Moldova & IMF IMF Activities Publications Press Releases


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THE CONNECTION 
English Language Supplement to the 
Chisinau Observer Weekly Newspaper 17 May 2001


- Economics -

IMF upset at Communists' plans

By Liudmila ZLOTNIKOVA



The IMF delegation recently finished their visit to Moldova. At the final press-conference, Moldova's Prime Minister Vasilii Tarlev gave a rousing speech, although the' head of an IMF mission Richard Haas was quite brief in his comments. He could not have acted otherwise for he would have to reveal the content of a secret document entitled "International Monetary Fund. Aide-Memoire. 1 May 2001", which presents the outcome of the Fund visit in detail.

The IMF mission left Moldova totally dissatisfied, The new Communist leadership of the country agreed upon the market economy and a close relationship with the Fund, when in fact, they did quite the opposite, having ratified the government programme, which is not consistent with an IMF memorandum/agreement signed last November. Although a release says diplomatically that "several articles and issues of the (government) programme cause anxiety", there is actually a long list of issues that caused stress between the government and IMF.

The Government intends to control the prices of some indispensable goods. IMF strongly objects to both direct tariff and price regulation and the introduction of the rate of return limit. Experts' opinion is that this policy will result in a deficit of the so-called "social goods", and that this policy will prove un-profitable for the businesses involved In return, the L\IF offered to consider an option of improving the system of financial assistance to the most needy, instead of granting aid to the entire population.

Fund experts were also unhappy with trade import limitations, which the Government is going to impose to protect local manufacturers. The IMF regarded this mea-sure as preventing economic reforms, since it will dramaticallv increase consumer expenses. They also observed that state orders regarding agricultural products would have a negative effect on the market development and agricultural reforms.

In the IMF's opinion. the Government's intention to extend soft and special credits to agriculture will have a destructive impact, and that these re-forms will lead to economic inflation and consequently to a crisis. They warned that granting of special loans to the agrarians is viewed as an unreasonable crediting and a threat to the banking sector. The IMF experts had the same negative attitude towards the restructuring in the field of electric power undertaken by the Communists. The lack of money in the budget hinders loan granting. Moreover, it is a serious deviation from the "Law of Social Assistance" ratified in April, 2000.

The intention of the country's new leaders to restore monopolies in the field of wine-making and tobacco met with stiff opposition from the mission. The IMF experts did not remind the current government of the parliament's refusal to adopt the "Privatization Law" of the enterprises, which was a turning point in the breaking-off of relations with foreign creditors in 1999.

The IMF Requirements

For the newly formed cabinet it will be quite a task to earn trust and therefore attract foreign financing. The government programme will have to be changed in accordance with the terms of the IMF memorandum. This is a matter of prime importance. The IMF thought several issues were paramount.

First and foremost, the Parliament must consider laws concerning pre-shipping inspection. the 5th part of the Tax Code, Tax Administration, and a free enterprise zone and amendments of the Law of Financial Institutes. Projects regarding free enterprise zones must limit the sphere of their activity by means of export production and transit. By amending the Law of Financial Institutes, responsibility for bank liquidation will be shifted from the National Bank to the courts. It will also give the National Bank of Moldova authority in the field of bank administration.

Next, the government will have to revoke an order to issue export activities licenses. The Government will have to hold the import tariffs increase back as well as introduce the non-profit trade barrier, which prevents the protection of the local manufacturers.

And finally, one of the most important conditions to consider is the privatization programme. First, the new financial councilor for the Moldtelecom privatization has to be acceptable to the World Bank. Secondly, Moldova will announce a tender in order to sell two wine-making companies, after prior consultations with the same bank. The last order foresees "regular consultations with the Fund experts before making any decision about economic policy.

What Are Moldova's Perspectives?

The IMF mission has barely left Moldova, when all its recommendations were immediately forgotten. On May 3, the Communists voted against the IMF when they passed a resolution called the Law of Additional Social Assistance for the war invalids. World War II veterans and their families would get a monthly bonus of 50-400 lei. When discussing this bill, the IMF experts strongly objected to it. When they pay a visit next time, they are sure to pose questions to clarify such an open infringement on the agreement.

The year 2001 bud-get suffers from a 1.5 billion lei shortage. This financial gap includes 151 million lei worth of RED Nord and Nord-Vest privatization revenues that have not been received yet. And the chances of receiving this money are increasingly dim, since the president's goal is to make concession with 'ltera'. The IMF's Richard Haas spoke on this subject specifically. He said that, "traditionally, the concession matters are decided on an open auction allowing the government to select the most profitable offer". But the IMF is not the one to make decision. So it is still a dim question whether our budget receives money after this transaction with 'ltera'; and if it does, what sum of money it would be.

The second part of the budget deflcit consists of 430 million lei, which the Government is called to find in order to execute the parliamentary resolution No.1426-XIV adoptedonDecember 28,2000. The problem is that during the election campaign, the Parliament approved a resolution to increase crediting of the Individual Farms Fund by 60 million lei and promised a 20 percent increase in wages by March 1, and a 10% increase in pensions by July 1.

36.6 million lei make up the third part of the deficit. This is the World Bank and European Union money, which our Government had to receive this year to repay credits by the expiration date. However, the financing has been suspended. The next IMF mission planned for this summer will pay less attention to the policy of foreign crediting to observe Moldova's fulfillment of the memorandum obligations. Having ratified the Law of Social Assistance, the Moldovan Parliament has ignored the IMF requirements. The Government was supposed to abide by the Fund's request to receive foreign financing, but instead, they presented defaults on obligations.

Moldova and IMF

Moldova became a member of the IMF on August 12,1992. The quota amounts to approximately $160 million or 0.96% from the total quota sum. Our republic has representation with 1482 votes, making 0.07% out of the total number of votes. Since 1993, Moldova has received credits. in the sum of about $144 mil-lion. The IMF loans are intended to preserve the rate of the national currency, the Moldovan lei.

Moldova's Perspectives From the IMF Point of View

 

 

 

1999 actual

2000 prelim.

avg during 2001-2005

avg during 2006-2010

scenario 1

scenario 2

scenario 1

scenario 2

Nominal GDP, US$ mln 

1304.0 

1407.2 

2051.4 

1579.0 

3591.0 

2020.7 

Real growth of GDP, % 

-4.4 

0.0 

6.8 

2.5 

6.0 

2.5 

Exchange rate, Mold lei/US$ 

10.5 

12.5 

14.1 

16.0 

17.8 

22.8 

Export, % from GDP 

46.4 

46.4 

48.7 

48.0 

55.1 

47.9 

Import, % from GDP 

58.0 

66.8 

63.3 

68.9 

66.3 

66.8 

Current payment balance, % from GDP 

-2.6 

-7.8 

-6.3 

-8.2 

,-5.6 

-7.8

Note: The table is composed on the basis of the information provided by the IMF and World Bank estimations. The first scenario is possible if indicators. of economic growth, foreign trade and business prove to be accurate and consistent with requirements of the assistance programmes offered by the IMF and WB. The second scenario is regarded as a negative outcome.