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OO RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHSI #0077/01 0171534
ZNR UUUUU ZZH
O 171534Z JAN 08
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8634
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 03 TBILISI 000077 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
COMMERCE FOR SECRETARY GUTIERREZ 
STATE FOR EUR/CARC 
 
E.O. 12958: N/A 
TAGS: PREL PGOV ECON GG
SUBJECT: SCENESETTER FOR COMMERCE SECRETARY GUTIERREZ'S 
JANUARY 20 VISIT TO TBILISI 
 
 
¶1. (SBU) Your visit to Tbilisi comes during the most 
significant period of political uncertainty in Georgia since 
the 2003 Rose Revolution brought Mikheil Saakashvili to 
power.  The January 5 presidential election was judged by the 
U.S. Embassy, the Organization for Security and Cooperation 
in Europe and the Council of Europe to be the most 
competitive in Georgia's history  and in essence consistent 
with most international standards for democratic elections. 
None of these observers found the election to be 
problem-free, however, and Saakashvili's inauguration for his 
second term as President takes place against the wishes of a 
vocal and increasingly powerful opposition that accuses him 
of stealing the January 5 presidential election. 
 
¶2. (SBU) The opposition contend that Saakashvili's 53 percent 
share of the votes cast was inflated by: 
 
- unfair use of government resources in campaigning, 
- intimidation of voters and opposition activists, 
- vote tally falsification in the Armenian and Azerbaijani 
minority regions of the country. 
 
To some extent, the uncovering of such problems is due to the 
higher level of transparency in the election process that 
Saakashvili has introduced.  Although there are signs that a 
compromise is in the offing that will allow Saakashvili to 
hold office without further controversy, and permit the 
opposition to focus on parliamentary elections coming up in 
the Spring, such a resolution of the current political 
problems is not entirely assured.  Nevertheless, the 
opposition's ability to campaign, to gain a significant share 
of the vote in the election and to express its concerns 
afterward is evidence that Georgia's progress toward 
Western-style democracy, however flawed, far outstrips that 
in other countries of the former Soviet Union outside the 
Baltics. 
 
¶3. (SBU) When Saakashvili took office in 2004, Georgia was 
nearly a failed state, but it is much changed now.  Georgia 
is a strategically significant country to the United States 
because of its government's commitment to democracy, 
independence from Russia, free market economic reform and 
control of corruption, NATO and EU membership, and support 
for the War on Terrorism, most notably by the contribution of 
2000 troops to Iraq coalition forces.  Georgia has the third 
largest contingent of troops in Iraq.  Its success or failure 
sends a distinct message to other countries of the former 
Soviet Union, and in the Middle East as well, about the 
wisdom of a Western-oriented, democratic, free market 
orientation.  Additionally, Georgia sits astride the main 
alternative corridor for trade in oil, gas and other goods to 
Europe from Central Asia and farther East.  Without Georgia's 
cooperation, no strategy for bringing additional Azeri, 
Kazakh or Turkmen oil and gas to the world market without 
passing through Russia can succeed.  These facts begin to 
explain as well why Russia is openly hostile to Saakashvili's 
vision of an independent Georgia. 
 
¶4. (SBU) Since Saakashvili took office, Georgia has 
substantially reduced the corruption that was bleeding its 
treasury dry under his predecessor.  Saakashvili famously 
fired the entire Georgian police force in 2004, but he has 
also made arrests for corruption among all levels of 
government common news as well.  As a result, government 
revenues are up and government investment in repairing and 
replacing infrastructure that had badly deteriorated since 
the fall of the Soviet Union has increased.  With few natural 
resources to rely on other than manganese and agricultural 
products, Saakashvili and his economic team have begun to 
fashion a Georgia that seeks to attract investment by cutting 
taxes, eliminating tariffs and reducing red tape and 
corruption.  Their express models are Singapore and Hong 
Kong. 
 
¶5. (SBU) The World Bank has named Georgia the 18th easiest 
place in the world to do business.  Prior to the political 
turmoil that began in November, reform and the optimism 
generated by the young, personable government attracted USD 
1.1 billion in investment in 2006 and a predicted USD 1.5 
billion in 2007.  The economy grew 9.4 percent in 2006 and 12 
percent in 2007.  Growth will likely slow in 2008 as 
political turmoil causes investors to hesitate.  Saakashvili 
intends to continue reforms in his second term, and work is 
needed to create a truly independent judiciary, establish 
effective intellectual property rights protections and reduce 
poverty.  The emphasis in government spending is expected to 
shift from infrastructure and defense to education and public 
 
TBILISI 00000077  002 OF 003 
 
 
health. 
 
¶6. (SBU) Saakashvili's recent political problems have their 
roots in the fact that the payoff in jobs from the boom in 
foreign investment has not been quick in coming.  Most of the 
investment so far has been focused on financial services and 
real estate, not large producers of employment, and many 
Georgians are not educated to take advantage of those jobs 
that are created.  Many members of the so-called Tbilisi 
intelligentsia profited from or held high positions in the 
Shevardnadze regime and are disadvantaged in the new 
administration, with its emphasis on egalitarian competition. 
 Inflation has made many staple food and consumer items more 
expensive for all Georgians, and only a few are wealthy 
enough to take advantage of the glittery developments they 
see across Tbilisi.  At the same time, property owners were 
disturbed in 2007 by the government's willingness to evict 
long-term tenants from state-owned buildings, challenge 
corruptly procured ownership rights in privatized property 
and even to destroy some buildings in Tbilisi that were 
allegedly built illegally.  Saakashvili's own unshakable 
belief in the rightness of his cause contributed to a 
widespread perception of aloofness and unwillingness to 
listen to outside voices. 
 
¶7. (SBU) Georgia's long-simmering problems with its 
separatist regions of South Ossetia and Abkhazia could erupt 
in controversy in February when Kosovo will likely declare 
independence.  Russia has threatened to recognize the 
independence of Abkhazia and South Ossetia if the U.S. and 
Europeans recognize Kosovo.  Such a move by Russia, which has 
long supported the separatist regimes, will be extremely 
destabilizing to the government of Georgia.  We believe the 
government is sufficiently committed to its NATO membership 
drive that it would not jeopardize that goal by taking 
military action.  It will, however, have to resist internal 
pressure to do so. 
 
¶8. (SBU) Whatever happens, solving the Abkhazia and South 
Ossetia disputes will take a long time.  Unfortunately, their 
existence is probably the one thing that most discourages 
investors from coming to Georgia.  Even so, regaining the 
separatist regions lost in the early 1990's during intense 
internal conflicts is the dream of every single Georgian. 
The political leadership's focus on this goal reflects that 
fact.  Moreover, official U.S. policy supports Georgia's 
sovereignty and independence within its internationally 
recognized borders, which includes Abkhazia and South 
Ossetia.  We reject any parallels with Kosovo, as well. 
 
¶9. (SBU) Georgia hosts a major gas pipeline from Azerbaijan's 
Shah Deniz field to Turkey.  It also facilitates transit of 
millions of barrels of Azeri and Kazakh oil via pipelines and 
rail transport.  Where Georgia was subject to frequent 
blackouts in 2003, it has greatly increased output of 
hydroelectric power and is now supplying paying customers 
with reliable 24 hour electricity.  It still needs large 
amounts of expensive Russian gas, especially in winter, but 
in 2007 it began receiving significant amounts of gas from 
Azerbaijan.  Over time Georgia will be less and less 
dependent on Russian supplies.  Domestic production of gas 
and oil is negligible, but American companies (Canargo, 
Frontera) are active in exploration and production. 
 
¶10. (SBU) We estimate U.S. investment in Georgia at about USD 
770 million since 2000.  Some of the largest investors are 
Metromedia, which owns part of a cellular telephone company, 
and GMT, which owns the Tbilisi Marriott hotels and other 
properties.  According to Georgian figures, U.S. exports to 
Georgia in 2007 were USD 179 million from January to 
November.  In the same period Georgia exported USD 127 
million in goods to the United States.  The United States and 
Georgia signed a Trade and Investment Framework Agreement in 
June 2007.  U.S. assistance to Georgia in 2008 will be more 
than 50 million dollars, directed to strengthening democracy, 
rule of law, free markets, and energy security, among other 
objectives.  Georgian officials would welcome a free trade 
agreement with the United States, which would attract 
investment and support jobs, stability, and growth in this 
friendly and strategic country. 
 
¶11. (SBU) While you are in Tbilisi, you should congratulate 
President Saakashvili on his winning the January 5 election. 
You will want to urge him to take immediate action to prevent 
the recurrence of the election irregularities that were noted 
by international observers and dulled the brilliance of his 
victory.  You will want to recognize the undeniable progress 
 
TBILISI 00000077  003 OF 003 
 
 
toward reform that the government has achieved.  At the same 
time, you should emphasize the importance of an independent, 
fair and well-trained judiciary to attracting foreign 
investment. 
 
¶12. (SBU) Georgia is woefully deficient in protecting 
intellectual property rights and you could usefully emphasize 
to PM Gurgenidze the need for better enforcement.  This could 
include requiring Internet service providers to remove 
websites offering illegal content and implementation of a 
regulation requiring use of legal software by all government 
offices.  Finally, Georgia has been a reliable partner for 
transit of oil and gas from Azerbaijan and Kazakhstan.  You 
may want to thank Saakashvili and PM Gurgenidze for that and 
seek their advice and assistance in convincing Turkmenistan 
to open development of its gas and oil reserves to Western 
companies and utilize the Caucasus pipelines to Europe for 
their export. 
TEFFT