Russian invasion began before 'provocation'

NY Times:

A new front has opened between Georgia and Russia, now over which side was the aggressor whose military activities early last month ignited the lopsided five-day war. At issue is new intelligence, inconclusive on its own, that nonetheless paints a more complicated picture of the critical last hours before war broke out.

Georgia has released intercepted telephone calls purporting to show that part of a Russian armored regiment crossed into the separatist enclave of South Ossetia nearly a full day before Georgia’s attack on the capital, Tskhinvali, late on Aug. 7.

Georgia is trying to counter accusations that the long-simmering standoff over South Ossetia, which borders Russia, tilted to war only after it attacked Tskhinvali. Georgia regards the enclave as its sovereign territory.

The intercepts circulated last week among intelligence agencies in the United States and Europe, part of a Georgian government effort to persuade the West and opposition voices at home that Georgia was under invasion and attacked defensively. Georgia argues that as a tiny and vulnerable nation allied with the West, it deserves extensive military and political support.

Georgia also provided audio files of the intercepts along with English translations to The New York Times, which made its own independent translation from the original Ossetian into Russian and then into English.

Russia, already facing deep criticism and the coolest audience in European capitals since the cold war, is arguing vigorously against Georgia’s claims. Last week, Prime Minister Vladimir V. Putin expressed bafflement at what he saw as the West’s propensity to believe Georgia’s version of events.

In an interview arranged by the Kremlin, the Russian military played down the significance of the intercepted conversations, saying troop movements to the enclave before the war erupted were part of the normal rotation and replenishment of longstanding peacekeeping forces there.

But at a minimum, the intercepted calls, which senior American officials have reviewed and described as credible if not conclusive, suggest there were Russian military movements earlier than had previously been acknowledged, whether routine or hostile, into Georgian territory as tensions accelerated toward war.

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Russia has not disputed the veracity of the phone calls, which were apparently made by Ossetian border guards on a private Georgian cellphone network. “Listen, has the armor arrived or what?” a supervisor at the South Ossetian border guard headquarters asked a guard at the tunnel with the surname Gassiev, according to a call that Georgia and the cellphone provider said was intercepted at 3:52 a.m. on Aug. 7.

“The armor and people,” the guard replied. Asked if they had gone through, he said, “Yes, 20 minutes ago; when I called you, they had already arrived.”

Shota Utiashvili, the director of the intelligence analysis team at Georgia’s Interior Ministry, said the calls pointed to a Russian incursion. “This whole conflict has been overshadowed by the debate over who started this war,” he said. “These intercepted recordings show that Russia moved first and that we were defending ourselves.”

The recordings, however, do not explicitly describe the quantity of armor or indicate that Russian forces were engaged in fighting at that time.

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The Russians still claim to be surprised by the Georgia shelling in the South Ossetia capitol. Of course the Russians are also surprised by the reaction outside of Russia to their disproportionate response to the Georgian action.

The Washington Times reports that the Russian economy is in a steep downturn since the invasion. Some of the decline started before the invasion.

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The RTS index, where Russia's most prominent and liquid companies such as natural-gas giant Gazprom are traded, has declined by 46 percent since its peak in May - 29 percent since August. The Central Bank of Russia has allowed the ruble to depreciate against the dollar and the euro, contributing to an already high inflation rate of 13 percent.

Additionally, the equity-risk premium on investments in Russia has reached a five-year high just above 15 percent - levels last seen at the height of the Yukos affair in 2003, when the Russian government arrested the head of a major oil company on trumped-up charges of tax evasion and forced the company into bankruptcy

The picture has clearly worsened since the fighting erupted inthe Caucasus. Estimates of capital outflow in the past month range between $15 billion and $20 billion.

Doug Rediker, a Russia specialist and former investment banker, now at the New America Foundation in Washington, said the ability to finance debt was more important than the stock market in terms of potential pressure on the Russian government.

"If the Chinese were to stop lending to the United States tomorrow, it would have a severe impact, but we would still have a pool of domestic funds available," Mr. Rediker said. "In Russia, they don't have the means to replace" global lenders.

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I would be reluctant to deal with Russia because of the way Putin has seized business that are profitable. He has a heads I win tails you lose attitude toward all investors.