In another reshuffle of the Georgian cabinet, the Minister of Economy, Lasha Zhvania, was dismissed on August 21 and replaced by the 32-year-old Georgian Ambassador to Spain, Zurab Pololikashvilili. President Saakashvili declared that the decision was completely up to Prime Minister Nika Gilauri, but it is inconceivable that such a decision would not have been agreed with Saakashvili. As a reflection of the continuous changes in the government, Pololikashvili, a person with close ties with the banking sector, will be the third Economy Minister since the end of the 2008 August war. This change also reflects the turf wars within the Georgian government and among the country’s economic and political elites over the economic policy.

Since Saakashvili won the presidency in 2004 after the so-called Rose Revolution, only one Minister has remained in the cabinet since the end of 2004, Interior Minister Vano Merabishvili. The second most long-lived minister was the equally unpopular State Minister for Economic Reforms, Kakha Bendukidze, in office from 2004 to January 2008. It was Bendukidze, a former tycoon who became a billionaire in Russia during the 1990s, who laid the foundations of the rapid economic liberalization of the country and the development of a ‘minimal sate’ strategy. He also masterminded a radical program of privatization (he once declared that “we will sell everything but our conscience”) that controversially put many Georgian assets in Russian hands. Facing domestic criticism, Saakashvili decided to remove the impulsive minister from the public eye. After the war it seemed that the Saakashvili administration would soften its radical stance on economic policy in order to sign a Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union. However, some analysts believe that Bendukidze still has an outsize influence behind the scenes; the change in the Ministry of Economy can be understood in this context.

The libertarian approach seemed to work during the first years of the Saakashvili administration, as GDP growth skyrocketed up to 12 percent in 2007. In perspective, however, given the battered state of the economy in 2003 (with an estimated output of 40 percent compared to the 1989 level), it can be discussed how impressive that growth was, and it has yet to reach the majority of the population, which for the most part still live in dire straits. Reforms nevertheless fuelled foreign investment and guaranteed the provision of basic services such as electricity, but the bulk of foreign investment was directed to the hotel industry, property developments and energy-related projects, a typical pattern for developing countries with an unstructured market economy. Budgetary imbalances were largely covered by international financial assistance. The war and the global financial crisis put foreign investment and important  projects at a standstill, although the US$4.5 billion pledged for the 2008-10 period to Georgia (of which almost half has already been disbursed) in the October 2008 Donors Conference organized by the European Commission and the World Bank prevented an economic collapse. The emerging retail sector has suffered the most; a walk around Tbilisi displays shops with few customers, cafes and bars that only a very small elite can afford, half-empty hotels, unfinished buildings, paralyzed investments, and rampant unemployment; the rest of the country, of course, is in even worse shape.

Given the defeat in the war, the unpopularity of the economic policy, and the election of a new administration in the U.S., the Georgian government seemed to take a more pragmatic approach towards the economic and regulatory policies. The appointment of Nika Gilauri in February 2009 as Prime Minister, the fifth to hold the position since 2004, seemed to break with his predecessors’ ideological commitment to radical economic liberalization. Acting as Minister of Economy only since December 2008, Lasha Zhvania considered the completion of a DCFTA with the European Union a strategic goal for Georgia. However, he himself recognized that the regulatory approach envisaged in the economic relations with the EU in order to accede to the single market and obtain increased European investment was at odds with the ‘libertarian approach’ that dominated in Georgia. The dismissal of Zhvania and the appointment of Pololikashvili, considered very close to Saakashvili and Bendukidze, as a new Minister of Economy seems to affirm the claims that Bendukidze is still a highly influential and powerful figure in Georgia’s economic policy.