ISET

ISET Economist Blog

A blog about economics in the South Caucasus.

Handling Frozen Conflicts: the Economic Angle

It now seems more and more likely that Eastern Donbass (the area currently controlled by the self-proclaimed Donetsk and Luhansk People’s Republics) will become a frozen conflict zone, a territory in which the Ukrainian government will have little power to enforce its laws and where slowly a parallel governance system, an unrecognized ‘quasi-state’, will emerge. In the absence of a viable military alternative, one option likely to be considered by Ukraine and its Western allies is to exercise ‘strategic patience’. As discussed in a Foreign Policy article by Lincoln Mitchell and Alexander Cooley, this approach has been until recently employed by Georgia and the US in their dealings with Abkhazia and South Ossetia. ‘Strategic patience’ consisted, according to Mitchell and Cooley, of:

 “helping Georgia develop into a prosperous and democratic country under the assumption that once this happened the people of Abkhazia would naturally want to rejoin Georgia. In practice, therefore, StratPat meant doing nothing – certainly not building relationships with anyone in Abkhazia.”


‘STRATEGIC PATIENCE’ OPTION ASSESSED

An important assumption behind ‘strategic patience’ thinking is that quasi-states (QS) emerging in contested frozen conflict zones will not do well either politically or economically, fueling a sense of frustration with the corrupt regime and the breakaway status quo.

Prima facie, there are good reasons to expect QS, such as Transnistria, Nagorno Karabakh, Abkhazia, South Ossetia, and, potentially, also Eastern Donbass, to implode in the absence of international recognition and economic isolation. In his 2006 article “The Sustainability and Future of Unrecognized Quasi-States”, Pål Kolstø lists some of the obvious reasons for their difficulties.

First, QS are typically off to a bad start, with much of the infrastructure lying in ruins after a ferocious civil war fought (mostly) on their territory prior to secession. While there is considerable empirical evidence suggesting that wars do not necessarily inflict long-term damage to a country’s economic development, a crucial condition is that war really ends and is followed by stable peace (see, for example, “Civil War” by Christopher Blattman and Edward Miguel (2010)).

Second, like any new states, QS at least initially lack in governance machinery and skills, and are unable to collect taxes and perform the basic functions of government, ensuring personal security, let alone property rights. These initial difficulties (often shared by the parent states – Ukraine, Georgia and Moldova) are compounded by the lack of international recognition. As argued by Kolstø, the QS status “puts a damper on normal legal trade with the outside world, and encourages illegal business”. While enriching the political elite of QS (through cuts and kickbacks), smuggling and other types of illegal business do not help QS emerge from the post-civil war institutional limbo and develop a normal, business friendly institutional framework.

Third, non-recognition carries additional economic cost as foreign investors will be reluctant to invest in a jurisdiction where legal contracts are not internationally binding, international conventions have limited applicability, and investment may be wiped out through an outburst of hostilities (such as the 2008 war between Russia and Georgia over South Ossetia).

Yet, despite these less than auspicious circumstances, neither Abkhazia nor any other QS on the fringes of the former USSR have succumbed to more than 20 years of isolation and non-recognition. Rather than crumbling and crawling back, these “frozen economies” appear to be doing sufficiently well to establish a reasonable degree of internal legitimacy and sustain themselves over time. 

In part, this has to do with the unenviable condition of the parent states’ own economy and politics. Both Georgia and Moldova were failed states for much of the 1990s – corrupt, criminal, plagued by brain drain and, as a result, not attractive enough for the ‘strategic patience’ policy to work. The other major factor for the economic and military sustainability of unrecognized QS has been the existence of a powerful external patron. What Russia is for Abkhazia, South Ossetia and Transnistria, Armenia is for the Nagorno Karabakh Republic (NKR). The same pattern is also to be found elsewhere: EU and NATO ‘patronize’ and protect Kosovo; US and Turkey do the same for Taiwan and the Turkish Republic of Northern Cyprus (TRNC), respectively. The presence of these two factors – an (initially) weak parent and a strong patron – are hardly incidental. Both are at the root of the secession phenomenon in the first place.

While none of the post-Soviet QS are star performers, the scanty evidence that is available to us suggests that the policy of ‘strategic patience’ has not been very effective so far. Despite very bad initial conditions and the high toll on investment and quality of institutions exacted by the lack of international recognition, QS do well enough to generate a sense of loyalty and patriotism among the local population that chose (or ‘was chosen’) to remain under their control. At least in the case of Transnistria, the parent state (Moldova) failed to decisively outperform its former territory. While, arguably, Georgia has accomplished a great leap forward since 2003, this did not translate into a change in perceptions and political preferences on the Abkhazian or South Ossetian side of the divide. Moreover, an economically stronger and modern Georgia may be perceived as more of a threat (particularly, after the 2008 attempt at forceful re-unification with South Ossetia). 

Public perceptions have been a subject of a very interesting set of parallel surveys conducted in 2010 by John O’Loughlin of the University of Colorado at Boulder, together with several colleagues. Simultaneously held in Georgia and Abkhazia as well as in Moldova and Transnistria, these surveys suggest that people in QS are not necessarily unhappy about their existence. In “Divided Space, Divided Attitudes? Comparing the Republics of Moldova and Pridnestrovie, O’Loughlin et al argue that while being richer (according to ‘official’ per capita income data) people in Transnistria feel richer. Moreover, a higher share of people in Transnistra think that their country is better off than Moldova compared to the share of Moldovans thinking that Moldova is better off than Transnistria. The findings of O’Loughlin et al for Abkhazia and Georgia (“Inside Abkhazia: a survey of attitudes in a de facto state) are quite similar, lending little support for the ‘strategic patience’ doctrine.


LESSONS LEARNED FOR UKRAINE

With a population estimate of 3mln, the eastern part of Donbass (not controlled by the Ukrainian government) is much larger than all other post-Soviet QS. In terms of its size and economic structure, it is closest to Transnistria (about 500,000 citizens). Both Donbass and Transnistria have been the mining and industrial centers of their parent states and have rather similar human capital and factor endowments. Designated for manufacturing by the Soviet planner, both have been magnets for internal migration by (mostly Russian) engineers, technicians, miners and steelworkers. This Soviet legacy puts them at an advantage relative to three tiny ethnic enclaves in the South Caucasus which have been historically specialized in tourism (Abkhazia) and agriculture (South Ossetia and Karabakh).

Like Transnistria, Eastern Donbass is likely to be on the receiving end of Russian subsidies, trade contracts and infrastructure investment, and last but not least, military protection. Eastern Donbass’ size and the fact that it directly borders on Russia further weakens the case for isolation and ‘strategic patience’ as a means of achieving re-unification. 

What are then the options for Ukraine and Eastern Donbass?

While the pain is all too fresh for both sides in the recent conflict, the only viable strategy for reunification is mutual political engagement and economic integration. The rationale to re-integrate economically (in all frozen conflict areas) will only get stronger over time, and will undoubtedly play a role in bringing divided people together, once the memory of war and human loss recedes into the background. What may support a move towards greater economic (and, eventually, political) integration is the fact that despite years of separate existence, people in divided areas continue to share the same values. Such is another finding from the survey work conducted by O’Loughlin et al in Transnistria and Moldova, Abkhazia and Georgia. 

Despite the lack of recognition and years of hostility, economic integration has eventually made it to the agenda of Transnistria and Moldova. A sizeable share of Transnistria’s exports goes to the EU (through Moldova); discussions are underway concerning construction of additional bridges over Dniester to improve communication and trade linkages.

After more than 20 years, Georgia is also gradually coming to realize that negative rhetoric (branding secessionists as “Russian puppets” and “terrorists”) and continued military and political confrontation are counterproductive in the sense of keeping the borders sealed and preventing mutually beneficial trade and human connections. Back in 2012, Bidzina Ivanishvili made economic linkages (e.g. reopening the railway connection to Russia via Abkhazia, and restoring the famous Ergneti market straddling the border with South Ossetia) a key subject of his election campaign. While yet to be realized, Mr. Ivanishvili’s pragmatic vision of using mutual economic interests in order to overcome the trauma of recent bloodshed, is worth of serious consideration by Ukraine and all other parties to frozen conflicts in the region. 

This piece also appears on VoxUkraine.

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Guest - Zurab Garakanidze on Friday, 17 October 2014 18:53

October 17, 2014
To: ISET
From: Z. Garakanidze, Ph.D(Economics), Tbilisi, Georgia; Ass. Professor of the Georgian University. Tbilisi, Georgia.

Dear Colleagues,
Writing this letter I intend to express my Project concerning elaboration of the main principles for the development of the country’s conflict peaceful resolution policy.

1. Project description
Economic Security Indication of the Ethno-Political Rebellion
2. Anticipated Project recipient
Government of Georgia (GoG). Organic Law and Constitution of Georgia, articles 78-81, determine the composition, authority and procedures of the GoG.
3. Main hypothesis
Any country, wherever it is situated, must guarantee its citizens that they will not be exposed to violence, and all disputes will be resolved peacefully. However, the situation in our country – Georgia, shows we have not established the order that the inhabitants still continues to dream of.
In the course of many years already, people link the formation of the reliable mechanism of their security with the United Nations. Several years ago, the former UN Secretary General, Mr. Kofi Annan, said with regret that "as before, our political and organizational culture is more oriented to reaction, than to prevention" (http://www.un.org/apps/news/story.asp).
Certainly, applying of preventive security methods produces dividends but all them are observed in perspective. During the realization of preventive measures, its fruits seem intangible. How can one appraise an event "that has not yet happened?" Nevertheless, the strength of preventive security consists in achieving of "what will not be", i.e. conflicts that will not break out.
It will be appropriate to remind of the statement by former UN Secretary General U Tan, who once said that "the ideal operation of "good services" is the one that is never announced publicly until its successful completion or never at all" ("good services" are meant to be the UN Secretary General actions, who may send special envoys and missions to the zones of conflict and resort to preventive diplomacy with regard to settlement of disputes).
Unfortunately, Ethno-Political Rebellions are frequent elements of Georgian reality. We set aside the philosophic aspect of this problem and look at the realities of our economic life; it becomes evident that in most of cases the GoG has to use sanctions to press on some regions in order to avoid stronger measures. The scholars believe it can affect the most vulnerable groups of population. In such conditions the practical realization of the preventive measures concept with its sparing measures is the most justified and effective. Establishing the conflicts early warning system is the most important component of preventive security, for it is able to reduce the level of vulnerability of the society to the exposure of disasters. That’s why we believe that prevention and estimation of economic separatism, as a basis of Ethno-Political rebellions, will help transition countries to avoid the situation held in Georgia in late XX.
Unfortunately there are no Governmental Institution, nor scientic think tank or NGO in Georgia, and CIS countries as well, who studies the threats modeling. Even such well known European think tanks as Center for European Reforms (CER), Center for European Policy Studies (CEPS), EU Institute for Security Studies (EU-ISS), SIPRI – Stockholm International Peace Institute, International Crisis Group (ICG) etc., do not use the preventive economic measures in conflict resolution researches. Only US Universities recently are leading scientific centers, were started to use the fact finding Economic Security indicators from Rwanda or Uganda conflicts.
4. Project objectives
The purpose of the project is the reinforcement of Scientific-Analytical works in scientific and governmental circles of Georgia in the field of Economic Security, the introduction of modern methods which will help us to effort the rationalization and optimization of Analytical works, preparation conditions for the publication of catalogue Threats to Economic Security of Georgia. The main goals of the catalogue will be forecasting of internal and external Economic Security Indication of the Ethno-Political rebellions, creation of models to avoid those threats, provision systematic research in respect of Economic Security issues.
The project influences on the two main hipotheses of the economic indication of Ethno-Political conflict:
1.Endevour of the some regions of Georgia (Samtskhe-Javakheti, Kvemo Qartli) towards the economic separatism and its measuring model in Visual Fox Pro or SQL, i.e. actual for the transition to the Federal Budget System of territorial-administrating conditions; prevention and estimation of economic separatism, as a basis of Ethno-Political rebellion;
2.Usage of economic concern (lobbing) in the conditions of already broken territorial integrity (Georgian separatist regions - Abkhazia, South Ossetia) for stimulation of the inner tendencies.
In order to reveal the first tendency we suggest that at the GoG should start working on the forecasting and modeling economic threats. Implementation of this project before Territorial-administrative arrangement constitutionally, gives an opportunity to the GoG of monitoring the economic separatism. For this example it will discuss the cases of existing indicators of economic separatism in Georgian Regions Samtskhe-Javakheti and Kvemo Qartli.
Taking into consideration the international experience we should divide basic and catalyst indication which formalization in relevant weights (see table #1 as an example of the Adjara region before the economic reunification in 2004) gives an opportunity to GoG for identifying on the earliest stage the endeavor of region to the economic separatism, forming economically uncontrolled zone. One of the problems, should be resolved, is determination of more then 80 Basic and Catalyst indicators for better conceptualization of model.
In order to reveal the second tendency, taking into consideration the experience of Great Britain (Northern Ireland, Virgins), Italy (South Tyrol), Spain (Catalonia and Basque Country), China (Hong Kong) etc., it is possible establishment of the Special Economic Regimes or Zones along the administrative borders of separatist regions - Abkhazia and so called South Ossetia. Using experience functioning in 1990-1994 of German Unity Fund, we suggest, that in Georgian Law on Budgetary System will be made amendment about the establishment of Fund of Peaceful Reunification of Georgia and Parliament should adopt the law on Georgian Peaceful Reunification Fund, which will be under the control of Georgian National Investment Agency (GNIEPA). Main source of that Fund will be 1% of all Income Tax Revenues, accumulated in Government Controlled Regions (or initially – foreign grants), so called Raion Budgets (about 5 mln. GEL). Main direction of functioning of this fund will stimulation of the inner tendencies from non-recognized republics of Abkhazia and so called South Ossetia by establishment of Subsidy (Subvention) and Guarantee Programs for a Free Trade Cross-border zones bet-
ween Zugdidi-Gali on the administrative border with Abkhazia and Gori-Tskhinvali on the administrative border with South Ossetia by special mechanism of redistribution of those revenues (see table #2 as a milestone scheme). Finally, in the conditions of already broken territorial integrity, according to the peace initiative expressed by the President M. Saakashvili in Strasburg in 2004, opinion stated by

Table of the Economic Separatism (Adjara, May 2004). table #1
B 1 B2 B3 B4 5 B 6 7B 8 B B9 B10.. …B

C1








C2


C3

C4
C5


C6.
.



Indicators:
Basics (09/2008):
1. Proportion of the Tax Proceeds in Central ) and (Federal) Local Budgets (0:100);
2. Proportion of the Non-tax and Capital Proceeds in Central (Federal) and Local Budgets (0:100);
3. Proportion of the Tax Proceeds in Central (Federal) and Local Special Funds (0:100);
4. Proportion of the Central (Federal) and Local Budget’s Transfers/Programs (0:100);
5. Proportion of turnover rate of GEL in whole (Federal) and local territories (80:20);
6.? (need help)
7 ? (need help)
8 ? (need help)
9 ? (need help)
10 ? (need help)
.
.
.
.
35-40 ? Catalysts (10/2008):
C1. Proportion of financing of the Central (Federal) and Local Executive Entities (0:100);
C2. Proportion of reformation levels between Center (Federal) and Local (GDP per Capita, privatised sector, export/import diversification etc.) (30:70);
C3. Proportion of the foreign aid distributed on Central (Federal) and Local levels (50:50);
C4.Proportion of the Transport Communications between Center (Federal) and Abroad;
C5. Proportion of the Energy Communications between Center (Federal) and Abroad;
C6 ? (need help)
C7 ? (need help)
C8 ? (need help)
C9 ? (need help)
C10 ? (need help)
.
.
C35-C40 ?

the US President visited Georgia in May 9-10, 2005 about the conflict zones and international experience, it is possible to declare Zugdidi as the customs place for the goods imported through Abkhazia and Gori - from so called South Ossetia. It is possible to involve World Trade Organization in the process of solving this problem, because WTO prohibits trade with separatist's unrecognized customs and to use as the additional barrier of fighting against smuggling, Russian endeavor to apply for the membership of this significant organization. Therefore it is possible to create strong central lobby in separatist regions, which will have economic concern.
One of the problems, should be resolved is familiarization of the World experience in functioning such Zones. Besides it is essential that these proposals directly correspond to the implementation of the reunification program and which was initiated at the Georgia President’s initiative (03/28/08).

5. Present status. Methodology
Development of methodologies for early detection of threats to economic security, institutionalization of decision-making process was conducted during 1999-2003 in National Security Council, within the framework of Project: Support for NSC Georgia (Project Coordinator: Z. Garakanidze). Project was provided by UNDP Country Office in Georgia and National Security Council of Georgia. But Project focused directly on the issues of Political Reunification of Territory of Georgia, and that's why the problem of Economic Indication of the Ethno-Political rebellions was as a little part of a whole. American University's TraCCC granted works: Money laundering possibilities in the process of Privatization (2003) and Security of the Economic Area from non-controlled zones of Georgia (www.traccc.cdn.ge/Publications: Z. Garakanidze, 2005) was sequential of mentioned researches, were first time in Georgia had been discussed Economic problems of separatism. Published in 2006 the article About Economic Security Indication of the Budgetary Separatism (Z. Garakanidze, Magazine Financial Control, #2 Tbilisi 2006), continues the hypothesis of American Scientists, Professors Peter Brecke, Tad Robert Gurr, Tad J. Oelstrom and Barbara Hurff, presented in the book “Preventive Measures” (translated by the Applicant), about the Conflict Threats Conceptualization and Modeling.
The background for the establishment of the preventive program of the Ethno-Political Economic separatism is correlation of the actual indicators of economic security from the regional offices of Treasure, in the given period, which would be quarterly presented to the GoG (the provision of such information is mandatory), and threshold (i.e. marginal) indicators. Actual indicators will be added to the first part of the program input of data by the operator. All threshold indicators are presented in the form of table and will be completed. In the next part of the project the execution of the cont-rol has to begin, where the computer automatically determines disparity between threshold and ac -
tual data by the screening of frequency of the horizontal and vertical lines. Responsible person should
choose the region which is in his interest, after which the computer will show the information of striving towards economic separatism of the selected region. The computer will highlight with red and flash problematic data. In yellow will highlight the events with voice sign (for example: One week remains till the event!) which are to be occurring in one week period. And finally will highlight with green the indicators which aren’t in progress. It’s notable that computer programs Visual Fox Pro or SQL can automatically change calendar data which is excellent opportunity to perform periodic monitoring. In addition it will show the information in status by dragging the cursor at the appropriate object on the table.

table #2
LAW OF GEORGIA
ON GEORGIAN “Peaceful Reunification Fund” (Draft)
(Will be elaborated during the Grant 11/2008-12/2008- need help)
MODULE I (V week of the grant period)
GENERAL PROVISIONS
This law defines present legislative, institutional and economic principles in a state Reunification Policy sphere to implement Inner Tendencies in the “Non – Recognized Republics” on the base of Economic Concern’s (correspondent) machinery.
The disposed rules regulate entire Reunification programmes processed by the government and executive subjects activity, if another is not provides by the international agreements and treaties and Georgian legislation.
MODULE II (VI week)
FUND OF THE PEACEFUL REUNIFICATION PROJECTS (PRP) OF GEORGIA (FPRP)
MODULE III (VII week)
THE STATE ASSISTANCE OF THE PRP’s
MODULE IV (VIII week)
THE FINANCING SYSTEM OF THE PRP’s
MODULE V (IX week)
READJUSTMENT AND DISSOLUTION OF THE FUND

Proved by Georgian National Investment
Agency Public Supervisory Council
Interest rate subsidy programme required by ----(year)
PRP (X week)
1.The goal of credit sum interest rate subsidy 2.Priorities 3.The obligatory terms for reception of credit sum interest rate the participant toward the enterprise 4.The subsidy terms implementation basis 5.The terms and volume of the subsidy 6.Declaration of subsidy reception and terms of discussion 7.The subsidy of the Agency 8.Duties of the PRP Participant Enterprise 9.Duties of the Bank 10.Duties of the Agency
Proved by Georgian National Investment
Agency Public Supervisory Council
The Guarantee Pprogram required by ----(year)
PRP (XI-XII weeks)
1.Explanation of the terms used in guarantee program 2.The essence and goals of the program 3. Terms presented to the Participant 4.Priorities 5.Particulars of the guarantee program 6.The terms and the timeframe of the guarantee program 7.The application for the guarantee and the period for reviewing it 8.Utilization of the Guarantee program by the Georgian National Investment Agency 9.The mechanism of the use of guarantee program in the Georgian National Investment Agency 10.Principal’s obligations 11.Obligations of the beneficiary bank 12.The obligations of the Georgian National Investment Agency 13.Obligations of the guarantor bank

7. Significance
According to the objectives of the project, the GoG of Georgia upon implementation of the project will receive the following: - Adequate system to receive, process and provide GoG scientific, legislative information concerning economic security; - Methodology to identify and analyze problems related to economic threats; - Preparation conditions for the publication of catalogue Threats to Economic Security of Georgia for GoG;- Software to analyze and monitor various economic security problems; - Information database from world leading economic centers on economic security problems; - Creation of the library list for GoG. All aforementioned will help to the GoG address two main challenges:
Zurab Garakanidze, Ph.D (Economics) GEORGIA

1) In May 2005 the Parliament of Georgia has adopted The Concept of the National Security of Georgia, where one of the most important parts (Chapter 6) is Economic Security. Parliament ordered to the Executive Power to adopt, on the basis of the Concept, Security Strategies of the particular branches, which means the necessity of elaboration of Economic Security Strategy. Order is not yet responded!
2) Also, one of the most important parts (Chapter 3.1) of the Concept is Ensuring Territorial Integrity. The inclusion of Georgia in the European Neighborhood Policy opened a new phase in the EU-Georgia relations. ENP EU/Georgia Action Plan reaffirmed the importance of Economic Reunification (Priority area 6). According to ENP AP promotion of peaceful resolution of internal conflicts will have results: Enhanced efforts at confidence building (ch.3. P.6); Consideration of further economic assistance in light of the progress in the conflict settlement process (ch.3. P.6); The EU stresses the need for a constructive cooperation between interested international actors in the region, including the EU and OSCE Member States, on additional efforts contributing to peaceful settlement mechanisms in Tskhinvali Region/S. Ossetia and Abhkazia (ch.3. P.6); Support the active involvement of civil society in the conflict resolution efforts (ch4. 4.2).
8. Evaluations and Dissemination
Based upon the ranking principal of main threats to the country economy, the 2 expert researches, 2 articles and 2 round tables results analysis (in the ISET Office) will be made until the project reveals the project’s main task-Economic Security Indication of the Ethno-Political Rebellion. For implementing the above-mentioned task, we plan during the project:
Preparation conditions for the publication of catalogue Threats to Economic Security of Georgia for Machinery of GoG; Creation of the library list for Machinery of GoG; Elaboration of the Security of Economic Area Program for the Machinery of GoG. The Project can be used by Governments of so called
Countries in Early Transition (CET) – Azerbaijan, Moldova, Ukraine, Uzbekistan, Tajikistan etc., with territorial integrity problems.
I have Recommendation Letters from:
1) Mr. Tad J. Oelstrom, Program Manager of the Harvard J. Kennedy School of Government
2) Dr. Shota Murgulia – Coordinator, Strategic Research and Development Center (250711)
Please contact me at the address: 79 E. Manjgaladze St. Tbilisi, Georgia or call (995 32) 694004; (99532) 923066; mobile-(995 77) 478226; E-mail: [email protected]
I am looking forward to hearing from you soon.
Sincerely, Zurab Garakanidze

October 17, 2014 To: ISET From: Z. Garakanidze, Ph.D(Economics), Tbilisi, Georgia; Ass. Professor of the Georgian University. Tbilisi, Georgia. Dear Colleagues, Writing this letter I intend to express my Project concerning elaboration of the main principles for the development of the country’s conflict peaceful resolution policy. 1. Project description Economic Security Indication of the Ethno-Political Rebellion 2. Anticipated Project recipient Government of Georgia (GoG). Organic Law and Constitution of Georgia, articles 78-81, determine the composition, authority and procedures of the GoG. 3. Main hypothesis Any country, wherever it is situated, must guarantee its citizens that they will not be exposed to violence, and all disputes will be resolved peacefully. However, the situation in our country – Georgia, shows we have not established the order that the inhabitants still continues to dream of. In the course of many years already, people link the formation of the reliable mechanism of their security with the United Nations. Several years ago, the former UN Secretary General, Mr. Kofi Annan, said with regret that "as before, our political and organizational culture is more oriented to reaction, than to prevention" (http://www.un.org/apps/news/story.asp). Certainly, applying of preventive security methods produces dividends but all them are observed in perspective. During the realization of preventive measures, its fruits seem intangible. How can one appraise an event "that has not yet happened?" Nevertheless, the strength of preventive security consists in achieving of "what will not be", i.e. conflicts that will not break out. It will be appropriate to remind of the statement by former UN Secretary General U Tan, who once said that "the ideal operation of "good services" is the one that is never announced publicly until its successful completion or never at all" ("good services" are meant to be the UN Secretary General actions, who may send special envoys and missions to the zones of conflict and resort to preventive diplomacy with regard to settlement of disputes). Unfortunately, Ethno-Political Rebellions are frequent elements of Georgian reality. We set aside the philosophic aspect of this problem and look at the realities of our economic life; it becomes evident that in most of cases the GoG has to use sanctions to press on some regions in order to avoid stronger measures. The scholars believe it can affect the most vulnerable groups of population. In such conditions the practical realization of the preventive measures concept with its sparing measures is the most justified and effective. Establishing the conflicts early warning system is the most important component of preventive security, for it is able to reduce the level of vulnerability of the society to the exposure of disasters. That’s why we believe that prevention and estimation of economic separatism, as a basis of Ethno-Political rebellions, will help transition countries to avoid the situation held in Georgia in late XX. Unfortunately there are no Governmental Institution, nor scientic think tank or NGO in Georgia, and CIS countries as well, who studies the threats modeling. Even such well known European think tanks as Center for European Reforms (CER), Center for European Policy Studies (CEPS), EU Institute for Security Studies (EU-ISS), SIPRI – Stockholm International Peace Institute, International Crisis Group (ICG) etc., do not use the preventive economic measures in conflict resolution researches. Only US Universities recently are leading scientific centers, were started to use the fact finding Economic Security indicators from Rwanda or Uganda conflicts. 4. Project objectives The purpose of the project is the reinforcement of Scientific-Analytical works in scientific and governmental circles of Georgia in the field of Economic Security, the introduction of modern methods which will help us to effort the rationalization and optimization of Analytical works, preparation conditions for the publication of catalogue Threats to Economic Security of Georgia. The main goals of the catalogue will be forecasting of internal and external Economic Security Indication of the Ethno-Political rebellions, creation of models to avoid those threats, provision systematic research in respect of Economic Security issues. The project influences on the two main hipotheses of the economic indication of Ethno-Political conflict: 1.Endevour of the some regions of Georgia (Samtskhe-Javakheti, Kvemo Qartli) towards the economic separatism and its measuring model in Visual Fox Pro or SQL, i.e. actual for the transition to the Federal Budget System of territorial-administrating conditions; prevention and estimation of economic separatism, as a basis of Ethno-Political rebellion; 2.Usage of economic concern (lobbing) in the conditions of already broken territorial integrity (Georgian separatist regions - Abkhazia, South Ossetia) for stimulation of the inner tendencies. In order to reveal the first tendency we suggest that at the GoG should start working on the forecasting and modeling economic threats. Implementation of this project before Territorial-administrative arrangement constitutionally, gives an opportunity to the GoG of monitoring the economic separatism. For this example it will discuss the cases of existing indicators of economic separatism in Georgian Regions Samtskhe-Javakheti and Kvemo Qartli. Taking into consideration the international experience we should divide basic and catalyst indication which formalization in relevant weights (see table #1 as an example of the Adjara region before the economic reunification in 2004) gives an opportunity to GoG for identifying on the earliest stage the endeavor of region to the economic separatism, forming economically uncontrolled zone. One of the problems, should be resolved, is determination of more then 80 Basic and Catalyst indicators for better conceptualization of model. In order to reveal the second tendency, taking into consideration the experience of Great Britain (Northern Ireland, Virgins), Italy (South Tyrol), Spain (Catalonia and Basque Country), China (Hong Kong) etc., it is possible establishment of the Special Economic Regimes or Zones along the administrative borders of separatist regions - Abkhazia and so called South Ossetia. Using experience functioning in 1990-1994 of German Unity Fund, we suggest, that in Georgian Law on Budgetary System will be made amendment about the establishment of Fund of Peaceful Reunification of Georgia and Parliament should adopt the law on Georgian Peaceful Reunification Fund, which will be under the control of Georgian National Investment Agency (GNIEPA). Main source of that Fund will be 1% of all Income Tax Revenues, accumulated in Government Controlled Regions (or initially – foreign grants), so called Raion Budgets (about 5 mln. GEL). Main direction of functioning of this fund will stimulation of the inner tendencies from non-recognized republics of Abkhazia and so called South Ossetia by establishment of Subsidy (Subvention) and Guarantee Programs for a Free Trade Cross-border zones bet- ween Zugdidi-Gali on the administrative border with Abkhazia and Gori-Tskhinvali on the administrative border with South Ossetia by special mechanism of redistribution of those revenues (see table #2 as a milestone scheme). Finally, in the conditions of already broken territorial integrity, according to the peace initiative expressed by the President M. Saakashvili in Strasburg in 2004, opinion stated by Table of the Economic Separatism (Adjara, May 2004). table #1 B 1 B2 B3 B4 5 B 6 7B 8 B B9 B10.. …B C1 C2 C3 C4 C5 C6. . Indicators: Basics (09/2008): 1. Proportion of the Tax Proceeds in Central ) and (Federal) Local Budgets (0:100); 2. Proportion of the Non-tax and Capital Proceeds in Central (Federal) and Local Budgets (0:100); 3. Proportion of the Tax Proceeds in Central (Federal) and Local Special Funds (0:100); 4. Proportion of the Central (Federal) and Local Budget’s Transfers/Programs (0:100); 5. Proportion of turnover rate of GEL in whole (Federal) and local territories (80:20); 6.? (need help) 7 ? (need help) 8 ? (need help) 9 ? (need help) 10 ? (need help) . . . . 35-40 ? Catalysts (10/2008): C1. Proportion of financing of the Central (Federal) and Local Executive Entities (0:100); C2. Proportion of reformation levels between Center (Federal) and Local (GDP per Capita, privatised sector, export/import diversification etc.) (30:70); C3. Proportion of the foreign aid distributed on Central (Federal) and Local levels (50:50); C4.Proportion of the Transport Communications between Center (Federal) and Abroad; C5. Proportion of the Energy Communications between Center (Federal) and Abroad; C6 ? (need help) C7 ? (need help) C8 ? (need help) C9 ? (need help) C10 ? (need help) . . C35-C40 ? the US President visited Georgia in May 9-10, 2005 about the conflict zones and international experience, it is possible to declare Zugdidi as the customs place for the goods imported through Abkhazia and Gori - from so called South Ossetia. It is possible to involve World Trade Organization in the process of solving this problem, because WTO prohibits trade with separatist's unrecognized customs and to use as the additional barrier of fighting against smuggling, Russian endeavor to apply for the membership of this significant organization. Therefore it is possible to create strong central lobby in separatist regions, which will have economic concern. One of the problems, should be resolved is familiarization of the World experience in functioning such Zones. Besides it is essential that these proposals directly correspond to the implementation of the reunification program and which was initiated at the Georgia President’s initiative (03/28/08). 5. Present status. Methodology Development of methodologies for early detection of threats to economic security, institutionalization of decision-making process was conducted during 1999-2003 in National Security Council, within the framework of Project: Support for NSC Georgia (Project Coordinator: Z. Garakanidze). Project was provided by UNDP Country Office in Georgia and National Security Council of Georgia. But Project focused directly on the issues of Political Reunification of Territory of Georgia, and that's why the problem of Economic Indication of the Ethno-Political rebellions was as a little part of a whole. American University's TraCCC granted works: Money laundering possibilities in the process of Privatization (2003) and Security of the Economic Area from non-controlled zones of Georgia (www.traccc.cdn.ge/Publications: Z. Garakanidze, 2005) was sequential of mentioned researches, were first time in Georgia had been discussed Economic problems of separatism. Published in 2006 the article About Economic Security Indication of the Budgetary Separatism (Z. Garakanidze, Magazine Financial Control, #2 Tbilisi 2006), continues the hypothesis of American Scientists, Professors Peter Brecke, Tad Robert Gurr, Tad J. Oelstrom and Barbara Hurff, presented in the book “Preventive Measures” (translated by the Applicant), about the Conflict Threats Conceptualization and Modeling. The background for the establishment of the preventive program of the Ethno-Political Economic separatism is correlation of the actual indicators of economic security from the regional offices of Treasure, in the given period, which would be quarterly presented to the GoG (the provision of such information is mandatory), and threshold (i.e. marginal) indicators. Actual indicators will be added to the first part of the program input of data by the operator. All threshold indicators are presented in the form of table and will be completed. In the next part of the project the execution of the cont-rol has to begin, where the computer automatically determines disparity between threshold and ac - tual data by the screening of frequency of the horizontal and vertical lines. Responsible person should choose the region which is in his interest, after which the computer will show the information of striving towards economic separatism of the selected region. The computer will highlight with red and flash problematic data. In yellow will highlight the events with voice sign (for example: One week remains till the event!) which are to be occurring in one week period. And finally will highlight with green the indicators which aren’t in progress. It’s notable that computer programs Visual Fox Pro or SQL can automatically change calendar data which is excellent opportunity to perform periodic monitoring. In addition it will show the information in status by dragging the cursor at the appropriate object on the table. table #2 LAW OF GEORGIA ON GEORGIAN “Peaceful Reunification Fund” (Draft) (Will be elaborated during the Grant 11/2008-12/2008- need help) MODULE I (V week of the grant period) GENERAL PROVISIONS This law defines present legislative, institutional and economic principles in a state Reunification Policy sphere to implement Inner Tendencies in the “Non – Recognized Republics” on the base of Economic Concern’s (correspondent) machinery. The disposed rules regulate entire Reunification programmes processed by the government and executive subjects activity, if another is not provides by the international agreements and treaties and Georgian legislation. MODULE II (VI week) FUND OF THE PEACEFUL REUNIFICATION PROJECTS (PRP) OF GEORGIA (FPRP) MODULE III (VII week) THE STATE ASSISTANCE OF THE PRP’s MODULE IV (VIII week) THE FINANCING SYSTEM OF THE PRP’s MODULE V (IX week) READJUSTMENT AND DISSOLUTION OF THE FUND Proved by Georgian National Investment Agency Public Supervisory Council Interest rate subsidy programme required by ----(year) PRP (X week) 1.The goal of credit sum interest rate subsidy 2.Priorities 3.The obligatory terms for reception of credit sum interest rate the participant toward the enterprise 4.The subsidy terms implementation basis 5.The terms and volume of the subsidy 6.Declaration of subsidy reception and terms of discussion 7.The subsidy of the Agency 8.Duties of the PRP Participant Enterprise 9.Duties of the Bank 10.Duties of the Agency Proved by Georgian National Investment Agency Public Supervisory Council The Guarantee Pprogram required by ----(year) PRP (XI-XII weeks) 1.Explanation of the terms used in guarantee program 2.The essence and goals of the program 3. Terms presented to the Participant 4.Priorities 5.Particulars of the guarantee program 6.The terms and the timeframe of the guarantee program 7.The application for the guarantee and the period for reviewing it 8.Utilization of the Guarantee program by the Georgian National Investment Agency 9.The mechanism of the use of guarantee program in the Georgian National Investment Agency 10.Principal’s obligations 11.Obligations of the beneficiary bank 12.The obligations of the Georgian National Investment Agency 13.Obligations of the guarantor bank 7. Significance According to the objectives of the project, the GoG of Georgia upon implementation of the project will receive the following: - Adequate system to receive, process and provide GoG scientific, legislative information concerning economic security; - Methodology to identify and analyze problems related to economic threats; - Preparation conditions for the publication of catalogue Threats to Economic Security of Georgia for GoG;- Software to analyze and monitor various economic security problems; - Information database from world leading economic centers on economic security problems; - Creation of the library list for GoG. All aforementioned will help to the GoG address two main challenges: Zurab Garakanidze, Ph.D (Economics) GEORGIA 1) In May 2005 the Parliament of Georgia has adopted The Concept of the National Security of Georgia, where one of the most important parts (Chapter 6) is Economic Security. Parliament ordered to the Executive Power to adopt, on the basis of the Concept, Security Strategies of the particular branches, which means the necessity of elaboration of Economic Security Strategy. Order is not yet responded! 2) Also, one of the most important parts (Chapter 3.1) of the Concept is Ensuring Territorial Integrity. The inclusion of Georgia in the European Neighborhood Policy opened a new phase in the EU-Georgia relations. ENP EU/Georgia Action Plan reaffirmed the importance of Economic Reunification (Priority area 6). According to ENP AP promotion of peaceful resolution of internal conflicts will have results: Enhanced efforts at confidence building (ch.3. P.6); Consideration of further economic assistance in light of the progress in the conflict settlement process (ch.3. P.6); The EU stresses the need for a constructive cooperation between interested international actors in the region, including the EU and OSCE Member States, on additional efforts contributing to peaceful settlement mechanisms in Tskhinvali Region/S. Ossetia and Abhkazia (ch.3. P.6); Support the active involvement of civil society in the conflict resolution efforts (ch4. 4.2). 8. Evaluations and Dissemination Based upon the ranking principal of main threats to the country economy, the 2 expert researches, 2 articles and 2 round tables results analysis (in the ISET Office) will be made until the project reveals the project’s main task-Economic Security Indication of the Ethno-Political Rebellion. For implementing the above-mentioned task, we plan during the project: Preparation conditions for the publication of catalogue Threats to Economic Security of Georgia for Machinery of GoG; Creation of the library list for Machinery of GoG; Elaboration of the Security of Economic Area Program for the Machinery of GoG. The Project can be used by Governments of so called Countries in Early Transition (CET) – Azerbaijan, Moldova, Ukraine, Uzbekistan, Tajikistan etc., with territorial integrity problems. I have Recommendation Letters from: 1) Mr. Tad J. Oelstrom, Program Manager of the Harvard J. Kennedy School of Government 2) Dr. Shota Murgulia – Coordinator, Strategic Research and Development Center (250711) Please contact me at the address: 79 E. Manjgaladze St. Tbilisi, Georgia or call (995 32) 694004; (99532) 923066; mobile-(995 77) 478226; E-mail: [email protected] I am looking forward to hearing from you soon. Sincerely, Zurab Garakanidze
Guest - Simon Appleby on Sunday, 19 October 2014 10:49

An interesting article. Mainland China and Taiwan (another quasi-state backed by a powerful patron) agreed on a basic compact allowing economic and social exchanges that has worked reasonably well, that Taiwan will not declare independence and that the Mainland will correspondingly not engage in a first strike against Taiwan. Under the basic stability created by that agreement, Taiwan is one of the Mainland's largest investors and a good deal of Taiwan's electronic components exports find their way to the Mainland for assembly there. Taiwanese subtropical fruits and tea are exported to the Mainland under a preferential programme, and countertrade and two-way tourism is building momentum. Mainland investment in Taiwan is also substantial now. While a political impasse remains, and recent events in Hong Kong have soured most Taiwanese on the concept of "One Country-Two Systems", economic relations are now so closely intertwined that neither side has much incentive to engage in aggression.

An interesting article. Mainland China and Taiwan (another quasi-state backed by a powerful patron) agreed on a basic compact allowing economic and social exchanges that has worked reasonably well, that Taiwan will not declare independence and that the Mainland will correspondingly not engage in a first strike against Taiwan. Under the basic stability created by that agreement, Taiwan is one of the Mainland's largest investors and a good deal of Taiwan's electronic components exports find their way to the Mainland for assembly there. Taiwanese subtropical fruits and tea are exported to the Mainland under a preferential programme, and countertrade and two-way tourism is building momentum. Mainland investment in Taiwan is also substantial now. While a political impasse remains, and recent events in Hong Kong have soured most Taiwanese on the concept of "One Country-Two Systems", economic relations are now so closely intertwined that neither side has much incentive to engage in aggression.
Guest - Eric Livny on Sunday, 19 October 2014 11:40

Thanks for your comment, Simon... We limited the scope of the article to the post-Soviet space, but Taiwan-China example is perhaps even more useful for Ukraine...

Thanks for your comment, Simon... We limited the scope of the article to the post-Soviet space, but Taiwan-China example is perhaps even more useful for Ukraine...
Guest - RonJames1980 on Sunday, 19 October 2014 22:05

Good you mention Kosovo. But your article seems to impy that Ukraine and Georgia ‘must’ win back Donbas (and Crimea) and Abkhazia & Ossetia respectively. But then isn’t that the same for Kosovo and Serbia? Why Serbia should give up on Kosovo while Ukraine and Georgia should not give up on their ‘lost regions’? Why double standards here? Why no general rules for regions that want to be independent? And until we got these rules (laws) why not stick to international law: only a mutual agreed deal on independence is acceptable?

Looking forward to your reaction.

Good you mention Kosovo. But your article seems to impy that Ukraine and Georgia ‘must’ win back Donbas (and Crimea) and Abkhazia & Ossetia respectively. But then isn’t that the same for Kosovo and Serbia? Why Serbia should give up on Kosovo while Ukraine and Georgia should not give up on their ‘lost regions’? Why double standards here? Why no general rules for regions that want to be independent? And until we got these rules (laws) why not stick to international law: only a mutual agreed deal on independence is acceptable? Looking forward to your reaction.
Guest - Eric Livny on Tuesday, 21 October 2014 12:20

Quite honestly, Ron, we did not want to get into all these legality/morality complications that you are referring to. The basic points are two. Isolation and 'strategic patience' don't achieve their stated objectives. There are, however, strong incentives for economic integration, i.e. movement of goods and people across the divides, and there are no reasons not to pursue it.

We don't say so in in this piece, but I would add that, if tried consistently, a policy of proactive economic engagement by the parent states would, within a generation or two, reduce the new 'illegal' borders to a mere formality, paving the way for further political integration (perhaps within a larger regional union such as the EU or Eurasian Union)

Quite honestly, Ron, we did not want to get into all these legality/morality complications that you are referring to. The basic points are two. Isolation and 'strategic patience' don't achieve their stated objectives. There are, however, strong incentives for economic integration, i.e. movement of goods and people across the divides, and there are no reasons not to pursue it. We don't say so in in this piece, but I would add that, if tried consistently, a policy of proactive economic engagement by the parent states would, within a generation or two, reduce the new 'illegal' borders to a mere formality, paving the way for further political integration (perhaps within a larger regional union such as the EU or Eurasian Union)
Guest - RonJames1980 on Wednesday, 22 October 2014 04:41

Thanks for reply Eric. Regarding morality: West used moral arguments when it comes to Kosovo. Fine, but as there were much more atrocities committed in let's say Kurdistan (Syria now?) and Tibet this is kind of strange... Why allow moral arguments to one case? But not to the other?

Regarding economical integration. You surely have a point there. But main 'problem' is: these frozen conflicts typically appear on the 'borders' between 'blocs' / competing states.

Serbia and Kosovo probably want to join EU (which will be a legal nightmare as for UN Kosovo still is a Serbian province).

But look at all these other regions: Georgia wants to join EU and NATO, but Abkhazia and Ossetia want closer ties with EU. That 'divide' is one of the drivers for the very emerging of the conflict...

But hey, interesting article. Please keep us upated!

Thanks for reply Eric. Regarding morality: West used moral arguments when it comes to Kosovo. Fine, but as there were much more atrocities committed in let's say Kurdistan (Syria now?) and Tibet this is kind of strange... Why allow moral arguments to one case? But not to the other? Regarding economical integration. You surely have a point there. But main 'problem' is: these frozen conflicts typically appear on the 'borders' between 'blocs' / competing states. Serbia and Kosovo probably want to join EU (which will be a legal nightmare as for UN Kosovo still is a Serbian province). But look at all these other regions: Georgia wants to join EU and NATO, but Abkhazia and Ossetia want closer ties with EU. That 'divide' is one of the drivers for the very emerging of the conflict... But hey, interesting article. Please keep us upated!
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