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

Shevardnadze Opposes Assembly Salary Hike

Quarrel over a massive rise in the minimum wage is first harbinger of parliamentary elections.
By Giorgy Lomsadze

President Eduard Shevardnadze has vetoed the Georgian parliament's unprecedented decision to raise the minimum wage by almost 600 per cent, in the latest twist in a row that has paralysed parliamentary business for more than a week.


The president is proposing instead a gradual rise in basic salary levels, but on March 20 parliament failed to get a quorum to debate his new plan. Both sides are digging in, in what has become the first big battle of the campaign for parliamentary elections, due this autumn.


The cause of the quarrel is parliament's vote on February 28 to hike the minimum wage from 20 to 115 Georgian lari (or roughly 10 to 55 US dollars) a month, beginning in June.


The government and international financial organisations denounced the bill, initiated by the opposition United Democrats party, as completely unworkable, with IMF representative Paulo Neuhaus saying, "The populist actions of certain political groups are creating dangers for the future economy of the country."


Pro-government deputies tried to force a new round of voting but the opposition appealed to the Tbilisi district court, which ruled that the re-vote was illegal.


Opponents of the bill were furious. "So if our enemies attack this country and the president publishes an order declaring martial law, a traitor to the motherland can go to court and have the order stopped," one loyal deputy, Zakhary Kuntsnashvili shouted into the microphone.


Leading politicians have weighed in to the debate, almost openly campaigning for votes. Former parliamentary speaker Zurab Zhvania, who harbours presidential ambitions, has been one of the strongest supporters of the measure.


Some are worried that the row will help trigger an economic crisis. Paulo Neuhaus, the head of a recent visiting IMF delegation to Georgia told journalists that the country desperately needs to increase its tax revenues, restructure the government and reform the energy sector.


"It is simply fantastic to believe you can revive the economy and improve standards of living just by passing legislative bills," Neuhaus said.


The proposed new minimum wage of 115 lari per month is far larger than the average salary of most Georgian workers and stands in contrast to the state pension, which is worth just 14 lari a month.


The authors of the proposal, however, declare that the 116 million lari required to implement the raise can be achieved from collecting more tax revenues and without printing more money.


"We simply plan to reapportion budgetary reserves - by slashing unnecessary spending on stationery, office inventories, transportation and so on," former minister of custom revenues and United Democrats member Mikheil Machavariani told IWPR. "The same amount of money will simply be redistributed more fairly."


Machvariani rejected government warnings that the wage rises would lead to a fall in GDP, an increase in inflation and devaluation of the lari. "It is common knowledge that as soon as ordinary people have more spending power they start purchasing more goods," he said.


Well-known economist Lado Papava argued that the authors of the plan were missing a crucial point. "Don't forget that the government still owes 300 million lari in unpaid salaries to pensioners and state employees," he said. "If the country has free reserves of 116 million, this sum should first and foremost go towards clearing that debt, rather than increasing salaries, which are not paid on a regular basis anyway."


The head of parliament's budgetary office, Roman Gotsiridze, said that the project is bound to fail, as there is no actual financial backing behind it. "Let's talk reality - the state budget of 2003 is overblown and not based on realistic predictions, so the government will be forced to sequester it," he predicted.


Parliament's approval of the bill put President Shevardnadze in a tight spot, facing the wrath of voters on one side and of the IMF on the other, whatever he did. Georgia needs the support of the IMF to reschedule its foreign debts at the Paris Club and failure to do would be catastrophic for the government.


Shevardnadze's compromise proposal, handed to parliament on March 20, would raise the minimum wage gradually. It would be worth 35 lari this year, 60 next year and 100 in 2005. So far, the opposition has not responded. Deputy speaker Gigi Tsereteli complained that both opposition and government had created a crisis by refusing to sit down and negotiate with one another.


The public has been watching the battle with keen interest, unsure how it will end.


Some Georgians say a big wage rise is the only way of pulling them out of poverty. "Paradoxically, people who are currently paid 30 lari are expected to survive on salaries almost six times less than what has been officially calculated as the minimum subsistence level," marveled Tamila Katamadze, a school teacher and a single mother of two. "My salary is 30 lari and I can hardly make ends meet. Whatever is motivating the authors of this project, I welcome it and I look forward to it becoming a reality."


But the owner of a small grocery shop in the city centre, who asked to remain anonymous, said he thought the new bill would drive small businesses into the underground economy.


"I pay less than 100 lari monthly to most of my employees. For instance, the cleaner earns 40 and the packer 60," the businessman said. "Now I'd have to triple or even quadruple their wages. Social taxes will increase in turn and I'll end up earning next to nothing. Therefore, I would be forced not to reveal my real income to the tax inspection and to employ several workers unofficially."


Giorgy Lomsadze is a journalist with Georgia Today newspaper in Tbilisi