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GEORGIA



 

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Key Economic Data
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 3,937 3,324 3,100 126
         
GNI per capita
 US $ 830 650 590 145
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 312 - (20/12/06)

Georgia's destiny is bound up with an unusual man, who is a brilliant cosmopolitan lawyer, fluent in five languages. He knows the West, having learned his law in the US. But he also knows the East.
He is courting the West, but has to deal with the East.

The CIS summit
Relations with Russia have been frigid of late. Wine and other exports have been banned. Harrassment of the one million expatriate community of Georgians in Russia has become common. 
In late November Georgia's president had an unofficial one-on-one meeting with his Russian counterpart at a summit of post-Soviet nations in Belarus. The meeting between Vladimir Putin and Mikhail Saakashvili had a particular significance amid the currently strained relations following an espionage scandal, territorial disagreements and Russia's economic sanctions. 
"We met face-to-face and discussed problems in Russian-Georgian relations," Saakashvili said in London where he was on a one-day visit. "Though many thought the meeting would not take place, dialogue has begun." 
The Kremlin said ahead of the summit of the Commonwealth of Independent States (CIS) that negotiations with Saakashvili had not been on Putin's agenda as Georgia had made little effort to arrange the meeting. Saakashvili said meetings with the Russian president would be initiated by Georgia from now on. 
"The meeting with President Putin was our initiative and it will be so in the future because we need a regular dialogue with Russia," he said. "Such meetings should continue in the future but they will be above all guided by Georgia's interests," he said. "Russian-Georgian relations are entering a different dimension." 
The West-educated Georgian leader said his country remained committed to integration with Europe and NATO. "Georgia has become an important country for many other nations, and world leaders express support for it again," he said in a reference to encouraging statements about Georgia made at the NATO summit in Riga in late November. 
In his comments on Russian gas supplies to Georgia, Saakashvili said the Georgian economy would not collapse without Russian gas imports. Now that Russia is seeking to double the gas price for Georgia, the country is looking to diversify its gas imports, including through contacts with gas-rich Azerbaijan and Iran. 
"I talked with my Azerbaijani colleague Ilham Aliyev, and this winter will be a historical example of Georgian-Azerbaijani brotherhood," he said. 

Despite obstacles, NATO progress "irreversible"
Georgia is really heading for the West. Official presence at CIS summits in the likes of Minsk is for solely practical purposes. The real issue is how soon it can join the West.
The Georgian government is claiming a political victory after NATO decided to advance discussions with Tbilisi on membership in the Atlantic Alliance. Yet while Georgian officials celebrate, significant political and strategic tests remain in Georgia's accession drive. 
President Saakashvili declared that the so-called Intensified Dialogue is the start of an "irreversible process" toward Georgian membership in the military alliance, and a "major breakthrough." Noting in a televised September 25 speech that he did not want to "set exact dates," the president nonetheless asserted that there is no reason for Georgia's membership process to be "delayed." The government has mentioned 2008 as a target date for NATO membership. 
A NATO statement on the September 21 decision, however, adopted a measured tone. The Intensified Dialogue, the statement read, will give Georgia "access to a more intense political exchange with NATO Allies on its membership aspirations and relevant reforms, without prejudice to any eventual Alliance decision on a further membership process." 
The announcement has sparked a growing debate about what the ongoing partnership with the Atlantic Alliance will actually mean for Georgia. 
The government claims that it is all part of Georgia's embrace of Western-style democracy after decades of misrule as part of the Russian Empire, Soviet Union, and as a newly independent post-Soviet country. "NATO is not just a military alliance; it is an alliance for humanitarian missions, rescue missions, building democracy and so on," said Tornike Sharashenidze, director of the Georgian Foreign Ministry's Information Centre on NATO. "It will give a huge boost to Georgia for building its democratic institutions." 
Georgia's commitment to building such institutions is one key test for any NATO decision to extend membership to Tbilisi. European members have already expressed concerns about reforms in the Georgian court system and in the country's protection of human rights. 
Others argue that Georgia's democratic reform status could take a back seat to the alliance's strategic interests in the South Caucasus. "NATO is an organization which, more than the European Union, let us say, uses the notion of political expedience in a geopolitical situation," said Shalva Pichkhadze, chairman of the Georgia for NATO non-governmental organization. 
Russia remains a factor that can complicate Georgia's NATO bid. Moscow has made clear that the Kremlin will see any change in Georgia's relationship with NATO as a threat to Russian security. On September 22, the Russian Foreign Ministry termed NATO's decision part of "the expansion of military-political alliances created during the Cold War," adding that Russia's "negative attitude" toward Georgia's NATO aspirations is "well-known," ITAR-TASS reported. 
While acknowledging that it is Georgia's "sovereign right" to decide for itself on NATO membership, Russian Defence Minister Sergei Ivanov emphasized on September 22 that Russia is taking steps to reinforce its military presence on Georgia's eastern borders. "We are actively developing two alpine brigades with the latest equipment. Both brigades will be stationed right by the border with Georgia," Russian news outlets reported Ivanov as saying. "Therefore, Russian security will not suffer if Georgia joins NATO." 
Sharashenidze dismissed Moscow's statements as a sign that Kremlin officials "still identify themselves with the Soviet Union, which is why they identify NATO with the Cold War." 
Although the Georgian government has played down NATO's military aspect, the idea of the alliance as a barrier between Tbilisi and Moscow holds a strong attraction. At a news conference on September 22, Georgian Deputy Defence Minister Mamuka Kudava praised NATO for paying "great attention" to the stability of its member countries. "NATO's principle is that Georgia, just as any other candidate country, should do as much as possible to create guarantees of security in its own region," he said. Kudava added that Georgia's actions concerning the conflict zones of Abkhazia and South Ossetia would be coordinated with NATO. 
Pichkhadze, however, argued that seeing NATO as a type of security blanket against Russian aggression could make the conflict resolution process more complex. "When we in Georgia are talking about NATO, both government and society, for us NATO is not an organization, not an alliance based on some values. Not an alliance that defends these values. For us, this is an alliance which would defend Georgia from Russia and nothing else," Pichkhadze said. "If we see NATO only as a shelter against Russia, it will not help settle the conflicts." 
But some local analysts caution that the Georgian government's celebrations about NATO's decision may be premature. "They made statements that they were expecting the ID Intensified Dialogue in July or August and they were waiting for [the] MAP Membership Action Plan, an official step toward NATO membership in November," Tamara Pataraia, a project manager and researcher at Tbilisi's Caucasus Institute for Peace, Democracy and Development, said. "My opinion is that they overestimated the situation." 
An Intensified Dialogue has also been granted to Ukraine, another Russian neighbour and former Soviet republic. On September 14, however, Ukrainian Prime Minister Viktor Yanukovich announced that public opposition had prompted Kiev to put its membership campaign on hold. 
During a visit to Tbilisi in May, NATO Assistant Secretary General John Colston said the alliance was "impressed" with Georgia's attention to reforms - particularly those that concerned military and strategic "structures" - but refused to comment on a timeline for the coveted Membership Action Plan. 
Nonetheless, optimism in Tbilisi persists. While the Intensified Dialogue may not carry the same benefits as a Membership Action Plan, Pichkhadze commented, the alliance's decision cannot be seen as a consolation prize for Georgia. "[In] no way is it a step back," he said. "This is another form of contact between a non-member state and the alliance. It is closer. This is a form of closer contacts." 

South Ossetia referendum plans raises temperature in the Caucasus 
The risk of a renewed conflict between Georgia and the Russian-backed separatist territory of South Ossetia appears to be growing by the day. 
Talks aimed at achieving a political settlement of the conflict appear to have hit a wall. A scheduled session of the Joint Control Commission - comprising Georgia, Russia and North and South Ossetia - failed to convene as scheduled September 15 because of a dispute over the composition of the Georgian delegation. Since then, Georgian and South Ossetian officials have accused each other of trying to scuttle a peace settlement. 
On September 11, South Ossetian leaders raised the temperature of the peace process with an announcement that they would hold an independence referendum in November. The referendum likely would have more of a symbolic than a practical significance, as even an overwhelming "yes" vote wouldn't generate international recognition of South Ossetian independence. At the same time, the referendum could possibly spark a resumption of armed conflict between Georgian and South Ossetian forces, some regional experts believe. 
Georgian President Mikhail Saakashvili engaged in some sabre-rattling on September 18, voicing frustration over the peace process, according to a report published by the Civil Georgia web site. Saakashvili said he would use his scheduled September 22 speech at the United Nations General Assembly to tell "the truth about the situation in Georgia." He appeared to issue a direct challenge to Ossentian leaders, vowing that his administration would never abandon its goal of restoring Tbilisi's authority in the separatist territories of South Ossetia and Abkhazia. 
"Georgia will no longer tolerate injustice and the infringement of our rights," Saakashvili said. "We will no longer step back or keep silent. Nobody has, or ever will intimidate us." 
In response, both South Ossetian and Abkhaz leaders appeared to thumb their noses at Saakashvili by applauding a September 17 referendum in the Transnistria region, where residents endorsed the concept of seceding from Moldova and the possible incorporation of the territory into the Russian Federation. "For us, this [the Transnistria referendum] is a good example, and I am sure that our voting will not end with lesser results," Civil Georgia quoted Yuri Morozov, South Ossetia's self-styled prime minister, as saying. 
Russian officials have been outspoken in their support of South Ossetia's referendum plan. The Russian Duma's speaker, Boris Gryzlov, said September 12 that Georgia's hard-line attitude toward the breakaway region was "forcing South Ossetia to hold the referendum." He indicated that the Duma would dispatch a delegation to monitor the independence referendum. 
Russia, which is a permanent member of the UN Security Council, is on record as opposing any discussion of the so-called frozen conflicts of the Caucasus, as well as the Transnistria conflict, by the UN General Assembly. Moscow also has rejected Tbilisi's efforts to promote international discussion on the role of Russian peacekeepers in South Ossetia and Abkhazia. 
The Russian government maintains that Tbilisi, Tskhinvali and Sukhumi are equal sides in the negotiation process, rather than looking at it as a "central government vs. breakaway provinces" situation. Tbilisi, meanwhile, wants the peace process to be seen as an internal affair of Georgia. 
While supportive of South Ossetia, the Kremlin has kept its distance from the referendum issue. After announcing the referendum plan, South Ossetian leader Eduard Kokoity travelled to Moscow in search of political support. He met with prominent politicians, including Russian Communist Party boss Gennady Zyuganov, but members of President Vladimir Putin's administration publicly shunned him. 
A cool reception by the Kremlin, however, doesn't mean that Russian leaders disapprove of the plan: they merely want, at this stage, to keep their options open, some observers in Moscow believe. 
Putin himself has stated that if the former Yugoslav province of Kosovo can gain independence, so should Abkhaiza and South Ossetia be allowed to choose their own destiny. "One must not apply one rule in relation to Kosovo and another in relation to Abkhazia and South Ossetia," a Kremlin news release on September 13 quoted Putin as saying. 
Some observers believe that the South Ossetian referendum is a trading chip in Russia's antagonistic relationship with Georgia. In return for a pledge by South Ossetia to abandon the referendum plans, Russia would expect Tbilisi to back off from its threat of making a formal demand for the departure of Russian peacekeepers. 
The problem is, the window of opportunity for such trade-offs may be closed. The lack of trust on all sides may run so deep that attempts at deal-making may have the opposite effect of stoking conflict. 

Bracing for conflict: Russia and Georgia in South Ossetia 
Georgia and Russia appear on a collision course over the separatist regions of Abkhazia and South Ossetia. Tbilisi stands to lose more than it could ever gain by adhering to confrontational policies. 
Speaking at the United Nations General Assembly on September 22, Georgian President Mikhail Saakashvili spoke ominously about the future. He said that a "fresh roadmap" for settling the so-called frozen conflicts was needed - one that called for the replacement of Russian peacekeepers with an international force. Russia has made it clear that such a change is unacceptable. But Saakashvili said in his UN speech; "if we fail to unite in support of new mechanisms to advance peace - we give a green light to those who seek otherwise - and we risk plunging the region into darkness and conflict." 
Several preconditions for conflict are already evident in the region. For example, both Moscow and Tbilisi regularly accuse each other of war-mongering. Georgian officials believe that Moscow's support for separatists in Abkhazia and South Ossetia is part of a Russian plan aimed at curtailing Georgian sovereignty. Conversely, Moscow is wary about Tbilisi's recent move to solidify its hold over the Kodori Gorge. 
Many political analysts wonder if Russia is seeking a pretext to whip up a conflict. They cite Moscow's tacit support for the independence referendum in the Transnistria region of Moldova, as well as an upcoming plebiscite in South Ossetia, as proof of malevolent intentions. In addition, Russian officials from President Vladimir Putin on down have tried to establish Kosovo as a precedent that would enable the international community's endorsement of break-away efforts by Abkhazia, South Ossetia and the Transnistria region.
Beyond mutual recrimination, both sides have incessantly organized provocations against the other. In recent months, there have been numerous instances of military manoeuvring and skirmishes in South Ossetia. Georgia has angered Moscow by detaining peacekeepers for alleged visa violations. Moscow, meanwhile, has outraged Tbilisi with the imposition of economic sanctions, in particular a ban on wine imports. Either South Ossetian forces or Russian forces escalated tension in early September by shooting at a Georgian helicopter carrying Defence Minister Irakli Okruashvili.
Each side's public and private statements reek with contempt for the other side. Such sentiments, it must be stressed, can cloud rational decision-making. Because the Georgian issue is now a personal one for Russia and vice versa, and given the intense dislike of Russian and Georgian leaders have for each other, there are good reasons to worry that one or the other side could easily make a misstep and ignite an armed conflict. 
Overconfidence is particularly apparent on the Georgian side. Georgia, with assistance from the United States and NATO, has significantly improved the professionalism of its armed forces. But the Georgian military continues to suffer from serious defects, and there are not many reasons to believe that it could currently stand up well to the rigors of war. Some Georgians have needlessly riled Russia by questioning Moscow's will to defend its interests. Such behaviour serves to reinforce the Russian view of Georgia as being home to lazy and empty braggarts. 
Any Georgian move to re-conquer either Abkhazia or South Ossetia would stand to backfire on Tbilisi. An unsuccessful military campaign not only would crush any hopes of a political deal that could bring Abkhazia and South Ossetia back into Georgia's fold, it would likely deal a crippling blow to Tbilisi's efforts to join NATO, and could additionally bring about the collapse of President Mikhail Saakashvili's administration.
Georgia should not be lulled into a false sense of security by counting on well-meaning, but uninformed statements by American commentators, legislators, or self-appointed friends of Georgia. In the event of a war, Russia would probably disregard American pleas for restraint vis--vis Georgia, and would aim to achieve a decisive victory, not only to crush the Saakashvili administration, but also to try to humiliate Washington. Indeed, the very idea that Washington would risk conflict with Moscow over South Ossetia is a delusional. Georgians also shouldn't be fooled by the relatively easy success of the Kodori Gorge operation in the summer of 2006 against a rebel paramilitary group. Georgian troops would likely encounter far better armed and organized forces in either Abkhazia or South Ossetia.
The late Alexander Orlov, who defected from the Soviet Secret Police to the United States and later wrote a Handbook on Intelligence and Guerrilla Warfare, observed that the first rule is not to respond to provocation. It is obvious that Russian policy for a long time has sought to provoke Georgia, either to punish it or to goad it into taking an ill-considered step, such as attacking Russian forces, or the Abkhazians or South Ossetians directly. 
The stronger Georgia becomes internally through reform and legitimacy, the more it has to offer its former provinces, and the less able Russia would be to threaten it. Here the lesson of the Baltic states is instructive. Some nationalists in the Baltic states wanted to redraw boundaries, or demanded reparations from Russia. In the end, however, reason prevailed, and the Baltic states refrained from taking confrontational action. Today, of course, the Baltic states are members of NATO and the EU and enjoy greater security and prosperity than ever before. 

IMF approves economy
While noting Georgia's strong economic performance, the IMF mission says that the Russian trade embargo will lead to a moderately slower GDP growth of six-seven percent in Georgia in 2007. 
The mission says that economic growth in Georgia has been hindered by the loss of the Russian export market, but still remains 'robust.' According to the IMF, real GDP growth is expected to be about eight percent for 2006. 
"The recovery of the economy from this shock will rest largely on its ability to generate rapid export growth in the medium term. To this end, the mission urges the authorities to accelerate structural reforms, especially in those areas pertaining to stronger property rights," the mission said in its final statement on December 12. 
The IMF mission visited Georgia on December 2-12 to review recent economic developments, assess the impact of the Russian embargo on Georgia's economy, and hold discussions for the fifth review under the IMF's Poverty Reduction and Growth Facility (PRGF). 
The IMF estimates that Russia's economic embargo will increase the current account deficit by about USD 250-300 million in 2007. The Georgian authorities expect to finance this deficit by higher foreign exchange proceeds generated by the large inflow of foreign direct investment (FDI), as well as by a substantial increase in tourism revenues. 
"In view of the considerable uncertainty regarding the size and timing of FDI inflows, the mission recommends that an adjustment to the external shock could be eased by reducing the size of the overall fiscal deficit from the current projection of 2.5 per cent of GDP for 2007," the mission says.
The mission notes that inflation has dropped from its peak in mid-2006 and the end-period inflation for 2006 will be less than ten percent. The IMF calls this "an important achievement", however noting that Georgia's prospects for sustaining economic growth could be enhanced if inflation is reduced further. 
"To this end, the mission welcomes the authorities' commitment to target inflation at six percent for 2007 and recommends continued tight monetary and fiscal policies in 2007 to help achieve this objective," the mission says.
It's expected that the IMF's Executive Board will complete the fifth review under the PRGF arrangement in late February or early March 2007. 
The fourth review of Georgia's performance under PRGF has been completed in September and IMF has approved a loan of US$20.7 million to Georgia.

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ENERGY

Energy ties to be developed with Iran 


Georgia will develop energy cooperation with Iran, Georgian Prime Minister, Zurab Noghaideli, said on November 27th, when asked to comment on objections from US Ambassador to Tbilisi, John Tefft, in relation to the issue. "I don't know what the US ambassador said. As for our energy relations with Iran, we will naturally have such relations. We are considering importing gas from Iran this year and we will probably exchange electricity," Noghaideli said during a working tour of western Georgia, New Europe reported.
"Moreover, we had talks with US Assistant Secretary of State, Matthew Bryza, during his visit to Georgia. He made clear that no matter the state of US-Iranian relations, the United States cannot tell us to freeze during winter and not buy gas or electricity from Iran," the Georgian premier said. "It is natural that we will have relations in the energy sector with Iran, moreover, we will exchange our electricity with Iran," Noghaideli stated. Earlier, Tefft, in an interview published in November 26th issue of the Georgian, Kviris Palitra, newspaper, said that a long-term strategic gas agreement between Georgia and Iran was unacceptable to the United States. The US diplomat noted that the US's position was based on the UN Security Council resolution on Iran and the latter's nuclear enrichment programme. 
Tefft's statement seems to contradict an earlier one by US Deputy Assistant Secretary of State for European and Eurasian Affairs, Matthew Bryza, who while visiting Georgia on November 17th noted that while the US was pursuing their policy towards Iran, they did not want Georgia or Armenia or any other country to be in a situation where it does not have energy for the winter.

Greenoak Group to build oil refinery, petrochemical plant 

Greenoak Group, which owns a number of assets in Georgia, is planning to build an oil refinery in Batumi and a plant that will produce methanol and ammonium, the Batumi Oil Terminal, which is controlled by the group said, Interfax News Agency reported on November 20th. 
The cost of the project is more than US$3.2 billion. A representative of the Batumi Oil Terminal said the Greenoak Group had reached an agreement with the Georgian government on the privatisation of about 80 hectares of land next to the Batumi Seaport for US$27.1 million. The territory formerly belonged to the Batumi Oil Refinery. 
Greenoak Group is planning to finance the project with its own funds, but will also cooperate with BNP Paribas and energy suppliers. Denmark's Greenoak Holding wholly owns the Batumi Oil Terminal through Naftrans Limited. The terminal was privatised in 1999. Following more than US$52 million in upgrades to the terminal in 2004, its handling capacity grew three-fold to nine million tonnes of oil and oil products per year. The terminal can handle a maximum of 15 million tonnes of oil per year.
In December 2005, Greenoak Group acquired a 100 percent stake in Batumi Oil Base and the Batumi Sewing Production Association, as well as an 11.4 per cent stake in Batnavtoimpex. In May 2006, Greenoak Group won a tender for the right to manage the state's 100 per cent stake in Batumi Commercial Seaport for 49 years.

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