Caucasus Report: September 16, 2004

GEORGIA SEEKS EU, OSCE SUPPORT FOR CONFLICT RESOLUTION. Visiting EU headquarters in Brussels on 15 September, Georgian State Minister for Conflict Resolution Giorgi Khaindrava said Tbilisi seeks greater OSCE and European Union involvement in managing the country's conflicts and its relations with Russia. Speaking to a small group of reporters, Khaindrava also said Tbilisi believes that recent Russian threats to attack suspected terrorist facilities outside its territory are directed against Georgia. He warned that rising tensions in the North Caucasus are an equal danger to Russia and its South Caucasus neighbors.

Khaindrava made clear that the Georgian authorities want a greater EU and OSCE presence in Georgia in order to minimize Russian involvement: "We are seeking the internationalization of, shall we say, conflict-affected relationships. We think that the presence of European observers, the large-scale involvement of the European community in managing conflicts, can only help and play a positive roll in this context. We also believe that Russia is also facing a great many problems, and to place peacemaking responsibilities solely on Russian shoulders would not be fair either."

Georgian officials say there is a widespread unwillingness among EU member states to assume any direct responsibility in trying to resolve "frozen conflicts" in the South Caucasus. EU officials said it took a major effort to get the bloc to send a limited, institution-building mission to Georgia last July.

Khaindrava chose his words carefully when speaking of what Georgia wants the EU to do. He said the issue came up in talks on 14 September with Javier Solana, the EU's security- and foreign-policy chief. Khaindrava said that although EU assistance would help greatly and Georgia "would not reject" EU mediation, Georgian made no explicit requests for it

Khaindrava said Tbilisi is first looking to the OSCE to boost its role in Georgia. He also expressed a preference for the involvement of former communist-bloc countries -- some of which, however, are today members of the EU. "We think that the rest of Europe must also take part in this [besides Russia], first of all post-Soviet states such as Ukraine, or, shall we say, the Baltic states, or countries of the [former] socialist bloc, because they, unlike anyone else, understand the problems facing us."

He said OSCE monitors are above all needed at sections of the Georgian-Russian border that are currently outside of Tbilisi's control, meaning the borders between the unrecognized republics of Abkhazia and South Ossetia and the Russian Federation.

Khaindrava said tensions between the central government in Tbilisi and the breakaway republics of South Ossetia and Abkhazia are "permanently on the agenda" at meetings with EU officials. He said Georgia realizes it is not capable of solving such problems by force, adding that this would have "catastrophic" effects. Officials in Brussels have indicated that a major use of force by the Georgian government against the two breakaway republics could severely undermine current EU goodwill toward the country.

Speaking of Georgian-Russian relations, Khaindrava said Tbilisi was "alarmed" by a recent Russian warning -- made in the wake of the Beslan hostage siege -- that Moscow will not baulk from striking terrorist facilities outside its borders:

"We would say that the [Russian Armed Forces] Chief of Staff, General [Yuri] Baluyevskii, was making a hint directed particularly at Georgia." Such threats, Khaindrava said, are "absolutely unacceptable." He said the Georgian government does not think Russia was referring to the Pankisi Gorge, which borders Chechnya. Pankisi, he said, harbors no terrorists and is today open to all visitors. Rather, the real target of the threat is thought to be the Kodori Pass. That pass is part of Abkhazia but, according to Khaindrava, is partly under the control of Georgian forces.

Khaindrava said Georgia agrees with comments made by President Vladimir Putin in the aftermath of the events in Beslan suggesting that the situation in the entire North Caucasus is extremely volatile and dangerous. The North Caucasus is home to stockpiles of weapons as well as armed gangs that move around unimpeded. Khaindrava said such loose security helps fuel separatism in South Ossetia and Abkhazia and compounds Russia's vulnerability to terrorism: "Certainly, tendencies of this type have an effect on the entire situation in the Caucasus. As a result of this, we have the developments that have taken place in Chechnya, Ingushetia, and Daghestan."

Khaindrava said the Beslan tragedy, in which more than 300 mostly children were killed, showed that terrorists can move freely around Russia. He advises Russia to deal with terrorists on its own territory rather than threaten its neighbors with strikes.

Khaindrava said the Georgian government has information that the hostage takers used South Ossetian number plates traveling from Ingushetia to Beslan in North Ossetia. He said Georgia has informed Russia of suspicious movements of armed gangs in its own breakaway South Ossetia region. Khaindrava said Georgia has repeatedly asked Russia to share information on suspected terrorist bases on Russian territory and offered to conduct joint operations. Georgia is also interested in setting up a joint antiterrorism center with Russia in Tbilisi.

He said that despite the tensions, relations with Russia are "very important" to Georgia, as Georgian President Mikheil Saakashvili has repeatedly stated. (Ahto Lobjakas)

ARMENIAN PRESIDENT, ALLIES CONTINUE TO MULL CONSTITUTIONAL AMENDMENTS. President Robert Kocharian and his top political allies have still not agreed on the final version of their proposed constitutional reform despite formally publicizing a package of revised draft amendments in late July, it emerged on 10 September (see "RFE/RL Newsline," 27 July and 3 August 2004). Kocharian discussed the issue at a meeting with Prime Minister Andranik Markarian and other leaders of the three parties represented in his coalition government. The meeting was also attended by Armen Harutiunian, his chief constitutional lawyer. The presidential press service did not report any details. "Discussions are still going on," Harutiunian told reporters later in the day. "We still don't know how the process will unfold. The issue still needs discussions."

Harutiunian refused to specify what Kocharian and the coalition parties making up the parliament majority have yet to reach agreement on. A leading member of one of those parties, the Armenian Revolutionary Federation-Dashnaktsutiun, indicated earlier this week that at issue are new mechanisms for the formation of government.

Under the existing post-Soviet constitution adopted in 1995, Armenia's prime minister and his cabinet are appointed by the president of the republic but can be dismissed by the National Assembly with a vote of no confidence. The draft amendments circulated by the parliament majority last month would allow the legislature to endorse or reject a prime minister nominated by the president. However, the president would be empowered to dissolve parliament if legislators reject his proposed candidates three consecutive times.

The Armenian opposition has adduced that provision to substantiate its argument that Kocharian, who already enjoys sweeping powers, would only gain more authority as a result of the proposed constitutional reform. The opposition also maintains that Kocharian lacks the legitimacy to initiate constitutional changes. Harutiunian dismissed such arguments, insisting that the head of state would have less control over the executive and judicial branches.

Kocharian's first attempt to amend the constitution in a referendum in May 2003 failed to win sufficient popular support. He has since modified those draft amendments together with the coalition allies and hopes that they will be approved at another referendum due next year. (Armen Zakarian)

AZERBAIJAN, IMF AGAIN FAIL TO REACH AGREEMENT. An International Monetary Fund (IMF) delegation headed by John Wakemann-Linn visited Baku from 1-8 September to discuss with the Azerbaijani government the draft 2005 budget and the conditions under which the fund will disburse further tranches of a Poverty Reduction and Growth Facility Program that expires next year, Turan reported on 9 September. The IMF visit was originally scheduled for late July or early August but postponed because the Azerbaijani authorities failed to act on key recommendations during the delegation's previous visit to Baku in May. Specifically, the IMF team urged the Azerbaijani authorities, as they had done earlier this year, to begin raising domestic oil prices to bring them in line with world prices, and to adopt legislation on the privatization of the International Bank, in which the European Bank for Reconstruction and Development wishes to acquire a 20 percent stake. The delegation also urged the government to finalize its long-term strategy for use of resources from the state Oil Fund. It suggested that monies from that fund be used to improve infrastructure (highways, water and gas mains); develop the education and public health systems; and offset a reduction of taxes for enterprises in the non-oil sector of the national economy (see "RFE/RL Newsline," 27 May 2004).

During their September visit, the IMF representatives reportedly noted the importance of the 2005 draft budget, the first to be drafted in accordance with a new long-term strategy that ensures that Azerbaijan's oil wealth is spent in a way that guarantees macroeconomic stability and benefits future generations, Turan reported. In that context, the delegation proposed limiting the growth of the public-sector wage bill and increasing spending on infrastructure. In line with his election campaign promises, President Ilham Aliyev has issued a series of decrees ordering large wage increases for police and security personnel and raising from 60,000 manats ($12.25) to 100,000 manats ($20) the minimum wage of some 538,000 state sector employees (see "RFE/RL Newsline," 2 July 2004).

According to Turan on 9 September, the IMF mission also recommended yet again that the Azerbaijani authorities raise domestic oil and gas prices to bring them into line with world prices. During a visit by IMF representatives in February, Azerbaijani Minister for Economic Development Farhad Aliyev told journalists that Baku had agreed to do so provided that world oil prices rose by at least 20 percent over the next quarter, according to Turan on 27 February. The price of Brent crude rose from $30.80 per barrel in February to $37.80 per barrel in May, according to PIRA's World Oil Market Forecast. (Liz Fuller)

GEORGIAN PRESIDENT TARGETS TRADE UNIONS. Irakli Tughushi, who has chaired Georgia's Union of Trade Unions since the late 1980s, has rejected an ultimatum by Georgian President Mikheil Saakashvili to sign over to the state all property and real estate owned by the trade unions, Caucasus Press reported on 8 September. That demand was directed in the first instance at potentially lucrative tourist facilities owned by the trade unions in the Borzhomi Gorge, an area of considerable natural beauty. Visiting Borzhomi in early September, Saakashvili demanded that the trade-union leadership sign over the ownership rights to those facilities within one week or face criminal charges, according to rustavi2.com on 4 September. He also branded the trade unions a "Mafia organization." Tughushi refused to comply with Saakashvili's demand, which he has appealed to the Georgian Constitutional Court. He has since demanded an international audit of the trade unions' property, according to Caucasus Press on 8 September.

In June, parliament deputy Nodar Grigalashvili accused trade-union officials of selling off trade union property worth billions of laris and pocketing the proceeds. The independent television station Rustavi-2 conducted an investigation into those allegations. After its findings were broadcast, Tughushi was summoned in early August first to the State Security Ministry and then to the Prosecutor-General's Office for questioning, Caucasus Press reported on 4 August. He told journalists at a 4 August news conference that the Georgian authorities are pressuring the trade unions with a view to appropriating their property. (Liz Fuller)

HAS THE GEORGIAN LARI PEAKED AGAINST THE U.S. DOLLAR? On 9 September, the Tbilisi International Currency Exchange suspended trading because of the high demand for U.S. dollars after the exchange rate strengthened to 1.68 Georgian laris to the dollar, up from 1.7050 the previous day. That date seems to have marked the peak of the lari's steady nine-month rise, during which it has risen in value from 2.22 to the dollar in late November 2003 to 1.7750 to the dollar on 31 August and 1.71 to the dollar on 7 September (see "RFE/RL Caucasus Report," 20 August 2004).

That rise of approximately 20 percent has disquieted tens of thousands of Georgians who rely heavily for their economic survival on funds transferred by relatives temporarily working abroad. Such transfers during the first five months of 2004 amounted to nearly $86 million, according to Caucasus Press on 14 July. And according to Roman Gotsiridze, chairman of the parliamentary Finance and Budget Committee, 80 percent of deposits in Georgian banks are in U.S. dollars, not laris. In a reflection of the depth of concern over the lari's rise in value, National Bank President Irakli Managadze was summoned to address a special session of the parliament committee on 9 September. Managadze rejected allegations that the central bank should have intervened to stabilize the exchange rate, that the rise of the lari constitutes a threat to macroeconomic stability, and that the government is driving up the exchange rate in order to facilitate paying its dollar-denominated foreign debts. Managadze pointed that despite the appreciation in value of the national currency, Georgia has one of the lowest inflation rates in the entire CIS, and prices remain stable.

Also on 9 September, Georgian Prime Minister Zurab Zhvania went on record as saying that his government is "in full control" of the exchange rate and will not permit sharp fluctuations. On 10 September, Managadze appealed to the population "not to panic," assuring Georgians that the steep rise in the exchange rate "is a temporary phenomenon" and that reliable economic mechanisms exist to control it. The same day, the lari dropped 10.5 points against the dollar, ending trading at 1.81 to the dollar. On 14 September, the exchange rate dropped to 1.85 to the dollar, and on 15 September to 1.87. (Liz Fuller)

QUOTATIONS OF THE WEEK. "Russia's conflict in Chechnya is homegrown, nurtured in a republic that has been systematically destroyed in the struggle for power. Russia has tried to wipe out Chechnya's separatists, first through direct military force, and more recently through 'Chechenization,' foisting the problem on to a local strongman.... But the result has been to breed an anarchy in which soldiers and separatists alike kidnap and murder the innocent with impunity.

Crackdowns on rebels hiding in neighboring republics have simply spread the lawlessness.... 'Chechenization' was meant to contain Chechnya; now it threatens to engulf the region. Yet [Basaev's] Islamic fundamentalism is borrowed from abroad; it would attract few sympathizers were it not for the misery created at home." -- "The Economist," 10 September.

"All of us who are faced with the challenge of tackling the modern evil of terrorism have to, at the same time, pay due respect to democracy and human rights. That is a challenge everywhere and we trust that President [Vladimir] Putin will also bear that in mind in the changes that he makes."-- Emma Udwin, spokeswoman for EU External Affairs Commissioner Chris Patten, speaking on 14 September in Brussels (quoted by RFE/RL).