Trust counts the most in any relationship, but in business and politics it is a must. No partnership can work without trust between states or business partners - this is an unwritten code of behavior all over the globe. The terms of gentlemen’s agreement must be observed as accurately as those of official contracts.

It is an open secret that private information shared during one-on-one dialogues and the gentlemen’s agreements make the basis to important official decisions in future.

If this confidentiality is broken, this means other international partners and diplomats will never share any confidential information with the statesmen of such a country. Investors will keep away from a business climate in which top officials do not understand the importance of the moral code of verbal agreements.

This very shame came over Georgia on June 4, when ex-Prime Minister of Georgia, billionaire Bidzina Ivanishvili disclosed details of his gentlemen’s agreement with the International Monetary Fund’s high-ranking official.

According to Ivanishvili, when he held the post of Prime Minister, a representative of the IMF asked him in a private dialogue not to have Giorgi Kadagidze, Governor of the National Bank of Georgia, arrested. Kadagidze was allegedly involved in a criminal campaign against four banks, including the Cartu Bank, which is owned by Ivanishvili. After his conversation with the IMF representative, Ivanishvili agreed to rescind his claim filed to the Prosecutors’ Office on account of Cartu Bank case.

“The IMF knew that he [Kadagidze] had violated the law. They said they knew that he belonged in jail, but asked me to forgive him. I said I might forgive the private affair that made Javakhishvili [Deputy Minister of Infrastructure and the ex-head of Cartu Bank] extremely upset, but I explained to both the IMF official and Kadagidze that I could not prevent legal actions against him if he had committed a crime against the state,” Ivanishvili stated on June 4.

The IMF resident representative in Georgia did not respond to any calls that day. Next day he rebuffed Ivanishvili’s statement, saying that the IMF “has not taken, and cannot take a view on the issues related to justice and inpiduals’ relation with the law.”

“This is not our mandate,” the IMF statement reads.

There are speculations in Georgia that in 2006-2012 Kadagidze was involved in anti-banking activity that had deliberately led four banks to bankruptcy. It is largely believed that Kadagidze [who came to the NBG from the Prosecutors’ Office of Georgia] is a friend of the ex-General Prosecutor Zurab Adeishvili, who is wanted by the Georgian state at the moment. Many think that Kadagidze acted under his orders and exerted political pressure on banks that belonged to political rivals of the United National Movement party, which ruled Georgia from autumn of 2003 to autumn of 2012.

The list of these four banks is as follows: Standard Bank, owned by the deceased tycoon Badri Patarkatsishvili, People’s Bank, Intellect Bank and Cartu Bank, which is owned by Ivanishvili himself. Allegedly, Kadagidze was involved in all four cases in various capacities: as the Head of the Financial Monitoring Service in 2007-2008, the Head of Financial Supervision Service of the NBG in 2008-2009, and as the Governor of the NBG since 2009.

As the previous owners of the Intellect Bank and Standard Bank say, under the previous government, these banks were deliberately led to bankruptcy and sold out. The People’s Bank stakeholder was forced to sell the controlling package for almost nothing. After Ivanishvili entered the political scene as an opposition member and founded the Georgian Dream party in 2011, a campaign against his Cartu Bank began. Due to legislative changes, the bank lost 150 million GEL and barely escaped bankruptcy.

During his pre-election campaign, Ivanishvili pledged to investigate all banking cases and call Kadagidze to account. Javakhishvili, now an ex-Governor of the NBG, was named as the candidate for Kadagidze’s post.

However, shortly after the power shift in autumn of 2012, when Ivanishvili’s Georgian Dream came into power and he took the Prime Minister’s office, he called Kadagizde “a very smart and talented guy who learns quickly”. Eventually, Kadagidze ended up keeping his post at the NBG. Javakhishvili, who threatened to put him and his team behind bars for all wrongdoings they had committed, fell silent.

Things took a wrong turn for Kadagidze in November of 2014, after Georgian national currency, the lari, started rapidly depreciating. Many economic analysts blamed Kadagidze for the inadequate monetary policy that led to lari losing 34 percent of its value in 8 months. However, neither the Georgian government nor the now former Prime Minister Ivanishvili dropped as much as a single word about Kadagidze’s fault back then.

Even by the end of January, Ivanishvili justified depreciation of the lari, calling it “a healthy behavior in line with the macroeconomic situation in the region”. However, in March Ivanishvili came out with a revelation that the national currency’s depreciation was completely the fault of NBG and Kadagidze’s inadequate monetary policy.

Thus, the smear campaign and the blame game against Kadagidze were launched. The government eagerly heaped the entire responsibility for the lari’s plummeting exchange rate onto him. They reminded the public that Kadagidze was an ally of the former government and has most likely sabotaged the currency. Javakhishvili once again reiterated that Kadagidze belonged in jail.

Kadagidze responded by saying that it was the government’s inadequate budgetary and economic policies that were behind the currency depreciation. He dismissed all accusations against the NBG as pure slander. International financial institutions, including the IMF and the EBRD, backed up the NBG, justified its policy and called on the government to cooperate.

Instead, Ivanishvili disclosed details of the alleged gentlemen’s agreement with the IMF that the IMF later dismissed. In its official statement, the IMF reminds how important independence of the NBG is. It also reminds that Georgian authorities have repeatedly reaffirmed their commitment to NBG independence, receiving financial support in return.

“The authorities have reaffirmed their commitment to NBG independence repeatedly. This has allowed the Fund to support Georgia with economic assistance programs, and most recently through the Stand-By Arrangement launched in July 2014,” the IMF states.

This Stand-By Arrangement implies around 150 million USD, and a large part of this sum is already spent. Whether or not the IMF official asked Ivanishvili to spare Kadagidze the responsibility for his alleged wrongdoings is still a matter of speculation. The criminal responsibility of Kadagidze is also on the level of verbal suspicion. According to Irakli Shotadze, Deputy General Prosecutor, there is an ongoing investigation of all the four banks’ cases, including that of Cartu Bank. And if the investigation determines it necessary to interrogate Kadagidze, it will be done.

“If this deal between Ivanishvili and the IMF really took place, it cannot be considered as an agreement between two private persons. It is an interstate agreement, in fact, and once it is violated, there will be consequences,” Levan Alapishvili, a legal expert, told Georgian Journal.

“I do not rule out the IMF asking the Georgian government to return the 150 million USD disbursed within the framework of the Stand-By Arrangement last July. Can our budget afford that, I wonder?”

Alapishvili also thinks that Shotadze’s statement has essentially saved Ivanishvili’s questionable adherence to law from scrutiny.

“If not for Shotadze’s statement regarding the banks’ case still being on, we might have gotten to probing Ivanishvili’s term as a PM for law violations. Even as Prime Minister, Ivanishvili had no right to prevent the investigation, as he claims he did, regardless of such a conversation taking place or not” he said.

Whatever Kadagidze’s fault is, he is nevertheless a scapegoat in the lari devaluation story, claims Soso Archvadze, an economic analyst.

“His monetary policy was indeed inadequate, but he alone could not have led lari into such a massive bout of depreciation. The government is obviously trying to shift blame to Kadagidze,” he said.

Despite many questions marks popping up after Ivanishvili’s disclosure, the only thing that is crystal clear is the fact that Georgian statesmen have lost their reputation in the eyes of the international community and investors alike.

Author: Nino Patsuria