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. Last Updated: 07/27/2016

Bendukidze Tries His Magic on Georgia

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 said. "It's going to be either a Four Seasons hotel, or maybe commercial office space."

In one of the minister's first privatizations, 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 1990s 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," 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 are also occupying some of Georgia's most valuable real estate, the sale of which 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, 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, Mikheil 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," said 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 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, Saakashvili and a circle of reformers want to jump-start the economy.

Under Shevardnadze, many tiny enterprises were privatized, but only a few large, important businesses, like the Batumi Oil Terminal. 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 Economic Development Ministry, off Tbilisi's main street, 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 per year. Even in Tbilisi, 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," Bendukidze said.

He wants Georgia to grow into the next New Zealand, a country whose radical finance ministers of the 1980s and 1990s, Sir Roger Douglas and Ruth Richardson, "turned around a backward, slow economy into a dynamic one."

Among Saakashvili's young Cabinet members, Bendukidze, 48, said, "I'm an old elephant."

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.

Bendukidze does not apologize for his fundamentalism. "Without the help of foreign aid, you are independent, and that's very important," he said. "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, 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 Saakashvili to work at the firm in 1994 after Saakashvili graduated from Columbia Law School, said 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."

Bendukidze said he is eager to attract as many buyers as possible -- from wherever.

So will the result be Georgia Inc.? Not exactly, Bendukidze said.

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 said, 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," Bendukidze said. "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, 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 banking and insurance.

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 Bendukidze's efforts to reverse deals he said were cut unfairly in 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," Bendukidze said. OPIC did not return calls for comment.

Karin Lissakers, an adviser to the Open Society Institute, a group backed by billionaire George Soros and based in New York, which has been aiding the Saakashvili administration, said 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 Adzharia, 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," Bendukidze said. 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."