wikileaks ico  Home papers ico  Cables mirror and Afghan War Diary privacy policy  Privacy
IdentifierCreatedClassificationOrigin
06TBILISI2680 2006-10-06 13:32:00 CONFIDENTIAL Embassy Tbilisi
Cable title:  

RUSSIA'S TIGHTENING THE ECONOMIC SCREWS ON GEORGIA

Tags:   EFIN ETRD EWWT ECON PREL GG 
pdf how-to read a cable
VZCZCXRO2342
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSI #2680/01 2791332
ZNY CCCCC ZZH
R 061332Z OCT 06
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC 4275
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
					  C O N F I D E N T I A L SECTION 01 OF 02 TBILISI 002680 

SIPDIS

SIPDIS

STATE FOR EUR/CARC AND EB/IFD/OIA
COMMERCE FOR 4231 DANICA STARKS
TREASURY FOR OIA
MOSCOW FOR TREASURY ATTACHE

E.O. 12958: DECL: 10/04/2016
TAGS: EFIN ETRD EWWT ECON PREL GG
SUBJECT: RUSSIA'S TIGHTENING THE ECONOMIC SCREWS ON GEORGIA
COULD HURT IF PROLONGED

REF: A. TBILISI 2262

B. TBILISI 2424

C. TBILISI 2616

D. MOSCOW 11107

TBILISI 00002680 001.2 OF 002


Classified By: Ambassador John F. Tefft, reason 1.4(d).



1. (U) This is an action request for EB and EUR. See
paragraph 8.



2. (U) Russia has announced that all airline, rail, road,
sea and postal links to Georgia will be closed after midnight
Monday, October 2. On October 3, the Transport department of
the Georgian Economic Development Ministry confirmed to the
Embassy that the Russian Civil Aviation Authority (CAA) had
informed the Georgian CAA that starting October 3, the three
Georgian carriers, Georgian Airways, Tbilaviamsheni, and
Georgian National Airlines would not be allowed to land in
Russia. The reason given was a lack of certain
documentation, which the Ministry insists has already been
presented to the Russian CAA long ago. The Georgian CAA has
received formal notification that Aeroflot and Pulkovo
Airlines are ceasing operations to Tbilisi, but has had no
official word as yet from other airlines such as Cibir. We
expect those flights will be canceled for the time being as
well.



3. (U) The announced cutoff of rail links should create no
real hardship for rail passengers. Essentially this means
that two cars on the Moscow-Baku route that are designated
for onward travel to Tbilisi will no longer be included on
that train, and passengers will have to change trains in
Baku. As for freight, if rail and sea links are interrupted
for a prolonged period, it will have a deep negative impact
on the economy and standard of living in Georgia. Many
consumer products, raw materials and industrial inputs are
imported from Russia to the port of Poti and via rail links
through Azerbaijan. Georgia's imports from Russia in 2005
were $384,349,900, 19% of its total imports. (The EU as a
whole supplied 33% of imports, or $671,386,900 million.) Oil
and gas areQmportant imports from Russia, and we were told
on October 4 by Deputy Minister of Energy Archil
Mamatelashvili that gas supplies from Russia are still
flowing normally. Georgia's exports to Russia were 17.7% of
its total exports in 2005. According to the local director
of a worldwide food product company we talked to, his
inventory has been arriving by sea from Novorossisk since
road connections north via Kazbegi and the Georgian Military
Highway were cut off in June 2006 (Ref B). His products will
now leave Novorossisk invoiced to a subsidiary in
Switzerland, and once they are at sea, his Swiss subsidiary
will sell them to the Georgian subsidiary. Such strategies
are available to a global company like his, but will not be
feasible for smaller importers whose traditional connections
are with Russian wholesalers.



4. (U) Because the Kazbegi crossing has been closed since
July 7, any new blockade of road transport to and from Russia
can only affect the illegal crossings into South Ossetia and
Abkhazia. The Georgians have made these illegal border
crossings the basis of their objections to Russian WTO
accession. It is unclear at this point whether Georgian
trucks will be turned back at the Azerbaijan-Russia border if
they attempt to enter Russia through Azerbaijan. Even if
such traffic is allowed, and Georgian traders can use it as
an alternative to sea transport, the additional costs will
impose a serious burden on them.



5. (U) The head of the Telecommunications Department of the
Ministry of Economic Development told us on October 3 that
the Georgian post office has not yet received any official
notification of interruption of postal services. He believes
that express shipments via DHL, UPS, Federal Express and the
like may be able to be routed through third countries.



6. (U) According to press reports and ref C, changes to
Russian legislation are being contemplated to allow
interruption of financial transfers from Russia, including
remittances by the estimated 500,000 Georgians living in
Russia. The Georgian National Bank estimates that 80% of
these migrants send money back to relatives in Georgia.
According to the National Bank, remittances from Russia
totaled $253,523,000 in 2005, which is 4% of GDP and 63% of
all remittances to Georgia from the world, As reported ref

TBILISI 00002680 002.2 OF 002


C, all remittances to Georgia from all countries account for
a total of 6% of GDP in 2005 and totaled $181,633,000 in the
first seven months of 2006. Roman Gotsiridze, President of
the National Bank of Georgia, has told us that he thinks a
total cutoff of financial transfers is technically impossible
(ref C). The General Director of one of the largest
commercial banks in Tbilisi, TBC Bank, told us that he does
not believe a cutoff of remittances will have a significant
effect because so much of the remittances is carried by hand
in cash over the border. We are more concerned, because the
transport restrictions will make such travel much more
difficult and workers could find it difficult to find
agencies under Russian jurisdiction that will accept their
cash for electronic transfer if the Russian government has
clearly expressed its disapproval.



7. (U) The Standard and Poor's rating service shares our
view that a prolonged blockade of transportation by Russia
against Georgia could have significant negative consequences
for the Georgian economy. S&P's London office issued a
statement on October 3 that the deteriorating relations with
Russia could threaten the positive ratings outlook on Georgia
(whose sovereign rating is now B /Positive/B
(long-term/outlook/short-term)).



8. (C) Embassy Tbilisi would appreciate EB's opinion as to
whether an interruption of financial transfers and any of the
transport bans imposed by Russia on Georgia might violate
international agreements such as the GATT or international
transport agreements under organizations such as ICAO or the
International Postal Union.


TEFFT