Moldova & IMF IMF Activities Publications Press Releases


In early 2001 NBM's President Leonid Talmaci and IMF's
representative to Moldova Hasan al Atrash jointly looked into
whether or to what extent the National bank had managed to live
up to the terms of the memorandum signed with the IMF for 2000,
even though formally it was not in effect last year. However,
the NBM deserved just praised for coping well with most of the
provisions contained in the 'informal' agreement with the IMF.
It has even fared better, for some indices turned out to have
been well above the IMF's targets. Following is our exclusive
interview with NBM's President Leonid Talmaci:

Leonid Talmaci: Every single requirement for 2000 that we agreed
upon with the IMF in late 1999 has been met.

Let me first dwell upon our net foreign-exchange reserves (which
conventionally represent the total amount of foreign-exchange
reserves less the IMF loans and the government's current
accounts. This money is the sole property of the national bank,
meaning they do no need to be repaid and no interest is accrued
on it. - INFOTAG). Our agreement with the IMF required that our
net foreign-exchange reserves be $54.2 million by the end of
2000. We ended up in accumulating $62 million, $12.2 million
above the target.

What is of note here is that we beat the target facing total
lack of external financing, when the government's external
arrears could not be settled by any means other than heavy
foreign exchange acquisitions from the national bank.

In 2000 the Moldovan authorities paid $99 million in settlement
of their external liabilities, of which $33 million was paid by
the national bank and another $33 million by the government from
the bank's foreign-exchange reserves.

The fact that our foreign-exchange reserves keep on falling
stems from two causes: we have to repay IMF's loans, along with
accompanying interest, and we have to sell foreign exchange to
the government to meet the republic's external liabilities.

Sound foreign-exchange reserves are very important for two
reasons. The first is that impressive foreign-exchange reserves
boost investors' confidence, which supposition normally holds
goods of both local and overseas injections. A common belief is
that investors may lay aside their concerns over the withdrawal
of their funds from a country whose foreign-exchange reserves
cover its three-month imports, in however dire straits that
country might be. And that generally holds true regardless of
whether you invest in the real economy or in securities.

Furthermore, sound foreign-exchange reserves set local
investors' confidence on an upward spiral, because they are a
weighty guarantee of being able to buy foreign-made spare parts
or whatever you need to foster your production. That's precisely
what we need our foreign-exchange reserves for, to be able to
buttress up a slippery capital market any time common sense
tells us to proceed that way.

We must by all means ward off the flight of our investors
elsewhere, because this will imminently bring about severe
reduction in jobs, a substantial decline in GDP, plunging budget
and Social fund revenues and all the consequences that these may
involve for the republic.

Q: How does the national bank feel about maintaining its
foreign-exchange reserves?

A: In fact, we maintain our net reserves in overseas banks on
extremely favorable terms. Nevertheless, we always do it
short-term, because no central bank ever ties up this kind of
money long-term. It is important to bear in mind that
foreign-exchange reserves are primarily designed to buttress the
national currency, and then only earn profit.

Q: What about other contentious points advocated by the IMF?

A: Next index of our credit standing was the ceiling of our
foreign-exchange reserves (which is how heavy the NBM is buying
foreign exchange and how sound the regulation of the monetary
supply is-INFOTAG). The IMF's requirement was 1.969 billion lei,
we accumulated 1.945 billion, 23.3 million more than we were
expected to. This was brought about by the NBM's heavy sale of
the securities from its own portfolio in late 2000.

Another important part of the program is how much we lend to the
government in a given year. Our top lending plan was 1.540
billion lei but we actually supplied only 1.398 billion, 142
less than we were supposed to. This, however, was not because we
were keeping the government at bay but rather because in late
2000 the government obtained a $20 million WB loan, followed by
$10 million from the Dutch government.

Another index is our overall foreign-exchange reserves. We were
supposed to accumulate $206 million and had $219.2 million
instead, 13.2 million above the target.

The last thing was how much we lent to commercial banks. In all,
commercial banks could count on up to 1.326 billion lei last
year, but we actually lent 1.158 billion, 168 less than we were
expected to. The reason was not that we under-financed
commercial banks. Rather, it should be attributed to NBM's heavy
foreign exchange purchases throughout last year.

Q: Could we go into bank supervision and banks' performance in
general? The NBM is said not to pursue its quest for bank size
any further this year. Is this information accurate?

A: Well, out monetary policy for 2001 does not provide for
launching any overt capital-raising campaign. Still, we plan to
be consolidating bank assets indirectly.

Q: How is that?

A: In broad terms, asset consolidation is largely about
"purifying" bank capital, introducing prudential
regulation-of-bank schemes, remedying overall transparency of
the banking system and harmonizing banks' performance indicators
with NBM's regulations. (the latter means putting a few troubled
banks on an equal footing with the rest by changing the overall
structure of their capital, boosting risk funds, improving
risk-management and reducing the share of fixed assets in their
portfolios - INFOTAG)

We are not going to turn a blind eye to the issue of the
so-called subordinated loans, whatever arguments there are to
the contrary. Our stance is as uncompromising as ever: we do not
mind banks' raising their capitals by way of such loans as long
as it is done within the limits of reason.

In fact, few banks will have to grapple with this. Nonetheless,
we will not budge an inch. Why would we favor some banks over
all others? After all, what good reason is there to let some
banks include subordinated, or, as I call them, provisional
loans, into their total capitals and at the same time
effectively preclude others from following suit? At that rate,
we could just as well classify deposits of any nature as
subordinated loans proper.

Q: What other changes does the National bank contemplate in

A: In the second half of the year we will start drawing deposits
from commercial banks. Apart from running the secondary state
securities market and issuing collateral loans, the national
bank will start attracting deposits from banks, which will
provide us with an extra tool for regulating money supply. Our
chief criteria in selecting deposits will be the interest rate
that banks charge and because the risks involved are slim, the
deposits will be low-return ones.

We are also set to grant overnight loans whenever banks
experience short-term money straits.

Q: How much will you charge for using overnight loans?

A: All I can tell is that refinancing rates on overnight loans
will be higher than the NBM's regular interest rates.

Q: What was the NBM's income in 2000?

A: We paid 386 million lei on the state budget in the first nine
months of 2000 and we will soon pay 60 million lei earned in the
last quarter.

Q: Did you earmark any of your to raise the bank's statutory

A: By January 2001 our statutory fund grew by 25 million lei, to
75 million. By July 1 2001 it will total 100 million.

Q: How far can you be expected to cut interest rates on loans,
considering that inflation was forecast at 10 percent for 2001?

A: I believe the cut will average 5 percent. But deposit yields
and interest rates will set on a soft and smooth downward trend,
because privately-owned banks cannot just bring down their
interest rates out of nothing. It should be down in parallel
with lowering deposit yields.

Q: That is to say, by late 2001 interest rates might average 28
percent p.a. and deposits will yield 18-20 percent p.a.?

A: Well, this is rather accurate an estimate. Banks should
always follow our releases. Our forecasting annual inflation at
10 percent should make banks' leaderships reflect on what course
of action to adopt in the coming year.

P.S. If shareholders opt to raise bank's capital twice in a
relatively short period of time, there is little doubt that the
bank will fail to show healthy profit for a while. Therefore,
those banks that spent much of their time in 2000 struggling to
meet capital requirements are unlikely to show sound dividends
this year. Nevertheless, the National Bank is determined to push
on its consolidation of bank capital.

In 2001 the NBM may hand out just one new banking license, to
MEC bank whose statutory fund would reportedly total $5 million.

In late 2000 the IMF reduced from 4.5 percent to 0.5 percent the
interest rate on the loans it injected into the National Bank of