Risking Russia's ire, Georgia seeks closer ties with Europe
* Little-known ally of premier elected president
* Georgian Dream tightens grip, challenges loom
* Georgia seeks balance in ties with West and Russia
By Margarita Antidze and Timothy Heritage
TBILISI, Oct 28 (Reuters) - Georgia's new president said on Monday he would press ahead with efforts to deepen the former Soviet republic's ties with the West despite Russian concerns.
European leaders and observers hailed Sunday's "clean" election won by Georgy Margvelashvili, an ally of billionaire Prime Minister Bidzina Ivanishvili, as a sign that democracy is maturing in the small South Caucasus state.
"Europe is our choice and this election is a confirmation of our European course," Margvelashvili, 44, a mild-mannered academic and political novice, told a news conference.
Making clear Georgia would not bow to Russian pressure to abandon its rapprochement with Europe, he said: "We'll have a constructive and firm position based on principles."
Margvelashvili won more than 60 percent of votes, partial results showed, sparking noisy celebrations by his supporters in the capital Tbilisi.
Ivanishvili's Georgian Dream ruling coalition now controls Georgia's presidency, government and parliament for the first time, but the prime minister plans to quit shortly after only two years in politics.
He says his job is done now that his bitter rival Mikheil Saakashvili's 10-year rule is over, though Georgia still faces big challenges include a flagging economy and winning back foreign investors scared off by political uncertainty.
Saakashvili's departure removes the main irritant in relations with Moscow. Georgia fought a disastrous five-day war with Russia in 2008 which cemented Moscow's control of two rebellious Georgian regions.
Ivanishvili has been the driving force behind attempts to build stronger ties with Russia while at the same time also deepening integration with the West, a balancing act in foreign policy that has proved hard to pull off.
"We have outlined the right moves in relations with Russia," Margvelashvili said on Monday.
"We will try to reduce tension in bilateral relations and to move discussion of issues to European forums."
Georgia is strategically important for Europe, which gets Caspian gas and oil from pipelines that run through the country of 4.5 million. Tbilisi hopes eventually to join the European Union and NATO, although both are distant prospects.
But Moscow still regards Georgia, and most other ex-Soviet republics, as part of its sphere of influence and President Vladimir Putin has sharpened his foreign policy rhetoric since returning to the Kremlin last year.
Georgians say Russia has shown its intent towards their country by erecting wire fencing along the administrative boundaries of South Ossetia and Abkhazia, the two provinces controlled by Moscow but still part of Georgia.
Even Ivanishvili has acknowledged dealing with Russia will be tough. "We can't change Russia. It would be better for us to change and work more on ourselves. We have to try to work with Russia, our neighbour, as it is," he told Reuters last week.
Russia called before the election for Georgia to continue efforts to "normalise" relations - diplomatic ties have not been restored since the 2008 war - but commentaries by Russian experts and media have been largely hostile.
Who will pull the strings in Tbilisi when Ivanishvili departs in the coming weeks remains unclear.
As president, Margvelashvili takes on a role with reduced powers under Georgia's revamped constitution.
Ivanishvili, 57, has not said who will be premier, the most powerful role in Georgia. Interior Minister Irakly Garibashvili and Health Minister David Sergeenko are thought to be in the running but Ivanishvili might continue to steer things.
Ivanishvili, whose fortune is estimated at $5.3 billion or about a third of Georgia's gross domestic product, says the economy is likely to improve after Saakashvili's departure because discord between president and government will end.
But increasing growth could prove challenging. Poverty remains widespread and, after years of robust investment-driven growth, GDP grew only 1.5 percent in the second quarter this year, down from 8.2 percent in the same period in 2012.
"Unfortunately the factor of trust in the future of the economy has been lost by businesses and investors and it will take a long period of stability to rebuild trust," said Fady Asly, head of the International Chamber of Commerce in Georgia.
But Alexander Pivovarsky, an economist at the European Bank for Reconstruction and Development (EBRD), said the bank was cautiously optimistic about the future and that growth could accelerate in 2014 if political and policy uncertainty eases.
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