07TBILISI1320, ECONOMIC DEVELOPMENT MINISTER ARVELADZE ON

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Reference ID Created Released Classification Origin
07TBILISI1320 2007-06-05 07:01 2011-08-30 01:44 CONFIDENTIAL Embassy Tbilisi

VZCZCXRO5263
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSI #1320/01 1560701
ZNY CCCCC ZZH
O 050701Z JUN 07
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6536
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE IMMEDIATE

C O N F I D E N T I A L SECTION 01 OF 02 TBILISI 001320 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR DAS BRYZA AND EUR/CARC 
 
E.O. 12958: DECL: 06/04/2017 
TAGS: PREL PGOV ECON GG
SUBJECT: ECONOMIC DEVELOPMENT MINISTER ARVELADZE ON 
STIMULATING INVESTMENT 
 
 
Classified By: Ambassador John F. Tefft for reasons 1.4(b)&(d). 
 
Summary 
------- 
1. (C) In a May 28 meeting, Georgian Minister of Economic 
Development Giorgi Arveladze described to Joseph Wood, Deputy 
National Security Advisor to the Vice President, Georgia's 
efforts and successes in attracting foreign investors in a 
broad range of sectors.  Arveladze said the government's 
philosophy was to try to create opportunities and to stay out 
of the economy as much as possible.  He said the government 
was seeking to lower interest rates, which at their current 
high levels are preventing many Georgians from starting their 
own family businesses.  Arveladze said Georgia was taking a 
technical approach to negotiations over Russia's WTO 
accession, concentrating on Russia's unfulfilled commitments 
in its bilateral WTO agreement with Georgia to legalize the 
economic border, i.e., to allow customs checkpoints where 
Russia borders Georgia's separatist regions of Abkhazia and 
South Ossetia.  End Summary. 
 
Investment on the Rise 
---------------------- 
2. (C) Arveladze began the breakfast meeting with Wood and 
the Ambassador by recounting a recent privatization auction 
for property around Lisi Lake in Tbilisi.  Arveladze said he 
had expected the land to go for around USD 50 million; in the 
end, it was bought by a Georgian company for USD 182 million, 
beating out several foreign investors.  Arveladze said this 
exemplified the trend in investment in Georgia.  Using Israel 
as an example, Arveladze said Israeli investment in Georgia 
topped the rankings in the mid-1990s, primarily because of 
Georgian-Israeli businesspeople.  As international investment 
in Georgia has broadened, Israel has moved down the list, but 
a large number of Israelis have purchased real estate in 
Georgia in recent years.  Arveladze said a recent Georgian 
economic forum in Israel had been a huge success, revealing 
serious interest from many firms that had no previous 
connections to Georgia.  Arveladze said a number of Israeli 
investors in Georgian real estate were beginning to show an 
interest in manufacturing as well. 
 
3. (C) Arveladze said his goal was to keep the government out 
of the economy as far as possible, while trying to create 
opportunities.  He said Georgia today had some advantages 
over eastern European economies of 15 years ago, many of 
which were still suffering from corruption and bad management 
at that time.  He noted that Georgia had an attractive labor 
force that was low-cost, educated, and hard-working, and that 
Georgia had moved up dramatically in the most recent World 
Bank survey on the ease of doing business.  Arveladze noted 
that the banking sector in Georgia was booming, a consequence 
of the legalization of the economy after the Rose Revolution. 
 Unfortunately, he added, there were now so many businesses 
seeking loans that the banking system could not meet the 
demand except with a very high interest rate.  He said the 
government had a plan to use commercial banks for government 
funds, and thereby ensure lower interest rates while also 
taking care to deal with the challenge of inflation. 
Arveladze said that if interest rates were lower, practically 
every family in Georgia would be ready to start a business of 
its own. 
 
A Low-Key Approach to Russia's WTO Negotiations 
--------------------------------------------- -- 
4. (C) Asked about Russia's WTO aspirations, Arveladze said 
Georgia was treating it as a technical issue.  He noted that 
in 2004 Georgia and Russia signed a WTO bilateral agreement 
in which Russia accepted responsibility for "legalizing the 
economic border" through customs checkpoints, which were 
especially needed on the parts of the border controlled by 
the separatist authorities.  (Note: These areas are 
uncontrolled by Georgian authorities and are a source of 
smuggled goods, people, and potentially WMD into Georgia.) 
This commitment has not been fulfilled, Arveladze said, 
adding that the agreement is explicit despite Russian claims 
that this is not a WTO issue.  Arveladze said Georgia saw no 
reason to emphasize its other trade issues with Russia -- 
such as the bans on export of Georgian wine, mineral water, 
and agricultural products -- in the WTO context, because 
Georgia did not want to "look like a whiny country creating 
problems" for Russia's WTO accession. 
 
5. (C) Arveladze said a Free Trade Agreement (FTA) with the 
U.S. would be a strong signal of U.S. political confidence in 
Georgia, and he expressed hope that the Trade and Investment 
Framework Agreement (TIFA) that Arveladze would sign during 
his upcoming trip to Washington might lay the groundwork for 
additional steps later.  He noted that Europe gave an FTA to 
Estonia when it was in a similar situation in 1990s, when 
 
TBILISI 00001320  002 OF 002 
 
 
Estonia successfully re-oriented its economy after a Russian 
embargo and undertook reforms to defeat internal corruption. 
Touching on the recent cyber-attacks against E
stonia, 
Arveladze conceded that Georgia was probably vulnerable to a 
similar assault. 
 
TEFFT

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