Everything you need to know about the new debt cancellation programme in Georgia
The Georgian government recently announced that it intends to write off the debts of 600,000 people who have been blacklisted by banks.
The total amount of the debt is 1.5 billion lari (about 560 million dollars), which should be written off by the end of the year if all goes according to plan.
The Cartu Foundation of the ruling Georgian Dream party chairman Bidzina Ivanishvili will be footing the bill.
Whose debts will be cancelled and how?
1). Only the debts of physical entities will be cancelled.
2). Only sums not exceeding 2,000 GEL or about $750.
3). Only the debts of those who have not made payments in the past year will have their debts cancelled.
4). The programme does not apply to secured loans (pawnshops, mortgages, etc).
5). The programme applies only to customers of banks and microfinance organisations that have agreed to participate. The authorities and the Cartu Foundation were unable to reach an agreement with the largest online loan company, Vivus.ge. Their customers will not have their debts cancelled.
6). If all criteria are met, all debts will be cleared – for example, if someone has four loans of 500 GEL, all four will be written off.
This does not mean that the debtor will be removed from the blacklist and will again be given a clean credit history. Despite the cancellation of loans, data on debtors will be stored for a period of five years. Thus, it will be difficult for customers to get a new loan.
On 3 December, a special web page was launched by the Ministry of Finance, where citizens will be able to check their credit history and learn more details about the debt relief programme.
Why are debts being cancelled? The authorities’ arguments
The fight against “over-indebtedness” is the main argument that the prime minister cited when announcing the new programme.
The authorities say that the population of Georgia has recently accumulated numerous debts and place the responsibility for this with banks, which allegedly distribute loans irresponsibly at high interest rates. The government is trying to fight this by introducing new regulations that restrict lending. In particular, banks will be required to check the financial activity of their customers more thoroughly.
The new rules were to enter into force on 1 November. However, they have been put off until next year.
Ivanishvili himself spoke about the excessive debt issue in Georgia earlier this year when he returned to politics.
PM Mamuka Bakhtadze also noted that, after the Russian occupation, the second largest problem in Georgia is poverty, and that overcoming it via a policy of debt cancellation will help solve this problem.
According to a study by the United Nations International Children’s Emergency Fund (UNICEF), 21.7 per cent of the population of Georgia lives below the poverty line, including 27.6 per cent of children and 17.6 per cent of pensioners.
The study notes that from 2015 to 2017, the poverty rate in Georgia increased by two per cent.
An Oxfam study shows that more than half of the population of Georgia does not have enough money for food, and every fifth family buys food in debt.
Finance Minister Ivane Machavariani argues that zeroing out debts, coupled with a restriction on issuing new loans, will help reduce poverty.
What is Ivanishvili paying for?
Government officials have emphasised and praised the role of the leader of the Georgian Dream party Bidzina Ivanishvili in the debt cancellation programme.
However, the opposition and NGO sector has seen political motive behind his actions.
Economists have noticed that Ivanishvili’s Cartu Bank is the leader among Georgian banks when it comes to giving out such bad loans. Of a total loan portfolio of 815 million lari, 35 per cent consists of bad debts. Thus, Ivanishvili himself is the largest beneficiary of the programme.
Expert opinion: “We’ll get an even bigger blacklist”
Many experts have reacted critically to the government programme – economist Gia Khukhashvili noted that this action will encourage “irresponsibility syndrome”.
“We’ll get an even bigger blacklist. People will immediately run to take out new loans, and honest payers will receive an incentive to stop paying and wait for the next political crisis. This all hurts the economy,” says Khukhashvili.
Economist Zviad Khorguashvili believes that participation in the programme of the Ivanishvili Foundation is a pre-election populist trick and ultimately these debts will be a burden on the state and the treasury:
“In fact, its common knowledge that Ivanishvili will never pay a cent from out of his own pocket. He has never done this before. It is highly likely that the money spent will have to be compensated by either private businesses or the state budget.”
“This is voter buying”
The fact that the programme was announced only nine days before the presidential elections is a gross violation of the law, say NGOs.
“The debt cancellation initiative is likely an unprecedented payoff of voters,” reads a statement from the three most influential NGOs in the country: the Georgian Association of Young Lawyers, International Transparency Georgia and Fair Elections.
On 28 October the first round of presidential elections was held in Georgia. The second round will take place on 28 November.
In the first round, government-supported candidate Salome Zourabichvili garnered 38.64 per cent of the votes, while her main rival, opposition leader Grigol Vashadze, won 37.73 per cent of the vote.
One of the leaders of the European Georgia opposition party, Giga Bokeria, called the programme “a false promise” and a “classic example of bribing”.
“The main thing is that Ivanishvili, as in 2012 (when his party came to power), is deceiving the people in saying that it will overcome poverty. In fact, all his steps and policies only aggravate it [poverty],” said Bokeria.
The United National Movement opposition party says that the government has “stolen” their plan to write off the public’s debt. However, the opposition has also said that the promises of the authorities are vague and only serve to attract voters.
Political analyst Gia Nodia wrote on his Facebook page that the authorities took this step only because their candidate lost in the first round and now the Georgian Dream party is trying to survive:
“We need to see the good: congratulate 600 thousand people who have freed themselves from the heavy burden. Congratulate the country, because this burden did not fall on the treasury. Congratulate the economy, which, probably, will benefit from the removal of the problem of excess debt (at least for a while). We conclude: billionaire Ivanishvili spends money to help people only when they do not vote for him. While they voted for him (or he hoped they would vote), he did not spend anything. We repeat once again: if you had voted for him in the first round, you would not have your debt written off. It is being written off because you did not vote [for his candidate]. Keep this in mind for the future.”
Government authorities unanimously claim that the debt cancellation programme simply coincided with the second round of elections, and that it had been planned in advance.