CHAPTER IV
A Way Forward
In recent years, poverty reduction has advanced to the forefront of the agenda of international organizations such as the IMF, World Bank and regional development banks. The fight against poverty is going beyond the income poverty arena to encompass other dimensions of life such as access to education and health care, and individual freedoms. This change in focus, which has taken some time to happen, has provided additional weight to the agenda of organizations like UNDP, which for a long time has invested efforts and resources on promoting human development as an end for means like economic growth and increased incomes.
The unprecedented gains in material well being experienced in the last century have not reached down as fast as expected to a significant share of the world population. This is causing frictions in both the underdeveloped and developed countries. The pressure to fight poverty has intensified and the public is increasingly monitoring the actions of international organizations and their impact on poverty reduction. The pressure appears to be difficult to ignore. The poverty issue has become so hot as to make the staff at leading international financial institutions "feel that every action inside these organizations, from reviewing public expenditures to vacuuming the office carpet, should be justified by its effect on poverty reduction"26. No doubt, this increased pressure on international organizations is welcome news for at least half of the Georgian population.
An outcome of this renewed interest in decreasing the level of human deprivation has been the emergence of anti-poverty programs. At the same time this National Human Development Report is being written, there is a poverty reduction document being produced by the Government of Georgia with contributions from international organizations and members of the public. This is the Georgian "Poverty Reduction and Economic Growth Program", the final draft of which is being circulated for comments. The PREGP is likely to become an influential document, as it will constitute indicative success criteria for loans agreed to with the IMF and World Bank.
This chapter will provide a description of the origins of PREGP, its main objectives and a set of proposed basic indicators for the monitoring of an anti-poverty program. The objective of this chapter is to contribute to the discussion about how poverty should be fought and success measured in Georgia. We choose to begin this chapter with a brief summary of the origins of PREGPs, for the understanding of the past often helps much in understanding the present.
Poverty Reduction and Economic Growth Program: where does it come from?
The origins of PREGP go back to the 1980s when, under the guidance of the IMF and World Bank, Structural Adjustment Programs (SAP) came to life with the stated aim of promoting macroeconomic stability and economic growth.
For the developing world, the 1980s were difficult times to achieve any of these goals. The decade is referred to as the "lost decade" for developing countries because it was characterized by stagnation and increased poverty levels. At that time, the combination of high levels of government debt, an increase in world interest rates, and a deterioration of the terms of trade sent a large share of developing countries into a spiral of negative growth and social fragmentation. The impact of the debt crisis on the already poor and vulnerable was a sharp worsening of the trends in infant mortality, child malnutrition and related calamities27.
The application of SAPs in developing countries was the main response of the developed world to the debt crisis of the 1980s. However, neither the goal of stability in government accounts nor economic growth proved easy. The need for large trade surpluses to repay foreign debt produced fearful costs28. Economic growth came to a halt and many countries were thrown into hyperinflation by the heavy burden of debt on their domestic budgets. It soon became clear that SAPs were insufficient to deal with the crisis, much less capable of bringing countries back to the path of sustainable growth. In September 1987, the IMF and the World Bank revised the conditions under which loans were being obtained in order to provide additional financing and facilitate repayment conditions for developing countries. This revised version of SAPs took the name of "Enhanced Structural Adjustment Facility" (ESAF)29.
Access to these loans continued to be conditional on the undertaking of economic reforms. Loans under the SAPs and ESAFs came with a list of actions required from governments as part of their commitment to structural reforms. Adherence to these actions represented success criteria and pre-conditions for further loan disbursements. These lists of actions required from governments were called "Policy Framework Papers". Because loans were disbursed in several installments, deviation from the Policy Framework Papers carried the risk of losing the next loan tranche.
In spite of SAPs and ESAFs, the debt crisis continued unabated through much of the developing world. The postponement of some debt payments and additional loans from the IMF and the World Bank in exchange for structural reforms proved insufficient. Real debt reduction was needed. In March 1989, debtor countries were offered the opportunity to negotiate with their creditor banks a reduction of their liabilities, either through a reduction in the interest rate or a cut in the principal. The logic behind this move was that countries’ debts were so large that they could never be repaid in full. An attempt to collect the full value of the debt could destabilize the country in question and result in less repayment than in the presence of an orderly reduction of the debt through negotiation.
However, by the end of the 1990s, a significant number of low-income countries were still under the burden of high levels of foreign debt. The debt reduction accomplished had been insufficient to put them back on a sustainable growth track. In 1999, industrialized countries announced a new debt relief initiative called "Highly Indebted Poor Countries" (HIPC). The HIPC was later revised so as to allow for larger reductions of total accumulated debt and quicker reduction in debt service payments. It was renamed HIPC-II.
At the same time industrialized countries introduced the HIPC-II, the IMF replaced the "Enhanced Structural Adjustment Facility" (ESAF) by the "Poverty Reduction and Growth Facility" (PRGF). Simultaneously, the IMF replaced the "Policy Framework Papers", which had underpinned the SAPs and ESAFs, with the "Poverty Reduction Strategy Papers" (PRSP), which now underpin the PRGF. The Boards of the World Bank and the IMF must approve the PRSP before a lending programme can begin. In more colloquial terms, the Poverty Reduction and Growth Facility is a source of loans under the tutelage of the IMF that countries can borrow from provided they follow macroeconomic stability and structural reforms and develop a set of measures aimed at fighting poverty. The description of these measures takes the form of a Poverty Reduction Strategy Paper. In the case of Georgia, the Poverty Reduction Strategy Paper has been followed by a Poverty Reduction and Economic Growth Program, which is a document that describes anti-poverty measures in more detail.
The government of Georgia formally adopted a PRSP on November 28th 2000. It was presented to the IMF and World Bank Boards in December of that same year. On January 11th and 12th 2001, the IMF and the World Bank approved the document together with a 141 million US$ loan. Immediately after its approval, the IMF made available 12 million US$ to Georgia. The second disbursement of 12 million was supposed to arrive in February, however disagreement between the IMF and the government regarding the financing of the budget deficit by the National Bank of Georgia delayed disbursement until March. This second installment was used to replenish foreign reserves, which by then had risen to 115 million US$. The third installment, worth 11 million US$, was released in October instead of July. Again, disagreement over fiscal policy delayed the disbursement. As a condition for receiving the loan, the Government of Georgia had to cut its budget significantly due to its perennially poor performance in tax collection. As always, it is the poor, vulnerable and dispossessed the ones that feel these cuts the most as they greatly depend for their well being on the functioning of public services and the payment of pensions and salaries.
Economic growth, poverty reduction and human development: about means and ends
The PREGP presents actions for the short-term (3 years), medium term (7 years) and long term (15 years). It is an extensive document that covers almost every aspect of public policy. If carried out to its full extent it will no doubt exert a change in the life of scores of fellow Georgians30. The PREGP has been developed with the participation of the public, government, and local and international experts.
Economic growth as an engine for creation of employment opportunities and poverty reduction constitutes the major theme of the PREGP. The document leaves no doubt as to its focus: "elimination of poverty in the country is directly connected with the economic development of the country, i.e. fast and steady economic growth is the most important goal of the given strategy". This avenue of work makes sense because one cannot share what one does not have. However, in doing so, means should not be confused with ends. Economic growth is worth achieving as long as the general population benefits from it. A program for poverty reduction should achieve a balance between its efforts to promote increased economic activity and its efforts to ensure that increased economic activity translates into higher levels of human development.
The origins of PRSPs are reflected in the Georgian PREGP. Indeed, a substantive part of the PREGP describes measures and objectives proper of a structural adjustment programme. And it is compliance with the objectives of the structural adjustment program what appears to matter most for loan disbursement. The second and third tranches of the PREGP were delayed because of disagreements over fiscal policy and not, for example, because of the perennial failure to pay pensions on time, the latter an action that negatively impact one of the most vulnerable groups of poor in society. While there should not be doubts that the Georgian economy requires further structural adjustment if it is to achieve rapid and sustainable rates of growth, experience suggests that compliance with these measures is only part of the task ahead31. In implementing these measures, attention should also be directed at ensuring the success of reforms in formal institutions, the impact of structural adjustment on the poor and powerless, and the implementation of accompanying measures in the area of social policy.
What does experience suggest about economic growth and human development? Basically, it shows that increased levels of human development will not per-se flow naturally from increased levels of economic activity. Access by the poor to basic social services like health and education or to social goods like civic liberties do not necessarily come hand in hand with economic growth. Countries that have performed well in terms of increased GDP per capita may not automatically show comparable progress on other indicators of well-being32. The opposite example also applies. There are countries that despite low incomes and growth rates have achieved relatively good results in terms of longevity, morbidity and literacy33. In these countries, the provision of these basic public services has been a clear government priority, not something to be attained after increases in GDP per capita.
Several factors account for the fact that economic growth may not naturally or automatically result in decreased poverty rates or in increased levels of human development. First of all, not all kinds of economic growth appear to matter equally to poor people34. Economic growth that encourages the productive use of labor, the main asset of the poor, usually generates more rapid reduction in poverty than growth in sectors in which the poor has low participation rates. Georgia is an example of economic growth in sectors far away from the reach of the poor. According to the State Department of Statistics, 75 percent of the increase in the real value added in the Georgian economy between 1997-2000 took place in just three sectors: communications, financial intermediation and transportation, sectors whose aggregate share in total employment is below five percent.
The result is that despite GDP growth over the period, the State Department of Statistic reports that overall private consumption declined. The lesson here is that in terms of human development, total income says little unless the distribution pattern is specified35.
Second, public spending is an important factor driving the improvement in health status and educational attainment of the poor36. In general, governments under-spend in these sectors and there is still a long way to go before it would generate trade offs with economic growth. Georgia does not appear to be the exception to this rule. Its spending on health and education are low. Third, the poor appear to benefit more from transfers in the form of greater access to basic social services than transfers based purely on cash, if and when the intended objective is an increased consumption of health and education services.
Fourth, there also appears to be important synergies between increases in average income and expanded opportunities for the poor to access social services. There is evidence that increased wealth matters to the extent that it results in both lower "income poverty" and better public services. Though there is a correlation among countries between increased average income and increased life expectancy, this correlation disappears when variables like poverty levels and public spending on health enter the analysis. This result continues to hold even if other indicators of health are used. The message is that the importance of public spending on health is quantitatively significant well beyond the effect of increased incomes. Specifically, the same evidence suggests that two thirds of the increase in life expectancy because of increased income is attributable to the positive effect of increased income on public health spending. The remaining third is attributed to the decrease in income poverty that typically accompanies higher average incomes37.
In summary, evidence and experience show that anti-poverty strategies face the challenging task of not only promoting increases in Gross Domestic Product, but also putting into place mechanisms that allow the poorest sectors of the population to share its benefits by means of greater access to employment, income, education, health care services and civic liberties. This task, as it has become apparent in Georgia, is not easy. The successful implementation of anti-poverty policies will demand not only first class technical expertise but also overwhelming political support.
At the time this NHDR is being written, there is a final draft Poverty Reduction and Economic Growth Programme being circulated for comments to the public, academia, NGOs, government offices and international organizations. Because of its length, the NHDR presents a summary of PREGP’s objectives and actions in the Technical Annex 3. We suggest the reader to obtain a copy of the original report. The final section of this NHDR suggests some areas of importance for the success of the plan as well as potential indicators of achievement. Of course, the list of indicators provided is not exclusive and should be taken as a contribution to the ongoing debate about monitoring the PREGP. As a starting point, we focus primarily on indicators associated to components of the Human Development Index. Indicators marked with (*) are also indicators of Millennium Development Goals.
General poverty indicators are intended to provide an overall picture of poverty. Appropriate indicators may include the following:
These indicators can provide a comprehensive picture when their readings are taken together and disaggregated at the regional level. Values for poverty headcounts have been given in Chapter Three for all regions of Georgia and for different poverty lines. In monitoring the PREGP success, it is suggested that the Alternative Minimum poverty line, currently at about 52 GEL/month, be not the only poverty line used. As Chapter Two has shown, a significant percentage of people above this poverty threshold will also have serious problems achieving basic needs, including an adequate diet. The solely use of very low poverty lines, like the Alternative Minimum, erodes the legitimacy of the poverty indicator and it does not correspond to what the Georgian population considers an acceptable or decent subsistence amount. Very low poverty lines are controversial because they often carry the stigma of being low with the sole purpose of artificially lowering poverty rates. In addition, in the Georgian context, they are also of doubtful use in improving targeting of the poor. The public expects things to be called by their name and if the use of higher poverty lines happens to increase the number of people officially classified as "poor", so be it. The Alternative Minimum poverty line should be applied in conjunction with other poverty lines, like the Revised Poverty Line and Official Poverty Line. In addition, this NHDR also offers its three poverty lines for monitoring of PREGP, which can be used complementary.
Chapter Two went at length to show that poverty lines represent imaginary constructs and that their readings should never be taken at face value. Because of that, the values of poverty headcounts should be used in conjunction with other general indicators of poverty and deprivation. The PREGP should complement their poverty headcounts with readings of the percentage of people consuming less than 1,800 and 2,200 Kcal/month. As it has been shown in Chapter Two, there are regions of Georgia, Tbilisi for example, in which the percentage of people with poor nutrition is worryingly high. Indicators of nutrition also highlights whether a poverty line is being set too low thus providing a distorted description of family welfare.
Since economic growth is at the heart of the PREGP, and because the benefits of increased economic activity have failed to reach many, the PREGPS might want to apply indicators of inequality in income and consumption. Inequality matters, and not least because a highly biased distribution of total output erodes public support for those same structural, fiscal, and monetary measures upon which further loan disbursements for PREGP depend.
Finally, the poverty gap indicates the average distance separating the poor from the poverty line and serves to highlight how far down the poor are falling from the minimum subsistence amount. It serves as an indicator of the value of total transfers needed to help families escape poverty. The poverty gap can be estimated for the official, revised and minimum poverty lines to see how far Georgian families fall from different thresholds and the amount of transfers needed to lift them up.
Indicators for achievements in education
Education is one of three pillars of the Human Development Index and constitutes a crucial factor for individual achievement. The NHDR proposes a list of indicators to measure the success of the PREGP in what it is one of the most important types of human capital. The readings for these indicators should be taken for poor and non-poor under different poverty lines for Georgian regions. Indicators marked with (*) are also indicators of Millennium Development Goals.
Indicators 1-6 are intended to provide a disaggregated picture of school attendance at different ages. Here is where the effect of poverty may be observed by having children abandoning schools because they simply have to work or because parents cannot afford paying for education-related expenses. These indexes should be broken down by gender so as to capture potential inequalities in access to education by males and females (the disaggregation by gender makes them indicators of Millennium Development Goals for gender equality). The readings for female and male illiteracy in the population aged 15-24 (indicator #7) can also highlights achievements in reducing gender inequalities. If a country has been making recent progress in education and has been concerned in equity in education opportunities, the illiteracy rate among young women may be lower than for the entire population.
Next come an indicator of capacity to fully exploit the opportunities provided by school attendance. This is the percentage of primary and secondary student that are able to not only attend school but also to acquire the required textbooks and other course material. The reading of this indicator might be very informative if used in conjunction with those of enrollment rate and dropout rates. The next two indicators (#9 and #10) are intended to provide a picture of efficiency in the educational system. One of them is quite traditional and measures the number of students in each classroom. Caution should be exerted when interpreting this indicator. The ratio of student/classroom in isolated areas can be low, not because of inefficiencies but because difficulties in transportation require schools to serve particular isolated villages or towns. The other indicator measures the leakages in the management of scarce public funds. The PREGP might want to measure efficiency in spending by the percentage of funds allocated to the system of kindergarten, primary and secondary schools (net of salaries) that effectively reaches the schools. In 1997-1999, this was a tiny 12% and reflected a major loss of meager public funds. Such rate was among the lowest in the world38.
Finally, the last two indicators (#11 and #12) capture the impact of meager allocations to the system of public schools. One is the number of days that teachers are absent in class. Putting aside regular absenteeism, low salaries, poor conditions for teaching and the necessity to take an additional job can affect the teacher’s capacity to effectively perform her duties. The second indicator measures the presence of a conducive environment for teaching. Classrooms with broken windows, which in winter become freezing chambers, and classrooms without the most basic elements for teaching (e.g. chalks) hardly provide high incentives for teaching or learning.
Indicators for achievement in health
Health is another of the pillars of the Human Development Index and for the poor it is a crucial determinant of overall well-being. The risk of falling ills is a dreadful scenario for vulnerable families as a severe or prolonged illness can send a family down a spiral of debt and poverty. For poor people, a serious illness can have tragic consequences because of the lack of means for treatment. We offer here a set of indicators to measure success of the PREGP in the area of public health. Indicators marked with (*) are also indicators of Millennium Development Goals.
The indicators listed above are intended to capture the most serious difficulties that the average Georgian citizen face in obtaining decent health care. The list is not exclusive and may be complemented with other indicators. Readings should be obtained for poor and non-poor for different poverty lines and for Georgian regions.
The indicators numbered 1-4 provide one of the most visible impacts of health on the individual, that is the probability of dying at different ages. These indicators should be read in conjunction. For example, in the majority of countries most mortality up to age 15 occurs before age 5. But in a substantial minority, especially in Sub-Saharan Africa, mortality rates are significant between ages 5 and 15. Changes in the expectation of dying signals changes in mortality risk trough time and may help in the identification of root causes and vulnerable groups. The expectation of dying before 60 is of interest as it is one of the components of the Human Poverty Index II, which applies to Georgia as well as Eastern European and former Soviet Union republics. Finally, maternal mortality reflect the capacity of the health care system to provide assistance at a highly vulnerable stage and data should be used in conjunction with indicators #14 and #15 (see description below). The data required to construct these indicators can also be used for constructing child mortality indicators for Millennium Declaration Goals.
The indicators numbered 6-9 capture the impacts of poverty on a highly vulnerable group: children. Low weight for height signals a child that is suffering from current undernutrition and it is also known as child wasting. Low weight for age indicates underweight and it is a good way of assessing the nutritional status of a child over time. It is particularly useful during Maternal and Child Health clinic visits. Finally, low height for age reflects the past nutritional history of a child rather than the current status and is an indicator of past undernutrition. It is mainly used to identify chronic malnutrition and it is a sign of stunting. There are values for these indicators taken in 1999 by UNICEF, which has been carrying out a comprehensive program for improving the access of children to health care in Georgia. However, new data is necessary in view of the increase in poverty levels that took place between 1999 and today. The regular collection of these data is all the more important in view of the worrying levels of calorie intake for a significant number of Georgians. In a country famous for its generous dinner tables, good nutrition is currently far from being accessible to all. Finally, indicator #9 can be considered as a measure of long-term investment in health care, as the costs of posterior treatment greatly outweigh vaccination costs.
Indicators 10-15 provide a picture of accessibility to health care services by the population. The percentage of people that report bad or extremely bad health conditions is telling when disaggregated by poor and non-poor at the seasonal and regional level and combined with data about whether these people sought medical assistance. The combined use of the percentage of people that needed a visit to the doctor but did not, and the percentage of people that could afford prescribed medicines are direct indicators of accessibility to health care facilities. Together they provide a picture of how many Georgians can enjoy a full treatment (visit to the doctor plus purchasing of medicines). As Chapter Three has shown, only 24% of poor people and 15% of extremely poor people could enjoy a full treatment. This indicates that the health care services are beyond the reach of the great majority of people in need. Finally, the percentage of pregnant women that were attended at least once every three months indicates access to health care for a particularly vulnerable group while the percentage of births attended by skilled health personnel reflects the access to health care at a critical point in life.
Finally, indicators 16-18 provide an alternative way for measuring efficiency in spending. The percentage of spending (net of salaries) assigned to the system of public hospitals that reached the hospitals (by region) gives a direct picture of leakages in the system. In 1999, the NHDR estimated that these leakages in Tbilisi alone could be at least 30% of resources, a non trivial amount for a system already officially underfunded. Low budgetary allocations and low efficiency in spending cause much damage to the system’s capacity to perform basic functions. The last two indicators, numbered #17 and #18, reflect the most basic impact of low budgetary allocation and leakages, basically, the lack of medical supplies and medical instrument in working conditions.
The elimination of disparities based on gender is a basic element of the human development approach, not least because such an approach is incompatible with discrimination in general, be that because of sex, age, social class or religion among other characteristics. Except for access to well paid jobs, in which women appear to be at a disadvantage, and differences in poverty rates between males and females in some regions, it is not clear the extent of the contribution of gender to the risk of falling in poverty. However, lack of data does not signal a lack of problem. Exploring whether gender is a factor affecting the poverty risk of an individual in Georgia is an overdue task, as little is known about it, and it can help a better targeting of anti-poverty programs.
Because scant information is available, the NHDR suggests the PREGP devotes resources and time to monitor some basic gender indicators. The NHDR suggests using two Gender indicators that have been developed by UNDP to measure the participation of women in the overall development process. Some of the components of these indicators also constitute indicators of Millennium Declaration Goals.
The use of these indicators, of course, is in addition to the disaggregation by gender of those indicators listed under General Poverty Indicators, Education and Health.
Human Development Index and Human Poverty Index
The National Human Develop-ment Report has regularly published the values of the Human Development Index for Georgia and in this year it has gone further to estimate the index at the regional level. This work will continue and the HDI will act as a complementary indicator of progress in fighting poverty as well as an indicator of the impact of the PREGP on human development in Georgia and its regions.
The Human Poverty Index II is a composite index and can be understood as measuring the opposite of the Human Development Index42. While the HDI measure income per capita, the HPI measures the percentage of people below the income poverty line. If the HDI measures life expectancy, the HPI measures the probability of dying at age 60 and so on and so forth. We suggest that the PREGP includes a reading of the Human Develop-ment Index and Human Poverty Index II for Georgia and its regions.
Finally, we propose here a set of indicators that have a great impact on overall standards of living and are indirectly linked to the three pillars of the Human Development Index. As before, the list below is not exclusive and others may be added to capture additional dimensions of family’s living standards.
The first indicator is electricity supply. It is a basic thing in any developed or developing country. The fact that Georgia is already on its 10th year of serious power blackouts says little good about the capacity of the government to resolve basic problems. Electricity is a precondition for a growing economy and the creation of jobs. In turn, access to safe water is one of the indicators used in the assessment of progress towards the Millennium Declaration goals. In general, there appears that access to safe water is acceptable in Georgia. However, the crumbling water distribution infrastructure in major cities and towns makes one wonder how long an acceptable access to safe water will continue to be the case.
| Box 4.1: back to Tsar Nicholas II time
Chiatura is a town in Imereti that used to know better times. It
gained reputation for its rich mineral resources and its population
enjoyed a relatively high standard of living. |
Next came family access to sanitary means of excreta disposal defined as: flush toilet connected to a sewage system or septic tank; a pour flush latrine; improved pit latrine; or traditional pit latrine. The use of a bucket or other means is considered a no sanitary means of disposal. In general, standards of hygiene in Georgian families are relatively high and the presence of non-sanitary means of excreta disposal low (0.5% of families). Still, the PREGP might find useful to track changes in these indicators as inadequate facilities for family hygiene constitutes potential avenues for spreading diseases. A similar recommendation holds for municipal systems of waste disposal, which are generally poor and characterized by irregular waste collection and the presence of illegal landfills, sometimes right on people’s backyards.
Finally, this NHDR would like to include the timely payment of pensions and the elimination of arrears as an indicator of not only access by a vulnerable group to something that is rightfully theirs (their pensions for which they worked an entire life) but also as an indirect indicator of overall responsibility in the implementation of the PREGP. Pensioners are a vulnerable group. Most of them are too old to work or have skills that this new Georgia does not value. In every poverty assessment, pensioners appear as the group with the highest risk of poverty and the presence of pensioners appears as a determinant of poverty (see Technical Annex 1). Failure to pay pensions in time constitutes a serious blow to these people and will put great doubts about the seriousness of the effort to achieve the objectives of PREGP.
We would like to close this chapter by emphasizing two central aspects of the PREGP. One is that the bulk of non-government resources that are financing the PREGP are neither a gift from international agencies nor a grant from donor countries. To the contrary, they are loans and the money will have to be paid back in full. There is a shared responsibility between those taking and those giving the loans for ensuring that the resources allocated to the PREGP are wisely spent and deliver their expected returns. The money to finance the PREGP is being borrowed and lent on behalf of the Georgian population, in particular, on behalf of its youth and children, for whom the program is being implemented primarily and who will have to bear the bulk of re-payment.
Georgia has already built up a substantive amount of debt with the international organizations financing the bulk of the PREGP (approximately 1/3 of total debt). In fact, since independence, Georgia has been actively taking debt from a variety of sources. In 1999, the NHDR had already warned about the dangers of excessive borrowing, particularly when it appears to finance consumption rather than investment in productive activities. Today, the policy of borrowing heavily against the income of our young and children is showing clear signs of insustainability. In spite of a recent debt re-structuring, the schedule of debt-repayment in the short term is 110 million US$ in 2002, 133 million US$ in 2003 before sharply increasing to 460 million US$ in 2004. Taking into account that budget revenues in past years have been less than 350 million US$, there is little doubt that the current schedule of debt payment is unfeasible and that further debt re-scheduling will be needed. Without it, the objectives of the PREGP are just not realistic. The message is clear. The taking of further debt to finance the PREGP increases a debt burden that seems to be already beyond Georgia’s repayment capacity. The money borrowed to finance the anti-poverty program should deliver the promised results When one borrows money in full knowledge that somebody else will have to pay back, there exists an ethical, or moral, demand to make sure the money is well used. On this score, if results do not come as expected, the public will have the right to demand explanations from both those that took the loans as well as those that provided them.
The second point we would like to emphasize is that the objectives of the PREGP are not feasible unless our representatives in the government undertake a serious effort to root out mismanagement as well as to improve the business environment in Georgia. Good governance is one of the most crucial aspects in a fight against poverty, comparable in importance to prudent monetary and fiscal policy. It is also a pre-condition for financing hospitals, schools and paying pensions. As the PREGP bluntly puts it, "the State fails to fulfill its functions properly because of the inefficient expenditure of miserable resources".
| Box 4.2: about anti-corruption
strategies
"The chain of corruption will never end unless
its elimination is strongly supported by very high governmental
positions" |
This "inefficiency" comes from various sources. Inefficiency originates in a State structure that can hardly collect half the amount of taxes it could and should. It originates in the existence of a law enforcement structure that fails to provide what the public expects from them and constitutes a burden for formal and informal business alike. It originates in a judicial system that fails to stand as a serious deterrent to those predisposed to profit from corrupt practices. These same inefficiencies produce serious direct and indirect effects on the poor and dispossessed. These inefficiencies opened the opportunity to some in the former Ministry of Social Welfare to divert pensions that were crucially needed for scores of Georgians. They allowed (so far between 1997-1999) the loss of 87 tetries of every GEL allocated to the system of kindergartens, primary and secondary schools. These inefficiencies resulted in the dilapidation of infrastructure in the energy sector, mismanagement and regular blackouts. These inefficiencies take on average 9% of company turnover and 50% of profits. These inefficiencies have made a few Georgians very rich while leaving many without opportunities and distorting incentives in society. Mismanagement and corruption constitute serious problems and can threaten not only the viability of the PREGP, but also the whole set of socio-economic reforms undertaken since 1995, reforms for which vast sectors of the population have paid dearly.
In summary, this chapter has attempted to show that the Poverty Reduction and Economic Growth Program faces the challenging task of not only promoting increases in Gross Domestic Product, but also putting into place mechanisms that allow the poorest sectors of the population to share its benefits by means of greater employment, greater income, and greater access to education and health care services. In monitoring the achievement of these goals, the NHDR contributes a simple and preliminary set of success indicators. The list is not exclusive and may be enlarged or changed as appropriate. This chapter also emphasizes that the task will not be easy. Successful implementation of the PREGP will demand not only first class technical expertise, but also overwhelming political support because several of its actions will not result in win-win situations but rather will affect entrenched interests. All partners associated with the "Poverty Reduction and Economic Growth Program" should strive to ensure that the program attains economic growth and poverty reduction. There is a shared responsibility for ensuring that the resources allocated to the PREGP are wisely spent and deliver their expected returns.