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Update No: 257 - (30/05/02)

A Soviet haven
Georgia is at a turning point. Its politics have long been torn by conflicting allegiances. As a constituent of the USSR, it provided it with its most significant leader after Lenin, namely Stalin, and its most important Soviet police chief, Beria. But it had had a market economy in Tsarist times renowned for its vigour and versatility and a Western style cosmopolitanism.
The Black Sea coast of Georgia had the most prized holiday resorts and dachas of the entire Soviet Union, with the best beaches, the best climate, the best wines and cigars and the best restaurants and spas. An ancient Christian culture has bequeathed it splendid churches, shrines and monasteries. An altogether delectable place.
But for more than 70 years it suffered from all the usual disabilities of communism. Most of the population are devastatingly poor. There is no middle class to speak of, teachers and doctors living off a pittance from the state, augmented of course by 'extras' from their clientele. GDP growth has been over 10% of late, but from a pitifully low threshold.

Shevardnadze turns to US
The key political figure, president Eduard Shevardnadze, 74 years old, is an epitome of its multiple contradictions. He is a former Soviet eminence, former head of the Georgian KGB and Soviet republic, then USSR foreign minister under Gorbachev. Yet in the latter capacity he tilted policy heavily towards the West. He has now invited the Americans in to rout out terrorists lurking in the Pankisi gorge, suspected by the Russians as being a haven for Chechen rebels.
Shevardnadze visited Washington in October 2001, just after 9:11; and this may turn out to be the most important visit ever made by a Georgian leader. Shevardnadze and Bush agreed to deploy US soldiers to train 1,200 men in Georgia to help fight the war against terrorism. In early February the US chargé d'affaires, Phillip Remier, told Georgian media that terrorists connected to al-Qaeda might be hiding in Pankisi. This and similar claims gave the US the green light to link the mission to train Georgian troops with a global war on terrorism.
When American media first reported the idea on February 27th 2002 the majority of the Georgian population were ecstatic; it seemed as if a second D-Day was about to occur. A poll taken in Tbilisi recorded 51% in favour, as opposed to 27% still pro-Russian.
The Americans earlier had failed to support an attempt to revive the market economy in Georgia; but it is now hoped that they will do so. The meaning of the American troop deployment, involving 200 Special Forces troops, is seen as symbolic, a commitment to restore Georgia to its former glory. 
The US deployment is certainly a major step, which has vindicated Shevardnadze's pro-Western policies in the eyes of the population and therefore strengthened his hand. Nevertheless, Georgia remains a 'weak-state' - it does not control two major portions of its territory, Abkhazia and south Ossetia - and only barely controls Adjaria. Its state is ineffective against criminals and gangsters, who abound. Tax collection is poor, as is protection of civil liberties. A non functioning state is partner to a rudimentary economy.

The coming succession problem
The country is unduly dependent on Shevardnadze's continuation of office, an unfortunate fact given his age. He ended a civil war when he came to power in 1992; an armed militia, Mkhedrioni, involved in the ousting of his now deceased predecessor, Zviad Gamsakhurdia, no longer roams the country, harassing the population. Nor do 'Zviadists' threaten to come back to power.
There is no longer a threat of civil war, while some of the ingredients of a civil society are in place, a free press and a semblance at least of democracy. Shevardnadze is genuinely popular and does not need to rig elections. When originally elected on more than 95% of the vote in 1992, he said this is 'embarrassing'. He would get nothing like this degree of support today.
Georgian politics is dominated by what comes after him. The political agenda is defined by three coming events, local government elections due in June (but these have been delayed beforehand), parliamentary elections scheduled for 2003 and presidential ones due in 2005. It is being generally assumed that at his age Shevardnadze would not run again for president, but this could prove false.
There are three political forces contesting for this succession to Shevardnadze: firstly, Revival, a bloc headed by Aslan Abashidze, the leader of Adjaria, a province in the south west on the Black Sea coast. Abashidze understands perfectly well that nobody in the elite in Tbilisi would allow him to come to power. He maintains a national political presence to enable him to keep Adjaria as his own special fief, in which Tbilisi is not permitted to trespass. This leaves the succession as the prize of the two remaining forces. On the one hand there is the 'Reformist Team' of Zurab Zhvania and Michael Saakashvili; respectively former speaker of parliament and former justice minister, who broke with Shevardnadze last year. Zhvania is now fighting for the control of Citizens Union of Georgia (CUG), the former governing party created by Shevardnadze in the early 1990s. He will probably have to join Saakashvili's National Movement for Democratic Reform (NMDR), where he will be obliged to play second fiddle. Saakashvili's appeal is founded upon an unabashed populist approach, advocating repossession of property from much of the corrupt elite, who often acquired it on dubious terms in the privatisation programme of the 1990s, leaving the burden of proof in criminal cases on the accused individual.
On the other hand there is the New Rights Party, whose political base is precisely such propertied interests, whatever there is of a middle class that exists, entrepreneurs and a strong regional network of local bigwigs. It arose in 1999 when most of Georgia's big businessmen withdrew their support from CUG and started to build their own political force. The New Rights Party advocates minimalist government and the maximum of freedom and individual responsibility. The classical recipe of liberalism. Their team is young and unlike their rivals, without a clear natural leader, although Miko Lekichvili who left the state ministers office in 1998 is a leading contender of the 'red directors;' with clear aspirations on power. The winner between the two contrary blocs is likely to be the one that gains Shevardnadze's endorsement. At this juncture it is still not clear who this will be.

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ENERGY

Deals on Azerbaijan-Georgia-Turkey pipelines signed

The managers of the Baku-Tbilisi-Ceyhan export oil pipeline and the Baku-Tbilisi-Erzerum natural gas pipeline visited Tbilisi recently. The managers were expected to sign draft agreements on the projects in London, Interfax News Agency reported, quoting the Georgian International Investment Corporation President, Georgy Chanturia.
He said work was finished on drafting an agreement on the transit of Azeri natural gas from the Sakh-Deniz field along the Baku-Tbilisi-Erzerum pipeline. This means it can be considered that work on the South Caucasus (Baku-Tbilisi-Erzerum) Gas Pipeline project is over, the news agency quoted him as saying.
He added that under the future agreement Georgia would gratuitously receive five per cent of the gas transported through its territory. He said interaction between the two projects was also to be considered in London. "There are no problems in the implementation of either project" despite recent events in Georgia's Kodori gorge, he said. "The managers of the projects recognise the readiness of Georgia for the implementation of these projects," Chanturia said adding that they confirmed this unofficially at a meeting with Georgian President Eduard Shevardnadze, having received from him complete guarantees for the projects.

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FINANCIAL NEWS

IMF praises performance of Georgian government 

After a meeting with the Georgian authorities, David Owen, head of the International Monetary Fund's mission, made some promising announcements. He confirmed that all accomplishments of the Georgian government met the terms set by the IMF. 
The IMF mission, which arrived in Tbilisi for a one-week visit, spotted real progress in the work of the government, which is an optimistic background for the further cooperation between the organization and Georgia. After meeting with ministers, the IMF mission arranged talks with Temur Basilia, the presidential aid in economic issues. According to Owen, the energy ministry directed its efforts in the proper direction. The ministry presented satisfactory plans for the rescheduling of energy debts. The second issue, concerning the tax code and its administration, is to be a matter of consideration.
A new project, the Export Development Programme, was launched on April 19th, by the Georgian Export Promotion Agency (GEPA). The objective of GEPA's new programme is to increase the capabilities of Georgian companies to export their goods. It has been designed to assist Georgian companies in systematically planning and preparing for export marketing, including in-company export market development, and a cost-sharing grant. In order to participate, a company should be classified as either small or medium size, be able to pay taxes and should have a marketing plan. 
Giorgi Ghaghanidze, executive director of GEPA and Vazha Kapanadze, deputy minister of Economy, Industry and Trade, attended the presentation. There were also contributions from Jacques Vantomme, First Counsellor of the European Commission, Tamaz Agladze, President of Georgian Exports Association and Jerry Morrissey, the team leader of the project. Representatives of Georgian enterprises attended the presentation as well. 
"I'm happy that we finally have a common approach to the situation. The government will do its best to support this program," declared Kapanadze. During recent weeks GEPA's staff visited companies to explain the programme in detail. Four companies have been already engaged in the first stage of the programme, and it is expected that other companies will be added to the list in the next few weeks. "Export markets are extremely competitive and Georgian companies must be prepared to meet international standards in all aspects of their business if they are to succeed," Ghaghanidze said. GEPA's staff is supported by a team of international experts, who have many years of experience with export promotion in western markets, economics and transition. A group of export promoters from Ireland manages technical assistance for the project.

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FOREIGN LOANS

WB extends municipal project

A World Bank (WB) project on municipal development and decentralisation, which has been implemented since 1997, will terminate at the end of the year, Sarke daily reported from Tbilisi. However, the Director of the co-ordinating centre of the project, Paata Bolashvili, said that the WB, which has controlled the process of implementation twice a year, was poised to extend it by four years and disburse US$14m more.

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TOURISM

Georgia a competitive tourism direction

Co-ordinator of CIS states at the World Tourism Organisation, Andrei Shlevkov, strongly feels that Georgia is a country created for tourism which is to occupy its place in this rapidly developing business. During his speech at the international conference, recently held in Tbilisi as part of the Caucasian tourism fair, Shlevkov noted advantages of Georgia such as its beneficial geographical position, diversity of landscape, unique cultural heritage, delicious cuisine and traditional hospitality of the local population. 
However, according to a recent statement made by head of the State Department of Tourism, Vazha Shubladze, Georgia may be expelled from the World Tourism Organisation for its failure to pay more than US$136,000 in outstanding membership dues, the Georgian Times reported. The Georgian government was issued a deadline of May 1st to pay its debt or face expulsion from the international body. 
Georgia's Customs Department head, Levan Kistauri announced recently at a session of the Parliament Committee on Taxes and Revenues, that virtually no customs control is implemented in the airports and seaports in Georgia, Sarke Daily reported. According to Kistaure, Customs officers are not admitted to the terminals without orders that are issued exclusively by heads of the ports.

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