Home North Pole Economy bne IntelliNews – Modern-day Robin Hood inspires Georgians in debt

bne IntelliNews – Modern-day Robin Hood inspires Georgians in debt

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When a young man walked into a payday lender in Tbilisi and took 19 people hostage on November 20, brandishing what appeared to be a rifle and hand grenades, it looked like a simple robbery at first glance.

But the potential thief, 31-year-old carpenter Levan Zurabashvili, did not ask for money. Instead, he called on the Georgian government to implement several policy changes.

“First of all, gambling must be banned throughout Georgia,” Zurabashvili said, as the scene unfolded on live television. “Second: Annual interest rates on bank loans should be set at a maximum of 7%. “

Some of the hostages interrupted, arguing that 7% would still be way too high. “In the European Union, the rate is around 3%,” said one man.

“Can I finish? Zurabashvili asked.

His third and final demand was to set a 10% cap on the profits of pharmaceutical companies in order to reduce drug prices. “It is mainly the elderly who buy drugs and their pensions are only 250 lari” (about 75 dollars), he said, explaining that the banks trap the seniors with expensive loans which they need for cover their medical bills but are unable to reimburse them.

Debt dependence

Listening to the striker, many Georgians couldn’t help but nod their heads in agreement. In recent years, the Georgians have taken on debt. Around 80% of Georgian households collectively owed $ 5.5 billion (31% of GDP) in bank loans in 2018, the latest year for which detailed figures are available from the National Bank. Unknown amounts are owed to subprime lenders.

This figure puts Georgia at the top of the list of European countries in terms of the amount of consumer loans relative to the size of the national economy, and significantly higher than its neighbors Armenia and Azerbaijan.

While affluent households can borrow to improve their financial flexibility, an increasing amount of debt is being taken on by the poorest Georgians, for whom it can worsen their precarious situation, according to a 2018 World Bank study. study find.

And the hostage of Zurabashvili had a point on the EU. In wealthier European countries, like France and Germany, banks offer loans to households at an average interest rate of 4%, while in Georgia it is 17%, according to data from the National Bank. Payday loan companies, like the one attacked by Zurabashvili, offer even higher interest rates in exchange for lax credit history checks, luring many Georgians into a debt trap.

While gambling contributes significantly to the debt problem – and it was later reported that Zurabashvili himself had had problems with gambling – its most resonant claim concerned the elderly and their medical debt.

Given the country’s meager pensions, elderly Georgians – unless they are being looked after by their children – usually need to borrow money just for their daily expenses. About half of retired Georgians have bank loans. And the institution that has a virtual monopoly on pension distribution, Liberty Bank, also charges a whopping 31% annual interest rate to borrowers on pensions.

Because of their stable, albeit modest, income, Georgians who receive pensions are often the only members of poor families who can qualify for credit. This means that they borrow on behalf of the whole family, as well as to pay for their own medication. On average, Georgian retirees spend between 65 and 80 lari ($ 20-25) per month to repay their debts, Mikheil Svanidze, a sociologist based in Tbilisi, told Eurasianet.

On the day of the Zurabashvili attack, he had tried to buy medicine for his mother but could not afford it, mother Lamara Tereladze told reporters. “He was upset that he couldn’t afford my meds… and probably had a few drinks as well, and he did what he did,” she said. Told the Formula local news site. Tereladze said she and her son had also borrowed from several banks to pay for medical treatment for Zurabashvili’s now deceased father. They spend most of their income to repay these loans, she said.

“This boy [Zurabashvili] was right about everything, ”said Tsitsino Alaverdashvili, an 85-year-old man from Kakheti in eastern Georgia. Alaverdashvili manages to make ends meet by selling sunflower seeds, hand-knitted socks and churchkhelas – a traditional grape and nut candy – on the street in the tourist town of Sighnaghi. Alaverdashvili suffered a heart attack during the summer and the state health insurance only paid for part of the treatment. “The rest I had to borrow from a bank or get from relatives,” Alaverdashvili told Eurasianet. “Now I have to sell things on the streets to pay off the bank and buy medicine. “

Pandemic debt

While debt had been a significant problem for financially vulnerable Georgians before 2020, with the arrival of the Covid-19 pandemic entrepreneurs across the country have also been affected.

2019 was the best year for the small business of Nika Vacheishvili, an elegant little guesthouse and winery in the Ateni Gorge, about 100 km south of Tbilisi. “The hotel was full every day, people also came here for weddings and birthdays,” Vacheishvili told Eurasianet.

Vacheishvili and his family moved in 2010 from Tbilisi to Ateni, where dramatic cliffs overlook a vineyard and a 7th century basilica. They built a house, set up a farm, and began to make wine. Eventually, the estate became a thriving tourist destination and its wine production increased from 100 bottles to 4,000 bottles per year.

They moved beyond their converted guesthouse and took out a loan to build a 19-room hotel, as well as two smaller loans to buy goats, expand their restaurant, set up conference space, and build hiking trails. . The new hotel opened last year. “It was booked immediately. Even the bank couldn’t believe how well we were doing, ”he said.

But then the pandemic struck and Vacheishvilis, like many other Georgians hoteliers and restaurateurs, found themselves on the verge of bankruptcy. With the nation under lockdown, “we have absolutely nothing to do except maybe sell a few bottles of wine here and there, and we have three loans to pay back,” Vacheishvili said.

The state intervenes

As part of its economic crisis relief program, the government covers 6% of the monthly payments on the debts of small and medium-sized hotels. This aid, combined with his salary as a university professor, helps Vacheishvili fulfill his obligations for now, but the relief program will end in March. “I’m trying not to panic now,” he said. “I’m going to panic in March.”

Ahead of the 2018 presidential elections, billionaire leader of the ruling Georgian Dream party, Bidzina Ivanishvili, bailed out up to 600,000 delinquent borrowers across the country, with his private charitable foundation footing the bill for overdue debts totaling $ 1.5 billion. The bailout, criticized as a vote-buying scheme, was intended to wipe the slate of troubled borrowers.

The government also tried to control the worst excesses in the payday loan industry by cutting maximum allowable interest rates in half (from 100% to 50%) and capping penalties for overdue payments. These measures wiped out much of Georgia’s bad debts, but debt levels began to rise again the following year.

Then COVID-19 hit. With the holidays, layoffs and business closures, many Georgians, including business owners like Vacheishvili, went bankrupt or were on the verge of doing so.

In its attempt to alleviate the economic crisis, the Georgian government is not behaving very differently from ordinary Georgians. The state has also been on a borrowing spree this year, take loans with international financial institutions to help it honor its commitments, mainly social security contributions.

By the end of 2020, public debt is expected to hit a record $ 8.4 billion, or nearly 60% of gross domestic product. Under Georgian law, this is the maximum that the state is allowed to borrow. Although richer economies like Japan and the United States have much higher debt-to-GDP ratios, local analysts are troubled by growing debt as Georgia’s economy contracts and its currency is depreciation.

“The tax system is becoming increasingly vulnerable to potential future economic shocks”, the local branch of Transparency International, the body monitoring corruption and good governance, wrote in a recent report.

Robin Hood

With debt becoming an increasingly hot topic in Georgian national conversation, Zurabashvili’s demands have spoken to a wide audience. Many saw him as a hero who stood up for the poor and spoke the truth to power. Others, however, have argued that the modern-day Robin Hood was mentally deranged and possibly drunk when he performed his famous act.

Regardless, his act became more and more ridiculous throughout the day. Some of the hostages simply apologized and left, meeting no resistance from Zurabashvili, and he eventually surrendered. Taking credit for carrying out a “special operation”, the police disarmed Zurabashvili of his weapons, which turned out to be toys.

Supporters soon began to sign petitions asking for Zurabashvili’s pardon and raising funds for his bail. Others have watched these efforts with anger and disbelief. Some have warned against glorifying crime.

“Romanticize the hostage-taking […] is unacceptable ”, Ombudsman Nino Lomjaria told reporters the day of the attack. “We have a parliament to make social and political demands, to argue and fight. The incident should serve as a lesson for politicians to connect with voters and understand their needs, she added.

Pending his trial, which is due to open this month, Zurabashvili is currently undergoing mental health examinations. His mother issued a tearful appeal to the nation to forgive her son. “I condemn what he did. I would like to apologize to everyone who was put in distress by Levan that day, ”she said after her son’s arrest. “Please forgive him and forgive me.”

This article was funded by a grant from the United States Department of State. The opinions, findings and conclusions expressed herein are those of the author.[s] and do not necessarily reflect those of the State Department.

Giorgi Lomsadze is a Tbilisi-based journalist and author of Tales of Tamada.

This article first appeared on Eurasianet here.