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Government Announces Deal to Write off Bad Debts

The Government said it has negotiated a deal with banks and non-banking lenders which would lead to writing off of the small debts of more than 600,000 individuals and their removal from the lenders’ “blacklists”, Prime Minister Mamuka Bakhtadze announced at a press briefing on November 19.

PM Bakhtadze explained that the decision will apply to those individuals, whose principal loan balance does not exceed GEL 2,000 (USD 754). The overall amount of such debts is nearly GEL 1.5 billion (USD 564 million), according to the Prime Minister.

“Our decision will pardon this 1.5 billion debt from our citizens,” he noted, adding that the process will last from December 15 to December 31.

PM Bakhtadze did not elaborate on the exact payment scheme, but thanked Bidzina Ivanishvili’s Cartu foundation for its contribution, as well the lending institutions and the debt collection agencies for “sharing” the government’s position and “demonstrating high social responsibility.”

“The decision will enable hundreds of thousands of our fellow citizens to engage in economic and social processes, which will make our economy more stable, and our banking sector healthier,” he said.

“This will release hundreds of thousands of families from their heavy burden; we all agree that eradicating poverty is impossible without eradicating excess indebtedness,” he said.

Prime Minister Bakhtadze also underlined that the matter has been on the agenda of his government and of the ruling Georgian Dream-Democratic Georgia since Bidzina Ivanishvili’s return to the helm of the party.

Finance Minister Ivane Machavariani specified further details at a press briefing on November 19, telling reporters that the scheme will apply to those borrowers who made no repayments for more than one year.

The Mechanism of Write-off

In explaining the mechanism of write-off, Finance Minister Machavariani explained, that the amount (balance, interest and penalty fee) will be entirely covered by Bidzina Ivanishvili’s Cartu Foundation.

Speaking to Pirveli TV, he further explained that Cartu will buy off the bad loans from the banks, and will then proceed towards the decisions to write them off. When asked, the Minister could not specify the amount that Cartu has paid for the bad loans, saying “it is probably their commercial secret”.

Giorgi Kepuladze, from NGO Society and Banks has confirmed, that “Cartu Foundation has bought off the bad loans from all the lender companies and is now in possession of these loans. It can either decide to have them repaid, or write them off.”

Board Chair of the Cartu Foundation, Nikoloz Chkhetiani has confirmed to, that the Foundation indeed “works closely with the Georgian authorities” on this issue, and specified, that they have reserved GEL 100 million for covering bad loans in the current fiscal year, far short of the Government’s announced amount. Chketiani said “he could say nothing” for the foreseen payments in the coming fiscal year.

Direct participation of Cartu Foundation implicates Bidzina Ivanishvili, a founder of Cartu and also of the ruling Georgian Dream Democratic Georgia (GDDG). GDDG is currently contesting the tight second round of presidential polls, to be held on November 28. Watchdogs have criticized the government for the announcements of the social and other programs benefiting vulnerable population between the two rounds.

Reactions from opposition

Grigol Vashadze, presidential candidate of the United Opposition, a coalition led by the United National Movement, said the government’s new initiative is “a desperate” step “driven by fear of defeat [in the elections].”

Vashadze, who has been calling for rescheduling “unfair” bank loans, claimed on November 19 that his team’s promise was to “fundamentally reform” the banking system, while the Georgian Dream authorities “are trying to sell a routine happening as a new initiative.”

“Banks write off bad loans at the end of every year; last year they wrote off more than GEL 70 million. There won’t be any 1.5 billion payment, this is a trick and nothing else,” he stressed.

PM Bakhtadze’s announcement comes two days after ex-President Mikheil Saakashvili pledged to free citizens from “unfair” bank loans, including through rescheduling their outstanding debt and fixing the GEL rate for loan repayment at 1.65 (against USD).

In a press briefing on November 18, Grigol Vashadze called for annulling bad loan debts and removing borrowers from credit blacklists. The ruling party suggested on the same day that Vashadze made the announcement knowing that the authorities were planning to voice the new initiative a day later.

This article has been updated at 19:08 TBS time to precise the government’s role, as helping negotiate the deal between the private entities about a write off, rather than writing off the debts itself, which was not clear at the time of the Prime Minister’s announcement.  A sub-chapter The Mechanism of Write-off as well as the information box linking the suggested to policy to upcoming elections have been added, aiming to better contextualize the reaction of the opposition.

This post is also available in: ქართული (Georgian) Русский (Russian)


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