ABSTRACT
Chapter 4 analyses socio-economic and political developments in Georgia after independence (1991). The aim of this chapter is to understand why and how it was possible for a foreign currency to become dominant in a newly independent country with strong nationalist feelings. Therefore, the roots of dollarization are searched for not only in market forces, but also in government actions, by looking at the attitudes of and relations between political and economic elites, priorities of civil society groups, governance technologies, and the functioning of the new accumulation regime.
A bureaucratic patrimonial state under Shevardnadze did not recognize dollarization as an issue, not only due to the political chaos and wars and lack of knowledge on currency issues, but also because the dollar served the rent-seeking interests of political and financial elites. A flourishing shadow economy had fully embraced the dollar as its main currency. The hegemony of the dollar was not contested in Georgia by civil society, which was overoccupied with democratization issues. Thus, a certain type of compromise emerged in the hybrid arrangement of the bureaucratic patrimonial state, which endured foreign currency domination, as the free usage of hard currency served rent-seeking aims of inseparable political and financial elites.
