An Imf Success Story? Try Georgia
As a result of its International Monetary Fund-supported economic reform program, the country of Georgia is a winner, as Gary S. Becker states in "A free-market winner vs. a Soviet-style loser" (Economic Viewpoint, Aug. 3). Nonetheless, Georgia still needs to raise more revenues. Tax receipts amount to less than 10% of gross domestic product. This covers only two-thirds of spending. No wonder the IMF is pressing the government to increase its revenues. But not, as Becker implies, by raising tax rates. Rather, we recommend removing exemptions to widen the tax base, and improving compliance.
In its IMF-supported programs, Georgia has gradually raised revenues from virtually zero five years ago to 10% of GDP today. That is one of the keys to Georgia's remarkable stabilization from hyperinflation in 1994 to less than 10%-per-annum inflation now. Other reforms--including privatization, improvement of corporate governance, building a sound financial system, and an independent and well-functioning system--are creating the basis for greater investment, sustainable growth, and a reduction in the size of the underground economy. Gary Becker is surprisingly off the mark in his analysis of Georgia's economy and the IMF's role in this impressive success story.
Director, European II Dept.
International Monetary Fund