Letter from Tbilisi

And a (brief) investment update

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The flight into Tbilisi is close enough to Ukraine’s front line that Kerch pops up on the inflight screen. From Kerch, Mariupol is on the other side of the Azov Sea and Bakhmut another 120 miles from there. To the West, Ukraine is Russian war crimes in a place many can’t find on a map; here in Georgia Ukraine is a terrifying reminder of what happens when a tilt towards modernity goes awry.

“On New Year’s eve, they said not to set off fireworks,” said a person I shared a meal with who has worked with Ukrainian refugees in Tbilisi. The explosions are a trigger, particularly for those from Mariupol, she said, where thousands died last year.

Georgia is a country of 3.7 million perched between Russia and the Black Sea. Spring is bringing the trees to bud on Tbilisi’s main drag, Rustaveli. I posted a video on my Twitter feed (@paul_podolsky) of the stunning countryside. In addition to Russia, Georgia shares borders with Armenia, Azerbaijan and Turkey. On a drive, I passed a road sign for Tehran, Iran, which lies past Yerevan.

The vast majority of Georgians favors joining the European Union. To them, the EU does for government what McDonald’s does to fast food—standardizes administration in a way that reduces corruption, widens precarious two-lane roads and boosts trade. But the path toward a more open society is buffeted by enormous forces that would challenge the most capable administrator, most notably Russia’s predilection to kill those who stray from the Kremlin’s vision.

It feels fragile here, like a few missteps and things could turn worse pretty fast though, at the same time, with a bit of luck and good policy it isn’t hard to see how this area can become to the Caucuses what Croatia has become in former Yugoslavia, a tourist Mecca. Add in a potential boom in agricultural exports and there are buds of hope. That said, change of this order is fraught. Thousands of economic, cultural and ideological wires plugged into the former Soviet switchboard need to be ripped out and plugged into the West.

Below are some of the bigger forces at work.

1. A flood of refugees from both Ukraine and Russia is straining infrastructure and bloating the banking system with deposits.

In the US, refugees entering make a lot of news but represent a tiny percent of the population. This is for a simple reason. The US is larger (330 million) than Central America (180 million) and bookended by vast oceans. In Georgia, it is the exact opposite. Their country is small and Russia and Ukraine are comparatively large (148 million and 43 million respectively).

Given that Georgia does not require a visa, 1.5 million Russians have crossed into Georgia, many moving further on. A lot of their dollars have washed up here as well. The first wave was those fleeing in opposition to the war, the second for conscription. Further conscription will bring more people. Visitors is different than refugees but based on UN refugee tracking the flow of people here is enormous relative to the local population.

“I’m here via Uzbekistan and Kazakstan,” said one 24-year-old Russian I spoke with now applying to get to Latvia. (The application asks if Crimea belongs to Russia or Ukraine).

This flow of people clogs traffic, boosts rent and can upend the social and financial equilibrium. In restaurants that offer Russian menus, some have inserted text describing the alleged war crimes in Ukraine. Banks awash with Russian dollars face the same management choices (what to do with the money) that SVB bank faced. Will they manage this well? So far the banks are making money by giving Russians low interest rates on their dollars and collecting the spread. What if the money suddenly pulls out?

The below says “Putin to The Hague (and f—k him).”

2. Russia has a long history of absorbing either part or a whole of Georgia into its borders and now has troops permanently stationed on Georgian territory.

Russia feels like a shark that can attack at any moment, taking the victim whole (Crimea) or in pieces. Russia absorbed Georgia in the 19th century, then again in the 20th (into the Soviet Union) and has bitten off two chunks of Georgia since the Soviet Union collapsed in 1991.

In 2008, Russia absorbed South Ossetia, near where I am now. In 1992, Russia absorbed Abkhazia. Like perhaps most of you, I didn’t pay much attention to either of these wars. But, to put it in perspective, it would be sort of like the US first occupying the Mexican state of Baja and then later Tamaulipas. The Russian playbook is relatively clear at this point but world leaders missed it in 2008. Ukraine is the same thing on a much bigger scale.

The playbook is.

1. Scan for ethnic rifts. Abkhazia or Ossetian versus Georgian, Serb versus Bosnian, Black versus white, Ukrainian versus Russian.

2. Activate KGB to help stoke tensions between different ethnicities even in areas where they are mixed through hundreds of years of intermarriage. This begins with informational warfare, both propaganda and hacking, and expands to advisors, money and heavy weapons, ultimately provoking the opposing country (Georgia or Ukraine) by violence.

3. When the country (Ukraine, Georgia, Bosnia) steps in to try to protect national borders Russia can then use the West’s arguments (human rights) as a pretext to send in Russian troops as “peacekeepers.”

4. Russian troops ideally seize territory round a major world event, like the Olympics, so people are not watching.

“We had no idea what was going on,” said one contact, who lived in Sokhumi, the capital of Abkhazia in the 1990s. We started to get a lot of people from Ingushetia moving in, which was odd. This was the Yeltsin era, the same time that Yugoslavia was breaking into pieces, something I wrote about in It Began in Sarajevo, last summer.

In Ossetia, impoverished peasants somehow (thank you KGB) obtained weapons to bomb Georgian villages, thus drawing in Georgian’s headstrong leader, Saakashvili, who was then crushed by a much stronger Russian force. The Russian operation was over in a matter of days, which was likely what Putin was thinking would happen in Ukraine.

Now South Ossetia has been turned into a pariah state, much like what I saw in Turkish-occupied Cyprus. The net result is that Russian troops are a short drive from Tbilisi. It would take time and a lot of money to build up Georgia’s military and any tentative move in that direction may turn the entire country into Mariupol.

3. The history of the region is indelibly tied to Georgia’s most notorious native-son, Stalin, a violent thug ignorant of how money works. Stalin’s penchant for chaos and Machiavellian intrigue both informs the Kremlin and is not entirely foreign to Georgian politics.

While traveling here, I read Sebag Montefiore’s Young Stalin. Probably most people know the mature Stalin. This is the person who killed a larger percent of his population than any other 20th century leader, beat Hitler and laid the template for the fear-based technology enhanced surveillance that operates in China and Russia today.

I didn’t know the young Stalin, however. What impressed me is how violent and ruthless he was from an early age. Beyond being beaten by his father, his birthplace, Gori, had a bizarre local tradition of street fighting and brawling, openly encouraged by the local priests. It’s fertile ground for a psychopath.

“Stalin’s operations, heists and killings, always conducted with meticulous attention to detail and secrecy, made him the ‘main financier of the Bolshevik Centre,’” writes Montefiore.

What Stalin and Putin share is a predilection for creating chaos and ignorance about how modern economics works.