Institute for War and Peace Reporting | Giving Voice, Driving Change

Georgia: Foreign Aid Challenge

Huge infusion of US aid expected to directly benefit half a million Georgians, though some analysts have their doubts.
By Tamar Khorbaladze

An unprecedented programme of US aid was last week ratified by the Georgian parliament, representing a major foreign policy victory – but there are lingering questions about how the money will be spent.


The package gives Georgia 295 million US dollars over five years, a substantial boost for the country.


However, there are anxieties about the monitoring system being put in place to oversee the allocation of funds; fears that considerable sums could be wasted or pocketed; and concerns that such a huge injection of cash could destabilise the economy.


Georgia has been awarded the money by the Millennium Challenge Account, MCA. It is one of only a handful of countries to have received funds from the new US aid programme.


The initiative is the Bush administration’s ambitious, and controversial, new plan for distributing foreign aid to countries that have made considerable advances towards building democracy. Its priorities are to develop regional infrastructures and private sector initiatives.


Georgian president Mikheil Saakashvili and US Secretary of State Condoleezza Rice attended a high-profile ceremony at New York’s Waldorf Astoria hotel last month, where they signed a “compact”, laying out the parameters of the programme. (The full text of the compact can be found at http://www.mca.gov/compacts/091205GeorgiaCompact.pdf.)


The money will be administered by the Millennium Challenge Corporation, MCC - a “government corporation” in the words of the official website (www.mca.gov) - and its Georgian partner, Millennium Challenge Georgia, MCG.


MCG’s offices are in Tbilisi, but the majority of its employees will be working far from the capital, in the mountainous region of Samtskhe-Javakheti. Almost half the funding award will be spent on improvements to this region where over 90 per cent of the population in the southern half is ethnic Armenian.


These people speak only the most rudimentary Georgian, which, combined with very bad roads and a weak infrastructure, has meant that the province has become isolated from the rest of the country. The lack of integration has led to local interethnic tensions.


Lasha Shanidze, executive director of MCG, told IWPR, “The situation with the roads has forced them [the Armenians] into a position where it is easier for them to go to Yerevan to sell their produce or get medical treatment than to do that in their own capital city [Tbilisi].”


Over a third of the money will go towards repairing the 245 kilometres of roads that cross Samtskhe-Javakheti, including the main artery connecting the regional centre Alkhakalaki to Tbilisi, as well as other major routes to Armenia and Turkey.


Shanidze sees this as a priority not just for the region but also for Georgian national security.


The next most significant portion of the grant - about 60 million US dollars – will be allocated to developing the regional infrastructure in Javakheti, and in other regions of Georgia. This includes upgrading water supply systems and gas supplies to towns.


A further 32.5 million dollars will be used to create a regional development fund to support local small businesses and 15 million dollars will be allocated in grants to small-scale farm agriculture.


And finally, 49.5 million dollars will be spent on renovating the main Georgian gas pipeline. Most analysts see the inclusion of this clause - and its proviso that the Georgian government undertakes not to sell this strategic pipeline within the programme’s contract period - as designed to improve national security in Georgia.


It’s thought this clause appeared in the agreement after the Georgian president’s announcement in February that negotiations over the sale of the pipeline to Russian gas monopoly, Gazprom, had begun. The sole official justification for the sale was the pipeline’s desperate need for repair and the fact that the Tbilisi authorities did not have the money to pay for it.


Many observers here say they wholeheartedly approve of the US aid programme and its goals. It is thought that it will bring direct benefits to approximately half a million Georgian citizens and indirectly improve the lives of more than a quarter of the population. Improvements to the gas supply system alone will reduce health risks as well as bring benefits to the environment.


Georgia was one of only five countries worldwide (the others being Madagascar, Cape Verde, Honduras and Nicaragua) to have received MCA funds. But Georgia’s selection has contained an element of controversy from the very beginning. Countries are ranked according to their levels of democracy and reform. The Caucasus nation, when judged according to its economic and political development over the last ten years or so, fell far from the top of the MCC rankings.


Supporters of Tbilisi’s application, however, convinced the Bush administration that the country should not be judged by its uneven record since achieving independence in 1991, but rather by the major strides made since the Rose Revolution in 2003.


Some believe Georgia’s selection was an additional reward to President Saakashvili for his unabashed pro-US stance.


Most analysts see no problem with the projects selected for funding. But they are calling for more accountability and transparency.


“The most important thing is how this money is spent, and how it will be monitored,” said political analyst Paata Zakareishvili.


He went on to say that some feared “a large amount will end up being for the personal use of government officials”, adding that road construction, in particular, can become an easy source of graft.


According to MCG representatives, the MCC will follow the implementation closely and assess the programme as it progresses.


Observers like Zakareishvili, however, fear that US officials may choose to look away from any gross violations or abuses, should they occur.


“The tendency of the US government with the new Saakashvili regime is to forgive everything that happens,” he said.


“A very large amount of money is at issue here,” said Davit Usupashvili, head of the opposition Republican party. “I believe that the entire sum should be subject to parliamentary control.”


Many observers believe that, for the moment, the US aid programme is not under sufficient scrutiny.


A supervisory board, which oversees the project’s management, contains numerous government officials, they say, but only one representative from the NGO community and no one from the country’s political opposition.


Some analysts say that the process of aid administration in Georgia is already dangerously opaque. In drafting the compact between the US and Georgia, they claim, officials barely consulted with non-government organisations over how best to monitor the programme’s funds.


Also worrying is the apparent lack of transparency over how the money is allocated - MCG officials have already failed to hold public tenders for two contracts for the bank and financial agency that will hold and administer the American money.


Analysts say that, while they have no reason to suspect corruption, such failings in oversight and monitoring of tenders bode ill for the future.


But MCG officials maintain that the ai programme will be under the strictest control and all expenditures will be monitored. They point out that an advisory board with members from municipal authorities, the private sector and civil society will also advise MCG’s main supervisory board.


Another concern being voiced is that the US funds could destabilise the economy. Officials at the National Bank of Georgia fear that a huge injection of foreign currency may drive up the exchange rate of the national currency, the lari, which in turn could make exports less competitive.


According to national bank president Roman Gotsiridze, the government is working out a schedule to stagger the aid payments in order to soften the blow on the country’s currency market.


"How to manage this big capital infusion will be one of the main issues for next year,” Gotsridze told IWPR. “We had a similar problem this year because of the huge amounts we made from privatisation, but we coped with it successfully.


“The lari has been stable during 2005, and inflation has not gone above single digits.”


Tamar Khorbaladze and Manana Khidasheli are journalists with Public TV in Tbilisi.