Bloomberg News

Georgia Billionaire Scores Shock Vote Upset Over Saakashvili

October 02, 2012

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

Ivanishvili, 56, called on Saakashvili to resign. The opposition Georgian Dream group had 55 percent of the votes, to 40 percent for the incumbent United National Movement, with almost 89 percent of the ballots counted, according to the website of the Electoral Committee in Tbilisi. Saakashvili, 44, conceded defeat and said his party would move into opposition.

The president has “made a lot of mistakes,” Ivanishvili told reporters today. “If he were to resign and orders early presidential elections, and a new prime minister is appointed under the new constitution, the situation will return to normal. If not, there may be problems.”

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.

He also oversaw changes to the constitution two years ago that will take many of the powers the president holds and give them to the prime minister. Saakashvili’s second four-year term ends in 2013. He isn’t allowed to run for a third term.

Georgia’s dollar-denominated government bonds due in 2021 fell today, pushing the yield to 4.768 percent, the highest in a week, from yesterday’s record-low 4.712 percent, according to data compiled by Bloomberg.

‘Clear Message’

Ivanishvili, accused by the government of ties with Russia where he made his fortune, said 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. Georgia fought a 2008 war with Russia in a failed bid to regain control of a breakaway region.

“The strong showing for the 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.”

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.”

‘Important Step’

The Organization for Security and Cooperation in Europe said the elections were fair and free. The OSCE, a 56-nation democracy watchdog that deployed 400 observers to monitor the vote, said the elections “marked an important step in consolidating the conduct of democratic elections.” At the same time, the environment was “polarized and tense” with some instances of violence, it said.

The White House said the U.S. looked forward to continuing its “close cooperation and strong bilateral partnership” with Georgia and called on Saakashvili and Ivanishvili’s party to work together in a spirit of national unity, according to an e- mailed statement today.

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 .

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.

Russian Influence

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:US), ConocoPhillips (COP:US), Total SA (FP), Eni SpA (ENI) and Statoil ASA (STL), was temporarily shut in the 2008 war between Russia and Georgia.

Prime Minister Dmitry Medvedev said the ruling United Russia party is ready to start a dialog about the future of bilateral relations in the wake of the vote, Interfax reported.

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.

To contact the reporters on this story: Helena Bedwell in Tbilisi at hbedwell@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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