Caucasus Report: August 20, 2004

HAS THE 'THIRD FORCE' IN SOUTH OSSETIA FINALLY BEEN NEUTRALIZED? In a dawn assault on 19 August led by Interior Minister Irakli Okruashvili, Georgian Interior Ministry forces stormed and occupied three strategic hills overlooking the South Ossetian capital, Tskhinvali, Georgian and Russian media reported.

Interfax quoted Georgian Minister for Conflict Resolution Giorgi Khaindrava as saying on 19 August that the Georgian assault was originally intended as a joint operation with South Ossetian participation to neutralize the so-called "third force" operating in the conflict zone, a force that is not subordinate to the South Ossetian authorities. Khaindrava said the South Ossetians subsequently declined to take part in that operation.

The agreement on conducting a joint operation to neutralize the third force was reached during talks between Georgian Defense Minister Giorgi Baramidze and his South Ossetian counterpart Anatolii Barankevich earlier this week, Caucasus Press reported on 17 August. ITAR-TASS quoted Baramidze as saying this force consists of "15-20 well-trained and well-equipped men whose assignment is to carry out regular attacks on the Georgian side and thus prevent the parties from fulfilling the cease-fire agreement." Georgian Deputy State Security Minister Gigi Ugulava told Caucasus Press on 17 August that the third force consists of mercenaries from the North Caucasus, while "Izvestiya" on 18 August quoted Georgian State Security Minister Vano Merabishvili as affirming that the third force consists of Ossetian units. Neither Georgian nor South Ossetian officials have equated the third force with the Arabic-speaking mercenaries whom each side claimed late last month were fighting on the opposing side (see "RFE/RL Newsline," 30 July 2004).

Interior Minister Okruashvili denied on 18 August that any third force exists, claiming that it is Russian peacekeepers who are repeatedly shelling their Georgian counterparts during the hours of darkness, Caucasus Press reported. Meanwhile, South Ossetian government spokeswoman Irina Gagloeva told RFE/RL on 17 August that Okruashvili is himself acting independently of the Georgian authorities, and that Baramidze admitted this during his talks with Barankevich. South Ossetian Minister for Special Assignments Boris Chochiev told ITAR-TASS on 17 August that Okruashvili is "a detonator" who serves to intensify the conflict. Major General Svyatoslav Nabdzorov, the Russian commander of the joint Russian-Georgian-Ossetian peacekeeping force deployed in the conflict zone, similarly said on 19 August that "Okruashvili...is the 'third force' that has been talked about so much lately," Caucasus Press reported.

Although he apparently had little military experience prior to his appointment as interior minister in June, Okruashvili, who was born in Tskhinvali, has reportedly personally commanded the activities of his ministry's troops in South Ossetia (see "RFE/RL Caucasus Report," 5 August 2004).

Okruashvili told Georgian media on 19 August that eight Cossacks were killed during the attack that morning, and that his men confiscated two combat vehicles, two mortars, automatic weapons and ammunition, and food and narcotics. Okruashvili said he would produce the eight bodies to prove that speculation about a third force fighting in South Ossetia are wrong, Caucasus Press reported. Georgian Prime Minister Zurab Zhvania likewise said on 19 August that "the 'third force' turned out to comprise mercenaries and terrorists from the North Caucasus. They have been practically liquidated during the night," Caucasus Press reported.

Whoever may have been responsible for the nighttime shelling of Georgian positions and villages over the past week, Saakashvili has moved to restrict Okruashvili's role. In a televised address on 19 August, he offered to withdraw from the conflict zone all Georgian units except the 500 Georgian peacekeepers Tbilisi is permited to deploy there under the terms of the 1992 Dagomys agreement. The surplus personnel are all Interior Ministry troops. In addition, Saakashvili reportedly named Baramidze, not Okruashvili, to head the peacekeeping force. That appointment effectively prevents Okruashvili from acting of his own volition. But it may also be intended to serve a second purpose. "Rossiiskaya gazeta" reported on 18 August without citing its sources that Baramidze bears a grudge against Saakashvili for having transferred him from the post of interior minister, in which he reportedly enjoyed "near pop-star status," to that of defense minister, and has aligned himself with Zhvania who, the paper claims, is increasingly distancing himself from Saakashvili. Saakashvili in recent days has insistently appealed to the international community to step in and resolve the South Ossetian conflict in Georgia's favor, while Zhvania continues to profess his readiness to travel to Tskhinvali for talks with South Ossetian President Eduard Kokoity on how to defuse tensions. By giving Baramidze the opportunity to demonstrate his military authority, Saakashvili may be hoping to undercut a putative Zhvania-Baramidze alliance. (Liz Fuller)

GEORGIAN ECONOMY MINISTER LAMBASTES IMF. It is less than three months since Russian oligarch Kakha Bendukidze accepted the post of Georgia's economy minister, but he has already crossed swords with colleagues, including Finance Minister Zurab Nogaideli, and incurred the hostility of much of the population. But in an interview with RFE/RL's Georgian Service recorded on 15 August and broadcast the following day, Bendukidze affirmed that he would rather resign than resort to "populist statements" in a bid to mollify and win the support of the population.

The period since Bendukidze's appointment in early June has been marked by several significant economic trends, including, as he admitted in his interview with RFE/RL, a slowdown in economic growth over the past month. He denied emphatically having described that slowdown at a recent government session as stagnation. Asked to enumerate the conditions he considers essential to sustain the economic revival that began during the first six months of the year, Bendukidze listed first continued "political stabilization, which we have," followed by government protection of property rights, lower taxes and production costs, and ensuring uninterrupted energy supplies.

Bendukidze has already shown himself an enthusiastic supporter of the new draft tax code unveiled shortly after his appointment. According to "Vedomosti" on 18 August, Bendukidze plans to shift the tax burden from business to the population at large, cutting taxes for businesses by up to 25 percent. Value-added tax is to be reduced from 20 to 18 percent, and businesses with an annual turnover of less than 100,000 laris ($55,556) will be exempt from it altogether. Bendukidze praised the new draft tax code, noting that it differs in certain significant ways, which he did not explain, from those of other countries. He told RFE/RL that the new tax code will prove a major incentive to both Georgian and foreign investors, and categorically rejected as unfounded his interlocutor's fears that the government would succeed in amending it to render it less liberal.

But Bendukidze's enthusiasm for slashing taxes has already brought him into conflict with both the International Monetary Fund and with his colleagues, Finance Minister Nogaideli and Roman Gotsiridze, chairman of the parliament Budget and Finance Committee. Speaking to journalists on 16 August, Bendukidze rejected categorically a recent IMF warning to the Georgian government not to lower taxes too soon or too fast. In a statement released following a visit to Tbilisi by a group of IMF experts in late July and summarized by Caucasus Press on 4 August, the IMF praised Georgia's rapid economic growth, low inflation, and the improvement in tax collection during the first six months of 2004. But at the same time, the fund called on the Georgian government to perfect during the next few months its plans for structural reforms to be introduced by 2006. And, crucially, while giving an overall positive assessment to the new draft tax code, it advised that any reduction in taxes should be gradual.

It was this latter proposal that Bendukidze took issue with. He said the IMF advised against any reduction in taxes over the next two-three years on the grounds that doing so could jeopardize fulfilling budget revenue targets, an argument he reportedly dismissed as "nonsense." Branding the IMF a "bunch of idiots," he said the fund's verdict on the new tax code is "biassed" and its overall approach "unacceptable." He said a special commission will be formed to evaluate what he termed the "destructive role" the IMF has played in Georgia to date, and suggested that "it would not be a bad thing" to suspend cooperation with the IMF altogether. "If my position is unacceptable to anyone in the government, I am ready to retire," he reportedly concluded. Gotsiridze branded Bendukidze's statement "dangerous and biassed," Caucasus Press reported on 19 August. He added that he too disagrees with the IMF's "advice" concerning cutting taxes, but that "this is not a reason to insult such an influential organization." The daily "Rezonansi" predicted on 18 August that Bendukidze's reluctance to bow to IMF pressure could indeed ultimately lead to his resignation.

Relations between Tbilisi and the IMF were strained for several years prior to President Eduard Shevardnadze's ouster in November 2003. Between July 2002 and August 2003, the fund repeatedly postponed disbursement of further loan tranches to Tbilisi because of the Georgian authorities' failure to implement structural reforms and improve tax collection (see "RFE/RL Caucasus Report," 22 August 2003). The fund approved a new three-year Poverty Reduction and Growth Facility Program only in early June (see "RFE/RL Newsline," 7 June 2004). That program envisions loans totalling approximately $144 million, of which the first $21 million tranche has already been disbursed.

RFE/RL also raised with Bendukidze the possibility of a financial amnesty that would legalize businesses currently operating as part of the "shadow economy" that, according to State Statistical Department data quoted by Caucasus Press on 21 July, accounts for up to 50 percent of GDP. Bendukidze told RFE/RL that such an amnesty is currently under discussion. (Originally that amnesty was to have been announced on 1 June; President Mikheil Saakashvili said on 31 May that the announcement would be postponed until 1 July, but as RFE/RL pointed out, it has still not been made.) Bendukidze argued that both businessmen and the state would benefit from such an amnesty, the former because they would be able to function openly without fear of prosecution, and the latter from the ensuing increase in tax revenues.

The Georgian currency has strengthened from 2.22 to the U.S. dollar at the time of the so-called Rose Revolution last November to 1:82:$1 on 18 August, an increase of some 17-18 percent. Asked whether that trend is likely to continue and whether it might cause problems for the economy at large, Bendukidze responded that "there is no such thing as a 'natural' exchange rate." He explained that the Georgian National Bank intervenes to regulate the exchange rate. Caucasus Press on 18 August quoted National Bank President Irakli Managadze as enumerating several factors that have contributed to the rise of the lari, including the large increase in budget revenues during the first six months of the year, the process of legalizing the "shadow" economy, and what he termed "psychological factors," including strong popular trust in the country's new leadership.

Asked whether his views on the ideal relationship between government and business have changed since he switched from the latter to the former camp, Bendukidze replied: "Not at all. I think exactly the same way now as I did then." But he owned up to being sceptical when businessmen come to him saying that they are motivated by the interests of the state. As a rule, he said, "I tell them, 'you must be mad.' A businessman should think about making money, if he says he's defending the interests of the state then either he's lying or he's crazy."

Bendukidze concurred with RFE/RL's observation that his reception in Georgia has not been overwhelmingly positive, but implied that negative sentiment toward him has been artificially induced. "I have strong nerves and I can tolerate a situation in which for various reasons, some of them artificially created, the majority of the population consider me an undesirable [presence]," he said. Among those who are most opposed to him, he listed the Communists, Socialists, and the entire left wing of the political spectrum. But although he did not say so, that hostility also extends to other areas. The Association of Young Financiers and Businessmen, for example, rejected Bendukidze's argument in favor of mass privatization, voiced shortly after his appointment, that "we should sell everything except our conscience." As for the population at large, over 50 percent of whom live below the poverty line, they are unlikely to have derived much hope from Bendukidze's prediction, cited by Caucasus Press on 20 June, that Georgia will "live well" -- in 10 years' time. (Liz Fuller)

ARMENIAN OPPOSITION LEADERS MULL CHANGE IN TACTICS. The Armenian opposition remains committed to regime change but has to rethink its tactics that failed to unseat President Robert Kocharian last spring, two of its leaders said on 16 August.

"Since the spring wave of [anti-Kocharian] demonstrations we have engaged in very serious deliberations, have drawn conclusions from our mistakes, and will consequently subject our tactics to some changes," Artashes Geghamian, the leader of the opposition National Unity Party (AMK), told RFE/RL.

The comments were echoed by Hrant Khachatrian, a senior member of the AMK's top ally, the Artarutiun (Justice) alliance. "We now have a very shaky balance based on consequences of the use of force by the authorities and the opposition's search for new methods of struggle," he said. "It is evident that both the authorities and the opposition need to change their tactics."

Both Artarutiun and the AMK refuse to recognize the legitimacy of Kocharian's reelection last year and jointly attempted to force him into resignation with a three-month campaign of street protests in Yerevan and other parts of the country. The campaign, denounced as unconstitutional by the authorities, fizzled out following the violent breakup of an opposition march toward the presidential palace on the night of 12-13 April.

Geghamian said the opposition's failure to organize more "decisive action" left many of its supporters disappointed. "If we take to the streets it will be one or two rallies resulting in regime change," he said. "We should not call up people once a week or once in 10 days, even if that allows them to hear the truth."

Neither Geghamian nor Artarutiun would say whether another opposition campaign for regime change should be expected this fall. Nor did they comment on government calls for an end to the seven-month opposition boycott of sessions of the Armenian parliament. Geghamian said his party will discuss its further actions later this month. (Gevorg Stamboltsian and Ruzanna Khachatrian)

EXTENSION OF ARMENIAN PRESIDENTIAL TERM 'NOT ON AGENDA.' The Armenian authorities have no plans to prolong President Robert Kocharian's second five-year term in office or to enable him to seek a third term in 2008, a leading member of the governing Republican Party (HHK) said on 11 August. Tigran Torosian, who is also the deputy speaker of parliament, spoke to RFE/RL after the publication of the authorities' revised draft amendments to Armenia's constitution. The original version, drawn up by Kocharian, failed to win sufficient popular support at a referendum in May 2003. The constitutional reform package has since undergone minor changes approved by the HHK and its two coalition partners, the Armenian Revolutionary Federation-Dashnaktsutiun and the Orinats Yerkir Party (see "RFE/RL Newsline," 29 May 2003 and 27 July and 3 August 2004).

Among those modifications is a proposal to increase the Armenian parliament's term in office from four to five years. The chairman of the National Assembly's committee on legal affairs, Rafik Petrosian, suggested last month that the presidential term could likewise be extended by "one or two years." However, the new amendments posted on the parliament's website carry no such change.

Torosian appeared annoyed by Petrosian's statements, which have fueled speculation about Kocharian's desire to stay in office after 2008. "If this idea dawned on someone, they should not present it as an intention," he said. "An intention would mean that many people are inclined to see that happening. As far as I know, there are no such plans in the National Assembly and the presidential administration."

Under the current Armenian Constitution controversially enacted in 1995, the president of the republic can not hold the post for more than two consecutive terms. Torosian denied some observers' claims that the authorities could start a new countdown of Kocharian presidential years if the amendments are approved at the next constitutional referendum planned for July 2005.

"I think that if these changes are passed, the president of the republic will not run for a third time," Torosian said. "Otherwise, one could always make minor changes in the constitution for that purpose. There is neither logic nor a legal basis for doing that." "There are such precedents in some CIS countries," he added, referring to the former Soviet republics of Central Asia that have been governed by the same autocratic leaders for more than a decade. "I believe that so far we have had a totally different orientation in our work: not to the East, but to the West."

The constitutional package will be sent later this month to the so-called Venice Commission of the Council of Europe that monitors legal reforms in Armenia. It has to be endorsed by the parliament before being put to a referendum. Parliamentary debates on the issue are not expected before next spring. (Ruzanna Khachatrian)