Treasury considers help for Georgia's economy

By Lesley Wroughton

WASHINGTON (Reuters) - The United States is exploring ways to assist Georgia's economy including how global financial institutions can help limit economic damage caused by the conflict with Russia, a senior U.S. Treasury official said on Friday.

Assistant Treasury Secretary Clay Lowery said the situation in Georgia was "fluid" and it was hard to know how much harm was done to the economy and investor confidence since the crisis erupted over the breakaway South Ossetia region.

"We want to be supportive of the Georgia economic situation going forward and that includes bilateral and multilateral needs," Lowery said in an interview with Reuters.

While the White House has flexed its political muscle to force Russia to pull troops out of the region, the U.S. Treasury has tried to reassure investors over Georgia's young democracy.

"The most important thing is for the fighting to stop (but we also) want to ensure there is confidence so that investor flows continue," Lowery said.

He said the U.S. wanted to make sure that the conflict did not take away from the impressive economic progress and reforms in Georgia that produced China-like growth levels of 11 percent in 2007 despite Russian trade and transit barriers.

"Our view is that this should not be undermined," Lowery said, adding that the U.S. was working with global financial institutions, like the International Monetary Fund, World Bank and European Bank for Reconstruction and Development, to support reforms made by Georgia and ensure economic changes continue.

All three institutions said this week they stood ready to help Georgia's government, which they said had acted to tackle corruption, quicken privatization and created a business-friendly environment that increased capital flows.

The World Bank's Doing Business survey named Georgia the leading reformer in the world in 2006.

Given the current circumstances, Lowery said it was understandable for investors to worry about the situation but he urged them to look at Georgia's record of reforms and economic management.

Credit ratings agencies warned this week that Georgia is likely to suffer lasting economic damage from the war. Last week Fitch downgraded Georgia to B+ with a negative outlook, while S&P cut the rating to B from B+ and placed the country on CreditWatch negative.

"We in the United States, but also the financial institutions, can shore up a little bit of confidence for the private investor community that we are going to continue putting public investment in there," he added.

The U.S. government's main development fund, the Millennium Challenge Corp (MCC), has agreed to invest $295 million over five years in Georgia to develop roads and railway links and boost assistance to farmers and agribusinesses.

The U.S. has also agreed to provide more than $3.6 million in aid and medical supplies to Georgia to help people dislodged

by the conflict.