A screengrab from President Giorgi Margvelashvili’s televised address, announcing vetoing a bill on banking supervision on July 31, 2015.

President Giorgi Margvelashvili has vetoed a highly controversial bill on removing banking supervisory functions from the Georgian National Bank (NBG).

The veto, which was expected, is likely to be overturned by the Parliament, where the Georgian Dream ruling coalition holds 86 seats. At least 76 votes are needed to override the presidential veto.

The bill has faced a chorus of criticism from international financial institutions, business associations, opposition parties, a group of civil society organizations and from NBG itself.

In a televised announcement about his decision to veto the bill, President Margvelashvili said on July 31 that he has been critical towards both “the hasty process” through which the bill was adopted and “its content.”

The President has also sent to the Parliament his objections in a form of an alternative bill, which Margvelashvili said, provides “an optimal option” for addressing the issue of banking supervision.

“The presidential veto is not an instrument for a political confrontation,” he said. “Veto is a constitutional mechanism to promote cooperation between Parliament, President and the government when we can have more efficient legislation... and to jointly give the country better solutions.”

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President Margvelashvili said that the Parliament-adopted legislative amendments concern NBG, whose work is “highly evaluated” by the international financial institutions. He said that no enough arguments were presented by sponsors of the bill to substantiate the need for such legislative amendments.

“We have stressed for numerous times the importance of the state institutions and the need to treat them carefully,” he said.

“We have also been noting that hasty decisions may have an impact on country’s macroeconomic stability and efficient implementation of monetary policy,” President Margvelashvili said.

“We have also been noting that as a result of these changes, NBG’s constitutional functions to facilitate efficient operation of the financial sector may be questioned.”

“Because of these [reasons] I have decided to veto this package of bills,” he added.

The bill envisages setting up of the Financial Supervisory Agency, which would be in charge of monitoring and oversight of banking sector and other financial institutions; these functions are currently carried out by departments, which are part of NBG.

According to the bill, the planned Financial Supervisory Agency would be governed by a seven-member board. The president of the NBG and one more member of the central bank’s board would take two seats and the five other seats would be occupied by candidates nominated by the government and confirmed by parliament. The head of the agency would be nominated by board members and confirmed by parliament.

One of the main criticisms of the bill is that according to opponents, the proposal is politically motivated, not economically. The bill was initiated in late May amid attacks from GD senior politicians against NBG President Giorgi Kadagidze. The central bank chief, whose seven-year term in office will expire in February 2016, has been a frequent target of attacks from GD politicians after the depreciation of national currency, lari, due to the strengthening of the U.S. dollar and the decline of external earnings in the form of reduced exports and remittances.

In a joint letter to PM Irakli Garibashvili and Parliament Speaker Davit Usupashvili, in late June, the International Monetary Fund (IMF); European Bank for Reconstruction and Development (EBRD); Asian Development Bank (ADB), and the World Bank said in “Georgia’s case, moving banking supervision out of the NBG does not seem prudent.” The latter also lays out those concerns, which international financial institutions deemed necessary to be addressed if the authorities were “determined” to anyway proceed with adoption of the bill.

GD lawmakers and government said that in order to put the bill in line with international financial organizations’ recommendations, the initial bill was amended before it got final approval from the parliament.
 
But IMF resident representative to Georgia, Azim Sadikov, said in an interview with the Tbilisi-based Maestro TV this week that some issues still remain unaddressed.

Economy Minister Giorgi Kvirikashvili said on July 30 that the government will propose further amendments to newly adopted bill in September to include “most of the additional comments” provided by the IMF.

One remaining sticking point, Kvirikashvili acknowledged, is about the transition period. 

The new Financial Supervisory Agency should be operational within one month after the bill goes into force.

“The only issue… which cannot be accepted is to prolong transition period up to nine months,” Kvirikashvili said.

He said that two departments, currently part of the NBG, would be transferred with its current staff to the new agency to secure smooth transition. “Therefore, technically, there is no reason” to delay bill’s entry into force, Kvirikashvili said.

The veto is accompanied by President’s objections and an alternative bill, which Margvelashvili said, his office drafted in consultations with the international financial institutions and the EU.

“This [alternative] bill strengthens NBG’s independence and its makes its supervisory functions even more efficient,” the President said.

“In the existing situation [the alternative] bill is an optimal option for the country,” Margvelashvili added.

He also noted in his speech government’s decision to propose in September further amendments to the bill to further reflect recommendation from the international financial institutions in the legislation. Margvelashvili said that the alternative bill offered by the president’s administration already envisages all the recommendations of the relevant stakeholders.

He expressed hope that the lawmakers will “thoroughly” discuss the issue and “will give better and balanced legislation to the country by adopting the alternative bill, proposed by us.”

Co-sponsor of the bill and Chair of the Parliamentary Committee on Finance and Budget, GD MP Tamaz Mechiauri slammed Margvelashvili for vetoing the legislative amendments. Along with some other senior GD lawmakers, Mechiauri said that Margvelashvili’s decisions are now in line with the position of opposition UNM party.

“He plays president,” MP Mechiauri said. “He was not elected by voters; he was elected by Bidzina Ivanishvili and people voted for him [Margvelashvili] because of Ivanishvili.”

Vice-speaker of Parliament GD MP Manana Kobakhidze, said President Margvelashvili’s decision to veto the bill is “part of UNM’s agenda.”

“I regret that the positions of the president and UNM often concur,” she said.