Mikheil Daushvili: “The Georgian Dream subjected the National Bank to a party vertical.”

Verdict: FactCheck leaves Mikheil Daushvili’s statement WITHOUT A VERDICT.

Resume: According to the Constitution, the National Bank is an independent institution which determines the government’s monetary policy. The National Bank is prohibited from lending money to the government and the government is prohibited from interfering in the activities of the National Bank.

The Board of the National Bank consists of nine members and they are approved by the Parliament upon the nomination of the President of Georgia. Board members elect the president from among their ranks. Before the recent legislative changes, the president of the National Bank used to have three vice presidents.

In February, the Parliament introduced a new position - the post of the first vice president and Salome Zurabishvili vetoed this change. In June, the Parliament overcame the veto. The former Minister of Economy, Natia Turnava, became the first vice president and, therefore, the acting president and the number of vice presidents temporarily (until the term of one of the vice presidents expires) increased to four.

In addition to Natia Turnava, the former Deputy Minister of Finance, Nikoloz Gagua, and the former Deputy Minister of Economy, Ekaterine Mikabadze, have been members of the National Bank Board since 2021. The Parliament had no issue whilst approving them, although in 2019-2023 the legislative body rejected four other candidates nominated by President Zurabishvili. The Georgian Dream also demanded the nomination of Lasha Khutsishvili, the current Minister of Finance, as a candidate for the membership of the board which Salome Zurabishvili refused to do. Accordingly, three out of seven incumbent members of the National Bank’s board are former ministers or former deputy ministers. FactCheck will not assess the degree of the independence of the aforementioned persons. However, despite the fact that they are not members of the Georgian Dream, their activities were closely related to the government which, together with the dubious process of electing new members, certainly creates a reasonable ground for raising questions about the independence of the National Bank which in fact is the spirit of Mikheil Daushvili's statement. However, the aforementioned conclusion is a part of a political assessment and according to FactCheck’s methodology, it is not subject to an assessment with a verdict. Accordingly, FactCheck leaves the statement without a verdict and limits itself to an analysis of the situation alone.

Analysis

On 27 June 2023, at the plenary session of the Parliament of Georgia, For Georgia party member, Mikheil Daushvili, stated (from 1:18): “This body, this extremely important institution, a state institution which is the National Bank and which is entrusted with the economy and inflation and is in fact responsible for those issues, you directly subjected this institution to a party vertical.”

The National Bank of Georgia is the country’s most important institution. Its functions and structure are briefly outlined in Article 68 of the Constitution of Georgia and more extensively in the Organic Law of Georgia on the National Bank. In addition, the National Bank has to ensure the stability and the transparency of the financial system as well as contribute to the sustainable economic growth in the country as its major tasks. The list of the National Bank’s functions is also extensive.

1. Developing and implementing a monetary policy and exchange rate policy.

2. Supervising the financial sector.

3. Owning and disposing of international reserves.

4. Acting as a banker and fiscal agent of the Government of Georgia.

5. Facilitating secure, sustainable and effective functioning of the payment system.

6. Issuing the currency of Georgia.

7. Producing and disseminating the financial and external sector statistics.

8. Participating in the preparation for the crisis situations and crisis management.

In addition to commercial banks and microbanks, the supervision of the financial sector also includes microfinance organisations, pawnshops, currency exchange booths, etc.

Taking into account its broad range of functions, the high degree of independence of the National Bank, in addition to purely legislative obligation, is essential for stable development.

The banking sector is a rare exception where Georgia has achieved tangible success. Despite the high interest rates on loans after the 1990ies, depositors did not lose their money either during the war or under any other political crisis of the time. In addition, despite double-digit inflation in 2021-2022 (annual inflation in 2021 was 9.6% but in November-December it already reached 13.9% of the growth rate of prices), the growth rate of consumer prices was higher in some EU states than in Georgia during the same period.

In order for the National Bank to function properly, the board should be staffed with professional and independent personnel. The same is required for the president of the National Bank.

The opposition has no questions regarding the professionalism of the incumbent members of the board. The questions that are raised are about the political bias of some individual members given their past. The minister and deputy ministers are associated with a political team which increases the risk of political pressure or even political influence when making a decision.

As of July 2023, there is no evidence that the National Bank was politically motivated in its monetary policy when making decisions about tightening, currency interventions or any other issues over the past two years.

The fact that in 2019 the Parliament rejected two candidates - Giorgi Khishtovani and Giorgi Mirotadze - raises doubts. In 2023, Giorgi Bakradze and Dimitri Japaridze were also rejected. In the last case, the members of the parliamentary majority confirmed the competence of the candidates, however, they noted that the reason for their rejection was the fact that their candidacies were nominated without first consulting the Georgian Dream.

At a time when three out of seven (there are two vacant spots on the National Bank’s board which has a total of nine) are already occupied by former ministers and former deputy ministers, the ruling party tried to nominate Lasha Khutsishvili, the current Minister of Finance, which would potentially further weaken the independence of the National Bank.

The fact of overcoming the veto raised questions about the emergence of possible political influences which was opposed not only by the local opposition but also by the IMF. The opposition thought that the changes were made exclusively for Natia Turnava. Before the board elected Natia Turnava as the first vice president, Roman Gotsiridze predicted a similar development of events.

On 2 March 2023, the term of office of the President of the National Bank, Koba Gvenetadze, expired. Vice President Archil Mestvirishvili performed his duties for three and a half months, whilst Natia Turnava, First Vice President, is the interim President from 22 June. In the first three weeks after taking office, Ms Turnava has not yet made any important decisions that would allow for even a preliminary assessment of her activities.

As of July 2023, there are two vacant spots on the nine-people-strong National Bank board whilst another two spots will become vacant in December as the tenure of Archil Mestvirishvili and Robert Singletar (foreign nationals are also allowed to be members of board of the National Bank). If the president and the Parliament fail to reach an agreement on new members, five members of the board are legally entitled to continue work. According to the law, five members is a necessary minimum. In the case of reaching an agreement, the board members are allowed to nominate a candidate from their ranks for the position of president of the National Bank and present this nomination to the President of Georgia.

Whether or not Salome Zurabishvili will nominate candidates for membership of the board to the Parliament, who they would be, whether or not the Parliament will approve them and, most importantly, what decisions will be made by the board and the National Bank’s president are factors which will provide more opportunities for an objective assessment in the future.