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Reference ID Created Released Classification Origin
08TBILISI1367 2008-08-12 13:57 2011-08-30 01:44 UNCLASSIFIED Embassy Tbilisi

R 121357Z AUG 08

E.O. 12958: N/A 
1. Prime Minister Lado Gurgenidze presented a proposed stabilization 
and reconstruction package to us on August 12 on behalf of the 
Georgian government.  The PM urged the USG to consider a quick, 
positive response to the request for a standby facility to bolster 
their efforts to ensure liquidity in the financial system and to 
send a clear message of USG support for Georgia.  He emphasized to 
us that the fundamentals of the economy are strong, and they are 
managing their way through the crisis.  Like many standby 
facilities, he thought it would not be used.  The PM noted that such 
a facility would provide a tangible guarantee to investors and 
depositors, and help restore confidence in an economy that has been 
a star performer in the past several years and is likely to continue 
to be so.  He stated without reservation that no other institution - 
not the IMF, the WB, nor any other bilateral - could create support 
for the Saakashvili government that this type of U.S. support would 
2.  The components of the proposal address critical economic or 
budget challenges that the GoG faces.  The G provided basic 
justifications for the proposals, and the PM and his government are 
anxious to expand upon them.  With the exception of the reinsurance 
and IDP facility proposals, the GoG is asking for loans, for which 
they are ready to pay nominal fees.  They are not asking for hand 
outs, but rather, they are asking for our help to help themselves. 
Begin Text 
The Georgia Assistance package proposal 
USD1 bn standby five-year loan facility to the National Bank of 
Why: to ensure there is no loss of confidence in the Georgian 
banking sector 
USD100 mln reinsurance pool for inbound vessels/cargo 
Why: beginning from Saturday, as the Russian navy ships were sighted 
nearby Poti, many freight forwarders/shipping companies showed 
reluctance to ship to our Ports, due to the marked increase in 
insurance costs.  This facility won't protect us from an out-and-out 
blockade or seizure or (obviously) obliteration of our ports, but 
would ensure the supplies flow (in and out) during periods of 
Key Infrastructure Repo Agreement 
Explanation: a list of Key Infrastructure is agreed upon, including 
our ports, roads, electricity infrastructure, airports and so on - 
both state and private-owned (optional for the private parties, of 
course).  The US and Georgia enter into an agreement which allows 
the owners of this designated infrastructure to transfer the title 
to the assets for USD1 to the United States, and repurchase the 
assets for the same symbolic price.  It is essential we are able to 
transfer the title on short notice 
Why: a confidence-enhancing measure for our infrastructure 
investors/lenders etc.  If they opt in, they would be essentially 
guaranteed that their assets will not be destroyed during any period 
of uncertainty (as it is unimaginable that anyone would knowingly 
target the US-owned assets).  We have been planning to attract about 
USD2 billion of infrastructure investment in the next 2-3 years, it 
is essential we are able to do so to support the high GDP growth 
USD300 mln highway expansion and rehabilitation loan facility 
Why: we have been discussing private funding to complete this.  In 
the current environment, it will be a while before we can get this 
initiative privately funded, so this facility would allow us to 
proceed with this important project without delay. 
USD100 mln agribusiness & export facilitation three-year loan 
Why: the government would on-lend the fund to the agriculture and 
export-focused SMEs, in order to alleviate social pressures in rural 
areas (50 percent of the population, 10 percent of GDP - 
unsustainable) and stimulate exports to improve our balance of 
payments.  We have started this program on our own in 2008 
(Affordable Credit), have disbursed about 30 million Lari to date 
(loan sizes range from 10,000 to 1 million Lari), and the program is 
very popular.  We have both the legislative framework (it's in the 
2008 budget law) and disbursement & monitoring infrastructure. The 
US loan would allow us to keep the program alive despite the 
inevitable budget cuts as the tax revenue collection dips in the 
aftermath of the Russian aggression.  The loan would be repaid fully 
by the Georgian state regardless of the collection rates/performance 
of the SME loans. 
USD100 mln IDP settlement/assistance facility 
Why: We were already stretched in terms of budget assistance to the 
IDPs etc.  The inevitable dip in the budget revenue will make it 
even harder to support them/help settle etc, especially given that 
their numbers are likely to increase.  We'd appreciate it if this 
were a grant, rather than a loan, given its humanitarian nature 
Free Trade Agreement 
Why: As you are aware, we have one of the freest trade regimes in 
the world (no import tariffs or any other restrictions of any kind, 
etc), so it's a matter of partner-like reciprocity, and a very 
strong political message as well. 


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