It seems the Georgian parliament’s adoption of the controversial “foreign agents” law merely marks the end of the beginning of the confrontation over the country’s political direction. Both the government and its critics are now mobilizing for what is shaping up as a winner-take-all struggle. 

Civil society groups that stand to be most impacted by the law, which will require all organizations receiving more than 20 percent of annual funding from foreign sources to list their operations as “bearing the interests of a foreign power,” are not just refusing to surrender – they are gearing up for a desperate fight ahead of parliamentary elections, scheduled for October. 

A consortium of Georgian non-governmental organizations says the Georgian legislation mimics a law in Russia used by Vladimir Putin’s leadership to stifle dissent. NGO leaders also contend that in adopting the “foreign agents” law, the Georgian Dream-dominated government is signaling that it is no longer interested in working toward European Union accession, as is mandated by Georgia’s constitution. Lithuanian Foreign Minister Gabrielius Landsbergis is one of many EU officials who have stated in recent days that the adoption of the law “will stop Georgia’s further progress on EU [membership].” 

“This attempt to establish Putin’s rules in Georgia is a betrayal of all our ancestors and compatriots,” said a May 16 statement issued by the NGO umbrella group. 

“We declare once again that the Georgian people will not accept Russian laws, violent rule and separation from the Western world,” the NGO statement continued. “The will of the Georgian people is unwavering. Our ship is headed for Europe. We repeat once again – the government must withdraw this law unconditionally.” 

Shockwaves have roiled Georgia’s economy since parliament adopted the law on May 14. Leaders of government-connected firms are supporting the legislation, but many small- and medium-sized business owners are siding with opponents of the measure. 

A statement issued in April by the Business Association of Georgia, an organization uniting mostly large enterprises, adhered to government claims that the “foreign agents” law would boost transparency and thus would not derail Georgia’s EU membership bid. On May 13, another, smaller group of entrepreneurs, Women for Tomorrow, reaffirmed a statement from last year opposing the law, asserting that it threatens the “interests of the country.” 

The markets are saying the “foreign agents” law is bad for business. On May 15, the day after the bill passed its third and final reading, the exchange rate for the Georgian lari plunged against the US dollar, then rose slightly the following day after the National Bank of Georgia intervened to stabilize the currency, announcing that it had sold $60 million worth of the country’s reserves.

Meanwhile, on the day after the law’s passage, shares of the country’s two biggest banks, TBC and Bank of Georgia, were down by 12 percent and 15 percent respectively on the London Stock Exchange. Shares of Georgia Capital, a holding company that invests in Georgian businesses, were down 9 percent.

Signs of economic disfavor were emerging even before the law’s passage. Total foreign direct investment saw a 24 percent decrease last year, from $2.1 billion in 2022 to $1.6 billion in 2023, and some in the business community have wondered aloud whether the government was jeopardizing the country’s EU bid. 

Concerns are also rising in some quarters that Georgian Dream has opened the door for an influx of dark money after parliament amended the tax code in April to provide a tax holiday for anyone transferring funds from offshore havens back to Georgia. Observers say the move is designed to counter the potential imposition of sanctions by the United States and EU against Georgian Dream leaders, in particular the party’s honorary chairman, billionaire Bidzina Ivanishvili. Transparency International’s Georgia branch said that the amendments “increase the risk of the inflow of capital of criminal and Russian origin into Georgia.” 

Bank of Georgia CEO Archil Gachechiladze, attending an investment conference in Yerevan, Armenia, was quoted by industry publication The Banker as saying the drop in share price was “harsh.” But he held out hope a compromise could be found enabling a fast market rebound. “There is a middle ground that should be found,” he said, referring to the potential for amending the foreign agents legislation in a way both the government and opposition could accept. 

The likelihood of a compromise, however, is slim to none, given the existing level of mutual rancor and distrust. President Salome Zourabichvili, in interviews with foreign media outlets, ruled out the possibility of negotiations, insisting that no amount of amending can salvage the legislation. 

Georgia is quickly reaching a point where there will have to be a clear winner and loser in the struggle for the country’s geopolitical soul. Zourabichvili, speaking to Western news outlets in recent days, said the upcoming parliamentary elections will determine the outcome. “The elections will be like a referendum in which the people will decide and vote whether they want a European or Russian future for the country,” the Civil.ge news outletcited Zourabichvili as saying.