October – November 2015

Challenges To Media Plurism: The Case Of Rustavi2

The beginning of the political season in Georgia has turned out to be detrimental for the independence of both the judiciary and the media. In August 2015, several popular political talk shows stopped airing on Imedi TV, Maestro TV, and the Georgian Public Broadcaster. Moreover, the future broadcasting of the most influential and critical TV channel in Georgia, Rustavi 2 TV, is at stake because of a court dispute over the company’s ownership.
On August 4, businessman Kibar Khalvashi, who was a shareholder of Rustavi 2 in 2004-2006, filed a lawsuit against the current owners of the company, alleging that in 2006 he was forced by representatives of the ruling United National Movement to give away his shares in the broadcaster.

During the coverage of information related to the issues of public interest, the method of objective and fair reporting should be used. Under the management of the Defendant (Broadcasting Company Rustavi 2 Ltd) this issue is questionable. Neglect of the indicated purposes consequentially jeopardizes the fundamental purpose of media in a democratic society - Tamaz Urtmelidze[1]

As an interim measure pending a final verdict of the case, on August 5, Tbilisi City Court Judge Tamaz Urtmelidze issued an order banning Rustavi 2’s current shareholders from selling shares and from selling or renting out broadcast equipment, vehicles, and other property owned by the company. The company was also banned from taking out bank or private loans, as well as from using bank guarantees or any other financial instruments. These prohibitions seriously jeopardize the company’s financial sustainability, and the company is incapable of carrying out full-scale management. To overcome these financial difficulties, the company shareholders found an investor who commited to invest 6 million USD in Rustavi 2, by selling the shares of Rustavi 2 TV’s shareholder’s company, Sakatvelo TV. The deal was blocked by a coordinated action of the Public Registry and Tbilisi City Court. Then on October 1, the judge presiding over the case, Urtmelize, issued a disproportionate and excessive court order for freezing all the assets of, Sakartvelo LLC, Rustavi 2’s shareholder company.

The ownership dispute over Rustavi 2 is an especially important issue, not only because it concerns a media company, but because Rustavi 2 has the resources and influence to affect public opinion and the power to form critical views of government policies. Since the Georgian Dream coalition came to power in the 2012 parliamentary elections, Rustavi 2 has been critical of the government. Rustavi 2 is a serious encumbrance for the government, particularly so in the run up to the 2016 parliamentary elections. Any interference in Rustavi 2’s activities and it’s ability to broadcast raises doubts that the state is not involved in the process.

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Government officials, including the former and current prime ministers, Bidzina Ivanishvili and Irakli Gharibashvili, have numerous times publically expressed their dissatisfaction with Rustavi 2’s editorial policies, and have accused the broadcaster of spreading lies and being in alliance with the United National Movement, which is now in the political opposition. Additionaly, Bidzina Ivanishvili has pledged support to Rustavi 2’s former owners, and encouraged them to file a lawsuit. According to Georgian legislation, there is a one year statute of limitation for transactions entered under duress, which puts into question the admissibility of the lawsuit claim. It is also suspicious that the applicant in the lawuit, businessman Khalvashi, was silent before Bidzina Ivanishvili’s public encouragement.

The government and politicians in the Georgian Dream coalition deny any kind of involvement in the case, saying that the dispute is between private entities. However, the case obviously impacts the media environment and is clearly politically motivated.

On October 12, it was revealed that there is an ongoing criminal investigation against Judge Urtmelidze’s mother. Rustavi 2 argued that this increases the likelihood of him making biased decisions; they argued he would rule in favour of the plaintiff in order for the case against his mother to end favourably. Even so, the Tbilisi City Court judge refused to recuse himself from the Rustavi 2 case. Judge Urtmelidze stated that his mother does not represent a family member and hence there were no grounds for his preclusion from the case.

The Rustavi 2 case is not the first time where the judge was somehow connected with the prosecution. There’s an investigation into the judge who was hearing the criminal case against former Tbilisi mayor Giorgi Ugulava. It raises doubts about the impartiality of judges, particularly because the court is subordinated to the Prosecutor’s Office, which is part of the executive branch of the government.

"During the coverage of information related to the issues of public interest, the method of objective and fair reporting should be used. Under the management of the Defendant (Broadcasting Company Rustavi 2 Ltd) this issue is questionable. Neglect of the indicated purposes consequentially jeopardizes the fundamental purpose of media in a democratic society - Tamaz Urtmelidze[1]"

What is also significant is that the Rustavi 2 case occurred at an accelerated pace. Considering that the courts and judges are overloaded, scheduling five sessions for a case into nine working days is incredible.

Finally, on November 3, Tbilisi City Court delivered a verdict practically granting 100% of the Rustavi 2 shares to former owner Kibar Khalvashi. However, one day earlier, the Constitutional Court suspended article 268 (1(z)) of the Civil Procedure Code, meaning that the verdict could only be enforced once the case had gone through all legal levels of appeal. It meant Khalvashi could not immediately take practical steps in managing the broadcaster.
The Constitutional Court’s decision was not a deterrent for the judge. On November 5, Judge Urtmelidze issued a decision to appoint a temporary management to Rustavi 2, in order to ensure the enforcement of the November 3 decision over the company’s ownership. The judge declared that broadcaster’s ability for objective and fair reporting under the current management was questionable.

As a note, the ability to appoint a temporary management to a media company is not directly provided by the Procedure Code of Georgia and case law.

Mr. Urtmelidze’s decision raised public protest and international pressure concerning the freedom of the media. In a joint statement, the U.S embassy and EU diplomatic missions in Tbilisi declared that the preventive measures adopted on November 5, to change the broadcaster’s management, raise serious questions about the independence of the judiciary and the freedom of the media in Georgia.

Georgia’s Public Defender said that the court’s November 5 decision was unjustified and violates Rustavi 2’s freedom of speech and expression.

He also said that it was evident that the judge was interfering in the formation of the broadcaster’s editorial policy, by pointing out how the TV station should cover issues that are of importance to public interest. The judge claimed that neglecting to cover issues of importance to public interest in an objective way jeopardises the fundamental purpose of the media.

The court’s November 5 decision also said that the broadcaster’s temporary managers must be “neutral, independent, and admissible persons for both of the parties.” The selected managers, Revaz Sakevarishvili and Davit Dvali, did not meet that criteria. Sakevarishvili is the former director of Rustavi 2’s competitor channel, Imedi TV, and Dvali is one of the founders and former shareholders of Rustavi2. Dvali is not officially party in the dispute but is an interested party, which is clear from his statements during the dispute. He has never denied his interest to fight to regain his former shares in the company. Moreover the selected managers are not admissible for both of the parties. The General Director of Rustavi 2, Nikoloz Gvaramia, stressed that Sakhevarishvili and Dvali were unsuccessful managers who had brought their media outlets to financial collapse. He was not given the chance to express this opinion before the decision was made.

At a press conference on November 6, Kibar Khalvashi affirmed that he had previously agreed to divide his shares in Rustavi 2 between Mr. Dvali and a Mr. Jarji Akimadze, that he would keep 50% and give them 50%. This raises questions about Mr. Khalvashi’s real intentions. Giving away 50% of shares in a profitable company seems to be an unreasonable action from an experienced businessman.

There are many indications that the case was governed by the government in order to silence Rustavi 2 during the pre-election period and to gain control of the information space: political leaders making public statements against the broadcaster’s editorial policies; the admissibility of a time-barred claim, the plaintiff’s actions through the court to block the media company’s ability to find financial sources; the disproportionate and excessive orders and decisions issued by the judge; Judge Urtmelidze’s refusing to recuse himself from the case; the judge’s efforts to interfere with the channel’s editorial policy; the plaintiff’s indifferent attitude to his potential property and shares; the “neutral” temporary managers making public statements against the company’s editorial policy.

On November 13, the Constitutional Court ordered to suspend the application of the clauses in the Civil Procedure Code under which Judge Tamaz Urtmelidze appointed temporary managers to Rustavi 2. The day before the Constitutional Court’s order, Judge Urtmelidze partly overturned his earlier ruling changing the company’s management and reinstated Rustavi 2’s top management International pressure, public protests, and the decisions of the Constitutional Court have managed to keep the broadcaster’s management in power, allowing them to pursue their desired editorial policies. It is crucial that there is permanent monitoring of this case, to be sure that the govenrment does not manipulate the legal process at the next stage, at the court of appeals. Media pluralism is ever more important as Georgia is approaching an election period and will require a robust media to cover the election environment.

 

 

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[1] Source: Tranprency International Georgia, The Ruling Of the Constitutional Court of Georgia

Rising Anti-Western Attitudes In Georgia

The Tbilisi-based NGO Media Development Foundation recently published a report monitoring hate speech, xenophobia, and anti-western attitudes in Georgia, covering the period 2014-2015. The report shows that anti-western rhetoric is closely interlinked with xenophobic and homophobic sentiments.

The Georgian public has been a strong supporter of the country’s European and Euro-Atlantic integration in the past two decades. The latest public opinion poll by the National Democratic Institute (NDI) in April 2015 showed that 65% of society strongly supports Georgia’s Euro-Atlantic integration, and 68% supports European integration. This support has never fallen under 60%. However, the recent NDI poll also showed that 31% of society supports joining the Russia-led Eurasian Union, which is a substantial increase. The figure of 31% is controversial since some of those who voiced support for Eurasian integration also supported the EU and NATO in the same polling. But the high figure is still alarming nonetheless and needs observation. The question is: To what extent can anti-western propaganda really shake up the attitudes of a pro-western Georgian society?

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According to the Media Development Foundation (MDF) report, the main source of anti-western propaganda is the media, political parties, and religious figures. Amongst political parties, anti-western attitudes were most frequently expressed by Nino Burjanadze’s United Democrats, the People’s Council, the Alliance of Patriots, and Free Georgia. Their public support remains low –only 4% support the Alliance of Patriots, while Nino Burjanadze’s party and Free Georgia are not even mentioned in the 2015 public opinion poll as major parties, but still, their support has increased in recent and there is a probability will overcome the threshold for the 2016 parliamentary elections. Some representatives of the ruling Georgian Dream coalition also use xenophobic and anti-western language. What is alarming is that they remain in their parties after these kinds of statements and there is no reaction to it from the government.

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According to a 2014 report by the MDF, “Public Funds for Media Promoting Hate Speech and Anti-Western Sentiments,” a number of ministries and their subordinate legal entities use financing from the state budget to contract joint projects with media organizations that express anti-western attitudes, and that are known for promoting hate speech and intolerance towards minority social groups. In 2013-2014, public funds were used for providing advertising services of the media organizations Obiektivi, Sakinformi, Geworld.ge. since it’s not a customer of TVMR Georgia, which is accredited to measure TV ratings. Government officials are advertising their political campaigns on media outlets with an observed anti-western propaganda and with no public ratings.

The main mechanism for promoting anti-western sentiments is to portray western integration as being opposed to Georgian traditions and values, particularly in terms of sexual and gender equality.

Some of the messages are:

  • The West represents the ‘legalization’ of homosexuality, pedophilia, and other perverted lifestyles, which is against traditional Georgian values. This was the discourse promoted by some when Georgian parliament was considering a draft anti-discrimination law in the spring of 2014.
  • The United States and the West encourage coups in others countries. The 2013-2014 Euromaidan events in Ukraine were portrayed as actions created by the West against Russia; Euro-Atlantic integration is associated with the territorial expansion of Turkey and the loss of historical Georgian territories; the EU Association Agreement signed in June 2014 was interpreted as a tool to subjugate Georgia and destroy its economy, or shows that Georgia is being led around by external actors and lacks independence, while ultimately the West will not protect Georgia.
  • General Turkophobic and Isalomophobic attitudes. There were 200 cases of Islamophobia linked to mosques being built or restored in Georgia, in the years 2013-2014, according to the MDF report. Turkey is portrayed as a threat in terms of its economic, cultural, and religious expansion, and the counterweight is Orthodox Russia.
  • The former ruling party, the United National Movement, was associated almost always in a negative context. On a similar note, non-governmental organizations were portrayed as hired spies of foreign countries, while international organizations operating in Georgia were described as branches of foreign special services.

To counter this rise in anti-western messages and propaganda, in September 2015 a group of Georgian NGOs and the media outlet Tabula launched the campaign Defend Liberty. The campaign is to consolidate efforts in holding public debates and educational sessions discussing the economic situation in the country, as well as trade and social opportunities associated with European and Euro Atlantic integration.

The Government Of Georgia Against The National Bank’s Independence

After Georgia’s national currency, the Lari (GEL), saw a significant decrease in value beginning in late 2014, the monetary policy of the National Bank of Georgia (NBG) became one of the main subjects of criticism from the Georgian government and parliamentary members of the ruling Georgian Dream coalition. Criticism was also particularly directed against the head of the National Bank, Mr. Giorgi Kadagidze. Members of the ruling party then introduced a legislative initiative in parliament to remove the banking sector supervisory functions from the National Bank, and give these functions to a newly-established, independent legal entity. This move limits the central bank’s independence.
The question of a central bank’s independence was actively debated by scholars in the 1990s. Research (e.g. Cukierman A. 1992) proved that “under dependent central bankers, private investments are lower, reducing the long run rate of growth.” Other research later confirmed that the independence of the central bank helps to lower inflation.

If a government can credibly guarantee the independence of the central bank, then expectations in long-term inflation are reduced. It therefore takes less social cost to keep inflation down, promotes investment, and supports long-term economic growth. When long-term expectations are secure, short-term economic conditions improve. If the government cannot guarantee the independence of the central bank, it can be argued that it is better for society to take monetary policy out of the government’s hands.

"We need to protect [the] independence of the central bank; they are doing a good job… I think that political attacks are not the best way forward in this difficult time"

The independence of the central bank becomes more important during times of economic stress. Since the 2008 financial crisis, there are a number of country examples where there was pressure on the central bank (Greece, Turkey, Hungary, etc). So it was in Georgia as well. Due to external shocks, triggered by the appreciation of the U.S. Dollar and regional political tensions, Current Account revenues started to decline.

Exports and remittances declined by 20-25%, while imports continued to grow, widening the current account imbalance. Given that FDI was weak, the adjustment of the exchange rate was inevitable. Under the Current Account shock, the prudent policy is to smoothen the adjustment process in the short run and try to increase foreign exchange (FX) revenues in the medium run. Despite this, the government has chosen to politicize the exchange rate adjustment and use this opportunity to attack the central bank governor, in order to restrain the NBG’s independence. An attack was politically appealing, rather than having to explain the reasons for the depreciation of the national currency and rather than have to take action in regards to ease lending burden for borrowers in FX.

The IMF was very vocal in supporting the NBG and condemning the political attack. The head of the IMF mission in Georgia said: “We need to protect [the] independence of the central bank; they are doing a good job… I think that political attacks are not the best way forward in this difficult time.”

The European Bank for Reconstruction and Development conveyed the same message. EBRD president, Sir Suma Chakrabarti, said: “The approach of the Central Bank should be applauded; allowing the exchange rate to float protects the central bank reserves, which are very important for protecting the country as a whole. So, in my view the central bank is doing an excellent job. I think its independences is fundamental; it’s fundamental for the short term, medium, and long term confidence for outsiders, investors in this economy.”

The NBG was able to lower household loan dollarization from 75% to less than 50% in volume terms, and less than 10% in the number of borrowers in the banking sector. However, the dollarization rate for non-bank lenders are much higher, which makes the GEL/USD exchange rate a politically sensitive issue. Due to their low level of financial knowledge, politicians were demanding from the NBG to take action to strengthen the GEL. But the actions they were demanding were aimed at a very short term appreciation of the GEL, that would a few months later result in a large depreciation, severe recession and unemployment growth, lower budget revenues, and increased social and political problems. The demanded actions on the NBG were to massively sell FX reserves, to generate a GEL liquidity shock for the banks, to dramatically increase interest rates, etc. It was clear -- maybe not for politicians -- that the negative effect of such policies would largely overweight possible short-term benefits.

The NBG itself has followed prudent policies. It has limited interventions in order to avoid excessive volatility where possible. The IMF, World bank, and EBRD have praised the NBG’s policy response during this time of stress, and have commended NBG president Mr. Kadagidze for successfully implementing inflation targeting in Georgia and for managing to lower inflation.

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Despite pressures, the NBG’s independence was sufficient to resist political forces; therefore the government decided to weaken the NBG’s independence by taking control over the central bank’s main transition channel—the banking system. In July, Parliament adopted the law separating banking supervision from the NBG. The new agency which will be in charge of banking supervision will have less independence, as it will be possible to remove the head, who has the sole decision-making power.

The board will be appointed by the government and approved by the parliament; there is no transparency in choosing the candidates in the law. There will be no checks and balances in the appointment process, as the government has a majority in the parliament. It is evident that the new institutional setup will deteriorate banking supervisory quality in Georgia, which was regarded as exemplary for the region.

The president of the EBRD, Sir Suma Chakrabarti, had earlier said: “The level of banking sector development in Georgia is sufficiently high, and what is very important, it is stable. The banking system of Georgia is distinguished from all other countries’ banking systems where we work. The banking sector is sound and stable; therefore it is no wonder that the customers have a confidence in banks.”

NBG Mr. Kadagidze was praised by international media for achieving tangible results and maintaining prudent policies, despite political pressure on him. World-leading financial magazine The Banker, owned by The Financial Times Group, named Giorgi Kadagidze as the 2014 Central Banker of the year for Europe.

There was an unprecedented reaction to the move to strip the NBG’s supervisory functions when four large international financial institutions (IFI) -- the World Bank, IMF, EBRD, and Asian Development Bank -- “expressed deep concern” in a joint letter addressed to the prime minister of Georgia about it. Their main advice was to not separate the banking supervision from the NBG. The IFIs had four major points: It is not a prudent decision and goes against best practice and recent trends; separating the supervisory functions will damage the independence of the supervisory body; it will lower the quality of banking supervision; the process itself is not in line of the best practice, and given certain macroeconomic challenges, the timing for the changes are not suitable.

"The level of banking sector development in Georgia is sufficiently high, and what is very important, it is stable. The banking system of Georgia is distinguished from all other countries’ banking systems where we work. The banking sector is sound and stable; therefore it is no wonder that the customers have a confidence in banks"

The government held informal consultations with the IMF and received comments from the Fund. The day before the third hearing on the proposed bill in parliament, the IMF voiced a strong negative position on the law. In an interview to Maestro TV, the IMF representative in Georgia said that: “The IMF’s recommendation is to leave banking supervision at the NBG is unchanged… The IMF has not yet received arguments justifying the separation.”

A few days later, the prime minister and Vice-PM said that: “All comments and suggestions from the IMF have been fully incorporated in the final version of the law.” The resident representative of the IMF responded that their fundamental recommendations have not been addressed; the proposed process creates risk to financial stability; it’s not in line with the IMF’s polices, and therefore jeopardize the Fund’s program.

Despite such unprecedented strong opposition, from opposition parties, civil society groups, and IFIs, the process is moving forward. Given the potential damages it will bring to the economy, President Margvelashvili vetoed the law. The parliament overcome the presidential veto in early September, and went forward with the formation of the new supervisory agency. Two leading opposition parties, the UNM and Free Democrats, have appealed this law and the constitutional court suspended it.