Parliamentary committees discussed on June 25 a highly controversial bill that would strip the Georgian National Bank of supervisory functions of financial institutions and transfer them to a separate agency.
After a three-hour long hearing held jointly by four committees, members of the parliamentary committees for legal affairs, economic policy, finances and procedural issues, endorsed the bill for discussion with its first hearing at a parliamentary session on the condition that sponsors of the proposal take into consideration their critical remarks.
The bill, sponsored by two lawmakers from the Georgian Dream parliamentary majority group, Tamaz Mechiauri and Nodar Ebanoidze, was first presented a month ago and came under heavy criticism – the President warned he would veto it; business associations said it would put country’s banking sector in jeopardy and the International Monetary Fund expressed concern that it would put central bank’s “independence at risk.”
Since then the launch of parliamentary hearings of the bill, which was backed by ex-PM Bidzina Ivanishvili, was delayed, and sponsors of the initiative engaged in series of consultations with stakeholders. Although sponsors have agreed to revise some clauses of the bill, key part of the proposal to have a separate supervisory agency remained unchanged.
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Shortly after the parliamentary committees endorsed the bill for further discussions by the legislative body, President’s economic adviser, Giorgi Abashishvili, a staunch critic of the proposal, released a statement condemning the move.
He said that the move violates Georgia’s commitments under the Association Agenda with the EU as the legislation related to the central bank is being amended without prior consultations with the European experts.
Association Agenda, which sets priorities for the period of 2014-2016 with a view to facilitate the implementation of the Association Agreement between Georgia and the EU, says that the parties will cooperate to “strengthen the independence of the National Bank of Georgia (NBG), including by reviewing the central bank legislation in line with best EU practice, including with the support of EU expertise, also from the European Central Bank (ECB).”
The bill envisages setting up of the Financial Supervisory Agency, which will 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 the central bank.
According to the bill, the Financial Supervisory Agency will have seven-member board; candidates for six seats will be nominated by parliamentary speaker, parliamentary factions and a group of at least six lawmakers and then confirmed by the Parliament. Central bank governor will be an ex-officio member of the board, but will have no right to also serve as a chairperson of the board. Chairperson of the board will have the right to appoint head of the agency, according to the bill.
Co-sponsor of the bill MP Tamaz Mechiauri, who chairs the parliamentary committee for finances and budget, says that a separate agency is needed because the current leadership of the central bank, which took office under the previous government, is “politicized” and “does not enjoy public confidence.”
“Currently not a single agency, enjoying with public confidence, has access to information [related to banking sector]. Therefore the need for a model has emerged… which would take into consideration this reality that we now have,” MP Mechiauri said during the committee hearings on June 25. Last month he also said that central bank’s current board and its governor Giorgi Kadagidze “do not reflect at all interests of those forces, which are currently in power.” All but one members of the central bank’s seven-seat board, including Kadagidze, were elected when UNM opposition party was in power. Central bank’s board members are nominated by the president and confirmed by the Parliament.
One of the main reasons of criticism of the bill is that, according to opponents, the proposal is motivated by political rather than economic reasons.
Speaking during the parliamentary committee hearing on June 25, opposition MP from UNM party, Zurab Melikishvili, said that the only reason behind the proposal is GD ruling coalition’s attempt to “further disembowel” the central bank because it is headed by Giorgi Kadagidze.
Kadagidze, whose seven-year term in office will expire in February 2015, has been a frequent target of attacks from GD politicians since the national currency, lari, started to depreciate. Since November, 2014 lari lost 28.4% of its value against U.S. dollar.
“[Eight] months are left [before Kadagidze’s term expires]; let’s wait and there will be a new president [of the central bank]; let’s not destroy this system. How do you think this step will affect on lari? It will directly hit financial stability,” UNM MP Melikishvili said.
Another UNM lawmaker, Sergo Ratiani, said that this proposal “is a direct order coming from Ivanishvili.”
MP from opposition Free Democrats (FD) party, Davit Onoprishvili, who chaired parliamentary committee for finances and budget before his party went into opposition, also criticized the bill and said that sponsors failed to present any rational argument in favor of the proposal.
Criticism was also voiced by some GD lawmakers. Chairman of the parliamentary committee for legal affairs, Vakhtang Khmaladze, said that some of the clauses of the bill were not fully in line of the constitution.
Before the end of the hearing, co-sponsors of the bill requested a break to prepare their position over the critical remarks voiced during the hearing.
When the hearing resumed, MP Mechiauri said that he would accept a proposal to change the rule of selecting Financial Supervisory Agency’s board members.
He said that the revised bill will include a new rule, according to which two central bank board members, instead of one, will take seats in seven-member board of the planned new agency; five other candidates, he said, would be nominated by the government, instead of the parliamentary factions and parliament speaker; nominations will then have to be confirmed by the Parliament. He also said the head of the agency would also be confirmed by the parliament, instead of being appointed by the chairperson of agency’s board.
In other changes to the bill, MP Mechiauri said that he would introduce provision that would guarantee full access of the central bank to the information available in the Financial Supervisory Agency; give central bank chief final say in setting of minimum reserve requirements for banks; and in case of a complaint, decision of the agency can be appealed directly to the court.
All these changes have yet to be reflected in the bill, which before going into force has to be approved by the Parliament with three separate readings and then signed into law by the President. In case of a presidential veto, the Parliament will need at least 76 votes to override the veto.