difference.

“You had true leadership clearly reinforcing the principles of the
Millennium Challenge — to fight corruption, to clean up the
government, to put effective procedures in place,” Applegarth said.

Under the Millennium Challenge program, the Bush administration says
it will give money only to poor countries with proper governance. The
program chooses states that maintain rule of law, pursue sound
economic policies, and demonstrate a commitment to investing in their
people. Local officials decide how to use the grants but must show
some impact on economic growth.

Madagascar signed the first agreement in April and will receive $110
million for initiatives that include a reform of land-title
procedures.

Sixteen other countries, including Armenia, have been invited to
submit proposals.

Georgia, like Madagascar, devised its development plan after a
thorough consultative process. It included organizing eight regional
forums, establishing a website for public input, and involving local
civil society. The government received more than 600 proposals for
projects to spur economic growth.

Lasha Shanidze, chief executive of the body organizing Georgia’s
effort to sign with the MCC, told RFE/RL during a recent visit to
Washington that the nearly year-long campaign has created new thinking
in the Georgian government about development. He said the process has
also drawn the interest of private banks and other international
funding sources.

“MCC is becoming a catalyst within the country of not only organizing
and [bringing a] more focused approach to particular projects, but
bringing more financing into a country — and that is visible even
without having this compact signed,” Shanidze said. “People are in
line to be with you to co-finance projects, because they believe in
it.”

MCC and Georgian officials expect to sign a compact by this
summer. After talks in April with MCC officials in Washington,
Shanidze was hopeful that Georgia will get approval for a five-year,
$200 million package.

The country’s proposal includes a road project to connect the isolated
southern Akhalkalaki region with the rest of Georgia. Shanidze said
the project is designed to open the region for development as well as
facilitate trade routes between Turkey and Armenia.

Another project would use MCC funds to rehabilitate the north-south
gas pipeline from Russia. The Georgian government earlier this year
had discussed selling the pipeline to Russia’s state company
Gazprom. But Shanidze said the government is now committed to
refurbishing the crucial pipeline itself with the help of the
U.S. program.

“It’s problematic. We’re losing a lot of gas; Armenia is dependent on
this pipeline’s gas,” Shanidze said. “Our electricity-generation
companies are dependent on this gas, and generally investors — to
attract foreign investors into Georgia, large investments — are
always looking for reliable gas supply. It’ s all interlinked, this
chain, which we need to put in shape and itâ=80=99s of course better
if put into shape and owned by us.”

Georgia is also proposing to use a portion of the MCC funds to provide
equity capital for investments in agriculture and tourism in the
country’srural regions.

Louise Shelley is director of the Transnational Crime and Corruption
Center at American University in Washington, which has reported
extensively on corruption in Georgia. She told RFE/RL she is impressed
by the list of initiatives the government has proposed for the
Millennium Challenge funds.

“I think in terms of what they’re targeting — in terms of rebuilding
their agricultural sector, tourism, transport, and energy — those are
just absolute priority areas for Georgia’s development,” Shelley
said. “[They are] things that we’ve been identifying as what is
possible and what is key if it’s going to get out of this cycle of
poverty.”

Shelley and other Georgian monitors argue that the government has
begun to show its seriousness through crackdowns on money laundering
and reform of police patrols.

The World Bank’s country manager for Georgia, Roy Southworth, credited
Tbilisi with developing a home-grown process to identify the most
crucial areas for reform. Southworth told RFE/RL the Georgian
government is sending the right signals on correcting years of abuses.

“It would be naive to say that Georgia in one year has managed to
eliminate corruption, because it was endemic before under the old
government and it existed pretty much at all levels of government,”
Southworth said. “But what the new government has come in on is
essentially a mandate from the population to fight corruption. And
they have made, I think, very good progress in that in a year.”

Georgian and World Bank officials are discussing cooperation between
the bank’ s Municipal Development Fund, which has already created a
structure for funding urban infrastructure, and the anticipated
Millennium Challenge funds.

Overall, the World Bank has spent nearly $800 million on development
projects in Georgia during the past 10 years. One-third of that amount
has gone to infrastructure improvements.

Editor’s Note: Robert McMahon has been RFE/RL’s UN correspondent since
January 2000. He served previously as RFE/RL’s director of news
andcurrent affairs and helped to guide the division’s move to Prague
in the spring of 1995. He joined RFE/RL in Munich in 1992 after
working as an editor on the international desk of the Associated Press
in New York.

Posted April 29, 2005 © Eurasianet