Annotation.Transition from the planning economy to the market one requested the full scale reform program. There is no ideal economic order or system. Therefore, any socially attempts to carry out reforms designed for higher living – standards and the economic advance. A transition to market economy has been called for by a disintegration of a single economic area and a collapse of a planned economy system inherent to the former USSR. We have described the Georgian reform process from the planning to the Market economy system since 90’s.

Keywords: economic reforms, transition, macro economy policy, models of economic development, Shock Therapy. 

The reasons, necessity and the Objective of the Reforms 

Georgia had been stricken by a severe economic crisis from the dissolution of the Soviet Union and had its own way of implementation the reform to overcome the crisis and to achieve the macroeconomic stability. Since that, a certain experience has already been gained. Its analysis and a generalization will be necessary for a delineation of the right directions of the reforms that so far, has been carried out in line with the world practice.

The first stage – a macroeconomic stability and, above all a perfection of the financial system, as well as clean – out economic functions and liabilities of the state – there all are indispensable for paving the way for an economic success.

The second stage – furthering a macroeconomic stabilization, a stimulation of a national industrial and agricultural production, an export encouragement and an achievement of higher economic growth indicators.

Quite a lot has been done already: the country has a stable national currency, the parliament adopts necessary economic bills, a land privatization, trade links have broadened, plenty of credits has been provided etc.

These all form a solid ground for a further progress, but foreign assistance solely will hardly be sufficient for a true economic recovery that will necessarily involve a maximum attraction of local resources and capacities.

Georgia's economic potential makes the country highly dependent upon a small and medium – sized business development calling for a mass engagement of labor force. Otherwise, progress cannot possibly be made in tough market economy circumstances.

Georgia's geo – political position creates a business and a trade friendly environment favorable to the areas, such as service or farming. 

Macro – Economic Models of Development and Georgia 

Past and present economic troubles in Georgia has prompted a search for the ways of getting the country out of its unpromising situation, of achieving stability and a creation of conditions for its further development. To this end, a macro – economic policy envisaging the world economic processes, the experience of the countries once faced with similar problems, a full awareness of Georgia's natural, political and ethnographic peculiarities and a definition of the part the state ought to play in overcoming the crisis – will be necessary.

These issues will have to be considered as a closely – knit entity, a complex that will allow us to outline a certain macro – economic model.

Economic circles and the public at large are aware of quite a few effective macroeconomic models carrying the names of their authors (initiators) or an economic direction they belong to. Those may fall into the following 4 groups: The Keynesian, Monetary, the Method of a Rational Anticipation and a Theory of an Economic Supply.

According to the Keynesian unemployment – rates can be lowered through wide – spread "public works". The reason behind unemployment and an economic crisis is a human inclination to being unemployed.

Unemployment and an economic crisis can be averted through state regulations. The state must stimulate production by its credit and charge policies. The model involves an interaction of state regulations and a personal initiative.

Another reason behind an economic crisis may be a negative impact made by outside factors. In case of Georgia, it is an increase of fuel prices, an economic blockage and an instability. These negative factors can possibly be worded off through regulations.

Thus, the authors of the theory assume that a state is able to regulate economy.

The monetarists view market as sufficiently competitive and capable of upholding a high – degree macro – economic stability. They assess the state regulations of economy as harmful to an economic development, for they result into small wages and low living standards.

The economic reform underway in Georgia is essentially a monetarist one, implying but a minimal state interference Social programs are cut down, an investment – friendly environment is being created, foreign investors attracted to cater for the prospected social programs.

But the monetarist reform being implemented in Georgia is unlikely to result in a creation of investment resources or their further development. As against this, it has been designed for meeting "the social liabilities" taken on by the government and is, therefore, illogical and can be viewed as a reason behind the country's grave economic situation. An economic crisis cannot possibly be overcome without a consistent policy, all the more so, that deviations from a political course are frequent enough bringing about a further aggravation of the situation and making the set tasks hardly attainable.

The Theory of a Rational Anticipation relies upon a person's rational conduct. A person makes a decision prompted by the information at hand, the decision that will, hopefully, maximize his/her welfare. The theory attempts at detecting links between micro – and macro theories.

Another macro – economic theory of an Economic Supply (Supply – Side economy)- emerged in 80’s. Its initiators assume that governmental policies of taxation and charges hinder a country's advance, with but little labor motivation being am outcome. The theory rejects transfers. "The Reyganomics" carried out by President R. Reygan's administration (1981 – 1988), serve as the most striking instance of The Theory of an Economic Supply (Supply – Side economy). The program implied but a slight state involvement, a cut of social and living standards maintenance programs, a small – scale state regulation of Entrepreneurship, a control over a mass of money and tax – cuts.

The two economic features of the world today are a slow – down of an economic growth in the industrial countries and unstable economic policies of the developing states. The new problems, such as a conflict of interests the goals set by macro – economic policy and those envisaged by governmental economic policies have spring up. For instance, a moderate inflation is favorable to economy but its increase may cause a conjectural fall, a deteriorated operation of economic systems, with the results being an increased unemployment – rate and a reduction of an economic growth. Apart from that, high employment rate resulting from an abundance of jobs and a diminished labor supply may result in an inflation and create problems in a country's balance of payments. (Aslanishvili, D., & Omadze, K. (2016). Origins and the Reasons of Monetary Crises in Georgia (1995-2016). Modern Economy, 7(11), 1232-1250.)

Figures reflecting the macro – economic policies of some of the industrial democracies are interesting enough. Certain goals are achieved through monetary policies. For instance, in the USA there are 5% annual discount – rates on the Tbills, 5% - unemployment rate, 3% annual economic growth and 2% - annual inflation – rate. These figures and indicators of a modern economy testify to a well – developed economic environment with a stable financial policy and macroeconomic parameters.

The world economic developments set a task of maintaining an economic stability and harnessing inflation as the chief economic policy objective.

According to a prevalent assessment, an economic instability and an unbridled inflation may disrupt the functions linking various economic units by giving way to uncontrolled changes in the income – expenditure areas thereof and affect a considerable damage to economy as such.

The part attributed to stable prices and currency purchasing powers within the market economy, on the one hand, and a centralized economy, on the other, - is curious enough. The foregoing form of supreme state function and its fulfillment is a clear indication of an operational financial system. In the centralized economy, meanwhile, stable prices formed a pre – condition of a popular welfare. According to a prominent Hungarian economist A.Hyek  (A.Hyek, "A study of the Post – Communist Economies") the average macro – economic parameter indicators of the so – called "Dragons" (The developing countries) are as follows: a 10% economic growth, 5 to 6% - inflation, a 15% annual discount rate, 10 – 12% - unemployment.

This kind of economy turns out more efficient in distributing its own resources and achieves a speedy economic growth and a general advance of the country. It should be said, however, that certain economic and political oscillations are also inherent to those economies.

The stabilization program underway in Georgia carries the features of the economy described by A.Hyek. The economic course, moreover, is pursued in a complex and conflicting environment of an economic crisis.

The reform implemented in Georgia has set out the following price – formation peculiarities:

1. An inadequacy of the price – formation mechanisms to an international practice and realities:
2. An inadequacy of prices in Georgia to an actual value of goods;

A transition to market economy has touched off a speedy and an uncontrollable price – increase only too natural for "a deficit economy", implying an inflation accumulated over quite a few years and translated into a shortage of goods and a large demand for them. Thus, low prices on goods and services in Georgia compared to international standards taken into account, a further price – increase is highly likely. (What is implied here is an absolute ratio to an international market, as against an average income in Georgia)

Price – formation is a macro – economic policy area.  A consideration of the macro – economic policy carried out in Georgia calls for dealing with an unemployment problem.  A high employment - rate results from a full exploitation of a country's production factors (land, labor, capital, entrepreneurial capabilities, natural resources). These factors are reflected in an overall charge of an economic potential. The term "full employment" has to do with labor, a job provision. The unemployment – rates of 2,5 to 5% in the industrial democracies is assessed as equaling a full employment and is, thus, viewed as a nearly ideal economic situation. High employment – rates are Georgia's chief macroeconomic challenge.

A creation and a maintenance of democratic institutions is a largely conditioned by an independence of an individual, with an employment being an important factor of a person's political and an economic independence 

An International Experience of Overcoming and Economic Crisis 

A Transformation underway in Georgia brought about a production fall unheard of in Modern History. The fall lasted between 1990 – 1994, with the biggest GDP slump – 40,3% marked in 1992: the rates were a little better in the next several years: 39,4% - in 1993, 30% - 1994, while in 1996 the indicator formed but 20% of the 1989 production level. An industrial production fall was even larger one. The living standards, understandingly, lowered significantly. A per capita GDP in 1990 amounted to $2063, with the 1994 indicator hardly reaching $450. The situation between 1995 – 1996 was a little better owing to a 24% and an 11% GDP growth, with a per capita amount equaling $700. (Aslanishvili, D., & Omadze, K. (2016). Origins and the Reasons of Monetary Crises in Georgia (1995-2016). Modern Economy, 7(11), 1232-1250.)

The inflation rates diminished from 8500% - in 1994 to 13,5% - in 1996, with its rate being 3% in 1997. Among other promising factors a stability of the National Currency – Lari – and a near consummation of a price liberalization were noticeable, as well.

An average monthly wage of those employed in an economic sector was 2,3 times larger in 1996 than in the previous 1995 and amounted to 64 Lari. In 1996, for the first time in the 90's, industrial production levels went up. These and other factors testify to a gradual economic recovery (Aslanishvili, D., & Omadze, K. (2016). Origins and the Reasons of Monetary Crises in Georgia (1995-2016). Modern Economy, 7(11), 1232-1250.)

"A Shock Therapy" method has been widely applied in the Post – Communist countries on their way to market economy. "The Shock Therapy" doctrine is of a neo – classical origin. Its authors consider economy from the point of view of the activities of economic units (subjects) and their interaction. The method implies economic activities carried out within a certain area (a physical and an institutional environment), and parameters resources and means of production). The environment is, meanwhile, rather a sensitive one, being highly effective in the well – developed economies and less so in the underdeveloped ones. (A small production capacity, a technological backwardness etc.). the definition makes it clear that a free market economy system is a perfect economic environment. Therefore, the Shock Therapy can be described as an economic program targeted at a creation of a perfect Free Market Economy Environment. ("The Transitional Economy Course" by L.I. Abalkin. Moscow, Finstatinform, 1997 pp.68 – 69)

The Shock Therapy implies stringent fiscal policies involving a simultaneous price – liberalization, a radical budget deficit cut through an elimination of grants and subsidies and tight restrictions on the amount of the mass circulated money and the population's incomes.

An application of the Shock Therapy calls for the following steps:

1. A multiple price – increase on all the goods;
2. A restriction of a budget expenditure;
3. A higher interest rate and a restriction of the mass of money in circulation.
4. A cut of budget expenditure through a reduction of centralized capital investments and a halt of grants - to unprofitable enterprises
5. An emission of state debt bonds for a replenishment of a budget deficit;
6. An introduction of a single national currency exchange – rate as to a dollar and warranting its convertibility at an interval market;
7. An introduction of universal (single) customs tariffs for an import restriction and an export stimulation, a retirement and a unification of a taxation system;
8. A social assistance within governmental powers;
9. An elimination of monopolies and a refusal on an administrative state interference in Entrepreneurship. 

The Shock Therapy in Georgia has been applied since February, 1992. 

References

1. "The Transitional Economy Course" by L.I. Abalkin 1997
2. Omadze, K. (2015). Importance of mortgage banks for credit market development. In Materials of reports made at the international scientific-practical conference held at Paata Gugushvili Institute of Economics of Ivane Javakhishvili Tbilisi State University in 2015 (p. 521).
3. Omadze, K. (2014). Business valuation modern models and Georgian reality. In Materials of reports made at the international scientific-practical conference held at Paata Gugushvili Institute of Economics of Ivane Javakhishvili Tbilisi State University in 2014 (p. 540).
4. Omadze, K. (2014). The Essence and Characteristics of the Credit Market. Proceedings of the TSU Institute of Economics, 390-393.
5. Aslanishvili, D., & Omadze, K. (2019). Green economy and access to finance in Georgia (going beyond the commercial banking sector to finance businesses in Georgia). Journal of Economics and Business, 2(3).
6. Aslanishvili, D., & Omadze, K. (2016). Origins and the Reasons of Monetary Crises in Georgia (1995-2016). Modern Economy, 7(11), 1232-1250.
7. Aslanishvili, D., & Omadze, K. THE INFLUENCE OF GLOBAL ECONOMIC CRISIS ON WORLD ECONOMY, ITS REASONS AND OVERCOME STEPS. In Materials of reports made at the international scientific-practical conference held at Paata Gugushvili Institute of Economics of Ivane Javakhishvili Tbilisi State University in 2013 (p. 508).
8. Aslanishvili, D., & Omadze, K. (2023). THE EVOLUTION OF THE ESSENCE OF HUMAN MATERIAL LIFE–FROM ANCIENT ROME TO THE MODERN WORLD. THE PROBLEMS OF DEVELOPMENT OF THE WORLD AND NATIONAL ECONOMY, TAKING INTO ACCOUNT THE PANDEMIC AND RUSSIAN-UKRAINIAN WAR PERSPECTIVES, 14.
9. Aslanishvili, D., & Omadze, K. (2013). The Impact of the Economic Crisis on the World Economy–TSU. In International Scientific-Practical Conference of the Institute of Economics (pp. 28-29).
10. A.Hyek, "A study of the Post – Communist Economies"