By Eka Janashia (08/07/2015 issue of the CACI Analyst)
On June 27, Georgia’s parliament passed, in the first reading, a bill that deprives the National Bank of Georgia (NBG) of its supervisory function of financial institutions, assigning these tasks to an independent agency.
The proposal, initiated by the Georgian Dream (GD) ruling coalition a month earlier, has faced a spate of sharp criticism not only from the political opposition but also from influential international financial institutions, civil society and the business sector. President Giorgi Margvelashvili pledged to veto the bill in case it was endorsed.
According to the amendments, a new body – the Financial Supervisory Agency (FSA) – will monitor and conduct oversight of Georgia’s banking sector and financial institutions, a function currently carried out by NBG. A seven-member board, including a representative and the president of NBG, as well as five government nominees, will run FSA after the parliamentary confirmation. The board members, in turn, will name the head of the agency, which should also be approved by the parliament.
The critics of the bill discern political motives behind the proposal, arguing that it is designed to undermine the position of NBG’s President Giorgi Kadagidze, who is affiliated with the formerly ruling United National Movement (UNM) party.
The legislation’s timing coincides with an escalating confrontation between senior GD politicians and Kadagidze. The initial attacks against Kadagidze took place in February last year, when the depreciation of Georgia’s national currency reached a dramatic level. Former Prime Minister Bidzina Ivanishvili lashed out at the NBG president, blaming him for inaction to prevent the currency crisis by using the national reserves (See 03/18/2015 issue of the CACI Analyst). Since then, Kadagidze, whose term in office will expire in February 2016, has become a frequent target of attacks from GD politicians.
Opponents of the bill also question the financial advisability of moving banking supervision from the NBG, arguing that there is no economic and financial rationale justifying the damage implied by the planned changes.
Reputable financial institutions, including the International Monetary Fund, World Bank, European Bank for Reconstruction and Development and Asian Development Bank have warned PM Irakli Gharibashvili and Parliament Speaker Davit Usupashvili that splitting the NBG’s functions will weaken “the independence and quality of banking supervision in Georgia” and challenge both stability in the banking sector and the sustainability of economic growth. In particular, they warn against empowering the parliament to appoint FSA Board members, which will undermine the principle of checks and balances practiced in the current appointment procedures for the NBG Board. Such a shift risks leading to a politicization of banking supervision, damaging its independence and autonomy, the institutions assert.
By contrast, GD argues that the amendments will grant “more independence” to the banking sector. A co-sponsor of the bill, GD MP Tamaz Mechiauri, who chairs the parliamentary committee for finances, explained that the proposal will lead to the de-politicization of NBG’s currently politicized board, which “do not reflect at all the interests of those forces, which are currently in power.”
Against the background of such statements, UNM insists that bill was initiated and backed by Ivanishvili, who aspires to obtain a “key” to the banking sector – the only sector that is not under his control.
The president’s office rejected the bill for its lack of professionalism and also lamented that the way it was elaborated contradicts Georgia’s commitments under the Association Agreement with the EU. According to the 2014-2016 Association Agenda, Georgia is obliged to boost the NBG’s independence by revising its legislation according to EU best practices and with the support of experts including from the European Central Bank. In fact, neither NBG, nor local or foreign experts, or representatives of Georgia’s business community, were invited to participate in the preparation process of the draft bill. Moreover, the sponsors of the bill failed to provide the political, financial and economic rationale justifying the prospective reduction of NBG’s functions and the need for creating a new agency.
If the bill is approved, GD will obtain real levers on the FSA Board, which will increase the perception of political motives behind the new amendments.
The president’s pledge to veto the bill will be largely symbolic since GD is well positioned to override it. The coalition holds 86 seats in parliament – 10 more than it needs to overturn a presidential veto.
Given the overall economic context – decreasing exports and investment as well as a slowdown of economic growth in Georgia, the endorsement of the bill will even further fuel speculations on the government’s agenda vis-à-vis NBG, and will complicate Georgia’s relations with financial donor organizations.
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SHIFTING RUSSIAN POLICIES TOWARDS ALLIED SEPARATIST REGIONS, by Michael Hikari Cecire
AFGHANISTAN-PAKISTAN INTELLIGENCE COOPERATION AND THE PROSPECT OF PEACE, by Sudha Ramachandran
TURKEY-ARMENIA RELATIONS AFTER TURKEY'S ELECTIONS, by Armen Grigoryan
GEORGIA'S POLITICAL LANDSCAPE TRANSFORMS AS SENIOR UNM MEMBERS DEFECT, by Eka Janashia
KYRGYZ PARLIAMENT PASSES "FOREIGN AGENTS" LAW IN FIRST READING, by Arslan Sabyrbekov
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THE RIGA SUMMIT AND NEW PROSPECTS FOR EU-ARMENIA RELATIONS, by Erik Davtyan
By Eka Janashia (06/10/2015 issue of the CACI Analyst)
In May, Georgia’s main opposition party, the United National Movement (UNM), lost four prominent members. Since the 2012 parliamentary elections, over a dozen UNM members have broken ranks but this was the first time long-standing and high-profile associates quit the party.
Zurab Japaridze, Pavle Kublashvili, Goga Khachidze and Giorgi Meladze decided “to establish a new, open political center, to attract and engage political process professionals,” in order to counter pro-Russian forces aspiring to win a majority in the 2016 parliamentary elections. Private consultations with individuals are ongoing and the prospect of cooperation with other political groups is not yet certain, Japaridze said.
According to the former UNM members, the UNM was the only political force capable of challenging oligarch Bidzina Ivanishvili’s “puppet government.” The party peacefully handed over power to the victorious political force after the 2012 parliamentary elections and even survived despite significant pressure from the new government. However, UNM failed to renew itself in order to regain the confidence of the Georgian public. According to a joint statement by the former UNM members, the “Complete renewal and openness of a political force is required for achieving a victory,” implying that the affiliation with former President Mikheil Saakashvili is a major drawback for UNM. In 2013, Saakashvili was re-elected chairman of UNM, apparently putting the party’s ability to renew itself into question.
The four insisted then that they preferred to stay with the party as they felt obliged to contribute to its unity and survival. However, as parliamentary elections are approaching, they now endeavor to “reshape the political spectrum” in order to defeat the “oligarchic rule.”
UNM lawmakers termed the decision an “absolutely irresponsible” move, made at the most decisive moment, and suggested that it was a consequence of the enormous pressure from Georgian authorities. While UNM claims that the party “stands firm” and additional defections from within its ranks is not expected, PM Irakli Gharibashvili asserted that UNM is in a process of disintegration.
Most political analysts say that a new re-grouping among the pro-western parties should be considered normal, given the large number of undecided voters. According to a public opinion survey, conducted throughout Georgia in April by the National Democratic Institute (NDI), 27 percent of the respondents were undecided on which political party they would vote for if parliamentary elections were held tomorrow; 6 percent did not intend to vote at all and 12 percent declined to answer. Several political actors are now repositioning to target hesitant voters, who now compose 45 percent of the electorate.
For example, the recently established social movement Iveria, co-founded by former foreign minister and Saakashvili associate Grigol Vashadze, plans to unite people of different professions and to establish the structure for a political party by the fall. It is composed of former high-ranking officials who occupied different posts during UNM’s term in power but were never actual members of the party.
Meanwhile, the Free Democrats, once a part of the ruling Georgian Dream coalition, did not exclude cooperation neither with the four former UNM lawmakers, nor with Iveria. The re-composition of pro-western political forces could well be a tactical maneuver aiming to introduce a new political coalition detached from Saakashvili’s leadership.
Nevertheless, it is not clear to what extent the moves of these former Saakashvili confidantes will convince potential voters. Japaridze might be an exception in this regard, as he joined the UNM after the recent parliamentary elections and then became the party’s executive secretary in September 2014. In contrast, the remaining three have long been prominent UNM members and Saakashvili allies. Kublashvili was chairman of the parliamentary committee on legal affairs in the previous parliament, while Khachidze was Minister of Environment Protection and Natural Resources in Saakashvili’s government. The same can be said for high-profile officials now converging around the social movement Iveria.
However, rumors about the UNM’s disintegration and its disappearance from the political scene are likely exaggerated. The UNM is a party with great managerial skills and has shown an ability to deal with the challenges it has faced over the last few years. From the Rose Revolution in 2003 to its current role as an opposition party, the UNM has managed to keep a reasonable degree of unity. Despite the vast public discontent in 2007 and the war with Russia in 2008 and its painful implications, the UNM preserved the legitimacy to run the country. After handing over power to the winning coalition, the party was subjected to intensive pressure. Former Prime Minister and UNM Secretary General Vano Merabishvili, former Defense Minister Bacho Akhalaia, as well as former Tbilisi Mayor Gigi Ugulava were arrested and sentenced while pre-trial detention in absentia has been ordered for Saakashvili. Despite these setbacks, the UNM has yet to fall apart.
Given its high disapproval rating, the party has focused on international issues with a focus on Ukraine, and has sent several officials and experts to advise the Ukrainian government. On May 30, Ukrainian President Petro Poroshenko appointed Saakashvili chairman of the state administration (governor) of Ukraine’s Odessa province.
Apparently, the UNM expects to contribute to Ukraine’s withdrawal from the Russian orbit, in turn helping Georgia to sustain its Euro-Atlantic path, and by extension to regain public confidence in the UNM at home. According to Saakashvili, “If Odessa ever falls, God forbid, then Georgia might be wiped out from the map.”
The Central Asia-Caucasus Analyst is a biweekly publication of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Transatlantic Research and Policy Center affiliated with the American Foreign Policy Council, Washington DC., and the Institute for Security and Development Policy, Stockholm. For 15 years, the Analyst has brought cutting edge analysis of the region geared toward a practitioner audience.