In Rebuff to Russia, IMF Is Set to Lend Georgia $750 Million

September 2, 2008; Page A20

TBILISI, Georgia — When Russia sent troops into Georgia last month, the West balked at joining the fight. But now that the shooting has ended, Western nations are mobilizing to thwart a key Russian war aim: regime change in Tbilisi. Their weapon is cash.

The International Monetary Fund is set to reach a preliminary deal this week that will throw the former Soviet republic a $750 million credit line, according to officials close to the negotiations. Both the U.S. and Europe are also working on big assistance packages that Georgia hopes will provide $2 billion or more.

European Pressphotos Agency
Georgians in Tbilisi Monday protest Russia’s military operations and Moscow’s recognition of two breakaway territories.

The money aims to calm the nerves of foreign investors — crucial to Georgia’s economic stability — and help Georgia finance the repair of war damage. More important, Western cash will help shore up the pro-Western government of President Mikheil Saakashvili.

Mr. Saakashvili, a U.S.-educated lawyer whom Russia has reviled as unhinged and a war criminal unworthy of office, addressed tens of thousands of flag-waving supporters Monday in Tbilisi’s Freedom Square. He vowed “peaceful resistance” to Russian troops still in Georgia. Demonstrators also gathered at Russian checkpoints and staged a rally in Poti, a Georgian Black Sea port, where a small contingent of Russian troops still remains.

Seeking to rally Western support, the government has put up huge banners across Tbilisi denouncing Russia. Written in English — a language most here don’t understand — they plead: “Stop Russia.” As crowds of protesters thronged Tbilisi streets to shout anti-Russian slogans and wave Georgian flags, a military truck lumbered through the city with the burnt-out wreckage of an armored personnel carrier.

Vice President Dick Cheney will travel to Georgia this week in a trip that could help lay the groundwork for a stiffer Western response to the Russian incursion. Mr. Cheney, who will also visit Ukraine and Azerbaijan, is expected to stress the depth of U.S. interests in Georgia.

Some experts say the U.S. may step up military assistance to Georgia, perhaps by supplying more military trainers. More broadly, an administration official said Washington is seeking “a long-term strategic framework” for the region in light of Russia’s new assertiveness.

Russia trounced Georgian forces in the brief war last month. It has since recognized two breakaway regions of Georgia as independent states and has defied Western pressure to pull out all its troops. So far, however, Moscow has failed to achieve what many see as perhaps its principal war aim: the removal of Mr. Saakashvili and his government.

In Moscow Friday, Russian Foreign Minister Sergei Lavrov urged the U.S. and its allies to drop support for the “Saakashvili regime.” Siding with Mr. Saakashvili, he said, “will be a mistake of truly historic proportions.”

With the fighting now over, the future of Mr. Saakashvili will be decided in a large measure by Georgia’s economic fortunes. “One of the [Russian] objectives was clearly to achieve social and political instability through the collapse of the economy,” said Georgia’s prime minister, Lado Gurgenidze, a former investment banker. “This has clearly not happened.”

Damage to Georgia’s civilian economy, said Mr. Gurgenidze in an interview, amounts to about $1 billion and an IMF deal would be “one hell of a statement of support” for Georgia government and market-friendly economic policies. The IMF, said a Western official familiar with the negotiations, is on course to provide a $750 million loan, but a final decision depends on approval by the organization’s governing board.

Russia has made no secret of its desire to see Mr. Saakashvili booted from power. In an interview Friday with German television, Russian Prime Minister Vladimir Putin said Georgia’s leaders had “brought their country to catastrophe” and “such people in my view shouldn’t be running countries big or small” and should leave office.

Georgia’s usually vociferous opposition groups have so far rallied behind Mr. Saakashvili, who was re-elected in January. But grumbling has started and unity will likely wobble once Russia completes its withdrawal. A serious economic downturn would embolden Mr. Saakashvili’s many foes, who range from disaffected former supporters to opponents of his economic policies.

Levan Berdzenishvili, an estranged former ally of Mr. Saakashvili, predicts a national debate over Mr. Saakashvili’s handling of the crisis with Moscow once the last Russia troops leave. But, he adds, “No one will ever remove Saakashvili on orders from Moscow.”

The government’s greatest success — but also a big potential vulnerability — is its economic performance. It has slashed taxes, scrapped most import tariffs and embarked on what Mr. Gurgenidze, the prime minister, describes as “the world’s most successful supply-side fiscal experiment.” He decorates his office wall with an old campaign poster for Barry Goldwater, the Republican Party’s late conservative standard-bearer.

Economic growth has averaged over 9% a year since the so-called Rose Revolution brought Mr. Saakashvili and his team to power in late 2003.

But, like many growing economies, Georgia has racked up a big current-account deficit because of a surge in imports of consumer goods and equipment needed to develop the economy. It has also struggled to bring down unemployment and reduce poverty.

Georgia’s foreign-currency reserves have slipped to $1.12 billion from $1.47 billion since the conflict began on Aug 8. The government has cut its economic growth forecast for this year from 9.3% to low single digits.

More serious in the long run is potential damage to the confidence of foreign investors who have played a central role in Georgia’s economic revival. Foreign funds finance the current account deficit and any sharp reduction in these could spell serious trouble. Georgia last year attracted around $2 billion in direct foreign investment — a huge amount for a country whose gross domestic product was only $10.2 billion.

Mr. Gurgenidze said direct foreign investment will likely slow in the second half but could still reach $1.7 billion.

Kakha Bendookidze, a wealthy Georgian businessman who lived for years in Russia, says Moscow clearly wants Mr. Saakashvili toppled but has gravely miscalculated: “They thought that if he loses the war, he loses his job.” Russia’s strategy of intimidation, says Mr. Bendookidze, now a senior Georgian official, has reduced the chances of getting a pro-Russian government in Tbilisi to “close to zero.”


1 Comment

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One response to “In Rebuff to Russia, IMF Is Set to Lend Georgia $750 Million

  1. Interlocking transnational corporate directorships, correlated funding of the same foreign policy groups, organized collusion on energy project abroad, coup d’etat, regime change, free trade, and the international money energy weapons cartel; that is the organizing milieu of the IMF-WTO and its favorite nation state, China.

    I think the Georgian people will regeret giving up their sovereignity to the wto-imf.

    more on the transnational economic cartel and its involvement in this and many more crisis current today:

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