VZCZCXRO1946
OO RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHSI #2303/01 3441441
ZNR UUUUU ZZH
O 091441Z DEC 08
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0546
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 04 TBILISI 002303 
 
SENSITIVE 
SIPDIS 
 
H - PLEASE TO PASS TO SENATOR KERRY FROM AMBASSADOR TEFFT 
 
E.O. 12958: N/A 
TAGS: PGOV PREL GG
SUBJECT: GEORGIA: SCENESETTER FOR THE VISIT OF SENATOR JOHN 
KERRY TO TBILISI 
 
¶1.  (SBU)  Summary:  Your visit to Georgia comes in the 
aftermath of the August conflict, which resulted in Russia's 
occupation of and recognition of the independence of South 
Ossetia and Abkhazia.  Tension along the de facto boundaries 
remains high, and no international monitors have had access 
to South Ossetia.  Although many of those displaced by the 
war have returned to their homes, those displaced from South 
Ossetia itself and part of Abkhazia have not been granted 
access to return.  The war is still the dominant political 
issue in Georgia.  On November 28, in an unprecedented event, 
President Saakashvili voluntarily defended his wartime 
decisions in testimony in front of a Parliamentary commission 
investigating the war.  Saakashvili remains an unrivaled 
figure who drives Georgian politics, but his wartime 
decisions have drawn significant criticism.  Opposition 
parties and leaders are largely fractured and have not yet 
coalesced into a credible electoral alternative.  In October, 
Saakashvili named Grigol Mgaloblishvili (former Georgian 
Ambassador to Turkey) as Prime Minister, who has been charged 
with ensuring that international donors fufill their pledges 
of assistance.  The move generated little public reaction and 
reflects no significant change in overall policy direction. 
 
¶2.  (SBU)  Domestically, the government of Georgia is focused 
on reconstruction of damaged infrastructure, supporting the 
economy, and exploring ways to integrate an estimated 30,000 
newly displaced persons into undisputed Georgian territory, 
at least temporarily.  The global economic downturn, coupled 
with the fallout of the August conflict, has slowed a once 
vibrant Georgian economy that prior to the war enjoyed 
double-digit growth rates and was the 15th best place in the 
world to do business.  In 2009, the government will be 
heavily dependent on foreign aid to achieve many of its 
reconstruction goals.  The USG has pledged $1 billion in 
total support and in November, transferred $250 million of 
direct budget support to the Georgian Government.  A total of 
$4.5 billion of aid was pledged to Georgia at an October 
Donors Conference in Brussels, to be distributed over three 
years, although to date little - other than US assistance - 
has been disbursed.  Thus far, the government has weathered 
both the military and economic storms remarkably well and 
Saakashvili remains popular, but substantial challenges 
remain. 
 
¶3.  (SBU)  While in Tbilisi you will meet the President for 
lunch.  You may want to congratulate Saakashvili for his 
openness to public inquiry and commitment to a new round of 
democratic reforms, to express support for Georgia's 
territorial integrity and development and recovery efforts, 
and to encourage the president to support an even more 
plualistic democratic and system and greater media freedom. 
You will also have the opportunity to discuss economic 
challenges with the Prime Minister, compare legislative notes 
with the Speaker of the Parliament Bakradze and meet with 
leading members of the opposition both inside and outside of 
Parliament.  End Summary. 
 
SAAKASHVILI: STANDING TALL IN THE AFTERMATH OF THE WAR, BUT 
FACING CHALLENGES 
 
¶4.  (SBU)  In an effort to counter growing Russian PR efforts 
to define the conflict, at the end of November, President 
Saakashvili voluntarily testified in front of Parliament in 
what has been dubbed a first in the post-Soviet space.  The 
country watched on live TV as the President sat before the 
Commission for nearly five hours, first reading a prepared 
QCommission for nearly five hours, first reading a prepared 
statement and then answering the questions of the 
commissioners.  Saakashvili admitted readily that he had made 
the decision for Georgian ground forces to enter South 
Ossetia in order to protect Georgian citizens in the 
territory.  Saakashvili defended the decision as 
"inevitable," because Russian troops were advancing into 
South Ossetia and Georgian-controlled villages were being 
heavily shelled.  Saakashvili claimed repeated attempts to 
speak with Russia's leaders and stop hostilities were 
rebuffed, and that he and the government were left no choice 
but to try and defend Georgia's citizens and sovereignty by 
force.  Saakashvili argued that any responsible democratic 
government in Georgia would have reached the same decision. 
He said Georgia was neither a loser nor a winner in the war, 
as the struggle continues.  However, he said the invasion 
demonstrated once and for all that Russia could not be 
considered a "peacekeeper" in Georgia. 
 
¶5.  (SBU)  Despite the conflict, President Saakashvili 
remains broadly popular in the wake of the August conflict. 
A September USAID-funded International Republican Institute 
(IRI) poll suggests Saakashvili continues to benefit from a 
public seeking stability.  His party, the United National 
 
TBILISI 00002303  002 OF 004 
 
 
Movement (UNM), has an overwhelming majority in Parliament in 
part because some opposition leaders rejected their seats to 
protest what they term as unfair parliamentary elections last 
March.  One opposition faction, the Christian Democrats, 
accepted its mandates in Parliament and has seen its public 
standing grow.  The remaining opposition appears fractured; 
some are calling for new parliamentary and presidential 
elections and staging protests, while others are starting to 
doubt the utility of constant protests and unpopular 
ultimatums urging the President to resign.  According to the 
IRI poll, the popularity and standing of opposition 
politicians have dropped and no figure has emerged to be the 
leader of a coherent opposition movement. 
 
¶6.  (SBU)  The situation has begun to shift in recent weeks. 
On November 23, since the poll was conducted, former 
Saakashvili confidant Nino Burjanadze launched her own party, 
Democratic Movement-United Georgia, which hopes to present a 
credible alternative to President Saakashvili and the UNM. 
On December 5, Georgian Ambassador to the UN Irakli Alasania 
tendered his resignation.  Alasania has long been courted by 
both the government and the opposition, and appears to be on 
the verge of announcing his future political intentions.  In 
the wake of Alasania's resignation, Prime Minister 
Mgaloblishvili announced two rounds of cabinet changes.  On 
December 6, Grigol Vashadze, current Minister of Culture and 
former Deputy Foreign Minister, was named Foreign Minister. 
Nika Gvaramia, a former Justice Minister, was named the 
Education Minister.  Georgia's Defense Minister during the 
conflict, Davit Kezerashvili, was initially replaced by his 
deputy Batu Kutelia on December 5, and then Kutelia was 
replaced December 9 by Georgia's Ambassador to the United 
States, David Sakharulidze.  Also on December 9, Lasha 
Zhvania, Chairman of the Parliamentary Committee for Foreign 
Affairs and former Georgian Ambassador to Israel, replaced 
Eka Sharashidze as Minister of Economic Development, and MP 
Nika Rurua, Deputy Chairman of the Committee for Defense and 
Security since 2004, became Minister of Culture.  The new 
line-up indicates Saakashvili's interest in bringing more 
dependable loyalists into the Cabinet and preempting 
recommendations to make changes expected from the special 
parliamentary committee investigating the war. 
 
¶7.  (SBU)  On the issue of broader political reform, the 
government has released a document laying out a variety of 
planned political reforms to improve democracy and pluralism 
in Georgia.  The document acknowledges the mistakes the 
government made in its use of force to quell protests in 
November 2007.  The document closely follows President 
Saakashvili's September "State of the Nation" address to 
Parliament and his address to the UN General Assembly, in 
which he outlined his vision for a more democratic Georgia. 
The proposed (and in some cases completed) reforms include 
measures to strengthen Parliament; increase judicial 
independence; strengthen and increase the role of the 
opposition; and foster a more open media environment. 
Opposition members are skeptical of government motivations 
and are not satisfied with the breadth and pace of reforms. 
Opposition leaders are calling for, among other things, a 
freer and more fair media environment; a change to the 
electoral code; and more opposition access to 
decision-making.  In spite of opposition dissatisfaction, 
Saakashvili's administration appears committed to making good 
QSaakashvili's administration appears committed to making good 
on President Saakashvili's reform promises. 
 
THE ECONOMY:  RECOVERING, BUT UNDER STRAIN 
 
¶8.  (SBU)  On the economic front, the Georgian economy seems 
to be recovering albeit slowly, after the shock of the 
Russian invasion in August.  Preliminary estimates for 
negative growth have been revised and the government 
privately expects total GDP growth for 2008 to be around 4-5 
percent, well below last year's growth of 12 percent.  The 
GOG is predicting four percent GDP growth for 2009, although 
some commentators suggest this figure is too optimistic, and 
will likely be closer to two percent.  The real test of the 
economy will come in the first quarter of 2009 when revenues 
traditionally slow.  The government has real concerns that 
unemployment numbers could skyrocket as businesses 
re-evaluate their business in light of the August conflict 
and overall global financial crisis.  While still weakened, 
the banking sector has been resilient and some modest lending 
has resumed.  A recent devaluation of the Georgian lari 
proceeded smoothly, but the public is wary that further 
devaluation is likely as the dollar continues to appreciate. 
The overall credit crisis still threatens the recovery of the 
Georgian economy, which is heavily dependent on foreign 
direct investment (FDI) for growth.  The conflict has slowed 
the FDI stream considerably, and the government seeks to 
 
TBILISI 00002303  003 OF 004 
 
 
reassure investors about the stability of Georgia's market. A 
Deputy Secretary of Commerce-led trade delegation in October 
was greatly appreciated by the Government and led to several 
new investment deals. 
 
¶9.  (SBU)  Georgia does not appear to face immediate- or 
medium-term liquidity problems.  Tax collection has resumed 
to normal levels, although the government fears a difficult 
first and second quarter when budget revenues generally slow. 
 The government worries that a slowing local and global 
economy will exacerbate this problem, but hopes to be able to 
fill some budgetary holes with foreign aid.  In general, the 
Georgia is committed to its long-term growth strategy of 
lowering taxes and simplifying the tax code; reducing 
financial and business regulations to foster an open business 
climate; aggressively privatizing government held assets; and 
focusing funding on infrastructure projects to provide for 
long term economic growth.  The conflict has forced the 
government to redirect some of its spending to acute social 
needs, in particular those of internally displaced persons 
(IDPs).  However, the long-term economic plan remains intact. 
 Georgia's economic team has seen success in the past: in 
2008, Georgia was named the 15th best country in which to do 
business by the Economist.  The economy will continue to be a 
key domestic issue as the President Saakashvili and the 
ruling National Movement have substantially staked their 
electoral fortunes on the ability to provide robust economic 
growth. 
 
THE CONFLICTS: STILL TENSE, WITH URGENT SECURITY AND HUMAN 
RIGHTS CONCERNS 
 
¶10. (SBU) The situation on the ground along the 
administrative boundary lines of Abkhazia and South Ossetia 
remains very tense and is unlikely to improve in the short 
term.  Violent, sometimes fatal incidents are frequent, 
primarily caused by Russia, Abkhaz or South Ossetian 
soldiers, and carry considerable risk of escalation.  Three 
international organizations monitor the situation and help 
deter the resumption of hostilities: the UN Observer Mission 
in Georgia (UNOMIG), which operates inside and outside 
Abkhazia; the OSCE Mission to Georgia, which currently 
operates outside South Ossetia; and the EU Monitoring Mission 
(EUMM), which currently operates outside both regions.  Both 
the OSCE and EUMM have been effectively blocked from crossing 
the boundaries, which limits their effectiveness; no 
international organization except for UNHCR has regular 
access to South Ossetia, increasing the concern of 
humanitarian crisis.  Russia has publicly announced it will 
maintain 3,800 troops in each of the breakaway regions and is 
reportedly building military bases in both.  Although the 
EUMM has been working with the Georgian government to keep 
its military forces away from the boundaries, no 
international organization has been able to work on this 
issue with the Russians or the de facto governments on the 
Abkhazian and South Ossetian sides.  The international 
community therefore has little means to determine if the 
Russian and de facto governments are taking steps to prepare 
for renewed hostilities. 
 
¶11. (SBU) Points 3 and 5 of the August 12 cease-fire 
agreement respectively require free access for humanitarian 
assistance to the conflict zones and the withdrawal by 
Russian forces to their positions held before the war. 
Russia and the de facto authorities, in particular the South 
Ossetians, have not provided free access to humanitarian 
organizations, and Russia has not withdrawn its forces to 
Qorganizations, and Russia has not withdrawn its forces to 
their pre-war positions.  Particularly egregious examples 
include the massive increase of Russian military presence in 
both regions and the occupation of the Akhalgori Valley in 
eastern South Ossetia, which before the war was outside of 
the "zone of conflict," was administered by Georgian 
authorities and had no Russian presence.  The lack of access 
by humanitarian organizations, in particular to South 
Ossetia, has left the international community unable to 
answer serious questions about the human rights situation in 
both regions and with no ability to investigate the charge 
that the South Ossetians engaged in ethnic cleansing.  Over 
20,000 displaced persons from South Ossetia cannot return to 
their homes, several hundred cannot return to their homes in 
Abkhazia, and there is considerable evidence of an 
intentional campaign to drive ethnic Georgians from their 
homes, then destroy those homes to prevent their return.  A 
total of about 30,000 new IDPs, combined with hundred of 
thousands of IDPs from earlier conflicts, have created 
significant humanitarian challenges.  The government has 
impressively managed to build several thousand new homes for 
many of the new IDPs in time for winter, but longer-term 
needs remain, such as jobs.  However, as increased attention 
 
TBILISI 00002303  004 OF 004 
 
 
is being paid to the newly displaced, an older generation of 
IDPs from the 1993-94 war with Abkhazia, numbering more than 
225,000, is beginning to feel resentment for what it 
considers years of neglect. 
 
¶12. (SBU) On the political level, the EU has taken the lead 
in starting a process of international discussions in Geneva 
(in accordance with Point 6 of the cease-fire).  Official 
parties to the talks are the EU, OSCE, UN, Georgia, Russia 
and the U.S.; there has been considerable controversy over 
the informal participation of the de facto authorities, as 
well as representatives of Tbilisi-supported Abkhaz and South 
Ossetian groups.  The second round of talks on November 18-19 
went reasonably well, with all participants willing to accept 
security/stability and IDP returns as the basic areas for 
discussion.  The next meeting will be on December 17-18. 
Although we hope that this forum can provide a space to 
address the more urgent issues, such as security, 
consideration of the thornier issues, such as the final 
political status of the two regions, will likely be postponed 
for some time. 
 
GEORGIA AND NATO 
 
¶13.  (SBU) Georgian government officials hailed the December 
NATO Ministerial in Brussels as a victory for Georgia.  They 
said the decision to intensify cooperation between Tbilisi 
and NATO and invigorate the NATO-Georgia Commission (NGC) 
would play a central role in moving Georgia toward 
membership.  Opposition figures, however, have been more 
critical, stating that the ministerial's result is not a 
victory, but a significant loss.  They blame Saakashvili for 
ruining Georgia's chances at MAP.  Both the government and 
opposition are trying to present the Brussels Ministerial to 
their advantage.  Opposition attacks on the issue are 
stronger than in the past, and the fact that MAP appears off 
the table provides an opening on a key Saakashvili policy 
objective.  Russian Prime Minister Putin was also widely 
quoted in the Georgian press as hailing the decision in yet 
another stab at the Saakashvili government.  In spite of the 
Government's best efforts, some Georgians see Brussels as a 
defeat for the U.S. and for Georgia and are questioning 
Georgia's Euro-Atlantic strategic choice.  In spite of that, 
for now, most Georgians support membership in NATO and still 
see it as their strongest, irreversible step into the West. 
TEFFT