Cooling inflation by inflation-risky venture
17 February, 2011
Cooling inflation by inflation-risky venture

Government fights the tightening inflation pressure by inflation-risky tool. It issues vouchers to population to cover electricity bills and buy foods that demands extra budgetary expenses triggering rather inflation fever.
With the inflation squeeze exceeding 11% at the moment, Georgian government targets 5% economic growth and aims at one-digit inflation rate this year. Economic experts find the target impossible without concerted action of central bank and government that has to work out a comprehensive anti-inflation program and cut down budgetary

expenses as much as possible. Central bank has already tightened its fiscal policy but the single short-term remedy government contrived to do to mitigate inflation pressure on population is delivery of vouchers on electricity and food leading to extra budgetary expenses again.
GEL 20 million is earmarked on GEL 20 worth electricity vouchers that will be given to consumers who consume at least 200 kilowatt electricity per month during the last 6 months. The target group consists of million consumers and vouchers delivery started on February 10, 2011 – on the eve of Georgian president’s annual state of the nation address scheduled at parliament on February 11, 2011.
In his address Mikheil Saakashvili, President of Georgia, stressed that delivery of GEL 30 worth vouchers on food to households will start in March to alleviate people to pass through the most difficult season of the year before the harvest season mitigates the food price problem. Owners of vouchers can get cash for their vouchers at banks and buy food. About GEL 30 million will be attracted through donors to this end, Saakashvili said but did not elaborate who will be the target group of food vouchers.
“We have two ways to fight the price hike on agriculture product,” Presidnet stated. “One is to give direct allowance to families to cover the expensive food basket by GEL 30, and the other way is to put money in economy.”
He accentuated that vouchers is the single short-term remedy but government earmarks about GEL 150 million on agriculture development to increase producing of local product in a long-term prospect so as the country becomes less import-dependent and vulnerable to inflation risks in future.
Economic analysts believe vouchers is no anti-inflation remedy at all it rather fuels than mitigates inflation problem and government had better not to render to it. But the initiative smells with populism, they say.
Millions earmarked by government on vouchers  increase money aggregates and diminishes purchase power of population, Shota Murghulia, economic analyst with the Center for Economic  Problems Research (CEPR,) said.
“If we want to combat inflation we have to reduce expenses, budgetary deficit and all these [social] programs only trigger deficit. GEL 20 given to household fuel inflation and more than that will be spent from consumers’ pocket in fact, and nobody is supposed to have a relief” he said. 
Moreover the voucher target group seems defined unreasonably.  Consumer who consumes at least 200 kilowatt per month belong to well-off and middle stratum citizens rather than needy people who save electricity as much as possible and suffer of the inflation pressure more than better-off citizens. Murghulia thinks that once vouchers are issued they had better cover really indigent people. Yes government allows to hand-over vouchers to other families which are not covered by the program but taking into account greedy nature of human beings very few are supposed to hand vouchers to needy neighbor on volunteer basis, experts fear.
According to Levan Kalandadze, Executive Director of Georgian Small and Medium Sized Enterprises’ Association, voucher apparently is a social action that includes inflation risks as instead of curbing it  increases state expenses and inflation ultimately. 
“It is unreasonable but government does not know what to do and they undertook vouchers,” he told Georgian Journal.

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EUR
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GBP
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