· Absence of effective mechanisms for holding public officials accountable. In principle, the Administrative Code and the Civil Code include provisions on the conduct and accountability of public officials. However, in practice these provisions are not enforced. Efforts to introduce and implement codes of conduct for taxation and customs officials have had limited effect to date.
· Absence of effective appeals mechanisms and the inadequate capacity of the courts. The Administrative Code provides for the public’s right to be heard in protesting or seeking clarification on the actions of most government agencies. However, there is no provision for an independent or autonomous arbiter to provide recourse. This function is apparently to be carried out by the courts. However, the integrity of the courts is often suspected and the capacity of the courts to address these issues is limited.
1.8 Institutional Arrangements
1.3.1 Securities Industry
The institutional structure of the securities industry includes the following market participants: reporting companies (i.e. the private companies whose shares are traded at Georgian Stock Exchange), securities brokerage companies, share registrars, clearing banks, Georgian Central Securities Depository (GCSD) and Georgian Stock Exchange (GSE). The overall supervision is carried out by the National Securities Commission of Georgia (NSCG). The rights of the securities market participants are protected by the Georgian Securities Industry Association (GSIA). The structure of Georgian Stock Market is presented in Fig. 1.3.1.1:
Fig. 1.3.1.1. The Structure of Georgian Stock Market
2. Society
2.1 Poverty issues
Poverty Trends. The relatively slow rebound from the economic collapse after independence has led to a severe decline in welfare. Georgia’s annual income per capita is about 56 percent below the pre-independence level, unemployment rates are high (16 percent in 2001) and many Georgians are underemployed. In the circumstances, poverty, vulnerability and inequality have all increased over the period. Georgia clearly needs to achieve and sustain higher economic growth rates to improve living conditions. Given the small size of the domestic market, this can be achieved only through a stronger expansion in export activities, especially of those in which Georgia has a comparative advantage and the potential to generate new job opportunities, such as agro-processing.
Poverty Profile. Strengthened economic performance resulted in an reduction of poverty in the mid 1990s. However, Georgia’s growth rate slowed considerably between 1998 and 2000, and consequently inequality and poverty increased as measured by any of several methodologies increased (see Table 2.1.1). Growth was affected by a number of shocks, including the 1998 Russian crisis, severe droughts in 1998 and 2000, and the increase in the price of energy imports in 2000. These problems were compounded by internal and external political instability. Growth recovered in 2001-02, leading to a slight reduction in overall poverty.
Table 2.1.1. Change in poverty in Georgia between 1997 and 2002
Poverty Headcount (% of population)
Poverty definitions (lines)
1997
1998
1999
2000
2001
2002a/
Official minimum
46.6
50.5
53.0
52.5
52.0
51.3b/
Urban
46.7
53.3
60.4
56.6
54.3
53.7
Rural
46.4
47.1
44.6
48.0
49.6
48.8
US$4.30 per capita/day at PPPc/
13.6
19.8
23.2
23.0
22.8
21.7
Recommended poverty line (baseline)
13.6
19.8
23.2
23.0
22.8
21.7
Urban
13.8
22.2
27.4
24.6
24.1
22.6
Rural
13.4
16.8
18.4
21.4
21.3
20.7
US$2.15 per capita/day at PPP c/
9.7
11.8
14.5
15.4
14.8
13.5
US$1.075 per capita/day at PPP c/
1.7
3.0
3.2
3.3
3.4
2.7
Source: SDS SGHH primary data and World Bank, see Georgia Poverty Update, Report No. 22350-GE. Note: The official poverty line uses a normative basket and CPI price data to cost it and is around 100 GEL (about US$50 at current exchange rate) per equivalent adult per month. The recommended poverty line was developed jointly by the World Bank and SDS in 1998; it uses actual consumption patterns of the population and survey prices (its non-food component is fixed in real terms to 1996 and deflated using the CPI for non-food items); it is about 55 GEL (US$25) per month per equivalent adult. The equivalence scale used in the official and recommended methodology is the scale developed by SDS and used in Georgia to determine the social assistance payments. International poverty lines expressed in dollar terms (US$ in PPP) are per capita and use the latest (1996) revision of the World Bank, updated with the Georgia CPI. All figures are averages of quarterly data. a/ Preliminary estimate; corrections for changes in the Survey not made. b/ Bank estimates using official methodology. c/ Using 0.33 as PPP conversion factor.
Differential Impact of Rising Poverty. IDA, in close collaboration with the State Department of Statistics, prepared a Poverty Update covering the 1998-2000 period. The study found that the increase in poverty affected various socioeconomic groups differently, with growing differentiation among the poor, and signs that the poorest became even poorer. Poverty depth and severity increased in the observed period by 84 and 94 percent respectively. Driven by the volatile economic environment and absence of an adequate safety net, vulnerability to poverty for the average household rose significantly, with female-headed households being the most vulnerable. Although the extent of absolute poverty at any point in time remained around 20-24 percent, 40 percent of the population experienced poverty at least once during the year 1999-2000, and 60 percent of the population faced a real risk of experiencing poverty in the medium term. The high degree of vulnerability of households led them to apply strategies which may tend to increase chronic (long-term) poverty (e.g., shifting to subsistence farming, or pulling children out of school).
Urban and Rural Poverty. The trend in overall poverty reflects somewhat different developments in urban and rural poverty. In 1997, rural and urban poverty incidence were almost the same. In 1999, the urban poverty headcount doubled in comparison to 1997, whilst the rural headcount increased by 37.3 percent. Then in 2000, responding to the non-agricultural sector recovery after the Russian crisis, urban poverty dropped by 10.2 percent, stabilized in 2001 and declined further by 6.2 percent in 2002. Because of the drought, rural poverty increased in 2000, remained unchanged in 2001 and only in 2002 decreased by 2.9 percent. As a result, the difference between the urban and rural headcount has narrowed -- while in 1999, the urban poverty headcount was almost 50 percent over that in the rural population, in 2002 it was 9 percent higher.
Determinants of Poverty. The Georgia Poverty Update identified that the strongest determinants of poverty risk in Georgia in the period between 1998 and 2000 were economic: employment status, sector of employment, ownership of productive assets and education. It found an elevated poverty risk among urban households, households with an unemployed head and female headed households, as well as children aged 7-15, the disabled, those with low levels of education, single pensioners and orphans were experiencing. The working poor are becoming the majority, often employed in the informal sector with insecure, temporary and low productivity jobs.
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