About the CBI

September 2005
Background Note: Georgia

Flag of Georgia is red cross on white background, with smaller red cross in
each of four quadrants.

PROFILE

OFFICIAL NAME:
Republic of Georgia

Geography
Area: 69,700 square kilometers; slightly larger than South Carolina; 20% of
total territory is not under government control.
Cities: Capital--Tbilisi (pop 1.1 million 2002).
Terrain: Mostly rugged and mountainous.
Climate: Generally moderate; mild on the Black Sea coast with cold winters in
the mountains.

People
Nationality: Noun and adjective--Georgian(s).
Population: 4.4 million (2002 census preliminary results. Does not include
Abkhazia or South Ossetia.)
Population growth rate (2005 est.): -0.35%.
Ethnic groups (2002 census): Georgian 83.8%, Azeri 6.5%, Armenian 5.7%,
Russian 1.5%, other 2.5%.
Religion: Georgian Orthodox 65%, Muslim 11%, Russian Orthodox 10%, Armenian
Apostolic 8%, other 6%.
Language: Georgian (official), Abkhaz also official language in Abkhazia.
Education: Years compulsory--11. Literacy--99%.
Health: Infant mortality rate (2005 est.)--18.59 deaths/1,000 live births.
Life expectancy--75.88 yrs.

Government
Type: Republic.
Constitution: October 17, 1995.
Branches: Executive--president with State Chancellery.
Legislative--unicameral parliament, 235 members. Judicial--supreme court,
Constitutional Court, and local courts.
Subdivisions: 67 districts, including those within the two autonomous
republics (Abkhazia and Ajara) and eight cities.
Political parties and leaders: National Democrats [Mikhail Saakashvili];
Rightist Opposition [Davit Gamkrelidze]; Labor Party [Shalva Natelashvili].
Suffrage: Universal over 18.

Economy (2001)
GDP: $3.6 billion.
GDP per capita: $744.
GDP growth: 5.3%.
Inflation rate: 3.4%.
Natural resources: Forests, hydropower, nonferrous metals, manganese, iron
ore, copper, citrus fruits, tea, wine.
Industry: Types--steel, aircraft, machine tools, foundry equipment
(automobiles, trucks, and tractors), tower cranes, electric welding
equipment, fuel re-exports, machinery for food packing, electric motors,
textiles, shoes, chemicals, wood products, bottled water, and wine.
Trade (2001): Exports--$354 million. Partners--Russia, Turkey, Azerbaijan,
Armenia. Imports--$737 million. Partners--Russia, Turkey, Azerbaijan,
Germany, Ukraine, United Kingdom, Turkmenistan, United States.
Work force (1.72 million in 2000): Agriculture--52.1%; trade--10.0%;
education--6.5%; public administration--6.0%; manufacturing--5.9%; health and
social work--4.9%; transport and communications--4.1%; unemployment
(2002--12.3% official - State Statistical Department).

PEOPLE AND HISTORY
Georgia's recorded history dates back more than 2,500 years. Georgian -- a
South Caucasian (or "Kartvelian") language unrelated to any other outside the
immediate region -- is one of the oldest living languages in the world, and
it has its own distinctive alphabet. Tbilisi, located in the picturesque
Mtkvari River valley, is more than 1,500 years old. In the early 4th century
Georgia adopted Christianity, only the second nation in the world to do so
officially, and Orthodox Christianity -- in combination with a unique
language and alphabet -- proved to be key factors in preserving Georgia's
separate identity for so many centuries. Georgia has historically found
itself on the margins of great empires, and Georgians have lived together in
a unified state for only a small fraction of their existence as a people.

Much of Georgia's territory was fought over by Persian, Roman, Byzantine,
Arab, Mongol, and Turkish armies from at least the 1st century B.C. through
the 18th century. The zenith of Georgia's power as an independent kingdom
came in the 11th and 12th centuries, during the reigns of King David the
Builder and Queen Tamara, who still rank among the most celebrated of all
Georgian rulers. In 1783 the king of Kartli (in eastern Georgia) signed the
Treaty of Georgievsk with the Russians, by which Russia agreed to take the
kingdom as its protectorate. In 1801, the Russian empire began the piecemeal
process of unifying and annexing Georgian territory, and for most of the next
two centuries (1801-1991) Georgia found itself ruled from St. Petersburg and
Moscow. Exposed to modern European ideas of nationalism under Russian
tutelage, Georgians like the writer Ilya Chavchavadze began calling for
greater Georgian independence. In the wake of the collapse of tsarist rule
and war with the Turks, the first Republic of Georgia was established on May
26, 1918, and the country enjoyed a brief period of independence under the
Menshevik president, Noe Zhordania. However, in March 1921, the Russian Red
Army re-occupied the country, and Georgia became a republic of the Soviet
Union. Several of the Soviet Union's most notorious leaders in the 1920s and
1930s were Georgian, such as Joseph Stalin, Sergo Orjonikidze, and Lavrenti
Beria. In the postwar period, Georgia was perceived as one of the wealthiest
and most privileged of Soviet republics, and many Russians treated the
country's Black Sea coast as a kind of Soviet Riviera. On April 9, 1991, the
Supreme Council of the Republic of Georgia declared independence from the
U.S.S.R.

Beset by ethnic and civil strife from independence in 1991, Georgia began to
stabilize in 1995. However, almost 300,000 internally displaced persons
present an enormous strain on the country. Peace remains fragile in the
separatist areas of Abkhazia and South Ossetia -- overseen by Commonwealth of
Independent States' (essentially Russian) peacekeepers, the United Nations
Observer Mission in Georgia (UNOMIG), and the Organization for Security and
Cooperation in Europe (OSCE). Some progress has been made in negotiations on
the Ossetian-Georgian conflict. Negotiations are continuing on the stalemated
Georgia-Abkhazia conflict under the aegis of the United Nations.

The Georgian Government stakes much of its future on the revival of the
ancient Silk Road as the Eurasian energy transportation corridor, using
Georgia's geography as a bridge for transit of goods between Europe and Asia.
Georgians are renowned for their hospitality and artistry in dance, theater,
music, and design.

GOVERNMENT
Georgia has been a democratic republic since the presidential elections and
constitutional referendum of October 1995. The President is elected for a
term of 5 years, limited to 2 terms; his constitutional successor is the
Chairman of the Parliament.

The Georgian state is highly centralized, except for the autonomous regions
of Abkhazia and Ajara, whose precise legal statuses have not been determined
by law. Those regions were subjects of special autonomies during Soviet rule,
and the legacy of that influence remains. In January 2004 Mikheil Saakashvili
was elected to a 5-year term following the November 2, 2003 parliamentary
elections which were marred by irregularities and fraud. As a result of
popular demonstrations, former President Shevardnadze resigned on November
23, 2003, and the Speaker of Parliament Nino Burjanadze assumed the role of
Interim President. President Saakashvili was inaugurated on January 25, 2004.

Principal Government Officials
President--Mikheil Saakashvili
Prime Minister--Zurab Noghaideli
Chairwoman of Parliament--Nino Burjanadze
Secretary of the National Security Council--Gela Bezuashvili
Foreign Minister--Salome Zourabichvili
Ambassador to the United States--Levan Mikeladze

Georgia maintains an embassy in the United States at 1101 15th Street NW,
Suite 602, Washington, DC 20005, telephone (202) 387-4537, fax (202)
393-4537.

POLITICAL CONDITIONS
President Saakashvili was elected in January 2004 following the flawed
Parliamentary elections, which led to the Rose Revolution in November 2003.
Saakashvili quickly launched an ambitious reform agenda aimed at restoring
good governance and ensuring Georgia's territorial integrity. The political
status of the breakaway provinces of Abkhazia and South Ossetia is
unresolved. President Saakashvili and his team have made significant gains
during their short tenure but still have much work to accomplish.

Renewed fighting in neighboring Chechnya (Russia) in late 1999 generated
concerns that the conflict would spill over into Georgia. Several thousand
Chechen refugees moved into Georgia's Pankisi Gorge in late 1999, adding to
the refugee/internally displaced population. The Abkhaz separatist dispute
also continues to absorb much of the government's attention. While a
cease-fire is in effect, about 300,000 internally displaced persons (IDPs)
who were driven from their homes during the conflict constitute a vocal
lobby. The government has offered the region considerable autonomy in order
to encourage a settlement, which would allow the IDPs, the majority of whom
are ethnic Georgians from the Gali region, to return home, but the Abkhaz
insist on independence.

Currently, Russian peacekeepers, under the authority of the Commonwealth of
Independent States, are stationed in Abkhazia, along with UN observers. Their
activities are hampered by land mines and guerrilla activity. Years of
negotiations have not resulted in movement toward a settlement. Working with
France, the United Kingdom, Germany, and Russia and through the United
Nations and the Organization for Security and Cooperation in Europe (OSCE),
the United States continues to encourage a comprehensive settlement
consistent with Georgian independence, sovereignty, and territorial
integrity. The UN Observer Mission in Georgia (UNOMIG) and other
organizations continue to encourage grassroots cooperative and
confidence-building measures in the region.

The parliament has instituted wide-ranging political reforms supportive of
higher human rights standards, including religious freedoms enshrined in the
constitution.

Political Parties
As a result of the Rose Revolution, National Movement and the
Burjanadze-Democrats emerged as the leading parties in Georgia. The two
parties have since united and are now officially called National Democrats.
The Parliament is dominated by the National Democrats and no official
minority currently exists in parliament. The New Rights party and the
Industrialists have united and formed a bloc called the Rightist Opposition
with Davit Gamkrelidze as the leader. Koba Davitashvili and Zviad Dzidziguri
lead a party named Union of National Forces - Conservatives. David
Berdzenishvili leads the Republicans.

ECONOMY
Georgia suffered severe political and economic turbulence during the years
following the re-establishment of its independence in 1991. In the mid-1990s,
Georgia began to experience modest but increasing levels of GDP growth and
foreign investment. Until 1998, Georgia's economy grew on average 7%. This
growth was attributable to the introduction of a new, stable currency,
reduced rates of inflation, and the re-establishment of both economic and
political stability. Economic growth and reform slowed in 1998, due to the
Russian financial crisis, drought, and political events, including a major
outbreak of hostilities in Abkhazia and an assassination attempt against the
President. However, the period also saw completion of the first major
infrastructure project, the Baku-Supsa early oil pipeline.

Growth has been accelerating since 2000, and Georgia's economic performance
is slowly improving; GDP growth peaked at 8.6% in 2003, as construction of
the Baku-Tbilisi-Ceyhan pipeline began. Inflation is low and stable; it was
4.8% in 2003. Despite several years of slow growth following the 1998 Russian
financial crisis, Georgia led the former Soviet Union in developing the legal
infrastructure necessary for an attractive investment climate. However,
corruption still persists and confidence in the judiciary has not risen
significantly. Further reform of the judiciary and anticipated tax reform in
late 2004 were expected to help the investment climate. Georgia maintains no
currency controls, allows foreign investment in all but a few sectors deemed
strategically important, and has implemented an impressive privatization
program, including land privatization. Georgia was the second country of the
former Soviet Union to join the World Trade Organization, which should
provide additional opportunities for development.

Economic activity in Georgia remains below potential. The low level of
increase in trade and GDP are due to fundamental economic problems that have
eroded investor confidence in Georgia. The poor fiscal situation, pervasive
corruption, and arbitrary implementation of laws and regulations have
inhibited economic growth in the country. Georgia's electricity sector is in
critical condition, although new government policies and increased
collections following the Rose Revolution may be the starting point to reform
the energy sector. Even so, extensive capital investment is needed in order
to keep the system functioning. Shortages of electricity have resulted in
public unrest almost annually in the past. In 1998, Georgia began to
privatize its energy distribution system and hoped to privatize its energy
generation system by 2000, an objective that remains unrealized.

Privatization is a potential source to generate the capital needed to
rehabilitate the economic sector, and the new Minister of Economy has plans
to move aggressively in this regard. Due to a lack of investment, Georgia's
transportation and communication infrastructure remains in very poor
condition.

Corruption in Georgia, both official and otherwise, has been a significant
and persistent obstacle not only to domestic and foreign investment, but also
to economic development. Its pervasive nature and high visibility have
stunted economic growth and seriously undermined the credibility of the
government and its reforms. However, the new Georgian government in 2004
committed to tackle corruption at the highest levels, as visibly displayed by
arresting and prosecuting several former government officials. They also
established an anti-money laundering bureau within the Procuracy, a vetted
unit that addresses corruption investigations and prosecutions. In July 2000,
the government created an Anti-Corruption Commission that made its report in
the fall of 2000. Based on this report, an Anti-Corruption Coordinating
Council (ACCC) was created in summer 2001 to implement recommendations of the
Anti-Corruption Commission. Its recommendations include several measures
that, if implemented, would improve the investment climate. However, few, if
any, of the recommendations have been acted upon. In 2004, the ACCC was
eliminated, and the National Security Council is now responsible for the
government anti-corruption strategy. It is too early to tell whether this
strategy and its implementation will result in reduced corruption in Georgia.
In the past year, major reductions in corruption increased public faith in
the police force. In July 2004, the Ministry of Internal Affairs (MIA)
reduced the police force to 3,000 from 13,000, paying much higher salaries to
members of the newly rescaled patrol and demanding higher standards of
behavior.

Following the Rose Revolution, the new Georgian government took the
opportunity to establish a new IMF program and reschedule its debt through
the Paris Club. In June 2004, Georgia agreed with the IMF to a new 3-year
Poverty Reduction and Growth Facility (PRGF) program. Two previous IMF
programs went off track in 1999 and 2003 due to Georgia's failure to meet
budgetary targets. While Georgia has yet to complete an IMF program
successfully, through November 2004 Georgia had met or exceeded all the
quantitative targets of the new IMF program, especially the crucial revenue
collection target. Georgia also reached a debt rescheduling agreement with
the Paris Club in July 2004. Contingent upon the existence of an IMF program,
the Paris Club agreement reschedules debt falling due in 2004-2006 and
reduces Georgia's debt service payments over this period from $169.2 million
to $46.4 million. Georgia had previously received debt rescheduling from the
Paris Club in 2001, but the agreement was suspended when Georgia fell off
track with the IMF.

Foreign direct investment (FDI) declined to $61.8 million in 2001, compared
to $83.65 million in 1999. Key sectors of economic activity in Georgia
include energy, agriculture, trade, tourism, and transport, as well as
significant projects in the food processing and telecommunications
industries. The United States is the largest foreign investor in Georgia,
annually contributing between 20%-34% of overall FDI in recent years. The
completion of the Baku-Tbilisi-Ceyhan oil pipeline, expected by the end of
2005, and the Shah Deniz gas pipeline, which began in 2004, will offer
opportunities for investors in the energy sector as well as related
infrastructure. Additional privatization is planned in the energy sector,
although the government has indicated its willingness to wait until this is
under a more sound financial footing.

Georgian agricultural production is beginning to recover following the
devastation caused by the civil war and sectoral restructuring necessary
following the breakup of the Soviet Union. Livestock production is beginning
to rebound, and domestic grain production is increasing. Both will require
sustained political will and infrastructure improvements to ensure
appropriate distribution and return to farmers. Tea, hazelnut, and citrus
production have suffered greatly as a result of the conflict in Abkhazia, an
especially fertile area. Supported by European Union assistance, Georgia has
taken steps to control the quality of and appropriately market its natural
spring water. Georgian viniculture, well developed during Soviet times, is
internationally acclaimed and has absorbed some new technologies and
financing since 1994.

To encourage and support the reform process, the United States and other
donors focus heavily on technical and institution-building programs, both to
the government and to private companies. Provision of legal and technical
advisers to various government ministries is paired with training
opportunities for parliamentarians, law enforcement officials, and economic
advisers, complemented by extensive educational exchanges programs. The
United States and other donors have increasingly imposed conditions on
assistance in order to encourage improved performance on key issues and in
key sectors, including energy. In May 2004, Georgia was selected as one of 16
Millennium Challenge Account (MCA) countries. While the United States
terminated two assistance programs in fall 2003 due to lack of progress and
commitment for reform on the part of the Georgian government, after the Rose
Revolution in November 2003, we have re-engaged with the government to help
them develop and implement comprehensive reform policies. Georgia continues
to depend on humanitarian aid, which targets the most-needy groups.

FOREIGN RELATIONS
Georgia's location, situated between the Black Sea, Russia, Armenia,
Azerbaijan, and Turkey, gives it strategic importance far beyond its size. It
is developing as the gateway from the Black Sea to the Caucasus and the
larger Caspian region, but also serves as a buffer between Russia and Turkey.
Georgia has a long and close relationship with Russia, but it is reaching out
to its other neighbors and looking to the West in search of alternatives and
opportunities. It signed a partnership and cooperation agreement with the
European Union, participates in NATO's Partnership for Peace program, and
encourages foreign investment. China, France, Germany, Great Britain, Greece,
Italy, Russia, Switzerland, and Turkey maintain embassies in Tbilisi. Germany
is a significant bilateral donor. Georgia is a member of the UN, the OSCE,
and the CIS. It is an observer in the Council of Europe.

U.S.-GEORGIA RELATIONS
U.S.-Georgia relations continue to be close. Extensive U.S. assistance is
targeted to support Georgia's democratic, economic, and security reform
programs, with an emphasis on institution building and implementing
irreversible reforms. The United States has provided Georgia approximately
$1.4 billion in assistance through 2004. On September 12, 2005, Georgia
signed a Compact with the Millennium Challenge Corporation for a five-year
$295 million assistance package. Information about U.S. assistance to Georgia
can be found at http://www.state.gov/p/eur/rls/fs/51045.htm.

In recognition of the extensive assistance provided to Georgia and the
political dynamic of the time, in September 2003, the United States completed
a comprehensive review of our assistance to Georgia. As a result, cuts in two
programs were announced, due primarily to lack of interest and cooperation on
the part of the Georgian government. The summer 2003 exit of the American
firm AES, which had been engaged in the electricity distribution sector, was
a major setback for the economy and foreign investment in Georgia. Following
the Rose Revolution in November 2003, the United States increased assistance
to the Georgian government in response the its progressive reform plans and
its outward effort to combat corruption. We continue to work together to help
Georgia establish itself into a successful market democracy.

On another front, in June 2003, Georgia was placed on Tier 3 status with
regard to the Trafficking Victims' Protection Act, which could have led to a
suspension of all non-trade, non-humanitarian related assistance. During a
90-day grace period the Georgian government took sufficient steps to warrant
a reassessment and subsequently was placed on Tier 2 and thus did not lose
any assistance. We continue to work with the Georgians to help strengthening
its anti-trafficking regime.

The United States also works closely with the Georgians on security and
counterterrorism efforts. The United States provides Georgia with bilateral
security assistance, including English-language and military professionalism
training through the International Military Education and Training program.
The multi-year Georgia Train and Equip Program ended in 2004, achieving its
intended goals of enhancing Georgia's military capability and stimulating
military reform. Partnership with the Georgia (U.S.) National Guard, visits
by the Sixth Fleet and the Coast Guard to Georgia, and the Bilateral Working
Group on Defense and Military Cooperation are also important components of
our security relationship with Georgia.

Principal U.S. Officials
Ambassador--John Tefft
Deputy Chief of Mission--Mark Perry
Political/Economic/Commercial Affairs--Bridget Brink
Public Affairs--Rowena Cross-Najafi
Defense Attache--Alan Hester
USAID Director--Denny Robertson
Management Officer--Carol L. Stricker

The U.S. Embassy in Georgia is located at 25 Antoneli Street, Tbilisi 380026,
telephone 995-32-98-99-67, fax 995-32-93-37-59.