The New York Times
An Oligarch Goes Home to Lift Georgia’s Economy
By ERIN E. ARVEDLUND
Published: November 5, 2004
TBILISI, Georgia – Kakha Bendukidze, the new Georgian economy minister,
points out his window in downtown Tbilisi to the shabby refugee hotel framed
by a setting sun. “See that large building with the boarded-up windows?” he
says. “It’s going to be either a Four Seasons hotel, or maybe commercial
office space.”
In one of the minister’s first privatizations in the former Soviet republic,
the 330-room Iveria hotel was sold at auction to German investors in
September. As part of the $2.3 million purchase price, the investors bought
out more than 1,000 refugees from a civil war here in the early 1990’s who
were still living in the Iveria, in what was supposed to be temporary
housing. Each of the 270 families was to receive $7,000 – market price, but
not in downtown Tbilisi – for a new apartment.
Such are the legacies of former President Eduard Shevardnadze, who ruled the
country for more than a decade of political stability but economic
stagnation.
The languishing of the hundreds of thousands of displaced people is “a huge
problem,” Mr. Bendukidze said. “These people were being used as a political
tool, as a sword of Damocles. They need to be integrated in society and have
property rights like everyone else.”
They also are occupying some of Georgia’s most valuable real estate, the
sale of which Mr. Bendukidze is hoping will help undo decades of decay and
revitalize a country where nearly half the population lives below the
official poverty line.
Ultraliberal in his economics, Mr. Bendukidze, a Georgia native and a
biologist turned corporate raider, became a multimillionaire oligarch in
Russia, though he did not take part in the big, controversial auctions
there. Instead, he bought small companies and put them together. In June,
Georgia’s new populist president, Mikhail Saakashvili, asked him to leave
his company, United Heavy Machinery, to return to the land he left after
college and help do the heavy economic lifting.
“The president wanted to find accomplished, successful Georgians, and take
advantage of their experience,” says Zeyno Baran, a Georgia expert at the
Nixon Center, a foreign policy institute in Washington. “Bendukidze was one
of the very few people who made money legally in Russia.”
But Mr. Bendukidze, a large man with a big agenda, has ruffled many feathers
with his attempts at market reforms in Georgia – largely by inviting private
investors in – efforts through which he, Mr. Saakashvili and a circle of
reformers want to jump-start the economy.
Under Mr. Shevardnadze, many tiny enterprises were privatized, but only a
few large, important businesses, like the Batumi Oil Terminal. Mr.
Bendukidze’s list, however, has 1,800 enterprises of all sizes – including a
proctology clinic, vineyards, factories, a hydropower station, Georgia’s
aging airport and beach resorts (refugees included). At the dusty Ministry
of Economic Development, off Tbilisi’s main street, Mr. Bendukidze has set
up a hotline and a Web site () for anyone interested in
buying government-owned assets. Turks, Europeans, Americans and especially
Russians have been poking around.
With the look of the Northern California wine country, but replete with
elegant buildings that have seen better days, Georgia is still a developing
country, with per capita income of about $3,000 a year. Even in the capital,
the electricity is spotty and phone lines are ancient.
“We have to grow at 6 percent a year for 50 years to catch up, and that’s
with no mistakes,” Mr. Bendukidze says. He wants Georgia to grow into the
next New Zealand, a country whose radical finance ministers of the 1980’s
and 1990’s, Sir Roger Douglas and Ruth Richardson, “turned around a
backward, slow economy into a dynamic one.”
Among Mr. Saakashvili’s young cabinet members, Mr. Bendukidze, 48, says,
“I’m an old elephant.”
Mr. Bendukidze rarely minces words, and his temper is well known among
foreign aid organizations. According to a BBC report, he called
International Monetary Fund representatives “fools” on Georgian television
when they cautioned against major tax cuts he had suggested. And a World
Bank employee recalls being cursed out at his office.
Mr. Bendukidze does not apologize for his fundamentalism. “Without the help
of foreign aid, you are independent, and that’s very important,” he says.
“Foreign aid as the main source of your budget spending is terrible.”
In 2005, Georgia’s budget will total $1 billion, with $150 million, or about
15 percent, in foreign credits and grants. He wants the aid close to zero in
three years.
In his quest for private money, Mr. Bendukidze has been criticized for
sometimes having a political tin ear. Scott Horton, a partner at the law
firm of Patterson, Belknap, Webb & Tyler in New York, who hired Mr.
Saakashvili to work at the firm in 1994 after Mr. Saakashvili graduated from
Columbia Law School, says Georgians are highly sensitive to Russian
investors.
“In Armenia and other countries, the Russians bought up everything, and now
they’re very much dependent on Moscow,” he said. “Georgians don’t want to
do that. Bendukidze isn’t quite as sensitive to those issues.”
Mr. Bendukidze says he is eager to attract as many buyers as possible – from
wherever.
So will the result be Georgia Inc.? Not exactly, Mr. Bendukidze says.
Back in Russia, he ran a company with twice the budget and seven times the
debt of his home country, and was free to hire and fire without political
fallout.
Not in Georgia. But he is determined to set an example by cutting
bureaucracy at his own ministry, letting two-thirds of his 2,400 staff
members go. The only way to pull Georgia out of poverty, he says, is to cut
the bloat, strip vested interests and end corruption.
“There are a lot of people who own or run government property burning state
money and putting ash in their own pockets,” Mr. Bendukidze says. “It’s not
two or three people, it’s managers with thousands of employees whom no one
needs, workers who aren’t creating wealth.
“This is why I am the most hated man in Georgia,” he adds with a laugh.
With the Finance Ministry, Mr. Bendukidze is helping to write and submit new
laws for passage in parliament that would lower the personal income tax rate
to 12 percent from 20 percent, cut taxes on corporate profits and deregulate
the banking and insurance industries.
He is also proposing that banks and insurers from the 30 Organization for
Economic Cooperation and Development countries be allowed to set up
branches, and that dollars and euros be allowed for transactions.
Most controversial, both inside and outside Georgia, are Mr. Bendukidze’s
efforts to reverse deals he says were cut unfairly in Mr. Shevardnadze’s
era – in particular, the 1999 sale of the Batumi Oil Terminal. That
privatization, in part financed and owned by the Overseas Private Investment
Corporation, a United States government agency, “was illegal,” Mr.
Bendukidze says. The agency did not return calls for comment.
Karin Lissakers, an adviser to the Open Society Institute, a group backed by
the billionaire George Soros and based in New York that has been aiding the
Saakashvili administration, says it is important that Georgia regain Batumi,
a major port economically. Moreover, she said, all customs revenue had been
going to Aslan Abashidze, the ousted leader of Adjaria, the region where
Batumi is located, instead of to Tbilisi.
The terminal’s chairman is Jan Bonde Nielsen, a Danish businessman and close
associate of the former regional government. “We told him we want him to be
a partner, but the Georgian government also wants its share,” Mr. Bendukidze
says. Mr. Nielsen also did not respond to phone calls seeking comment.
What about the seeming incongruity of his laying down rules in Georgia – for
transparent, honest privatizations with clearly enforced property rights –
that many of his fellow oligarchs in Russia did not follow during the
rough-and-tumble privatization there?
“I’m sorry,” he said, shrugging. “But that game is over.”