The Cartu Foundation, controlled by Georgian billionaire oligarch and chair of the ruling Georgian Dream party Bidzina Ivanishvili, is to buy a bundle of bad loans owed by small debtors worth GEL1.5bn ($560mn, equivalent to 3.5% of Georgia’s GDP), Prime Minister Mamuka Bakhtadze announced on November 19.
The move is raising eyebrows among critics who wonder whether Ivanishvili is attempting to secure a political dividend to the benefit of his party’s endorsed candidate in the presidential election runoff set for November 28.
A group of NGOs, including the Georgian Young Lawyers’ Association, Transparency International Georgia and the International Society of Fair Elections and Democracy, has called on the Prosecutor’s Office to investigate the Ivanishvili purchase of the in-default debts. The NGOs have stated that the initiative is aimed at buying votes and therefore should be probed.
The acquisition of the loans from banks and micro-finance institutions may possibly be completed for less than 10% of their nominal value. Details of the Cartu loans purchase programme would be finalised in December, finance minister Ivane Machavariani said.
“Negotiations with banks and other financial institutions have already been held regarding the current issue of excessive debts,” the PM added.
Zurabishvili vs Vashadze
In the runoff, Salome Zurabishvili, backed by Georgian Dream (seen as Big Tent but self-described as centre-left) risks losing to centre-right opposition candidate Grigol Vashadze. The two received a similar number of votes in the first round of the election, but Vashadze is expected to benefit from many supporters of other opposition candidates transferring their allegiance in the second round.
It is not the first time that Ivanishvili has used the Cartu Foundation to assist people during and around an election campaign. In 2012, the foundation extended financial support to those who had fallen victim to “authorities’ political repression” allegedly at the hands of the ruling regime under then president Mikheil Saakashvili. Ivanishvili’s Georgian Dream won the parliamentary elections in that year and Ivanishvili became PM. The following year, Georgian Dream’s candidate Giorgi Margvelashvili won the presidential election. Prior to the vote, Cartu financed programmes for small farmers.
The foundation has already set aside GEL 100mn for the bank loan forgiveness programme, chairman of the supervisory board at Cartu Nikoloz Chkhetiani said. Given the low quality of the consumer loans backed by no collateral, this might actually turn out to be the final price for the whole bundle of debt. But this depends on the arrangements reportedly "already completed" between Ivanishvili and the banks.
Bankers have defended Ivanishvili’s move, which will help banks clear their balance sheets of bad loans. The details of the programme have not yet been released and might remain confidential since “this is a private agreement”, the prosecutor’s office has noted. Cartu will very likely buy the bad loans at a discount. Loans of a similar quality are typically purchased at less than 10% of their nominal value in Central and Eastern Europe.
The Association of Banks of Georgia released a statement on the writing off of the debts of more than 600,000 individuals.
“The banks operating in Georgia and the Cartu Foundation have completed preliminary talks on selling the portfolio of overdue debts. The portfolio mainly consists of small debts, which became delinquent prior to January 1 of 2018 and meet the following criteria: the principal loan does not exceed GEL 2,000 ($755), the loan was continuously overdue by November 19, 2018 and the loan is not secured or is secured by movable assets.”
The final lists of overdue credit liabilities subject to the purchase agreement are being elaborated and will be completed by December 3, in accordance with the terms of the agreement reached between the banks operating in Georgia and the Cartu Foundation.