By Margarita Antidze

TBILISI, March 17 (Reuters) - The European Bank for Reconstruction and Development said on Wednesday it would lend Georgia $300 million in 2010 and cautioned that the country continues to face "political questions" deterring investors.

EBRD President Thomas Mirow, visiting Georgia as part of a South Caucasus tour, said the bank's forecast of 2.0 percent economic growth in the former Soviet republic in 2010 was, unchanged.

The EBRD has pledged a loan of 100 million euros for new railway construction and 80 million euros to build the Black Sea high voltage electricity line connecting Georgia and neighbouring Turkey.

The new section of railway would allow traffic on the east-west freight line used for transporting oil products from Azerbaijan to bypass the capital. Mirow said the rest of the $300-million package of loans would be spent on Georgia's real economy and banking sector.

In an interview with Reuters, he encouraged the Georgian authorities under President Mikheil Saakashvili to demonstrate stability in order to encourage investors to return after a period of war and prolonged political uncertainty.

"Georgia would always face political questions in terms of how stable and secure the situation is," Mirow said. "The more evidence that authorities can provide on this the better it would be."

"LONG-TERM MONEY"

A five-day war with Russia in August 2008 and months of subsequent political instability compounded the effects of the global economic crisis, slamming the brakes on years of healthy economic growth.

The investment-driven economy contracted 4 percent in 2009 faced with a 52 percent drop in foreign direct investment year-on-year to $759 million. Remittances fell 25 percent last year.

Analysts are warning of further instability if the opposition disputes the results of a mayoral election in the capital Tbilisi in May -- hotly contested as a barometer of support for the government.

Improving Georgia's infrastructure and business environment would also be key to attracting investors, Mirow said.

"Yes, there is a light at the end of the tunnel. What will be important is to rebuild trust and especially to try to convince investors to put long-term money into Georgia."

Experts say foreign investment will prove vital for Georgia when it runs out of $4.5 billion in international aid and loans pledged after the war up to 2011. Mirow said some of that lending would last beyond 2011.

"One issue which probably is at stake is the question whether there could be a deeper local capital market with more local currency financing," he said.

(Editing by Stephen Nisbet)

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