Thursday, September 04, 2008

The US and the IMF Agree to Grant Georgia Economic & Humanitarian Aid

Sources: Financial Times, US offers $1bn aid for Georgia; New York Times, U.S. to Unveil $1 Billion Aid Package to Repair Georgia; New York Times, White House Unveils $1 Billion Georgia Aid Plan; IMFSurvey Magazine, IMF and Georgia Discuss $750 Million Loan Package; Le Monde, Etats-Unis et FMI apportent une aide financière massive à la Géorgie

On September 3rd the U.S. announced plans to grant $1 billion in humanitarian aid to Georgia, and on the same day the IMF announced its plan to award Georgia a $750 million loan package. These forms of financial assistance would help Georgia rebuild after the conflict with Russia and give a boost to the Georgian economy, which had been experiencing strong growth prior to the conflict.

The IMF package was announced after meetings in Tbilisi that began August 23rd, and still requires IMF Executive Board approval. Consideration is expected in mid-September. The loan, which would be provided through a “Stand-By Arrangement” over a period of eighteen months, is designed to sustain investor confidence, continue macroeconomic stability, and give a boost to the private sector. Prior to the conflict, the IMF was pleased by the success of Georgia’s economic reforms and response to IMF programs, and is hoping to keep the Georgian economy on that same path.

President Bush announced the U.S. aid package to coincide with Vice President Cheney’s visit to Azerbaijan, sending a strong message to Russia. Though the U.S. short-term goals are, like the IMF’s, to rebuild and bolster the Georgian economy, long-term goals include reducing European energy dependence on Russia. The package requires Congressional approval and does not include U.S. military support. $570 million will be available by the end of the year, and will provide food and shelter to Georgians as well as economic assistance.

In addition, the European Union decided in an emergency meeting on Monday to organize an international conference of donors in the near future to solicit aid for reconstruction. Georgia is hoping for another €1 billion from the European Union, and Georgian President Saakachvili has stated that the conflict caused Georgia nearly €1.4 billion in damages.

1) Will the proposed aid packages be successful in returning the Georgian economy to its upward swing?
2) To what extent is further aid dependent on U.S. policy and political goals in the region and ability to put pressure on the EU?

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