What Bakhtadze’s Policies as Finance Minister Hint about his Leadership

One June 14, 2018, Mamuka Bakhtadze was nominated to be the next Prime Minister of Georgia. While he still has to go through confirmation procedures, he is expected to be confirmed, whereby he will begin to build a new government around him. As Georgia’s Minister of Finance from November 13, 2017 to June 13, 2018, Bakhtadze’s policy positions can shed some light on his potential platform as prime minister.

Speaker of the Georgian Parliament and GD member Irakli Kobakhidze called Bakhtadze, “distinguished by his education and versatility. He is a very serious expert in economy.” Before becoming Minister of Finance, Bakhtadze worked for Georgian Railways from 2005, including as CEO from 2013-2017. He studied microeconomics and management at Tbilisi State University and has a PhD in technical sciences from the Georgian Technical University. At Georgian Railways, he lobbied on behalf of the Georgian position for Project Viking, ZUBR and the South-West corridor. Bakhtadze also actively contributed to Georgia joining China’s One Belt One Road initiative – focusing on Georgia’s role as a regional transport hub.

Bakhtadze moved from the private sector to the Ministry of Finance just eight months before being nominated for prime minister.

This March, the National Democratic Institute conducted a poll where 43% of respondents said that were not familiar with Bakhtadze’s name, 31% had neutral feelings towards him, 5% negative, and 9% positive.

The response was mirrored in an April poll by the International Republican Institute (IRI), in which 55% of respondents had not heard of Bakhtadze, 22% said they viewed him unfavorably, and 9% said they viewed him favorably.

During a speech accepting his nomination for prime minister, Bakhtadze listed as one of his four main principles of governance, “A new economic model with new fair rules,” promising to deliver reforms “in all directions,” affecting every Georgian family. Another of his principles is small government, and he has a vision of stronger institutional and public control, with less corruption, “the starting point is that we need a small, effective and flexible government. Small government, of course, means that certain agencies may be united,” said Bakhtadze.

Until his nomination, Bakhtadze’s most significant move in public office was introducing sweeping reforms of the banking sector. In April, he called Georgia’s very profitable banks an impediment to the national economy by encouraging growing debt among citizens. While, as Finance Minister, bank reform was not in his purview, as Prime Minister, Bakhtadze will have the power to initiate any reforms he sees fit – with the support of his party, of course.

In a healthy economy, the banking sector should provide businesses and individuals with funding to grow and expand, but in the last few years, banks have profited mainly on retail credit, which has dominated banking sector loans, rather than loans for small and medium sized businesses. “Consumer loans and retail financing tend to promote imports rather than encouraging local production which would create employment and bring added value to the economy,” says development economist Tato Khundadze, pointing to research by the World Bank and EBRD which “puts access to credit as the third biggest obstacle to Georgian businesses.”

The IMF ranked Georgia as having some of the highest number of individuals in debt, with 680 out of every 1,000 adults having at least one active loan in 2015. By the end of 2016, there were 2.4 million active loans in the country. Penalties for non-repayment are harsh, including permanent seizure of property not listed as collateral in the loan agreement. Bank of Georgia and TBC Bank hold 72% of the country’s financial assets, indicating a bulky, inefficient system.

With Bakhtadze as Finance Minister, the government announced a Four Point Reform Program aimed at promoting savings, productivity and export growth, diminishing vulnerabilities, and guaranteeing more robust, healthy and inclusive economic growth. Bakhtadze has also expressed strong support for the ongoing de-dollarization/larization program. In a March interview with Emerging Europe, Bakhtadze also promised “an automatic VAT credit refund system, and insolvency reform are coming soon, as well as several important reforms that will ease tax administration.”

In plans announced since his nomination, Bakhtadze discussed wanting to reform the banking sector, most notably: Cutting the effective annual interest rate ceiling on loans to 50% instead of 100%; Recalculation of late fees on loans, including lowering them; Prohibiting banks from seizing property not listed as collateral in a loan agreement. He also plans to create a “financial arm” of the Georgian Government to spend up to 1% of GDP on affordable loans for small, local start-ups.

Banking sector reforms could lessen the burden of debt on a nation with low salaries and high unemployment. Predatory lending practices are common in Georgia, used as a stop gap for urban and rural families who cannot make ends meet. “Precarious self-employment and high structural unemployment, especially among young people,” comments Khundadze, “drives many Georgians towards risky debt practices.”

Bakhtadze has been nominated to replace Giorgi Kvirikashvili, who served as Prime Minister from December 30, 2015, until he resigned on June 13, 2018. Kvirikashvili stepped down after weeks of protests against the country’s justice system, but blamed his resignation on differences on “fundamental issues” with party leader Bidzina Ivanishvili. If confirmed, Bakhtadze will be the fourth Prime Minister since his political party, Georgian Dream (GD) came to power in 2012. GD has 116 seats in Georgia’s 150 member parliament. Mamuka Bakhtadze needs votes from at least 76 MPs to be confirmed as Georgia's next Prime Minister.

By Samantha Guthrie

18 June 2018 18:14