Georgia Billionaire Scores Shock Vote Upset Over Saakashvili

Bloomberg – bloomberg.com – Helena Bedwell and Henry Meyer – October 2, 2012

Georgian billionaire Bidzina Ivanishvili’s opposition coalition unexpectedly won the most votes in a parliamentary election yesterday, dealing a blow to U.S.-backed President Mikheil Saakashvili.

The president, 44, said his United National Movement would move to opposition after results with 29.1 percent of votes counted showed Ivanishvili’s Georgian Dream had 53.1 percent versus 41.6 percent for UNM. The Organization for Security and Cooperation in Europe said the elections were fair and free.

Georgian billionaire Bidzina Ivanishvili’s opposition coalition unexpectedly won the most votes in a parliamentary election yesterday, dealing a blow to U.S.-backed President Mikheil Saakashvili .

“As the leader of the UNM, I am saying that the party is going into opposition,” Saakashvili told supporters in a televised address today. “I respect the majority’s choice.”

Saakashvili, who allied the country with the West and has a year remaining in his presidential term, rose to power in the 2003 Rose Revolution and is credited with fostering an economic turnaround in Georgia, a key link in energy-transit routes between Europe and the Caspian Sea.

Ivanishvili, 56, accused by the government of ties with Russia where he made his fortune, said Saakashvili curtailed free speech and political competition. Georgia fought a 2008 war with Russia in a failed bid to regain control of a breakaway region.

‘Clear Message’

“The strong showing for opposition is a clear message to Saakashvili that his policies were not supported by the entire population,” IHS Global Insight analyst Lilit Gevorgyan said in an e-mail. “He can no longer afford dismissing opposition figures as Russian agents or enemies of Georgia.”

Georgia’s dollar-denominated government bonds due in 2021 fell today, pushing the yield to 4.749 percent from yesterday’s record-low 4.712 percent, according to data compiled by Bloomberg.

Ivanishvili told reporters today that his government will be pro-European Union and will sort out relations with Russia while convincing it that Georgia’s membership in the NATO security alliance is important and not a threat.

Georgian Dream had warned Saakashvili against seeking to rig the vote saying the country “stands on the threshold of a new dawn of freedom and democratic expression.

Vested Interests

The OSCE, a 56-nation democracy watchdog that deployed 400 observers monitoring the vote said the elections ”marked an important step in consolidating the conduct of democratic elections,” though ”certain key issues” remain to be addressed and the environment was ”polarized and tense” with some instances of violence.

”The elections were competitive with active citizen participation throughout the campaign, including in peaceful mass rallies,” the OSCE said in a statement today. ”Freedoms of association, assembly and expression were respected overall.”

While Saakashvili’s party held a lead of more than 20 percentage points last month, the Sept. 18 release of footage showing prison guards beating and raping male inmates with a broom handle and truncheon sparked mass protests in the country ruled for the past nine years by Saakashvili.

Unexpected Result

”The market was not expecting this result at all, given opinion polls had shown the ruling coalition riding high in the polls up until a matter of only a few weeks ago,” Timothy Ash, head of emerging-market research at Standard Bank Group Ltd in London, said by e-mail today. ”If we see reserve flight accelerating on the back of heightened political risk, investors might look to lighten up.”

Former allies of the president including ex-Foreign Minister Salome Zourabishvili and former parliament speaker Nino Burjanadze, a key figure in the revolution, turned against him and joined the opposition complaining .

”If we see some form of power sharing — and it looks like one way or another it’s gonna have to happen — it’s going to be really unprecedented.” said Mark Mullen, chairman of Transparency International Georgia.

Up for grabs in the election is the prime minister’s post, which will become more powerful than the presidency once Saakashvili ends his term next year because of legislative changes two years ago.

Economic Turnaround

Saakashvili, a U.S.-educated lawyer who disbanded the traffic police after taking office, has won plaudits from international organizations for reducing corruption and eliminating red tape in his country of 4.5 million people.

Economic growth accelerated to 8.2 percent from a year earlier in the second quarter from 6.8 percent in the previous three months. Georgia is ranked 16th out of 183 countries in terms of ease of doing business, according to the World Bank’s 2012 survey, ahead of Germany, Japan and Switzerland. In 2006, the Black Sea nation ranked 126th.

Saakashvili has accused the Russian government of spending billions of dollars in a bid to influence the vote, which the Kremlin denies.

The U.S., Europe and Russia all vie for sway over Georgia, which is home to the three pipelines that allow the transit of gas and oil to the Black Sea and Turkey from neighboring Azerbaijan while bypassing Russia.

The Baku-Tbilisi-Ceyhan oil pipeline, owned by companies including BP Plc (BP/), Chevron Corp. (CVX), ConocoPhillips (COP), Total SA (FP), Eni SpA (ENI) and Statoil ASA (STL), was temporarily shut in the 2008 war between Russia and Georgia.

Citizenship Stripped

Ivanishvili, who was stripped of his Georgian citizenship and holds a French passport, is worth $6.4 billion, according to Forbes magazine, equivalent to almost half of Georgia’s $14.4 billion economy.

He made his money in banking and the sale of metals before giving up his Russian citizenship and selling his assets there this year to focus on Georgian politics. He says he’s spent $1.7 billion of his own money on initiatives to overhaul Georgia’s police force and military, among others, and would gradually normalize relations with Russia. He denies any ties to President Vladimir Putin’s administration.

©2012 BLOOMBERG L.P. ALL RIGHTS RESERVED; article also appeared at http://www.bloomberg.com/news/2012-10-01/georgian-president-saakashvili-suffers-surprise-election-setback.html

Comment