International Conference

«Conflicts in the Caucasus: History, the Present and Prospects for Resolution»

Baku (Azerbaijan) 22-23 October, 2012 and Tbilisi (Georgia) 25-26 October, 2012

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GENERAL OVERVIEW

Vladimer PAPAVA

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Vladimer Papava, D.Sc. (Econ.), professor, Senior Fellow, Georgian Foundation for Strategic and International Studies (Georgia), Fulbright Fellow, Central Asia-Caucasus Institute, The Nitze School—SAIS, Johns Hopkins University (U.S.) (Tbilisi, Georgia)

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The Rose Revolution which took place in November 2003 was the consummation of the striving of the Georgian people to accelerate democratization of society, strengthen the protection of human rights, reduce corruption, develop the national economy, and improve social conditions. It is not surprising that the revolution itself and its heroes headed by the country’s current president, Mikhail Saakashvili, were supported by the U.S. administration, the leaders of the European Union and the countries belonging to it, and the entire civilized world. United States President George Bush’s visit to Georgia on 9-10 May, 2005 was clear evidence of the U.S.’s support.

In 2005, the agreement on the withdrawal of Russia’s military bases from the country signed on 30 May by the Russian and Georgian foreign ministers can be considered a particular achievement of official Tbilisi’s foreign policy activity. Other outstanding events of the year include the launching of the Baku-Tbilisi-Ceyhan oil pipeline, the Georgian president’s initiative at the Parliamentary Assembly of the Council of Europe on peaceful settlement of the conflict in South Ossetia, the signing by the presidents of Georgia, Azerbaijan, and Turkey of the Declaration on Creating the International Kars-Akhalkalaki-Tbilisi-Baku Rail Corridor, and the country’s participation in instituting the Community of Democratic Choice.

Unfortunately, a pall was cast on the year by the tragic death of outstanding politician of present-day Georgia, Prime Minister Zurab Zhvania.

With respect to domestic political affairs, it should be noted that the revolution’s victory led in turn to a natural weakening of the opposition. The fact that the most authoritative part of this camp came to power made its political opponents (that is, the opposition of the former opposition) even more unpopular. This special feature of political life was most clearly manifested in 2004, while in 2005 it slackened off slightly due not so much to the increase in popularity of the opposition itself as to the increase in number of people displeased with the changes of the post-revolutionary period. Due to the elimination or merging of government institutions and structures of the budget sector, and also due to the rejuvenation of their staff many experienced employees of long-standing were left jobless. What is more, the most popular election campaign slogans were not fulfilled. There was no perceptible increase in the minimum wage and pensions up to the subsistence minimum, the population was not compensated for the savings they lost as early as Soviet times due to hyperinflation, tax benefits were not granted for supporting small businesses, and so on. Admittedly, many of the pre-revolutionary promises were essentially impossible to fulfill, although the population placed almost their total trust in the revolutionary forces. Consequently, the expectations that the new government would meet all their promises were so high that when they were not fulfilled, the people became extremely disappointed.

The current situation is objectively creating grounds for the opposition to become stronger, although the population is so used to many of its leaders that this in itself is detrimental to their popularity. Consequently, in 2005, the demand arose for new faces in politics, particularly in the opposition. Former foreign minister Salome Zurabishvili could potentially fill this role. As a citizen of France, who also obtained Georgian citizenship after the Rose Revolution, she does not have a communist past. What is more, her ancestors enjoy deserved respect in her historical homeland. But the weak management skills and insufficient knowledge of contemporary Georgian society she manifested as head of the Foreign Ministry could prevent her from becoming leader of the opposition forces. In other words, without a strong team and reliable financial support, Mrs. Zurabishvili’s political future does not look too optimistic.

The mass media are of special importance in the democratic development of society. Television channels and newspapers are not as diverse in post-revolutionary Georgia as they were before the revolution, and what is more, it is common knowledge that the mass media owners are more stringent about the kind of information offered.

In just over two years, the new authorities have done a great deal to establish order in the country. Among the achievements, special mention should be made of the three-fold increase in the state budget, which made it possible to significantly reduce the state’s accumulated indebtedness to the population during the pre-revolutionary years and settle pension debts entirely. It was also possible to eliminate mass corruption at the grassroots level of the government hierarchy.

On 1 January, the new Tax Code came into force, which significantly reduced the number and rates of taxes. An important anti-corruption measure was the introduction of a uniform entry examination for young people applying to the country’s higher education establishments. But university reform and reorganization of the Academy of Sciences still leave a lot to be desired. The law enforcement bodies stepped up the fight against the drug business and smuggling. Measures were adopted to establish order in penitentiary institutions. The operation to identify and arrest the terrorist who made the assassination attempt on presidents George Bush and Mikhail Saakashvili during the U.S. president’s visit to Georgia, as well as on citizens participating in his ceremonial meeting in Tbilisi, can be considered particularly successful. The state’s Achilles’ heel is still its judicial system, which requires major reform.

Against the background of the West’s support of the main values declared by the Rose Revolution, the country’s historical striving to become an immanent part of Europe has acquired realistic features: Western politicians are making increasingly unambiguous statements about the reality of Georgia joining NATO and about the possibility of it becoming a member of the European Union in the future.

But as the West’s support of post-revolutionary official Tbilisi grows, so Russia’s political leadership is becoming more irritated, which in turn is causing the Georgian leaders to backlash. The Russian Federation’s attitude toward the states in the post-Soviet space was set forth in the renewed Liberal Empire doctrine (as the Kremlin’s imperial mission in the 21st century), initiated by Chairman of the Board of Russia’s RAO Unified Energy Systems Anatoli Chubais. According to him, the Russian Federation has no place either in NATO, or in the EU, its sheer size makes it physically impossible for it to fit into these structures. So Russia should create an alternative to them, that is, a so-called Liberal Empire. However, it should be formed not by means of armed occupation of the former Soviet republics, but by acquiring ownership of their main economic entities, that is, by purchasing and developing their assets. According to his logic, it is precisely economic expansion that will allow the Russian Federation to restore its economic (and not only economic) influence over the entire post-Soviet space.

Russia began carrying out its plan for drawing the Caucasus into this Liberal Empire with Armenia, its strategic partner in the region. At the end of 2002, the Russian-Armenian agreement on Property in Exchange for Debts was implemented. According to this document, Russia obtained enterprises from Armenia, the total cost of which, $93 million, was enough to completely settle Armenia’s debt to Russia.

But Georgia creates a purely geographical obstacle to Russia’s plans to form a single economic space with Armenia (these plans cannot be carried out through Azerbaijan due to the conflict in Nagorno-Karabakh), although the first steps toward this goal were taken even before the Rose Revolution. For example, in the summer of 2003, Russia’s RAO Unified Energy Systems acquired a share of the American AES Silk Road Company, which owned 75% of the shares of the Tbilisi City Electricity Network and the assets of other power engineering facilities in the country.

Georgia’s new government has begun carrying out its ambitious plans for large-scale privatization. The country’s image, improved by the Rose Revolution, made it possible to receive revenue from the very first privatization transactions which was tens, if not hundreds, of times higher than the revenue from all privatization throughout the pre-revolutionary period as a whole. During market transition, this process can only be welcomed. But the problem is that today the main buyers of assets in Georgia are Russian companies (including their branches registered in other countries), and privatization with their participation is being carried out under far from transparent conditions.

This state of affairs in this sphere entirely correlates with the plans to build a Liberal Empire. In this context, the statement by the leaders of the Industrial Investors Holding on their intention to invest up to $200 million in the Georgian economy in the next three years is extremely noteworthy. A branch of this holding company purchased the AO Madneuli gold-mining enterprise for $51.1 million and 50% of the shares of the AO Kazreti gold-bearing alloy producing company.

Russia’s Gazprom is trying to purchase dozens of facilities in the Georgian gas industry, primarily the main pipeline for transporting gas from the Russian Federation to Georgia and its subsequent transit to Armenia, for which it was willing to pay $150 million. The Georgian side entered the bargaining and demanded $300 million. They probably would have reached a final agreement, but the U.S. interfered and allotted $49.5 million to rehabilitate the main gas pipeline. This issue gained momentum again at the end of the year during talks on new conditions for mutual settlements with respect to Gazprom raising the price of natural gas delivered to Georgia on 1 January, 2006 from $62.5 to $110 per 1,000 cubic meters. Gazprom rejected official Tbilisi’s vague proposal to create a joint Georgian-Russian venture for managing the main gas pipeline and again firmly confirmed its intention to purchase this facility. In all likelihood, Georgia will have to determine its stance once and for all regarding this pipeline, and not make advances now to the Russian, now to the American side, particularly since neither the first, nor the second are willing to play such primitive games any more.

Along with the growing scope of privatization, the precedent of nationalization carried out by the Russian side is drawing attention to itself, which was unfortunately supported by representatives of the Georgian government. In particular, at the beginning of the year, Russia’s Vneshtorgbank, 99.9% of the shares of which belong to the Russian government, acquired a controlling share of 51% of the United Bank of Georgia (UBG), which occupies third place in the country in terms of volume of assets. It is extremely noteworthy that a little earlier, in 2004, Vneshtorgbank purchased a controlling set of shares in Armenia’s Armsberbank.

Russia’s RAO Unified Energy Systems is playing a special role in drawing Georgia into the Liberal Empire being formed: when the Georgian authorities stated their interest in privatizing the Inguri Hydropower Plant and reviving construction of the Khudoni Hydropower Plant, which was halted at the end of the 1980s, it came as no surprise that the leadership of this Russian company unequivocally expressed its desire to participate in implementing these projects.

It is obvious that investments are mainly coming from one, whereby clearly unfriendly, country which is making no secret of its objective—to draw neighboring states into the net of the Liberal Empire by means of economic expansion. What is more, it should be remembered that major Russian capital usually either belongs directly to the state or is completely under its control. And the very methods for accumulating initial capital among the first generation of Russian (among other) oligarchs differs radically from the way business is done in the West. Consequently, the presence of foreign private capital of dubious origin, to say the least, can in no way be in the interests of Georgia, or of any other country.