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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: 356 - (26/08/10)

The irenic spirit
Intellectuals incline to disdain sporting fixtures as of no consequence. They could not be more wrong.

Western civilisation itself may be said to have marked its start with the first Olympiad in 776 BC in Greece. The quarrelsome Greek city states agreed to down tools, especially of those of war, and engage in peaceful competition during the course of the games. Diplomats foregathered to discuss peace terms between themselves. The games were to be held every four years, enough time to digest your opponents' case and prepare your defence.

The relevance of all this is that the Caucasus, recurrently in dire conflict, is expecting an important event. The date to look forward to is 2014, when the Winter Olympics arrive on the Black Sea coast in Sochi, next door to Abkhazia. Good groundwork could make the games in four years’ time a reason for rapprochement between Georgia and Russia.

Two years ago this August, war erupted between Russia and Georgia. At the time many expressed fears of a new cold war between Moscow and the West. In fact, relations have improved, but the situation in the separatist territories of Abkhazia and South Ossetia remains deadlocked.

While bonhomie has broken out between Presidents Barack Obama and Dmitry Medvedev on a range of issues, their governments still trade accusations over Georgia. Moscow insists that Abkhazia and South Ossetia are now fully independent states. Washington reaffirms its support for Georgia’s claims on the two territories. Hillary Clinton, secretary of state, re-iterated US support for Georgia’s territorial integrity in Tbilisi in July, referring to the Russian presence in the separatist territories as “occupation”.

A cool look at the facts suggests that neither position reflects the realities on the ground. South Ossetia, with a population of about 30,000, will never be independent, but the bloodshed of 2008 has set back any rapprochement with Georgia by many years. Abkhazia is much bigger and enjoys a sort of proto-statehood on its Black Sea coast. While it too has little chance of being recognised as independent, it has broken decisively with post-Soviet Georgia, of which it was never fully a part. Most Abkhaz welcome the Russian military presence as a guarantor of their security.

Eventual compromise is inevitable here. But for this to happen, the global parties need to wind down their rhetoric and stop looking at these conflicts through a cold war prism.

The first point to appreciate is that the August war actually weakened Russia’s position in the Caucasus. The recognition policy for Abkhazia and South Ossetia damaged Moscow internationally and no other post-Soviet state followed its example. In the North Caucasus, the policy stirred up more trouble among would-be Islamic separatists. On the south side of the mountains, Russia has few levers and must work with local elites to retain any influence.

Focused on economic recovery and political consolidation, Russia is also accepting that it must use economic instruments, not coercion, to maintain a presence in its near-abroad. The recent quarrel with Belarus over gas supplies, the decision not to intervene in Kyrgyzstan and the decision to cut Russian tank numbers by 90 per cent all form part of this picture.

Abkhazia and South Ossetia, both of which share borders and historic ties with Russia, remain real security headaches. The existence in particular of a separatist South Ossetia with Russian troops an hour’s drive away from Tbilisi poses a direct security challenge to the Georgian state.

But a better US-Russian relationship dramatically reduces the chance of a new flare-up in South Ossetia. In the long term, if the Ossetians were allowed to opt not for Russia or Georgia but for self-government with ties to both, they would probably seize the chance with both hands. Georgians and Ossetians have always intermarried and traded, and South Ossetia is geographically inside Georgia, linked to Russia by only one tunnel.

Abkhazia is a harder case, but there are at least a dozen territories in Europe with asymmetric sovereignty arrangements: think of Andorra, Liechtenstein and the Aaland Islands, not to mention Scotland or Northern Ireland, where “separatist” ministers sit in government. If such creative thinking had been applied to Abkhazia, the conflict might have been solved long ago.

Could Russia make Georgia part of the “reset” in relations with the West? Realistically, progress is unlikely at the moment as President Mikheil Saakashvili, the sworn enemy of Moscow, serves out his second term, while the wounds of 2008 are still fresh. But Russia has good reasons to want to share this problem in the long term. In the meantime, the situation needs more effective conflict management – preventing incidents on the ground from getting out of control – and more nuanced language. The current western policy of strong rhetorical support for the Georgian position substitutes easy words for hard work.

Recovery on the way
Georgia’s annual economic growth may exceed 10 percent within two years as the Black Sea country recovers from the 2008 war with Russia, the prime minister said. “We estimate growth of 5 percent this year and as much as 9 percent in 2011,” Nika Gilauri said in an interview in the capital Tbilisi in early August. “Double-digit growth is possible from 2012.”

Excessively rapid expansion in the former Soviet republic’s $10.7 billion economy “isn’t healthy” because it would stoke inflation, Gilauri said. “Optimal growth at this stage is about 9 percent,” he said.

The economy expanded 12.3 percent in 2007. Growth slowed to 2.3 percent in 2008 because of the conflict with Russia. The economy contracted 3.9 percent last year. On August 3, Gilauri said gross domestic product probably grew between 5 percent and 6 percent in the first half, driven by gains in banking and energy exports.

Georgia’s economy suffered about $1 billion of damage in the five-day war over the breakaway Georgian region of South Ossetia that began two years ago this weekend. Many planned investment projects were also cancelled, compounding the damage, Gilauri said. After the conflict, Russia recognized South Ossetia and another breakaway region, Abkhazia, as independent countries and agreed to defend their borders.

International Aid
Georgia won pledges of $4.55 billion of international aid up to 2009, including $1 billion from the U.S. Promised aid has since risen to $5.1 billion, and as much as $4.5 billion will be contracted by year-end, Gilauri said.

“The recovery will take at least two more years,” Kakha Bendukidze, a former development minister, said. “We need to keep working to reduce income tax and risks for investors, and above all we must keep the macroeconomic situation stable and cut the budget deficit to zero.”

Georgia’s 2010 budget deficit may shrink to 6.5 percent of GDP, Finance Minister Kakha Baindurashvili said on June 11. The government plans to reduce the deficit to 3 percent of GDP in 2013, he said.

President Mikhail Saakashvili has stepped up efforts to attract foreign investment from the Middle East and Latin America in a bid to fuel growth. Foreign Direct Investment fell 51 percent in 2009 from a year earlier to $759 million.
“We expect $400 million of foreign investment in the energy sector alone next year,” Gilauri said. The government plans to develop Georgia’s role as an energy corridor linking the Caspian and Black seas.

Georgia and Azerbaijan on July 27 signed an agreement on creating a transit corridor to increase flows of oil and natural gas to European customers. The two countries will create a commission to form policy on ports, transit and railway companies, Gilauri said at the time.
    

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