Bureau of European and Eurasian Affairs September 2005

Background Note: Georgia

PROFILE
OFFICIAL NAME: Republic of Georgia Geography Area: 69,700 square kilometers; slightly larger than South Carolina; 20% of total territory is not under government control. Cities: Capital--Tbilisi (pop 1.1 million 2002). Terrain: Mostly rugged and mountainous. Climate: Generally moderate; mild on the Black Sea coast with cold winters in the mountains. People Nationality: Noun and adjective--Georgian(s). Population: 4.4 million (2002 census preliminary results. Does not include Abkhazia or South Ossetia.) Population growth rate (2005 est.): -0.35%. Ethnic groups (2002 census): Georgian 83.8%, Azeri 6.5%, Armenian 5.7%, Russian 1.5%, other 2.5%. Religion: Georgian Orthodox 65%, Muslim 11%, Russian Orthodox 10%, Armenian Apostolic 8%, other 6%. Language: Georgian (official), Abkhaz also official language in Abkhazia. Education: Years compulsory--11. Literacy--99%. Health: Infant mortality rate (2005 est.)--18.59 deaths/1,000 live births. Life expectancy--75.88 yrs. Government Type: Republic. Constitution: October 17, 1995. Branches: Executive--president with State Chancellery. Legislative--unicameral parliament, 235 members. Judicial-supreme court, Constitutional Court, and local courts. Subdivisions: 67 districts, including those within the two autonomous republics (Abkhazia and Ajara) and eight cities. Political parties and leaders: National Democrats [Mikhail Saakashvili]; Rightist Opposition [Davit Gamkrelidze]; Labor Party [Shalva Natelashvili]. Suffrage: Universal over 18. Economy (2001) GDP: $3.6 billion. GDP per capita: $744. GDP growth: 5.3%. Inflation rate: 3.4%. Natural resources: Forests, hydropower, nonferrous metals, manganese, iron ore, copper, citrus fruits, tea, wine. Industry: Types--steel, aircraft, machine tools, foundry equipment (automobiles, trucks, and tractors), tower cranes, electric welding equipment, fuel re-exports, machinery for food packing, electric motors, textiles, shoes, chemicals, wood products, bottled water, and wine. Trade (2001): Exports--$354 million. Partners--Russia, Turkey, Azerbaijan, Armenia. Imports--$737 million. Partners-Russia, Turkey, Azerbaijan, Germany, Ukraine, United Kingdom, Turkmenistan, United States. Work force (1.72 million in 2000): Agriculture--52.1%; trade--10.0%; education--6.5%; public administration--6.0%; manufacturing--5.9%; health and social work--4.9%; transport and communications--4.1%; unemployment (2002--12.3% official - State Statistical Department). PEOPLE AND HISTORY Georgia's recorded history dates back more than 2,500 years. Georgian -- a South Caucasian (or Kartvelian) language

unrelated to any other outside the immediate region -- is one of the oldest living languages in the world, and it has its own distinctive alphabet. Tbilisi, located in the picturesque Mtkvari River valley, is more than 1,500 years old. In the early 4th century Georgia adopted Christianity, only the second nation in the world to do so officially, and Orthodox Christianity -- in combination with a unique language and alphabet -- proved to be key factors in preserving Georgias separate identity for so many centuries. Georgia has historically found itself on the margins of great empires, and Georgians have lived together in a unified state for only a small fraction of their existence as a people. Much of Georgia's territory was fought over by Persian, Roman, Byzantine, Arab, Mongol, and Turkish armies from at least the 1st century B.C. through the 18th century. The zenith of Georgias power as an independent kingdom came in the 11th and 12th centuries, during the reigns of King David the Builder and Queen Tamara, who still rank among the most celebrated of all Georgian rulers. In 1783 the king of Kartli (in eastern Georgia) signed the Treaty of Georgievsk with the Russians, by which Russia agreed to take the kingdom as its protectorate. In 1801, the Russian empire began the piecemeal process of unifying and annexing Georgian territory, and for most of the next two centuries (1801-1991) Georgia found itself ruled from St. Petersburg and Moscow. Exposed to modern European ideas of nationalism under Russian tutelage, Georgians like the writer Ilya Chavchavadze began calling for greater Georgian independence. In the wake of the collapse of tsarist rule and war with the Turks, the first Republic of Georgia was established on May 26, 1918, and the country enjoyed a brief period of independence under the Menshevik president, Noe Zhordania. However, in March 1921, the Russian Red Army re-occupied the country, and Georgia became a republic of the Soviet Union. Several of the Soviet Unions most notorious leaders in the 1920s and 1930s were Georgian, such as Joseph Stalin, Sergo Orjonikidze, and Lavrenti Beria. In the postwar period, Georgia was perceived as one of the wealthiest and most privileged of Soviet republics, and many Russians treated the countrys Black Sea coast as a kind of Soviet Riviera. On April 9, 1991, the Supreme Council of the Republic of Georgia declared independence from the U.S.S.R. Beset by ethnic and civil strife from independence in 1991, Georgia began to stabilize in 1995. However, almost 300,000 internally displaced persons present an enormous strain on the country. Peace remains fragile in the separatist areas of Abkhazia and South Ossetia -- overseen by Commonwealth of Independent States' (essentially Russian) peacekeepers, the United Nations Observer Mission in Georgia (UNOMIG), and the Organization for Security and Cooperation in Europe (OSCE). Some progress has been made in negotiations on the Ossetian-Georgian conflict. Negotiations are continuing on the stalemated Georgia-Abkhazia conflict under the aegis of the United Nations. The Georgian Government stakes much of its future on the revival of the ancient Silk Road as the Eurasian energy transportation corridor, using Georgia's geography as a bridge for transit of goods between Europe and Asia. Georgians are renowned for their hospitality and artistry in dance, theater, music, and design. GOVERNMENT Georgia has been a democratic republic since the presidential elections and constitutional referendum of October 1995. The President is elected for a term of 5 years, limited to 2 terms; his constitutional successor is the Chairman of the Parliament. The Georgian state is highly centralized, except for the autonomous regions of Abkhazia and Ajara, whose precise legal statuses have not been determined by law. Those regions were subjects of special autonomies during Soviet rule, and the legacy of that influence remains. In January 2004 Mikheil Saakashvili was elected to a 5-year term following the November 2, 2003 parliamentary elections which were marred by irregularities and fraud. As a result of popular demonstrations, former President Shevardnadze resigned on November 23, 2003, and the Speaker of Parliament Nino Burjanadze assumed the role of Interim President. President Saakashvili was inaugurated on January 25, 2004. Principal Government Officials President--Mikheil Saakashvili Prime Minister--Zurab Noghaideli Chairwoman of Parliament--Nino Burjanadze Secretary of the National Security Council--Gela Bezuashvili Foreign Minister--Salome Zourabichvili Ambassador to the United States--Levan Mikeladze Georgia maintains an embassy in the United States at 1101 15th Street NW, Suite 602, Washington, DC 20005, telephone (202) 387-4537, fax (202) 393-4537. POLITICAL CONDITIONS President Saakashvili was elected in January 2004 following the flawed Parliamentary elections, which led to the Rose Revolution in November 2003. Saakashvili quickly launched an ambitious reform agenda aimed at restoring good governance and ensuring Georgias territorial integrity. The political status of the breakaway provinces of Abkhazia and South Ossetia is unresolved. President Saakashvili and his team have made significant gains during their short tenure but still have much work to accomplish. Renewed fighting in neighboring Chechnya (Russia) in late 1999 generated concerns that the conflict would spill over into Georgia. Several thousand Chechen refugees moved into Georgia's Pankisi Gorge in late 1999, adding to the refugee/internally displaced population. The Abkhaz separatist dispute also continues to absorb much of the

government's attention. While a cease-fire is in effect, about 300,000 internally displaced persons (IDPs) who were driven from their homes during the conflict constitute a vocal lobby. The government has offered the region considerable autonomy in order to encourage a settlement, which would allow the IDPs, the majority of whom are ethnic Georgians from the Gali region, to return home, but the Abkhaz insist on independence. Currently, Russian peacekeepers, under the authority of the Commonwealth of Independent States, are stationed in Abkhazia, along with UN observers. Their activities are hampered by land mines and guerrilla activity. Years of negotiations have not resulted in movement toward a settlement. Working with France, the United Kingdom, Germany, and Russia and through the United Nations and the Organization for Security and Cooperation in Europe (OSCE), the United States continues to encourage a comprehensive settlement consistent with Georgian independence, sovereignty, and territorial integrity. The UN Observer Mission in Georgia (UNOMIG) and other organizations continue to encourage grassroots cooperative and confidence-building measures in the region. The parliament has instituted wide-ranging political reforms supportive of higher human rights standards, including religious freedoms enshrined in the constitution. Political Parties As a result of the Rose Revolution, National Movement and the Burjanadze-Democrats emerged as the leading parties in Georgia. The two parties have since united and are now officially called National Democrats. The Parliament is dominated by the National Democrats and no official minority currently exists in parliament. The New Rights party and the Industrialists have united and formed a bloc called the Rightist Opposition with Davit Gamkrelidze as the leader. Koba Davitashvili and Zviad Dzidziguri lead a party named Union of National Forces - Conservatives. David Berdzenishvili leads the Republicans. ECONOMY Georgia suffered severe political and economic turbulence during the years following the re-establishment of its independence in 1991. In the mid-1990s, Georgia began to experience modest but increasing levels of GDP growth and foreign investment. Until 1998, Georgia's economy grew on average 7%. This growth was attributable to the introduction of a new, stable currency, reduced rates of inflation, and the re-establishment of both economic and political stability. Economic growth and reform slowed in 1998, due to the Russian financial crisis, drought, and political events, including a major outbreak of hostilities in Abkhazia and an assassination attempt against the President. However, the period also saw completion of the first major infrastructure project, the Baku-Supsa early oil pipeline. Growth has been accelerating since 2000, and Georgia's economic performance is slowly improving; GDP growth peaked at 8.6% in 2003, as construction of the Baku-Tbilisi-Ceyhan pipeline began. Inflation is low and stable; it was 4.8% in 2003. Despite several years of slow growth following the 1998 Russian financial crisis, Georgia led the former Soviet Union in developing the legal infrastructure necessary for an attractive investment climate. However, corruption still persists and confidence in the judiciary has not risen significantly. Further reform of the judiciary and anticipated tax reform in late 2004 were expected to help the investment climate. Georgia maintains no currency controls, allows foreign investment in all but a few sectors deemed strategically important, and has implemented an impressive privatization program, including land privatization. Georgia was the second country of the former Soviet Union to join the World Trade Organization, which should provide additional opportunities for development. Economic activity in Georgia remains below potential. The low level of increase in trade and GDP are due to fundamental economic problems that have eroded investor confidence in Georgia. The poor fiscal situation, pervasive corruption, and arbitrary implementation of laws and regulations have inhibited economic growth in the country. Georgia's electricity sector is in critical condition, although new government policies and increased collections following the Rose Revolution may be the starting point to reform the energy sector. Even so, extensive capital investment is needed in order to keep the system functioning. Shortages of electricity have resulted in public unrest almost annually in the past. In 1998, Georgia began to privatize its energy distribution system and hoped to privatize its energy generation system by 2000, an objective that remains unrealized. Privatization is a potential source to generate the capital needed to rehabilitate the economic sector, and the new Minister of Economy has plans to move aggressively in this regard. Due to a lack of investment, Georgia's transportation and communication infrastructure remains in very poor condition. Corruption in Georgia, both official and otherwise, has been a significant and persistent obstacle not only to domestic and foreign investment, but also to economic development. Its pervasive nature and high visibility have stunted economic growth and seriously undermined the credibility of the government and its reforms. However, the new Georgian government in 2004 committed to tackle corruption at the highest levels, as visibly displayed by arresting and prosecuting several former government officials. They also established an anti-money laundering bureau within the Procuracy, a vetted unit that addresses corruption investigations and prosecutions. In July 2000, the government created an Anti-Corruption Commission that made its report in the fall of 2000. Based on this report, an Anti-Corruption Coordinating Council (ACCC) was created in summer 2001 to implement recommendations of the Anti-Corruption Commission. Its recommendations include several measures that, if implemented, would improve the investment climate. However, few, if any, of the recommendations have been acted upon. In 2004, the ACCC was eliminated, and the National Security Council is now responsible for the government anti-corruption strategy. It is too early to tell whether this

strategy and its implementation will result in reduced corruption in Georgia. In the past year, major reductions in corruption increased public faith in the police force. In July 2004, the Ministry of Internal Affairs (MIA) reduced the police force to 3,000 from 13,000, paying much higher salaries to members of the newly rescaled patrol and demanding higher standards of behavior. Following the Rose Revolution, the new Georgian government took the opportunity to establish a new IMF program and reschedule its debt through the Paris Club. In June 2004, Georgia agreed with the IMF to a new 3-year Poverty Reduction and Growth Facility (PRGF) program. Two previous IMF programs went off track in 1999 and 2003 due to Georgia's failure to meet budgetary targets. While Georgia has yet to complete an IMF program successfully, through November 2004 Georgia had met or exceeded all the quantitative targets of the new IMF program, especially the crucial revenue collection target. Georgia also reached a debt rescheduling agreement with the Paris Club in July 2004. Contingent upon the existence of an IMF program, the Paris Club agreement reschedules debt falling due in 2004-2006 and reduces Georgia's debt service payments over this period from $169.2 million to $46.4 million. Georgia had previously received debt rescheduling from the Paris Club in 2001, but the agreement was suspended when Georgia fell off track with the IMF. Foreign direct investment (FDI) declined to $61.8 million in 2001, compared to $83.65 million in 1999. Key sectors of economic activity in Georgia include energy, agriculture, trade, tourism, and transport, as well as significant projects in the food processing and telecommunications industries. The United States is the largest foreign investor in Georgia, annually contributing between 20%-34% of overall FDI in recent years. The completion of the Baku-Tbilisi-Ceyhan oil pipeline, expected by the end of 2005, and the Shah Deniz gas pipeline, which began in 2004, will offer opportunities for investors in the energy sector as well as related infrastructure. Additional privatization is planned in the energy sector, although the government has indicated its willingness to wait until this is under a more sound financial footing. Georgian agricultural production is beginning to recover following the devastation caused by the civil war and sectoral restructuring necessary following the breakup of the Soviet Union. Livestock production is beginning to rebound, and domestic grain production is increasing. Both will require sustained political will and infrastructure improvements to ensure appropriate distribution and return to farmers. Tea, hazelnut, and citrus production have suffered greatly as a result of the conflict in Abkhazia, an especially fertile area. Supported by European Union assistance, Georgia has taken steps to control the quality of and appropriately market its natural spring water. Georgian viniculture, well developed during Soviet times, is internationally acclaimed and has absorbed some new technologies and financing since 1994. To encourage and support the reform process, the United States and other donors focus heavily on technical and institution-building programs, both to the government and to private companies. Provision of legal and technical advisers to various government ministries is paired with training opportunities for parliamentarians, law enforcement officials, and economic advisers, complemented by extensive educational exchanges programs. The United States and other donors have increasingly imposed conditions on assistance in order to encourage improved performance on key issues and in key sectors, including energy. In May 2004, Georgia was selected as one of 16 Millennium Challenge Account (MCA) countries. While the United States terminated two assistance programs in fall 2003 due to lack of progress and commitment for reform on the part of the Georgian government, after the Rose Revolution in November 2003, we have re-engaged with the government to help them develop and implement comprehensive reform policies. Georgia continues to depend on humanitarian aid, which targets the most-needy groups. FOREIGN RELATIONS Georgia's location, situated between the Black Sea, Russia, Armenia, Azerbaijan, and Turkey, gives it strategic importance far beyond its size. It is developing as the gateway from the Black Sea to the Caucasus and the larger Caspian region, but also serves as a buffer between Russia and Turkey. Georgia has a long and close relationship with Russia, but it is reaching out to its other neighbors and looking to the West in search of alternatives and opportunities. It signed a partnership and cooperation agreement with the European Union, participates in NATO's Partnership for Peace program, and encourages foreign investment. China, France, Germany, Great Britain, Greece, Italy, Russia, Switzerland, and Turkey maintain embassies in Tbilisi. Germany is a significant bilateral donor. Georgia is a member of the UN, the OSCE, and the CIS. It is an observer in the Council of Europe. U.S.-GEORGIA RELATIONS U.S.-Georgia relations continue to be close. Extensive U.S. assistance is targeted to support Georgia's democratic, economic, and security reform programs, with an emphasis on institution building and implementing irreversible reforms. The United States has provided Georgia approximately $1.4 billion in assistance through 2004. On September 12, 2005, Georgia signed a Compact with the Millennium Challenge Corporation for a five-year $295 million assistance package. Information about U.S. assistance to Georgia can be found at http://www.state.gov/p/eur/rls/fs/51045.htm. In recognition of the extensive assistance provided to Georgia and the political dynamic of the time, in September 2003, the United States completed a comprehensive review of our assistance to Georgia. As a result, cuts in two programs were announced, due primarily to lack of interest and cooperation on the part of the Georgian government. The summer 2003 exit of the American firm AES, which had been engaged in the electricity distribution sector, was a major setback for the economy and foreign investment in Georgia. Following the Rose Revolution in November 2003, the United States increased assistance to the Georgian government in response the its progressive reform plans and its outward effort to combat corruption. We continue to work together to help Georgia establish itself into a successful market democracy.

On another front, in June 2003, Georgia was placed on Tier 3 status with regard to the Trafficking Victims Protection Act, which could have led to a suspension of all non-trade, non-humanitarian related assistance. During a 90-day grace period the Georgian government took sufficient steps to warrant a reassessment and subsequently was placed on Tier 2 and thus did not lose any assistance. We continue to work with the Georgians to help strengthening its anti-trafficking regime. The United States also works closely with the Georgians on security and counterterrorism efforts. The United States provides Georgia with bilateral security assistance, including English-language and military professionalism training through the International Military Education and Training program. The multi-year Georgia Train and Equip Program ended in 2004, achieving its intended goals of enhancing Georgia's military capability and stimulating military reform. Partnership with the Georgia (U.S.) National Guard, visits by the Sixth Fleet and the Coast Guard to Georgia, and the Bilateral Working Group on Defense and Military Cooperation are also important components of our security relationship with Georgia. Principal U.S. Officials Ambassador--John Tefft Deputy Chief of Mission--Mark Perry Political/Economic/Commercial Affairs--Bridget Brink Public Affairs--Rowena Cross-Najafi Defense Attache--Alan Hester USAID Director--Denny Robertson Management Officer--Carol L. Stricker The U.S. Embassy in Georgia is located at 25 Antoneli Street, Tbilisi 380026, telephone 995-32-98-99-67, fax 995-3293-37-59. TRAVEL AND BUSINESS INFORMATION The U.S. Department of State's Consular Information Program provides Consular Information Sheets, Travel Warnings, and Public Announcements. Consular Information Sheets exist for all countries and include information on entry requirements, currency regulations, health conditions, areas of instability, crime and security, political disturbances, and the addresses of the U.S. posts in the country. Travel Warnings are issued when the State Department recommends that Americans avoid travel to a certain country. Public Announcements are issued as a means to disseminate information quickly about terrorist threats and other relatively short-term conditions overseas that pose significant risks to the security of American travelers. Free copies of this information are available by calling the Bureau of Consular Affairs at 202-647-5225 or via the fax-on-demand system: 202-647-3000. Consular Information Sheets and Travel Warnings also are available on the Consular Affairs Internet home page: http://travel.state.gov. Consular Affairs Tips for Travelers publication series, which contain information on obtaining passports and planning a safe trip abroad, are available on the Internet and hard copies can be purchased from the Superintendent of Documents, U.S. Government Printing Office, telephone: 202-512-1800; fax 202-512-2250. Emergency information concerning Americans traveling abroad may be obtained from the Office of Overseas Citizens Services at (202) 647-5225. For after-hours emergencies, Sundays and holidays, call 202-647-4000. The National Passport Information Center (NPIC) is the U.S. Department of State's single, centralized public contact center for U.S. passport information. Telephone: 1-877-4USA-PPT (1-877-487-2778). Customer service representatives and operators for TDD/TTY are available Monday-Friday, 8:00 a.m. to 8:00 p.m., Eastern Time, excluding federal holidays. Travelers can check the latest health information with the U.S. Centers for Disease Control and Prevention in Atlanta, Georgia. A hotline at 877-FYI-TRIP (877-394-8747) and a web site at http://www.cdc.gov/travel/index.htm give the most recent health advisories, immunization recommendations or requirements, and advice on food and drinking water safety for regions and countries. A booklet entitled Health Information for International Travel (HHS publication number CDC95-8280) is available from the U.S. Government Printing Office, Washington, DC 20402, tel. (202) 512-1800. Information on travel conditions, visa requirements, currency and customs regulations, legal holidays, and other items of interest to travelers also may be obtained before your departure from a country's embassy and/or consulates in the U.S. (for this country, see "Principal Government Officials" listing in this publication). U.S. citizens who are long-term visitors or traveling in dangerous areas are encouraged to register their travel via the State Departments travel registration web site at https://travelregistration.state.gov or at the Consular section of the U.S. embassy upon arrival in a country by filling out a short form and sending in a copy of their passports. This may help family members contact you in case of an emergency. Further Electronic Information Department of State Web Site. Available on the Internet at http://www.state.gov, the Department of State web site

provides timely, global access to official U.S. foreign policy information, including Background Notes and daily press briefings along with the directory of key officers of Foreign Service posts and more. Export.gov provides a portal to all export-related assistance and market information offered by the federal government and provides trade leads, free export counseling, help with the export process, and more. STAT-USA/Internet, a service of the U.S. Department of Commerce, provides authoritative economic, business, and international trade information from the Federal government. The site includes current and historical trade-related releases, international market research, trade opportunities, and country analysis and provides access to the National Trade Data Bank.