By Erik Davtyan (05/08/2015 issue of the CACI Analyst)
On July 20, the President of the European Council (EC) Donald Tusk launched his regional trip to the South Caucasus, starting with high level meetings in Yerevan, Armenia. Tusk’s first visit to Yerevan took place in 2010 when he was the Prime Minister of Poland. During the one-day visit, Tusk met with Armenia’s President Serzh Sargsyan. Tusk and Sargsyan discussed EU-Armenia relations and their current cooperation, as well as the Nagorno-Karabakh peace process. They also discussed regional issues, especially the Iranian nuclear deal which was reached on July 14. Regarding the Greek financial crisis and its relevance to the European Union, Sargsyan expressed hope that the problems will be resolved quickly and confirmed that “Armenia favors both stability in the EU, a key partner of our country, and the normal development of Armenia’s centuries-old friend, Greece.” In turn, Tusk appreciated the initiation of the process of constitutional reform in Armenia and asked the President to present the goal of the amendments.
During the joint press conference, Sargsyan stressed that “we [Armenia] are keen on broadening relations with the European Union, one of our key partners, during Mr. Tusk’s tenure, which, I am sure will contribute to the long-lasting constructive dialogue existing between us.” The EC President welcomed the progress on mobility partnership and stated that the EU fully respects Armenia’s decision not to sign the Association Agreement, including the DCFTA (Deep and Comprehensive Free Trade Agreement). Moreover, Tusk reaffirmed that the EU is ready to continue the bilateral cooperation in a myriad of spheres of mutual interest. At the same time, the EC President touched upon the possibility of a visa-free regime with Armenia as a “final goal”. Answering questions raised by journalists, Tusk declared that the main goal of his visit was to reiterate that “the EU wants to strengthen cooperation with Armenia in all areas of mutual interest,” despite Armenia’s membership to the Eurasian Economic Union (EEU).
After the successful conclusion of the first phase of negotiations, the parties stated their expectation that in the near future a new comprehensive agreement will regulate EU-Armenia relations. Tusk did not exclude the possibility of a new free trade agreement, which may open new opportunities for the bilateral economic relations. In May 2015, the economic aspect of the future format of EU-Armenia relations was also highlighted by Morten Enberg, Swedish chargé d’affaires in Armenia. Regarding the Nagorno-Karabakh conflict, the European official confirmed the EU’s support for the OSCE Minsk Group.
Tusk also met with Prime Minister Hovik Abrahamyan, as well as representatives of opposition parties. The Armenian Prime Minister mentioned that “the EU has been and remains a major partner of Armenia due to the fact that our cooperation is first and foremost underpinned by shared values. Armenia is prepared to continue cooperating with the EU in a bid to promote reforms, efficient governance, democracy, human rights, as well as to boost economic exchanges and cooperate in other fields of mutual interest.” During the meeting Tusk confirmed that the EU “will continue to provide reform-targeted financial assistance to Armenia.” During Tusk’s meeting with Armenia’s political opposition, the parties generally discussed the project of constitutional reforms. Representatives of five political parties expressed different approaches toward the project. For example, Mher Shahgeldyan, the secretary of the “Rule of Law” Faction of Armenia’s National Assembly, criticized the project and said that it would strongly increase the functions of the Prime Minister and lead to a monopolization of power. Shahgeldyan also informed Tusk that the opposition parties of the National Assembly have prepared a program on electoral reforms and submitted it to the Venice Commission.
Tusk’s regional visit to the South Caucasus relations follows the Eastern Partnership Summit in Riga on May 21-22. Summarizing all issues of the Yerevan agenda, Donald Tusk left for Tbilisi and Baku and held respective meetings with high officials of Georgia (July 21) and Azerbaijan (July 22).
By Eka Janashia (05/08/2015 issue of the CACI Analyst)
In July 2015, Russia stepped up its policy of redrawing the border along the administrative line of South Ossetia, leaving around 100 families and a total of 1,605 meters of the BP-operated Baku-Supsa oil pipeline beyond the jurisdiction of the Georgian government.
The so-called “borderization,” implying the installation of barbed wire and metal-bar fences at sections of the administrative boundary line (ABL), started in 2008 after the August war and peaked in 2010 and 2013 (see the 02/10/2013 Issue of the CACI Analyst). It has separated the farmlands and orchards of the inhabitants dwelling across the ABL or left them within occupied territory. The recent expansionist move on July 10, however, also involved part of the Baku-Supsa pipeline and moved the border closer to Georgia’s strategic east-west highway.
Baku-Supsa, officially referred to as the Western Route Export Pipeline (WREP) has a transportation capacity of 100,000 barrels per day and earns Georgia around US$ 7 million annually in transit fees. It runs from Azerbaijan’s Caspian Sea shore and reaches Georgia’s Black Sea coast in Supsa. In the first half of 2015, the pipeline transported 16 million barrels of oil.
Georgia’s Energy Minister, Kakha Kaladze said the pipeline could be rerouted by constructing a separate 1,500–1,600-meter section of the WREP if a disruption occurs. Nevertheless, Azerbaijan has remained relatively calm in response to the developments, considering them a purely political issue. SOCAR, which is one of the contractors of the WREP, recently declared that “this [redrawing of the ABL] will not cause any problem for the pipeline.” Meanwhile, South Ossetia’s de facto authorities provocatively announced that BP should apply to them if the full functioning of the pipeline is in danger.
The Kremlin’s annexation of uncontested Georgian territory and its timing could well be intended as a response to recent actions taken by Tbilisi.
On July 8, the Multinational Military Exercise “Agile Spirit 2015,” with the participation of military servicemen from the U.S., Bulgaria, Romania, Lithuania and Latvia, started in Georgia. Moldovan and Armenian servicemen took part in the exercises in the capacity of observers. In recent months, Georgian military units have undergone training in the framework of NATO’s Evaluation and Feedback Program. Aside from these activities, the opening of the NATO training center is scheduled for the fall of 2015 as a part of the “substantial package” that NATO granted the country at last year’s Wales summit (see the 09/17/2014 Issue of the CACI Analyst).
Moreover, this summer Georgia struck two remarkable deals aiming to enhance country’s air defense system. On July 10, Georgia’s Defense Minister Tina Khidasheli signed a contract with the European missile manufacturer MBDA on the purchase of a “state-of-the-art defense system.” A month earlier, she carved out a separate deal with ThalesRaytheonSystems, a producer of ground-based surveillance radars and air defense command and control systems. France’s contribution to strengthening Georgia’s defense capabilities concerns Moscow especially in light of the upcoming NATO summit where Georgia hopes for a renewed chance of obtaining a Membership Action Plan (MAP). Moscow’s permanent representative to NATO, Alexander Grushko, threatened at the end of July that “any kind of political game over the issue of NATO expansion towards Georgia and Ukraine is fraught with the most serious and the most profound geopolitical consequences for the entire Europe.”
One tangible reflection of this statement is the renewed “borderization” just ahead of the European Youth Olympic Festival (EYOF), which started on July 26 and has been perceived as a prominent event for boosting Georgia’s international prestige.
Of greater concern for Tbilisi, however, is Moscow’s inching towards the main transit artery connecting Georgia’s east and west. Georgia’s east-west highway, the partially seized WREP, and the twin Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzurum oil and gas pipelines are situated in close proximity of one another and create an important trading route linking the Caspian shore to Eastern Europe. The security of this strategic transport corridor determines to what extent Georgia can promote its status as a transit state. On the contrary, inability to fully control the infrastructure will severely damage Georgia’s economy and its ability to function as a state. Russia’s recent incursions can be understood in this perspective.
A resolution adopted by the Georgian parliament on July 24 condemned the construction of new demarcation signposts close to the east-west route and blamed Russia for “aggressive steps” directed against the peace and security of Georgia and the whole region.
Nevertheless, the opposition United National Movement (UNM) party slammed the ruling Georgian Dream (GD) coalition’s “capitulatory” policy and called on the government to cancel the “Abashidze-Karasin format” – a direct, informal dialogue between Tbilisi and Moscow. UNM insists that the format has falsely created the impression of improved relations between Georgia and Russia and contributed to the removal of Georgia’s occupied territories from the international agenda. UNM thus proposed that the government should request a UN Security Council session and seek to define the steps taken by the Kremlin in the breakaway regions as another justification for the Western sanctions imposed against Russia.
Yet, GD continues its policy of “strategic patience,” with the goal “not to make the country a victim of provocations.” Apparently, Tbilisi’s stance fits well with the EU’s view of Russia’s continuing “borderization” policy. Paying an official visit to Georgia on July 20-21, the President of the European Council Donald Tusk stated his appreciation for Tbilisi’s “responsible reaction” and advised the Georgian government to avoid “overreactions” in its response.
Whereas Georgia indeed needs to devise a shrewd response to these developments, it should also be remembered that by encroaching further into Georgian territory, Russia is testing Tbilisi’s ability to mobilize international support that could discourage further border shifts.
Image Attribution: BP
By George Tsereteli (05/08/2015 issue of the CACI Analyst)
On July 10, Russian military personnel moved border markers further into Georgian territory from the breakaway region of South Ossetia, in the process positioning the new “border” even closer to the strategically vital East-West highway and placing more of the Baku-Supsa pipeline under Russian control. As a result, the Georgian government has been criticized by opposition groups for not doing enough to prevent such incursions, and for not responding adequately. As prescribed by contemporary Russian military doctrine, Russia’s recent actions in Georgia, as well as in other parts of the world, are manifestations of a new warfare strategy.
THE UZBEK-TAJIK DÉTENTE: CAN IT LAST?, by George Voloshin
AGRI’S PROGRESS ADVANCES BRUSSELS’ AND BAKU’S ENERGY AGENDAS, by Micha’el Tanchum
ISLAMIC STATE IN CENTRAL ASIA: THREAT OR OPPORTUNITY, by Charlie Smith
IS THE NORTH CAUCASUS BECOMING ANOTHER BATTLEFIELD IN THE GLOBAL JIHAD?, by Tomáš Baranec
TAJIKISTAN’S GOVERNMENT MISSES THE REAL PROBLEM OF LABOR MIGRANTS, by Oleg Salimov
RULING COALITION TO CUT FUNCTION OF GEORGIA’S NATIONAL BANK, by Eka Janashia
KYRGYZSTAN’S CONSTITUTIONAL CHAMBER DISMISSES JUDGE, by Arslan Sabyrbekov
BAKU CRACKS DOWN ON ALTERNATIVE MEDIA AFTER CONCLUDING EUROPEAN GAMES, by Mina Muradova
By Eka Janashia (08/07/2015 issue of the CACI Analyst)
On June 27, Georgia’s parliament passed, in the first reading, a bill that deprives the National Bank of Georgia (NBG) of its supervisory function of financial institutions, assigning these tasks to an independent agency.
The proposal, initiated by the Georgian Dream (GD) ruling coalition a month earlier, has faced a spate of sharp criticism not only from the political opposition but also from influential international financial institutions, civil society and the business sector. President Giorgi Margvelashvili pledged to veto the bill in case it was endorsed.
According to the amendments, a new body – the Financial Supervisory Agency (FSA) – will monitor and conduct oversight of Georgia’s banking sector and financial institutions, a function currently carried out by NBG. A seven-member board, including a representative and the president of NBG, as well as five government nominees, will run FSA after the parliamentary confirmation. The board members, in turn, will name the head of the agency, which should also be approved by the parliament.
The critics of the bill discern political motives behind the proposal, arguing that it is designed to undermine the position of NBG’s President Giorgi Kadagidze, who is affiliated with the formerly ruling United National Movement (UNM) party.
The legislation’s timing coincides with an escalating confrontation between senior GD politicians and Kadagidze. The initial attacks against Kadagidze took place in February last year, when the depreciation of Georgia’s national currency reached a dramatic level. Former Prime Minister Bidzina Ivanishvili lashed out at the NBG president, blaming him for inaction to prevent the currency crisis by using the national reserves (See 03/18/2015 issue of the CACI Analyst). Since then, Kadagidze, whose term in office will expire in February 2016, has become a frequent target of attacks from GD politicians.
Opponents of the bill also question the financial advisability of moving banking supervision from the NBG, arguing that there is no economic and financial rationale justifying the damage implied by the planned changes.
Reputable financial institutions, including the International Monetary Fund, World Bank, European Bank for Reconstruction and Development and Asian Development Bank have warned PM Irakli Gharibashvili and Parliament Speaker Davit Usupashvili that splitting the NBG’s functions will weaken “the independence and quality of banking supervision in Georgia” and challenge both stability in the banking sector and the sustainability of economic growth. In particular, they warn against empowering the parliament to appoint FSA Board members, which will undermine the principle of checks and balances practiced in the current appointment procedures for the NBG Board. Such a shift risks leading to a politicization of banking supervision, damaging its independence and autonomy, the institutions assert.
By contrast, GD argues that the amendments will grant “more independence” to the banking sector. A co-sponsor of the bill, GD MP Tamaz Mechiauri, who chairs the parliamentary committee for finances, explained that the proposal will lead to the de-politicization of NBG’s currently politicized board, which “do not reflect at all the interests of those forces, which are currently in power.”
Against the background of such statements, UNM insists that bill was initiated and backed by Ivanishvili, who aspires to obtain a “key” to the banking sector – the only sector that is not under his control.
The president’s office rejected the bill for its lack of professionalism and also lamented that the way it was elaborated contradicts Georgia’s commitments under the Association Agreement with the EU. According to the 2014-2016 Association Agenda, Georgia is obliged to boost the NBG’s independence by revising its legislation according to EU best practices and with the support of experts including from the European Central Bank. In fact, neither NBG, nor local or foreign experts, or representatives of Georgia’s business community, were invited to participate in the preparation process of the draft bill. Moreover, the sponsors of the bill failed to provide the political, financial and economic rationale justifying the prospective reduction of NBG’s functions and the need for creating a new agency.
If the bill is approved, GD will obtain real levers on the FSA Board, which will increase the perception of political motives behind the new amendments.
The president’s pledge to veto the bill will be largely symbolic since GD is well positioned to override it. The coalition holds 86 seats in parliament – 10 more than it needs to overturn a presidential veto.
Given the overall economic context – decreasing exports and investment as well as a slowdown of economic growth in Georgia, the endorsement of the bill will even further fuel speculations on the government’s agenda vis-à-vis NBG, and will complicate Georgia’s relations with financial donor organizations.
The Central Asia-Caucasus Analyst is a biweekly publication of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Transatlantic Research and Policy Center affiliated with Johns Hopkins University's Nitze School of Advanced International Studies, Washington DC., and the Institute for Security and Development Policy, Stockholm. For 15 years, the Analyst brings cutting edge analysis of the region geared toward a practitioner audience.