Jan. 31 (Bloomberg) -- Georgian Prime Minister Bidzina Ivanishvili is embarking on a charm offensive abroad as he turns the legal screws on his political enemies at home.
Stung by American and European Union warnings over arrests of former officials following his upset victory in October over the party of President Mikhail Saakashvili, the 56-year-old billionaire invited executives from companies such as Tata Motors Ltd. to sit down with him in Davos last week. At the same time, 19 new Georgian diplomats are fanning out across the globe to reinforce the government’s pro-investment credentials.
Ivanishvili’s victory was the latest setback in the former Soviet Union for the U.S. and the EU, which backed Saakashvili’s Rose Revolution in 2003. Georgia, home to energy links between Europe and the Caspian Sea that allow oil and gas flowing westward to bypass Russia, is seeking to ease investor fears that the peaceful handover wasn’t a mirage.
“It’s becoming an increasingly contentious situation” even as the transition of power remains mostly peaceful, Svante E. Cornell, research director at the Central Asia-Caucasus Institute & Silk Road Studies Program in Stockholm, said by phone. “Rule of law issues are always a concern for investors and political instability is a risk for the economy. Georgia needs to preserve its image right now.”
Ivanishvili, a Russian-trained economist and engineer, is reaching out to investors to keep markets from turning after the elections lowered borrowing costs. The yield on the state’s dollar-denominated bond due in 2021 fell to 4.0898 percent at 6:58 p.m. in Tbilisi, compared with 4.8164 percent a week after the vote.
Since the new government took power, at least 38 former officials tied to the previous administration have been charged with offenses such as illegal wire-tapping and abuse of office from actions taken before the elections. A graft probe has been opened into former Defense Minister Davit Kezerashvili, Finance Ministry investigator Davit Kvinikadze told reporters yesterday in the capital, Tbilisi.
Saakashvili, who has one year left on his mandate as president, has called the arrests political payback, while the U.S., EU and the North Atlantic Treaty Organization have voiced concerns about perceptions of backsliding on the rule of law. The government denies the arrests are politically motivated. On Jan. 13 it released 190 prisoners identified by Parliament as political detainees jailed by the previous regime.
The government needs to “rectify the troubling human rights problems it inherited,” while avoiding politically motivated prosecutions, Human Rights Watch said today in its World Report 2013.
Ivanishvili, known for eccentricities such as having kangaroos, penguins and zebras for pets, has pledged to continue to trim the budget deficit while improving conditions to attract investment and boost growth in the $16 billion economy. About $195 million flowed into the country in the third quarter of 2012, the lowest quarterly total since the first three months of 2010.
The premier tried to assuage delegates in the halls of the Davos conference center and at meetings in hotels and other venues that past impediments, such as a lack of property rights and competition because of government monopolies, would change under his administration.
“Davos was very important for us, with loads of meetings with large global companies,” Giorgi Pertaia, director at the Georgian National Investment Agency, said by phone from the Swiss mountain village. “We want to keep their interest. We need to show there is no danger for their investments.”
Georgia was incorporated into the Russian empire in the late 18th century, and enjoyed only three years of independence, from 1918-1921, until the 1991 collapse of the Soviet Union. It withdrew from the post-Soviet Commonwealth of Independent States after losing a five-day war with Russia over a breakaway region in August 2008.
Russian-Georgian relations were tense even before the war, which was sparked by Saakashvili’s attempt to regain control of the enclave of South Ossetia. Putin cut transport and postal links and blocked money transfers in October 2006 over Georgia’s arrest of Russian servicemen it accused of espionage.
Georgia, which borders Russia, Armenia, Turkey and Azerbaijan, hosts the BP Plc-managed Baku-Tbilisi-Ceyhan and the Baku-Supsa oil pipelines, as well as the Baku-Tbilisi-Erzurum gas link.
The birthplace of Soviet dictator Josef Stalin isn’t only looking westward. Ivanishvili has reached out to Russia, where he made a $6.3 billion fortune in banking and metals, according to Bloomberg Billionaires Index, to rebuild ties that eroded so far that President Vladimir Putin once threatened to hang Saakashvili, a 45-year-old U.S.-educated lawyer, “by the balls.” Russia welcomes the “positive signals” sent by Georgia since the elections, Putin said Dec. 20.
“Having better economic relations with Russia will benefit Georgia’s economic growth,” Sergi Kapanadze, founder of the Tbilisi-based think tank Georgia’s Reform Associates. “The threat is not to become overly dependent on the Russian market as it’s very susceptible to political pressures. Georgia shouldn’t become dependent on Moscow for energy supplies.”
Ratings company Standard and Poor’s affirmed its BB- credit score for Georgia last month with a stable outlook, saying the government’s commitment to fiscal responsibility and market-oriented policies should spur an economy that grew 6.1 percent last year. Still, “we remain cautious about political stability domestically,” it said.
Georgia’s credit rating at S&P, the assessor’s third-highest non-investment grade, is on par with Montenegro and Serbia.
Georgia’s vulnerability remains its external financing position, according to Tim Ash, head of emerging-market research at Standard Bank Plc in London. He cites a current-account deficit that reached $454.6 million in the third quarter of 2012 and limited foreign-exchange reserves.
“They need to show to foreign direct investors their investments are safe and that the broader business environment is good or improving,” Ash said in an e-mail to Bloomberg. “If this changes, they could be in trouble.”