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"Observator Economic" Magazine
January-February 2002

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Im leaving Moldova more pessimistic than when I came here

Interview with Hassan Al-Atrash, the IMF Resident Representative in Moldova

Your mandate expires in late February. Are you more optimistic or more pessimistic when leaving than when coming to Chisinau in 1999?

I am probably less optimistic than when I first came here. As probably you know, my predecessor had the same views when he left. He was downbeat and now when I am leaving I also feel downbeat. The first problem here is the resistance towards chan ges. Second, there are big interests, especially in the energy area. There is also no consensus over the reforms. Three, I think there is a capacity problem. I think that a lot of good and capable people are not working in public service. Forth, there has been some political instability. I my two years here I've worked with three governments, two presidents and two parliaments. But I think that the biggest problem, as far as I see, is that there is no ownership of reforms. When I read in newspapers about officials saying we did this because the International Monetary Fund told us to do it, I shiver, because I know that reforms will not be successful in this case. Extraordinary imposed reforms will not succeed if the people do not believe in them.

Some IMF-supported programmes have been successful, while others have been a failure. It may be simplistic, but my opinion is that reforms where successful in countries where there was domestic ownership of the reforms, and there was a failure where there was a lack of ownership.

Perhaps this explains why the IMF-supported programmes have been successful in Baltic countries, while here they have not been a success.

Of course, I feel a little bit frustrating here, because I'm doing the very best to have a good and valuable programme between the country and the IMF but there are a lot of factors and obstacles, many of which have negatively influenced the reforms.

I think that one problem in Moldova is that the authorities, not just these authorities, but also previous ones, see the IMF programme as an opening door to extra financing. They do not see it as something useful of itself. Perhaps this is the problem. Therefore, they try to do the minimum of that is needed to fulfill the memorandum even though they lose the general, I think. What this country needs is investments, domestic and foreign, because only investments bring growth. But investment requires not only political stability, it requires consistency in economic policies. It requires also an adequate environment: no harassment, a strong legal framework, as little regulation as possible. These things basically do not exist at present in Moldova. This is where we are.

Why did not Moldova manage to get financing from the IMF for more than two years already and what should it do to get it?

In 2001 there was only one disbursement from the fund, it was in February. In December 2000 a three-year programme was approved and one disbursement was made. Under this programme, which is a concessional facility of the fund, about 25 million dollars was disbursed from the three-year 142-dollar programme. What has happened? When I came here it was October 1999.

Immediately after I arrived, we reached an agreement with the Sturza government on a programme. As you know, the Sturza government was dismissed in November. Then, in December, Mr Braghis became prime minister. A mission came to Moldova in February 2000 and reached an agreement with the new government.

One thing that was important to us was the privatization of the wine and tobacco companies. As you now in April 2000 the law on their privatization was rejected for the second time by the parliament. It was basically July 2000 when we started to negotiate another three-year programme with the Braghis government. In October the privatization law was finally approved. And we went to the executive boarding in December and we disbursed money. Then in February 2001 we disbursed money again.

As you know, in April a new government was appointed. Initially we had problems with the economic platform, because there was some price control, many populist measures that had implications on the budget, the intention to reinstall monopoly. It was not very clear what the privatization intentions were. There was much talk about postprivatization that we did not understand.

They also talked about monopoly. So, there were initially some problems but then we were able to agree on the continuation of policies of the previous governments. We agreed on a supplement to the memorandum that we left with them. This supplement to the memorandum had a number of things that had to be carried out before we go to the executive boarding. It took a long time to do these things but by November they did them. Unfortunately, two days before our documents were supposed to be sent to the executive boarding and everything had already been approved by the management of the Fund, the Moldovan government signed an agreement on gas deliveries that requires new state guarantees. And everything fell apart.

Because, first of all, the memorandum with the Tarlev government is very similar to that with Braghis and Sturza governments, there is a compound about no more state debts. The reason is very clear to everyone, there is already a big debt that is difficult to service. Mr Tarlev said when coming to this office that he has inherited a very big debt. It is true. Then why agree to new debts? Moldova has to pay large debts in 2002. A large portion of money form the budget is going to service the debt rather than to finance education and heath services or create jobs for the people.

I know that there are also those claiming that we are trying to keep Moldova in debts to have a lot of influence on it. Actually, we are trying to stop the attraction of new debts. Under the gas agreement, the penalty interests is only 300 million dollars, that also includes the Dniestr region's debts. I do not think that MoldovaGaz will ever be able to pay an 800-900-million-dollar gas debt. Under the agreement, if MoldovaGaz cannot pay, then this is a state debt. So, what we ask the government is to eliminate the state guarantee. If MoldovaGaz and Gazprom want to have a commercial agreement, that is between them. But the government should not provide guarantees.

We have suggested the government a way out of this issue, but it preferred a second option, which is probably more difficult. Specifically what the government suggested was amendments to three articles of the gas agreement, on which we have found common language. We presume that the Moldovan authorities will send them to the Russian authorities for the examination. This is the most important thing in terms of what will be needed for us to be able to go to the executive boarding.

In addition, there are few other points like approval of the Civil Code. The first reading of the Civil Code was in October 1999. And there is no reason why it has not been passed yet in the second reading.

The thirst requirement is to make progress in talks with the World Bank on SAC-III. We are ready to go to the executive boarding before the World Bank, but we need oral assurances from the World Bank that the negotiations are fine. The reason about this is very simple. The budget has already been passed and part on the financing budget comes from the World Bank money. An if the World Bank money is not coming, then the budget is no longer realistic.

But the World Bank says the negotiations are very badly -

The World Bank has recently concluded that the progress in negotiations has been very slow. That there are many problems in agriculture, energy, etc. This is what I read in the press statements of Mr Elbirt (the World Bank Resident Representative in Moldova). This, of course, is not big news. My suspicion is that if these things are not resolved very soon, then it will not be possible for us to go to our executive boarding in March-April.

But this is not the end of the world. All this means that there will be delays is disbursing money, delays in restructuring of Moldova's foreign debt and delays in attracting other investments.

Some officials say that the IMF will resume, however, its financial assistance for Moldova because it does not want to lose the allocated money, while others say that the IMF will never support a Communist government. What can you say about this?

It is true that some people say that the IMF will never disburse money to a Communist government, regardless of the promoted policies, while others believe that the fund will give money because it does not want Moldova to face default. Neither the first nor the second statements are true. The IMF is ready to help any government if the sides reach an agreement on the promoted policies. However, it is not enough to implement several structural measures, if the general strategy does not meet the programme signed with the IMF.

But if Moldova does not have a programme with the IMF it will face big difficulties in rescheduling its debts towards the Paris Club. I do not know any case when a country managed to reschedule its debts without having a programme with the IMF. The next months will be very important for Moldova.