VZCZCXRO2342
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSI #2680/01 2791332
ZNY CCCCC ZZH
R 061332Z OCT 06
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC 4275
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 TBILISI 002680 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/CARC AND EB/IFD/OIA 
COMMERCE FOR 4231 DANICA STARKS 
TREASURY FOR OIA 
MOSCOW FOR TREASURY ATTACHE 
 
E.O. 12958: DECL: 10/04/2016 
TAGS: EFIN ETRD EWWT ECON PREL GG
SUBJECT: RUSSIA'S TIGHTENING THE ECONOMIC SCREWS ON GEORGIA 
COULD HURT IF PROLONGED 
 
REF: A. TBILISI 2262 
     ¶B. TBILISI 2424 
     ¶C. TBILISI 2616 
     ¶D. MOSCOW 11107 
 
TBILISI 00002680  001.2 OF 002 
 
 
Classified By: Ambassador John F. Tefft, reason 1.4(d). 
 
¶1.  (U) This is an action request for EB and EUR.  See 
paragraph 8. 
 
¶2.  (U) Russia has announced that all airline, rail, road, 
sea and postal links to Georgia will be closed after midnight 
Monday, October 2.  On October 3, the Transport department of 
the Georgian Economic Development Ministry confirmed to the 
Embassy that the Russian Civil Aviation Authority (CAA) had 
informed the Georgian CAA that starting October 3, the three 
Georgian carriers, Georgian Airways, Tbilaviamsheni, and 
Georgian National Airlines would not be allowed to land in 
Russia.  The reason given was a lack of certain 
documentation, which the Ministry insists has already been 
presented to the Russian CAA long ago.  The Georgian CAA has 
received formal notification that Aeroflot and Pulkovo 
Airlines are ceasing operations to Tbilisi, but has had no 
official word as yet from other airlines such as Cibir.  We 
expect those flights will be canceled for the time being as 
well. 
 
¶3.  (U) The announced cutoff of rail links should create no 
real hardship for rail passengers.  Essentially this means 
that two cars on the Moscow-Baku route that are designated 
for onward travel to Tbilisi will no longer be included on 
that train, and passengers will have to change trains in 
Baku.  As for freight, if rail and sea links are interrupted 
for a prolonged period, it will have a deep negative impact 
on the economy and standard of living in Georgia.  Many 
consumer products, raw materials and industrial inputs are 
imported from Russia to the port of Poti and via rail links 
through Azerbaijan.  Georgia's imports from Russia in 2005 
were $384,349,900, 19% of its total imports.  (The EU as a 
whole supplied 33% of imports, or $671,386,900 million.)  Oil 
and gas areQmportant imports from Russia, and we were told 
on October 4 by Deputy Minister of Energy Archil 
Mamatelashvili that gas supplies from Russia are still 
flowing normally.  Georgia's exports to Russia were 17.7% of 
its total exports in 2005.  According to the local director 
of a worldwide food product company we talked to, his 
inventory has been arriving by sea from Novorossisk since 
road connections north via Kazbegi and the Georgian Military 
Highway were cut off in June 2006 (Ref B).  His products will 
now leave Novorossisk invoiced to a subsidiary in 
Switzerland, and once they are at sea, his Swiss subsidiary 
will sell them to the Georgian subsidiary.  Such strategies 
are available to a global company like his, but will not be 
feasible for smaller importers whose traditional connections 
are with Russian wholesalers. 
 
¶4.  (U) Because the Kazbegi crossing has been closed since 
July 7, any new blockade of road transport to and from Russia 
can only affect the illegal crossings into South Ossetia and 
Abkhazia.  The Georgians have made these illegal border 
crossings the basis of their objections to Russian WTO 
accession.  It is unclear at this point whether Georgian 
trucks will be turned back at the Azerbaijan-Russia border if 
they attempt to enter Russia through Azerbaijan.  Even if 
such traffic is allowed, and Georgian traders can use it as 
an alternative to sea transport, the additional costs will 
impose a serious burden on them. 
 
¶5.  (U) The head of the Telecommunications Department of the 
Ministry of Economic Development told us on October 3 that 
the Georgian post office has not yet received any official 
notification of interruption of postal services.  He believes 
that express shipments via DHL, UPS, Federal Express and the 
like may be able to be routed through third countries. 
 
¶6.  (U) According to press reports and ref C, changes to 
Russian legislation are being contemplated to allow 
interruption of financial transfers from Russia, including 
remittances by the estimated 500,000 Georgians living in 
Russia.  The Georgian National Bank estimates that 80% of 
these migrants send money back to relatives in Georgia. 
According to the National Bank, remittances from Russia 
totaled $253,523,000 in 2005, which is 4% of GDP and 63% of 
all remittances to Georgia from the world,  As reported ref 
 
TBILISI 00002680  002.2 OF 002 
 
 
C, all remittances to Georgia from all countries account for 
a total of 6% of GDP in 2005 and totaled $181,633,000 in the 
first seven months of 2006.  Roman Gotsiridze, President of 
the National Bank of Georgia, has told us that he thinks a 
total cutoff of financial transfers is technically impossible 
(ref C).  The General Director of one of the largest 
commercial banks in Tbilisi, TBC Bank, told us that he does 
not believe a cutoff of remittances will have a significant 
effect because so much of the remittances is carried by hand 
in cash over the border.  We are more concerned, because the 
transport restrictions will make such travel much more 
difficult and workers could find it difficult to find 
agencies under Russian jurisdiction that will accept their 
cash for electronic transfer if the Russian government has 
clearly expressed its disapproval. 
 
¶7.  (U) The Standard and Poor's rating service shares our 
view that a prolonged blockade of transportation by Russia 
against Georgia could have significant negative consequences 
for the Georgian economy.  S&P's London office issued a 
statement on October 3 that the deteriorating relations with 
Russia could threaten the positive ratings outlook on Georgia 
(whose sovereign rating is now B /Positive/B 
(long-term/outlook/short-term)). 
 
¶8.  (C) Embassy Tbilisi would appreciate EB's opinion as to 
whether an interruption of financial transfers and any of the 
transport bans imposed by Russia on Georgia might violate 
international agreements such as the GATT or international 
transport agreements under organizations such as ICAO or the 
International Postal Union. 
 
 
TEFFT