Monica Ellena in Tbilisi -

Georgia’s business community is up in arms against a proposed bill that envisions stripping the National Bank of Georgia (NBG) of its banking supervisory functions and transferring them to a separate agency.

The move is driven by frustration by some politicians at the central bank's current board members appointed by the previous government, who are being blamed for their failure to stop the currency falling almost 30% since November. However, such a drastic action against the NBG is seen by many as a threat to the central bank’s independence and could have significant repercussions on the country’s hard-won confidence by investors in its business environment. 

If approved – and that’s a big if, because the bill has to go through parliament and be approved by the president, whose economic advisor has already hinted a veto is in the offing – the law would mean that from July 1 a separate Financial Supervisory Agency will be charged with monitoring and supervising the banking sector and other financial institutions. These functions are currently carried out at the department level within the central bank. The agency will have a seven-member board, appointed by parliament, plus the NBG governor as ex-officio member. The governor, though, will have no right to serve as chairman of the board. 

Five of the country’s most prominent business associations on May 25 slammed the proposal in a joint statement, stating that the “essence is to deprive the National Bank of the supervisory function of the financial sector”, which “poses a problem not only to the banking system, [but also] it largely affects the country’s business and investment environment, the formation of which often takes years and decades.”

Criticism has also come from President Giorgi Marghvelashvili whose economic adviser, Giorgi Abashishvili, said that the bill could have adverse effects because it seems to be politically motivated. “Such a proposal is surprising – what are the economic motives behind it? We think that there are political reasons. Political games are inadmissible in the economy; they will harm the economy,” he stated.

The proposed changes, if adopted, would also further “weaken” the president’s powers, affirmed Abashishvili, particularly with respect to his role in appointing the central bank’s chief.

A political motive behind the move is not difficult to discern. One of the lawmakers, MP Tamaz Mechiauri from the Georgian Dream-Democratic Georgia party, who has been appointed chairman of the parliamentary committee on economy and finance, told Maestro TV that members of the central bank’s board “do not reflect at all the interests of those forces that are currently in power,” and claimed that “they still continue pursuing the interests of the previous authorities who appointed them.”

Former prime minister Bidzina Ivanishvili, Georgia’s richest man who is believed to be still pulling the government’s strings, has accused the central bank’s governor, Giorgi Kadagidze, of failing to support the national currency.

Kadagidze, whose mandate expires in early 2016, remains the only high-ranking official left from the previous administration of former president Mikheil Saakashvili. The central bank chief has labeled the attack on the bank as “a slanderous campaign” and “blame-shifting”, citing as evidence that international financial institutions have supported the central bank’s policy of low intervention in the forex market. Kadagidze affirmed that draining the central bank’s reserves would be “the wrong policy decision”.

Mechiauri’s remarks echo suspicions – also voiced by other members of the cabinet, namely Energy Minister and Deputy Prime Minister Kakha Kaladze – that speculation by some commercial banks is one of the main reasons behind the depreciation of the Georgian lari. On May 16, the NBG governor dismissed such views, saying such “unfounded suspicions” are designed to make the country’s banking sector “a scapegoat” for the lari’s troubles that originate from “economic problems, caused by number of external and internal factors”.

Georgia’s business community has been a calling for “significant reforms” to stimulate the economy, including reforming the tax system, establishing a private pension system, and developing the local capital markets.