The Bear's Embrace Brings Peace...

Robert W. Medearis isn't exactly the type who normally backs regimes close to Russia. The Stanford University business professor is a staunch Republican who believes the U.S. is too soft on the Kremlin. But he's willing to make an exception in the case of the former Soviet republic of Georgia.

That's because Medearis has just opened a clothing store featuring California fashions in the Georgian capital of Tbilisi. Nearby, in valleys with a wine-growing tradition going back 3,000 years, he and Wente Brothers, a California vintner, have also bought a big winery whose output he hopes will dominate the Russian market and win favor in the West. But for his ventures to succeed, Medearis needs political stability. And for that, he believes, Georgia needs the Russians. "The Russians here do not worry me at all," says Medearis, a gray-haired academic who came here five years ago to teach capitalism to the Soviets and was seduced by Georgia's charm.

COVERT BACKING. After several years of bitter civil war, relative peace has returned to this nation famous for la dolce vita. One reason is that Head of State Eduard Shevardnadze, who gained fame as Mikhail Gorbachev's Foreign Minister, has knuckled under to Russian demands for hegemony. Among other measures, he has agreed to allow five Russian military bases on Georgian soil and to join the Commonwealth of Independent States. In return, the Russians have agreed to stop covertly backing separatists in the breakaway Georgia region of Abkhazia.

For evidence of the new serenity, take Tbilisi, a surprisingly European city of medieval churches and quiet courtyards. The Parliament building still shows damage from 1993 tank battles, and hotels are crammed with refugees from Abkhazia. But shops have filled again with goods and people, and Georgia's legendary cuisine is served up in sidewalk cafes. Inflation has fallen from 100% a month at the end of 1993 to 2% to 3% a month today. Taking notice, the International Monetary Fund in June awarded the nation a $113 million standby loan to pave the way for the launch of a new currency.

The new peace is beginning to attract foreign investors. International Telcell Inc. in Greenwich, Conn., has acquired a long-distance telephone and pager license and is also investing in cable TV. Turkish companies are building bakeries throughout the country, which in 1993 suffered bread riots. Shipping company Sea-Land Service Inc. is interested in Georgia as a transport corridor for goods for a region stretching from the Caucasus to Kazakhstan and has plans to build a modern container terminal at Poti, a Black Sea port. Says Joseph Crowley, Sea-Land's manager for the Caucasus: "None of this would have been possible two years ago."

While Georgia's newfound peace is a blessing, Russia's influence remains controversial. Georgian nationalists decry Shevardnadze as a former communist in the Kremlin's pocket. But pragmatists see little alternative but to fall back within the Russian sphere. Alexander Rondeli, professor of international relations at Tbilisi State University and a Shevardnadze adviser, says Georgia would have caved in to Russia sooner but was misled by hopes of Western support. "We are in the magnetic field of Russia," he says. "Only Russia can provide security."

In exchange, Russia is getting some critical political and economic clout in the turbulent Caucasus. Most important is the choice of pipeline routes that will pump oil from some of the world's biggest oil fields in the Caspian Sea and Central Asia. Georgia hopes to be chosen as the route handling initial shipments from a $7.5 billion project in neighboring Azerbaijan to the Black Sea.

Unfortunately for the Georgians, Russia is its main pipeline competitor. Georgians admit that Moscow is likely to win the pipeline contest with a route through its Chechnya region and then on to the Russian port of Novorossiysk. Tamaz Tsereteli, a Georgian oil executive, figures that Caspian oil flows will eventually grow so big that Georgia will get its own pipeline. "We believe there is enough for us, both Russia and Georgia," he says. Georgia, however, has a long way to go before it can be completely independent. For now, the choice is clear: Do what Big Brother says, and rebuild the economy.

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