Unpaid Mortgage Problem to Be Solved
13 December, 2012
Unpaid Mortgage Problem to Be Solved
Prime Minister of Georgia intends to address the unpaid mortgage problem across the country as the problem affected regions no less than the capital of Georgia. Economic analysts think the unpaid loan problem should be solved without governmental interference.
During his visit in Ajara last week, Bidzina Ivanishvili, Prime Minister of Georgia pledged to solve the unpaid mortgage problems in Ajara and then go ahead with other regions of Georgia. During his meeting with the majority MPs on December 8,
2012, Ivanishvili accentuated that the common most trouble some problem in all regions is mortgages and works are carried out to ease the problem to population across the country and the process will take its start in Ajara.
As a matter of Fact Ajara, specifically Kobuleti district of Ajara, suffered from the unpaid mortgage problem more than orher regions of Georgia. Population of Kobuleti, one of the most favorite seaside tourist haunts in the Black Sea littoral of Georgia, took mortgage loans in 2008 in order to improve their hotel and guest-house infrastructure however the August war with Russia took an irretrievable impact on the tourist season and borrowers failed to repay loans in time. Now they face eviction and poverty as the only property and living source for most residents of Kobuleti is their houses and the income taken from the renting during tourist season. The insolvent borrowers permanently organized rallies and actions asking for help to regulate the problem with banks, but to no avail. Ex-Finance Minister Dimitri Gvindadze, promised them to find a solution to their problem and even took a list of 300 clients with the overdue mortgages from banking branches of Kobuleti but the problem remained unchanged. New Premier during his briefing with Georgian media on November 22, 2012 accentuated that new government plans to address to tackling the overdue mortgage problems from Kobuleti although he did not disclose any plans what remedies would be undertaken exactly. Eviction of people did not stop in Kobuleti meantime.
Based on Public Registry data 173 thousand families have already lost their houses due to unpaid mortgages since 2008 while there are 1.1 million families overall in Georgia, so the figure of evicted families makes 15% of total number of Georgian households that seems alarming to economic analysts. There were several suicides committed by people been deprived of their dwelling place, one young men burnt himself in a region, another fell under train at the subway station but no actual preventive remedies followed. President Mikheil Saakashvili just reprimanded banks and appealed to stop impoverishing people as a part of pre-election campaign in this past summer. Menatime, by end of this October a two-year moratorium was declared on mortgages immediately after a to-be-evicted woman committed a suicide. The US to facilitate to the mortgage problem in 2008 set up a special fund assisting insolvent borrowers to pay off their mortgages, Greece also announced a two-year moratorium on mortgages.
Georgian economic analysts think Georgia as a developing country with low debt-clearance culture cannot duplicate the practice of the west and should look for other solutions to the problematic loans. On the other hand they find governmental interference in the loan problem as the state interference in business.
Soso Archvadze, an economic analyst, thinks one of the ways out will be if Georgian government instead of direct interference with banking affairs would set up fair market rules and release the business from latent governmental pressure Georgian entrepreneurs suffered during the previous regime. Archvadze believes the political pressure impelling banks [as well as other businesses] to fork out money to finance sundry ex-governmental initiatives beyond the taxes they ought to pay in the state budget was the reason banks have been imposing high interest rates on loans that broke down borrowers ultimately. And if new government relieves them from unofficial payment banks will put out milder loan terms without any special remedies.
“Banks also need guarantees,” He said. “Banks are entrepreneurs like other businesses and they are regulated by law on entrepreneurs and commercial banks. Therefore, if they get firm guarantees from the state that they will be free of crackdown it will ease situation without any special programs and cut credits price down.”
Paata Sheshelidze, President of Free Economic School, fears that governmental interference in order to solve the mortgage problem may undermine the banking sector.
“Banks also borrow money from other financial institutions and how are they supposed to run the business if their outstanding loans are not paid off? Besides, they have obligations against depositors too and where will they get the money to perform banking services to deposits?” Sheshelidze wonders. “Those who committed suicides made irresponsible decisions when they took loans they could not pay and banks cannot be responsible for that.”
Both Archvadze and Sheshelidze rule out adoption of moratorium on mortgages as a remedy as far as Georgia has just started learning market economy and cultivating legal responsibilities to pay debts. Therefore, moratoriums, amnesty and that kind of preferences may encourage cheating and evading loan payment.
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