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georgia

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  GEORGIA

REPUBLICAN REFERENCE

Area (sq.km)
69,700

Population
4,989,285

Principal
ethnic groups

Georgians 68.8%
Armenians 9%
Russians 7.4%

Capital
Tbilisi

Currency
Lari

President
Eduard Shevardnadze

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Background:
Georgia was absorbed into the Russian Empire in the 19th century. Independent for three years (1918-1921) following the Russian revolution, it was forcibly incorporated into the USSR until the Soviet Union dissolved in 1991. Russian troops remain garrisoned at four military bases and as peacekeepers in the separatist regions of Abkhazia and South Ossetia (but are scheduled to withdraw from two of the bases by July 2001). Despite a badly degraded transportation network - brought on by ethnic conflict, criminal activities, and fuel shortages - the country continues to move toward a market economy and greater integration with Western institutions.

Update No: 259 - (25/07/02)

The Georgian situation has taken a turn for the worse. The economy has not been faring anything like as well as its fellow Caucasian states, Armenia and Azerbaijan where GDP growth has approached and even exceeded 10% annually in the 2000s. The figures of GDP growth for Georgia are as follows: 2% in 2000, 4.5% in 2001 and a prospective 3% in 2002.

FDI under threat
There was a modest, but regular flow of foreign direct investment (FDI) into Georgia in the last few years, US$152m in 2000, US$100m in 2001 and a prospective US$150m in 2002. This is now under threat.
For a series of kidnappings of foreign businessmen continues. In December there was the release of two Spanish businessmen after one year in captivity. Now a UK businessman, Peter Shaw, director of the advisory board at Agrobusinessbank, has been seized, presumably for a ransom. The head of the US Chamber of Trade expressed concern at the lack of professionalism among security forces in such cases. A suspicion that they might even have rogue elements complicit with the affair is an obvious reaction. Georgia is notoriously unruly and corrupt.
The incident could hardly be more damaging to Georgia's chances of attracting more FDI. A difficult enough place to do business at the best of times, it creates a very bad impression as Christopher Patten, EU External Relations Commissioner pointed out. He noted that it is not the first such incident in Georgia and has aroused "deep concern" in the international community.
The pity is that Mr Shaw was performing just such a vital job that Georgia desperately needs. With a long tradition of fine horticulture and viniculture as well as agriculture its producers have been hamstrung for lack of investment loans. They are urgently needed to give new producers created under land reform the chance to improve equipment. Foreign experience of agrarian banking is just what is required. The fall-out from the Shaw incident could be dire, with foreign experts shunning the republic as well as foreign investors.

Improving security
President Eduard Shevardnadze has long been aware of the security problems of the country, himself under attack several times. He has invited the US in to deal with terrorists in the Pansiki Gorge, including possibly al-Qaeda. Some 2000 US personnel and 10 helicopters and other military equipment are being used to flush them out.
But an overhaul of the police and domestic security services would seem called for. To bring in US police, Scotland Yard and other members of Interpol would be an excellent move. The Greeks had a success recently in outing terrorists by calling in Scotland Yard, that is after British military attaché, Brigadier Stephen Saunders, was shot dead in Athens in 2000 by November 17th. 
The kidnapping of this British businessman could trigger another such development against the ring of kidnappers in Georgia. It would not be before time.

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ENERGY

Itera resumes gas supplies to Georgia

Gruzgaz, a Georgian subsidiary of the international group Itera, on July 8th resumed gas supplies to Georgia, suspended two weeks before over Georgia's debts, Interfax News Agency reported. 
The decision to resume gas supplies to Georgia was made by the Itera management after Tbilgaz, Tbilisi's gas distribution enterprise, repaid nearly all of its current debt for gas. Gruzgaz said the company management had taken Georgia's request into account, "demonstrated good will and once again made a concession." Gruzgaz's Director General, Leonid Deikalo, said that Tbilgaz had not fulfilled its commitments to the end. "It is not observing the agreement on the step-by-step repayment of the old debt of about US$12m for gas supplied before January 1st, 2002," the news agency quoted Deikalo as saying. He added that this debt remains in force, while Georgia must take measures to restructure it. 
Deikalo denied reports that Itera plans to take control of Tbilgaz. During talks held recently at the company's head office in Moscow, the issue was raised in principle by Georgian representatives, but Itera rejected this idea, he said.

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FOREIGN ECONOMIC RELATIONS

Romania, Georgian presidents discuss joint economic projects 

Romania's President Ion Iliescu on 1st July met his Georgian counterpart, Eduard Shevarnadze, and discussed the current joint objectives of Romania and Georgia, highlighting the mutual wish of the two countries to further and deepen friendship and collaboration ties, Rompres News Agency has reported. 
Iliescu pointed out the need for economic relations between the two countries to be enlarged, as their current level does not reflect their economic potentials, despite the existence of an excellent legal framework for substantial economic collaboration. The Romanian head of state added that a session of the joint Romanian-Georgian intergovernmental committee on economic, technical and scientific cooperation should be called, that will boost mutually advantageous cooperation in the fields of energy, oil, gas, mining, metallurgy, textiles and leather industries, as well as in the fields of transportation, agriculture and building materials. 
The two heads of state said that the opening in 2001 of a ferry-boat line between the Romanian city port of Constanta and Georgia's Batumi port meant an important step forward towards the deepening of economic relations between Romania and Georgia, an opportunity the two heads of state said should be made the best of. The two presidents agreed that the active involvement of Romania and Georgia in boosting general trade on the historical Silk Road connecting Asia to the Caucasus and Europe should also be aimed at. 
Given the traditional ties between Romania and Georgia, Iliescu and Shevarnadze highlighted the need for cultural, scientific and academic exchanges to be stimulated between the two countries. At this point, Iliescu presented the decision of Romania's government to extend aid of 3bn lei to the Antim Ivireanu High School of Tbilisi. The two heads of state also agreed that poverty is the main threat to democracy, and called for all necessary measures to be taken that will combat poverty and raise living standards. 
In connection with the domestic development in Romania and Georgia, the two heads of state highlighted the firm commitment of both countries to European and Euro-Atlantic bodies for the consolidation of democracy and a market economy at home. Iliescu and Shevarnadze attended together the signing ceremony of a customs agreement and agreement between the education ministries of Romania and Georgia.

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FOREIGN LOANS

IMF doubles its loan to Georgia in surprise move


The Georgian authorities have had nothing but a 62m-lari budget shortfall with which to welcome the International Monetary Fund mission. Despite the unfulfilled parameters and the budget shortfall, the government showed bravery when meeting the head of the IMF mission, David Owen, Georgian Television has reported. The economic team of the Georgian government was encouraged by a decision taken in Washington to resume the IMF programme in Georgia. 
The 62m-lari (about US$30m) shortfall notwithstanding, the IMF mission took yet another unprecedented decision and added another US$30m to a US$30m tranche which it had allocated to Georgia a little earlier. Having decided to resume the programme, the fund maintained that corruption remained one of the major problems hindering economic stability in Georgia... 
The first tranche will be transferred to Georgia shortly, 26th July being the likely date, and it will be used to fill the gap in the National Bank account... 
David Owen stated: "I think things are progressing well. We held a meeting of the IMF Board of Directors in Washington recently. A decision was taken at this meeting to increase the tranche intended for Georgia to US$60m. The total sum will be divided into two. Georgia will receive the first tranche on 26th July. The other one, if everything goes smoothly, will be transferred to Georgia before the end of the year."
David Owen did not utter a word about the IMF recommendations, the implementation of which is mandatory. He said that monitoring was the main objective of his current visit...

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INTERREGIONAL RELATIONS

Georgian security boss uses rail links as carrot in Abkhaz dispute

Tbilisi is prepared to consider resuming railway traffic across Abkhazia, National Security Council Secretary Tedo Japaridze told Interfax News Agency on 9th July.
The resumption of rail links across Abkhazia, which were cut as a result of hostilities in 1992-93, will be possible if Sukhumi agrees to start discussions on a document to divide powers between the two countries, he said...
"If real progress is made in the Abkhaz settlement, we will then be able to discuss other mutually beneficial economic projects such as oil transit across Abkhazia through the Novosibirsk-Supsa oil pipeline," he said.
Abkhazia has been showing interest in economic projects, Japaridze said. "There is some progress in the talks. It would be wrong to say that the negotiating process on conflict settlement in Abkhazia is deadlocked," he said.

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MINERALS & METALS

Tbilisi lifts metal exports ban

Bowing to pressure from the International Monetary Fund, the Georgian parliament recently voted to lift a ban on the export of scrap metal which it imposed late last year, Caucasus Press reported. 
Deputies had voted against doing so four days earlier despite the urging of government officials, who claimed that the IMF had threatened to withhold a US$44m loan tranche unless the ban was abolished, thereby creating the risk of economic collapse. 
In 2001 Georgia exported 32 tonnes of scrap metal worth US$52m. The lucrative market for scrap metal has led to widespread thefts of cables and monuments; in April 2001 the parliament amended the Criminal Code to make such thefts punishable by prison sentences ranging from two to seven years.

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