GEORGIA: NEW PM EXPRESSES CONCERN RE ECONOMY, REITERATES

UNCLAS TBILISI 000292 SENSITIVE SIPDIS DEPT FOR EUR/CARC AND EUR/ACE E.O. 12958: N/A TAGS: PREL PGOV GG SUBJECT: GEORGIA: NEW PM EXPRESSES CONCERN RE ECONOMY, REITERATES INTEREST IN BUDGET SUPPORT AND CONSIDERS U.S. VISIT ¶1. (SBU) In his first official meeting since being confirmed as Prime Minister, Nika Gilauri told the Charge and AID Mission Director February 9 that he was very concerned about the state of the Georgian economy and outlined a series of initiatives aimed at garnering more budget and balance of payments support, as well as bolstering investor confidence. He stated that an early trip to the U.S. was among his highest foreign policy priorities. During the trip, he hoped to meet new administration officials and advocate for more USG support for these initiatives. Gilauri noted that, in spite of the global economic crisis, there were investors out there and he was determined to do everything possible to make Georgia an attractive place to invest. ¶2. (SBU) Gilauri said that January revenue inflows were worrying. Although the Government had taken in slightly more lari than expected, this good result had been artificial since the Central Bank had stayed open on the last day of the month, January 31, which was a Saturday, in order to ensure that revenue would be higher. He noted that the Government had spent a good deal of money in November, and the economy had responded positively; in December, the Government had spent less and the economy had not done as well. ¶3. (SBU) With regard to initiatives, more budget support from the U.S. was the first item on the PM's list. The PM noted how critical the $250 million in budget support provided in the fall had been and urged us to consider providing the approximately $250 million remaining from the $1.0 billion pledge made by the U.S. at the October 22 Donors Conference in Brussels to the Government in the form of direct budget support to cover anticipated future budget shortfalls. He stated that budget support was essential due to the disappointing revenue collection numbers for January - a trend he expects will continue. The PM argued that direct budget support would have the added benefit of making additional foreign exchange available for importers. The Charge noted that the USG's provision of $250 million in budget support had been an extraordinary measure, but that we would convey the PM's request to Washington. ¶4. (SBU) In light of the continuing decline in foreign direct investment inflows, the PM requested consideration of a currency swap that would replenish dollar reserves in exchange for Georgia Lari, and further improve Georgia's capacity to finance imports. He noted that the U.S. had recently engaged in such a swap with Mexico. ¶5. (SBU) With respect to bolstering investor confidence, PM Gilauri stated that a free trade agreement was still very much in the interest of his government, and it would increase Georgia's attractiveness for companies interested in investing. He asked that the USG consider supporting the establishment of a Georgian state insurance agency that would provide political risk insurance to foreign investors. The PM explained that the most meaningful way of support would be to align this Georgian agency with OPIC, although he underscored that insurance costs would be borne by foreign investors. Lastly, he requested USG assistance to ensure that Georgia receives the full measure of financial support pledged to it by all donors at the Brussels conference. This financial support was essential for economic and political stability. Gilauri confided that he was concerned that a rumored World Bank retreat from its pledge that could cause other donors to delay their respective pledges. ¶6. (SBU) Comment. PM Gilauri appears to be focused on continuing Q6. (SBU) Comment. PM Gilauri appears to be focused on continuing the work of his predecessor once removed, Lado Gurgenidze, in focusing on Georgia's economic situation and attracting new investors. As the longest serving member of the Cabinet since the Rose Revolution (Gilauri was Minister of Energy, 2004-2007, and Minister of Finance from 2007 to the present),Gilauri is eager to use the Prime Minister's post to coordinate and direct the Government's work rather than setting up a parallel economic development council. As a first step toward restoring authorities to the line ministries, Gilauri had dismissed the head of the State Chancellery, Kakha Bendukidze, who has been a powerful economic force within the PM's office. According to Gilauri, the new head of the State Chancellery will be an administrator who will worry only about buying paper for the offices and putting gas in the vehicles. The PM has set up three new senior advisor positions charged with overseeing international relations, domestic issues and legal issues (an in-house L for the PM's office). During our meeting, Gilauri was accompanied by his new senior advisor for international relations, former Deputy Minister of Economic Development Tamara Kovziridze.