14 August 2008
The international financial institutions (IFIs) have offered aid to Georgia, as the conflict winds down.
Relations between Georgia, South Ossetia, and Abkhazia have been uneasy for decades, but the August conflict between Georgia, South Ossetia, and Russia has elevated tensions to a level unseen since the early 1990s. The IFIs have largely avoided intervening or financing projects that could undermine any one of these entities. However, security issues in both Georgia and Turkey were a major concern for civil society groups monitoring the Baku-Tbilisi-Ceyhan (BTC) pipeline project, financed by the International Finance Corporation (IFC) and European Bank for Reconstruction and Development (EBRD). IFC involvement was intended to alleviate investor worries over the pipeline’s political risks, which have been substantiated by recent events.
Just days before the Georgian conflict erupted, an explosion occurred along the BTC pipeline in Turkey, likely the work of the Kurdistan Workers Party (PKK). The blast followed a threat of similar sabotage from separatists in Georgia. Once the conflict began, Georgia was quick to accuse Russia of attempting to bomb BTC, a key transit route for Europe. Beyond BTC, the EBRD financed the Enguri Hydropower Plant, located in both Georgian and Abkhazian territory, but this project appears less divisive.
In response to the Georgian conflict, the IFIs have called for a resolution and pledged aid support. On August 11, the EBRD issued a statement, urging a “rapid resolution of the conflict” and promising to “stand by its partner banks,” which have received about $150 million in EBRD investments. Two days later, the Asian Development Bank (ADB) welcomed a ceasefire announcement and reiterated its plans to lend $230 million to Georgia between 2008 and 2010, mainly to support infrastructure and private sector development. Although the International Monetary Fund (IMF) does not have a program in Georgia, it stood ready to “support Georgia with policy advice, technical assistance and, if needed, financial support,” according to a Reuters report. The World Bank said it is considering funding the Georgian government’s reform agenda with an additional $300 million to $350 million over the next year.
The heavy damage throughout Georgia and South Ossetia will require substantial investment to repair. However, the IFIs, particularly the World Bank and IMF, could easily be influenced by geopolitics. The U.S., a major supporter of Georgia, will likely back IFI projects to rebuild and strengthen that country’s infrastructure, while Russia is already pledging $400 million in support to South Ossetia. Energy will be a primary consideration for the EBRD, with Europe’s interests dependent both on Russian and Georgian transit routes.
Sources
IMF says stands ready with funds to support Georgia, by Lesley Wroughton and Dan Grebler, August 11, 2008 (Reuters website)
ADB Statement on Georgia, ADB, August 13, 2008 (ADB website)
EBRD urges rapid resolution of Georgia conflict, EBRD, August 11, 2008 (EBRD website)
Russia pledges cash to restore South Ossetia, by Gleb Bryanski, Reuters, August 13, 2008 (Reuters website)
Explosion along the BTC Pipeline confirms civil society concerns, August 7, 2008 (BIC website)
Brief Overview of Rehabilitation Projects of the Enguri Hydro-Power Plant – Georgia/Abkhazia, European Commission Delegation to Georgia (EC Delegation to Georgia website, MS Word)
Enguri Hydro power Plant Rehabilitation project, Project Summary Document, disclosed October 20, 1998 (EBRD website)
A Region in the Dark, by Paul Rimple (Eurasianet website)