Georgia's Instability Unravels Economy

EVERY week Tamara Gagoshidze kisses the golden toes of Jesus on the icon in her church. Amid the heady scent of incense and the swirling robes of the Georgian Orthodox priests, she prays for peace and the safety of her family for another week.

"How can we go on living like this?" she asks. "I'm too scared to go out any more. I can only go to work and church. There's nothing else left."

Ordinary life has all but ceased in the former Soviet republic of Georgia. At night, gunfire rings out across the capital as if to confirm Ms. Gagoshidze's words. Several people die every day in random shooting, many the innocent victims of gang warfare. The city's restaurants and bars have long since closed, forced from business by extortionate protection rackets. Most of the country's factories have shut down after a fuel shortage hit the republic's industrial base.

"The Georgian economy is not just in crisis, it is near total collapse," says Valeri Chechelashvili, head of the Georgian Foreign Ministry's economics department. "We have lost all our old Soviet markets, yet the quality of our products is not good enough for the international market."

Industrial production has fallen to less than 20 percent of pre-independence levels, says Industry Minister Tengiz Geleishvili. European Community advisers in the capital Tbilisi say that some areas of agriculture are operating at only 5 percent of 1989 levels.

Georgia's predicament is worse even than its war-torn neighbors in the former Soviet region of the Caucasus. Azerbaijan, embroiled in a five-year war with Armenian forces over the disputed territory of Nagorno-Karabakh, continues to pump high-quality crude oil from its Caspian fields. And despite an economic embargo, Armenia continues to maintain a working infrastructure.

In Georgia, even the financial system is in chaos. Russia has refused to transfer rubles to the republic until Tbilisi repays an estimated 39-billion-ruble ($30 million) debt to Moscow. The government introduced coupons in April as an alternative to the ruble, but their value has already fallen by one half. Most salaries are paid only in coupons.

Parliament, meanwhile, is calling on the government to explain its massive budget deficit for 1993, which it estimates at 167 billion rubles ($128 million), or more than three times the country's annual revenues. It advocates breaking out of the ruble zone and has printed a new currency, the lari, in preparation, although economic analysts say Georgia has insufficient hard currency reserves to support it.

Some Western companies have shown an interest in investing in Georgia, notably in its extensive wine and tea industries. California wine companies such as the Juante Brothers have visited the republic's vineyard, but none has left with any firm plans to invest. Western diplomats blame the lack of laws protecting foreign investment.

"There are no rules by which to play the game," says a diplomat based in Tbilisi. "There is no commercial code. They have institutional corruption; the ministries need to be dissolved or at least reformed; and Parliament, if you can dignify it with that name, is ridiculous. Nobody is willing to take a longer view of what's good for Georgia."

Even Eduard Shevardnadze, former Soviet foreign minister and now head of Georgia's ruling State Council, cannot dissociate himself from the corruption. He came to power in March 1992, after a paramilitary group known as the Mkhedrioni, or horsemen, ousted popularly elected President Zviad Gamsakhurdia. The 2,000-strong Mkhedrioni are known locally as ex-convicts.

Some observers say dealing with corruption is not so urgent. "Corruption eventually has to be addressed," says Norma Harms, charge d'affaires at the United States Embassy in Tbilisi, "but it is not a priority. Shevardnadze cannot afford to make powerful enemies at this time. His priority must be the disarmament of the paramilitary groups. There are arms all over this country."

Much of Georgia's weaponry, and the resulting violence, has spilled over from an ongoing war with separatists in the western province of Abkhazia. The 70,000 Muslim Abkhaz have been fighting for their independence from Christian Georgia since 1989.

Renewed fighting erupted earlier this month around the regional capital Sukhumi, which is still in Georgian hands, prompting Russian Foreign Minister Andrei Kozyrev to threaten economic sanctions from Moscow, if the fighting continued. His statement was greeted with some cynicism in Tbilisi, where most Georgians believe that maverick Russian troops based in Abkhazia are supporting the rebels.

For most ordinary Georgians, however, there is no alternative to the present situation. Opposition parties are strictly controlled and offer little criticism of the government, political analysts say. Many of Mr. Gamsakhurdia's supporters have fled the country, and those that remain are frequently arrested. They get no sympathy from ordinary Georgians.

"These people are fanatics," Ms. Harms says. "They treat Gamsakhurdia like the Messiah: `He will come again!' they say."

"The main hope for Georgia is that America will help us," says Zourab Soselia, deputy chairman of Tbilisi's Committee for Foreign Economic Relations. "We are waiting for large sums of credit from America."

It may be a long wait. "Any organization giving credit has the right to make certain demands," says a spokesman for the US Embassy here. "The Georgians have not responded adequately."