After 1991, Georgia struggled with its integration with the rest of the world. Socialist inefficiency was exposed and thousands of factories closed. Gross domestic product (GDP) dropped 85%. Georgian politicians and citizens struggled to come to terms with market concepts such as private property, while the government was characterised by cronyism, corruption and abuse of power. A new constitution was adopted in 1995, offering free speech and religious choice. But the economy still struggled to perform.
Notable problems involved customs, where importers were held hostage to bribery and corruption by their own officials. High tax rates led to bribery of tax collectors and state revenue fell precipitously, and salaries and pensions could not be paid.
Reforms
The priorities for economic recovery and reform included liberalising the tax system, deregulation, making the process of starting a business easier, high-speed privatisation and public-sector reforms that included eliminating corruption, lowering the number of state agencies and downsizing the rest.
…Georgia adopted the Economic Liberty Act, which prohibits government spending of more than 30% of GDP, a budget deficit of more than 3% and public debt of more than 60% of GDP.
Impressive reforms were made at customs. All procedures were simplified to allow importers to cross the border in a few hours, while most tariffs were eliminated. Top rates were brought down from 32% to 12%, with the average tariff rate at 1.3%.
Drastic steps were taken to root out corruption in the public sector. The Georgian government fired thousands of corrupt officials and, in an amazing singular political event, fired its entire police force of 40,000, completely abolishing the traffic department. About 15,000 officers were gradually hired back after investigation and interviews. Zero tolerance towards crime and corruption has helped Georgia become one of the safest countries in the world.
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