The FINANCIAL -- Zurab Abashidze, Georgian Prime Minister’s Special Representative in Relations with Russia, told The FINANCIAL that Georgia is not considering the issue of imposing sanctions on Russia at this stage.
“Imposing sanctions on Russia is not an easy task for Georgia. Everybody knows that currently Georgia has very complicated and specific relations with Russia. We should observe very carefully how the situation develops as hasty decisions would not be desirable. Nowadays, Georgia is not considering the issue of imposing sanctions on Russia. Our western partners do not oblige us to join them in terms of imposing sanctions on Russia as they understand the tense relations that exist between Georgia and Russia,” he added.
Alex Petriashvili, the State Minister of Georgia on European and Euro-Atlantic Integration, also declined to talk about the issue.
Only Georgian decision-makers have the authority to decide whether to impose sanctions on Russia or not, believes Ambassador Philip Dimitrov, Head of the Delegation of the European Union to Georgia.
Cutting off credit, banning arms exports and limiting the transfer of so-called sensitive technology, as well as targeting a number of highly placed individuals, are a number of the sanctions that the United States and the European Union have imposed on Russia in response to the annexation of Crimea and the crisis in eastern Ukraine. The deaths of 298 people on board a Malaysia Airlines plane destroyed over Eastern Ukraine has added to pressure for wider EU action.
After two years of steadily improving relations, Japan also decided to follow the lead of the United States and the European Union and to move toward imposing sanctions on Russia over its role in Ukraine. Japan announced plans to freeze the assets of people and groups that supported Russia’s annexation of Ukraine’s Crimea region in March and to impose restrictions on imports from Crimea.
The European Union would target state-owned Russian banks vital to financing Moscow’s faltering economy in the most serious sanctions so far. The US Treasury said the banks being targeted in this round of sanctions were VTB, the Bank of Moscow, and the Russian Agriculture Bank (Rosselkhozbank).
“Restricting access to capital markets for Russian state-owned financial institutions would increase their cost of raising funds and constrain their ability to finance the Russian economy,” the Commission’s options paper said. “It would also foster a climate of market uncertainty that is likely to affect the business environment in Russia and accelerate capital outflows,” it said.
Sanctions are having significant costs for Russia, with its central bank spending tens of billions of dollars in order to defend the rouble, a senior state department official has told the BBC.
VTB Bank Georgia is the only Russian company in Georgia who is affected by the sanctions of the US and EU. However, VTB Bank Georgia explains that the sanctions on VTB Bank are not imposed and it was only the mistake of The Wall Street Journal, who mistakenly covered this news. “The news about the sanctions on VTB Bank was mistakenly covered by The Wall Street Journal and other news agencies copied this false information. The truth is that the Bank has limited access to the European capital market, which is only a restriction and not a sanction. This circumstance does not apply to VTB Bank Georgia as the restrictions are about attracting long-term credit resources from the European and American capital markets. VTB Bank Georgia does not use these resources,” explained Nino Bendeliani of VTB Bank Georgia.
However, Roman Gotsiridze, Head of the Economic Development Center, says that VTB Bank Georgia will have the same restrictions in Georgia as more than 50 percent of its shares belong to the head office in Russia.
“VTB Bank Georgia will not be able to take out loans from Europe and cannot benefit from the financing of The European Bank for Reconstruction. However, Georgian customers do not face any danger as VTB Bank Georgia is not a large bank and it has not taken out a huge amount of loans. The sum of borrowed money from the European market makes up an insignificant amount of its assets. The question is how the head office in Russia will be able to “pay attention” financially to all the branches worldwide including VTB Bank Georgia. In my opinion, within a year’s period of time VTB Bank Georgia will no longer be facing any serious problems. However, during this time it is possible still that this tense situation will improve,” he added.
“Not only banks but Russian companies also are restricted in having access to taking out loans in the West. In the current year Russian companies need USD 88 billion to pay back their loans, which means that they cannot survive without the financial assistance of the West. In Georgia, the Russian companies are represented mostly in the field of energy - Telasi, Georgian Water and Powers, Saqrusenergo. But so far, the sanctions have only affected VTB Bank Georgia,” Gotsiridze said.
Besik Namchavadze, Economist at Policy and Management Consulting Group (PMCG), thinks that instead of imposing sanctions on Russia it would be better to require from the US and EU that they announce that their sanctions are imposed not only for the de-occupation of Ukraine, but of Georgia as well.
“It will be difficult for Georgia to impose sanctions on Russia as it will be damageable for the county as well as for the US and EU,” said Besik Namchavadze, Senior Researcher at Policy and Management Consulting Group (PMCG). “But their economies can endure the restriction of economic ties with Russia. Georgia should take into consideration the fact that if it imposes sanctions on Russia it will be more harmful for Georgia than for Russia. Russia’s GDP is USD 2 trillion and Georgia’s GDP is USD 16 billion. As for the US and EU’s GDP, it is USD 35 trillion in sum. So their sanctions are more influential. Our mistake is that we do not say to the West that their sanctions should include not only Ukraine’s de-occupation but Georgia’s as well. We are missing this unique chance,” he added.
“Despite Georgia’s decision to have close relations with the US and EU, we think that Georgia should compromise with Russia,” said Nutsa Tokhadze, economic analyst at Society and Banks. “Russia is our neighbouring country and our economy is somehow dependent on it, nowadays not as much as before 2006, but still, it remains so. The negative impact of Russia’s policy towards Georgia is also obvious. We should therefore seriously consider whether it is worth imposing sanctions on Russia or not,” she added.
“Georgia is too small to meddle in world politics and too insignificant, economically, militarily, and demographically, to exert any pressure on Russia. Any such step would backfire and be worse for Georgia than for Russia,” said Professor Florian Biermann from the International School of Economics at Tbilisi State University (ISET). “If there is American pressure to impose sanctions, maybe Georgia should abide. But if not, Georgia should try to keep everybody happy. It would not be smart for a little country like Georgia to be proactive about sanctions. Nice words don’t cost anything. Say something nice to the Russians. Avoid hostile rhetoric, also regarding the secessionist provinces,” he added.
“Georgia is an economically not very important Caucasus country with huge economic problems. Everybody in Europe and the USA understands that Georgia is not in a position to be at the forefront of a trade war against Russia. The EU and USA may not even notice that Georgia is not in the boat,” Biermann said.
“The Russian economy won’t collapse if Georgia imposes sanctions and because they have run out of their supply of Georgian wine and Borjomi mineral water,” Biermann added.
Besides the Russian companies who are mainly represented in the field of energy, there are lots of Russian trademarks registered in Georgia. Out of a total of 2,975 foreign trademarks registered in Georgia, 2,442 are Russian ones owned by residents of the Russian Federation, according to Sakpatenti, National Intellectual Property Center. Among the well known and daily-consumed brands imported from Russia are Jubileinoe, Baltica Beer, Chistaia Linia, Cherni Zhemchug, Dacha, Winston, Picnic, Chudo, Alpen Gold, Sloboda, Greenfield and Prichuda.