GEORGIA: FINANCE MINISTER LAYS OUT AID PRIORITIES

UNCLAS TBILISI 000448 SIPDIS E.O. 12958: N/A TAGS: PGOV PHUM PREL GG SUBJECT: GEORGIA: FINANCE MINISTER LAYS OUT AID PRIORITIES REF: A. TBILISI 356 ¶B. TBILISI 292 ¶1. (SBU) Summary: Finance Minister Kakha Baindurashvili met the Ambassador February 27 to discuss options for the remaining tranche of pledged USG post-conflict assistance. Baindurashvili repeated that the GOG would prefer direct budget assistance; however, in lieu of budget assistance, Baindurashvili also outlined a number of specific projects that are GOG priorities that he thought the USG might possibly support. Baindurashvili, who was previously Deputy Finance Minister before taking over the job in February after then Finance Minister Gilauri was named Prime Minister, indicated that he would visit Washington March 5-12 to meet with USG officials to discuss assistance. End Summary. Specific Project Assistance ¶2. (SBU) After asking for the USG to consider fulfilling the remainder of the $1 billion assistance pledge in the form of direct budget support, which he acknowledged would likely be a non-starter for the USG, Baindurashivili proceeded to outline a number of projects in the GOG budget that might be financed through projectized assistance. He cited primary and secondary road construction projects ($100M); rehabilitation of irrigation systems including those in the Shida Kartli region ($20M); IDP housing ($30M); and banking sector support (no specific dollar amount). With respect to the previously identified Batumi - Akhaltsikhe road project and the Senaki high voltage transmission line, the Finance Minister agreed that these projects were important from the standpoint of providing increased energy and transit security and important to Georgia. (Embassy Note: In a March 3rd meeting with the Ambassador, Justice Minister Adeishvili said that the Batumi - Akhaltsike road project would be too expensive and was still unplanned. Instead, the Government would support USG assistance to develop the road from Tbilisi to Telavi to promote economic development in eastern Georgia. End Note.) Baindurashvili stressed that te GOG is flexible regarding project funding and looks forward to working with the USG to target additional or alternative projects. OPIC Assistance ¶3. (SBU) Baindurashvili, looking for ways to attract more Foreign Direct Investment (FDI) to Georgia, requested information on a possible association with OPIC on political risk insurance (reftels). The Finance Minister wanted to explore the possibility of developing a mechanism to provide political risk insurance in Georgia, and was interested in both OPIC's expertise and possible support for a large insurance pool. While it was unclear exactly what he was requesting, he hoped that some sort of agreement could be formalized through a MOU. In addition, Baindurashvili asked for the name of a point of contact at OPIC to direct potential investors to learn more about OPIC's programs. Baindurashvili viewed OPIC support as a key means to attract investors, and wanted to ensure that the Georgian Government was doing all it could to use OPIC's benefits. Baindurashvili listed lagging investor confidence as a major hurdle Georgia would have to overcome to resume positive growth, and he believed USG-supported risk insurance would be a significant step towards achieving that goal. Tough Economic Outlook ¶4. (SBU) Baindurashvili was candid about the current economic situation in Georgia. He hoped 2009 FDI would be at roughly 2006 levels (1bn USG) although admitted his hopes might be too optimistic considering the current global economic climate. (Embassy Note: FDI for Georgia in 2007 Qeconomic climate. (Embassy Note: FDI for Georgia in 2007 was roughly 2bn USG, it dropped to roughly 1.2bn in 2008 almost all of which entered the Georgian economy in the first half of 2008. End Note.). Baindurashvili said as a result of the global economic crisis, remittances had also decreased sharply. This lack of revenue for many has increased pressure on the GOG to provide more extensive social payments. Accordingly to Baindurashvili, the GOG had spent down its foreign reserves to defend the currency (the lari), but downward pressure on the lari had largely stabilized in the last week. Baindurashvili cautioned that inflation was not a concern for policy makers, but that deflationary pressures could exacerbate a further slowdown in an already lagging economy. TEFFT