Georgia Economy Weaker With War on Two Fronts

Fading Russian trade connections stymie state-owned enterprises

ONCE a shining economic light in the old Soviet Union, the economy of Georgia continues to dim in the shadow of civil war.

Rebel supporters of ousted president Zviad Gamsakhurdia seized the key port city of Poti from the government of Eduard Shevardnadze Oct. 2. The next day forces marched into Khoni and Vani, two towns near Kutaisi about 145 miles west of here. Government troops recaptured Khoni Oct. 4 and repelled an attack at a crucial road junction at Samtredia, midway between Kutaisi and Poti.

Mr. Shevardnadze called for the sides ``to stop all military actions'' and said on Georgian state television that the refugees were ``dying from cold and starvation in terrible conditions.'' He has asked for international aid for what he said were more than 200,000 refugees.

Georgia had one of the most prosperous economies of the old Soviet Union. The country was a producer of food products, wine, and manganese. Both business and labor leaders predict a rapid rebuilding if peace returns. But reconstruction may be far off, given the economic ruin the country has undergone.

Political stability will have to precede economic recovery, says Vice Prime Minister Amiran Kadagishvili. ``The financial reserves we had two or three years ago don't exist now,'' he says. ``Our budget doesn't exist. We exist mainly on loans.''

Economic ministry statistics show that:

* From 1989 to 1992, the national economy shrank by 60 percent.

* The rate of inflation for 1992 was 1,339 percent.

* The number of officially registered unemployed increased by 22 percent in the first six months of 1993 compared with the last half of 1992.

Many factories have stopped operating because raw materials are lacking. Even prior to the outbreak of war in Abkhazia on Sept. 16, Georgia faced shortages of gas, oil, and other key products because of war between neighboring Armenia and Azerbaijan disrupted rail traffic.

Mr. Kadagishvili blames the Russian government for waging an economic ``blockade'' against Georgia. ``In the last few months, there have been no transactions with Russian banks,'' he says.

Most Georgians backed government efforts to fight the Abkhazian rebels. The 2 million member Federation of Georgian Trade Unions, for example, agreed not to strike or distribute leaflets during a government-declared state of emergency.

But federation Vice President Mamuca Katcitadze says once the emergency ends, workers will resume their struggle to improve wages. Monthly inflation of 100 percent and skyrocketing unemployment have devastated most workers, he says.

In Georgia, blue-collar workers typically earn the equivalent of $8 per month. Cheese at the open-air market costs $1.50 per kilo and gasoline is sold for $8 a gallon. ``Increasing workers' income is our No. 1 priority,'' Mr. Katcitadze says.

UNION leaders say they are suspicious about government plans to privatize many state-owned industries. Virtually all of the Georgian economy remains in government hands. The government should sell off ``the unprofitable enterprises while keeping the profitable ones to generate income for the state,'' Katcitadze says.

Trying to sell off unprofitable industries makes no sense economically to Vakhtang Svanadze, chairman of the Exchange Council, part of a large holding company that includes the Georgian stock exchange and some 40 other businesses. He blames at least some of the country's economic ills on the government's failure to privatize rapidly.

Mr. Svanadze says he supports the recent reshuffling of Shevardnadze's Cabinet that made Kadagishvili vice prime minister for economic affairs. He is the country's most prominent private businessman, and his appointment reflects Shevardnadze's commitment to move rapidly toward a market economy, Svanadze says.

The private sector is optimistic about future business developments, Svanadze says, despite today's grim conditions. ``Business people have developed infrastructure and are ready to take part in developing the economy - as soon as the government makes it possible to do so,'' he says.

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