Moldova & IMF IMF Activities Publications Press Releases


"Moldavskie vedomosti", June 2, 2001
(translation from Russian)

IMF says: "If we were the doctor for Moldova, then the patient did not listen to us"

The new communist leadership has a narrow field of maneuver

The ten-year period of transition from centralized economy to market economy ended for about thirty countries from Europe, former USSR and Asia, so that one group is already close to the finish line, the second one is spread over the whole distance and the third one has merely moved from the starting point.  Some of the countries from Central and Eastern Europe and Baltic’s are knocking at the door of the European Union, China and Vietnam made a big step ahead, but the future of   the most of the CIS countries, including Russia, is foggy.

Why are some countries moving forward, but for the other there is a need to apply poverty reduction and growth programs, - this was the topic of the IMF seminar in Vienna, dedicated to six former republics of the USSR, which turned to be the poorest – Armenia, Azerbaijan, Georgia, Kyrgyz, Moldova and Tajikistan.


“Since 1995 Moldova doesn’t do anything”


Certainly the journalists from Chisinau were interested more in Moldova’s problems and its relations with the IMF.  We asked directly Mohamed Shadman-Valavi, representative of the European II Department, responsible for the former Soviet Union, if the fund feels guilty for the condition in which Moldova is now in and if the communist president Vladimir Voronin may be right saying that so as the Fund was for Moldova a “doctor”, and the ‘patient’ feels worse, then the doctor himself has to be held responsible for the condition of the patient and finally do something for him?


“Moldova – is a country that did not do anything in the field of reforms since 1995.  Even if we were the doctor for Moldova, then the patient did not listen to us”, - said Valavi.


In their speeches, as he mentioned, the communists themselves say that they intend to cooperate with the IMF, but in reality they do not move at all.  At the beginning of the 90-s Moldova was considered the leader in reforms, but then stagnation started.


“IMF never imposes its program on anyone.  If you do not agree with us, then tell us about it – but you are not telling it.  If Moldova does not agree with the IMF, let it try something else, but very soon you’ll discover that you don’t have a big choice.  If the stagnation in reforms will continue, it is clear that Moldova will not be able either to accelerate the development, or to remain on the same place – the situation will get worse”, - said Valavi.


Poverty and Growth


According to many criteria among the poorest countries in the CIS, Moldova is on the last but one place, before Tajikistan.  Its economy is now one third of its level in 1991, and at the moment there are no preconditions for the growth to be so             quick that the country get back to its level before the crisis.  Many former republics of the USSR confronted the same “model of decline”.  Their starting conditions were very bad.  The majority of them lack natural resources, and they depend on the supply of gas and petrol from abroad, mainly from Russia.  The subsidies they were receiving from the union’s government have been canceled.  In many regions there took place armed conflicts that absorbed enormous resources.  Corruption and non-efficient governing are flourishing everywhere; the lack of well-trained professionals, able to work under new conditions is felt.  The former soviet republics got into a vicious circle in which the reforms were hampered, a narrow layer of the population, mainly from the former party nomenclature was getting richer, and then used its power for future hampering of reforms that were threatening the position of these people.  It was very seldom when a policy corresponding to the realities was promoted, the reforms weren’t clearly defined and weren’t implemented.


In the middle of the 90-s in all the countries there were undertaken measures for macroeconomic stability – liberalization of prices, exchange rate and foreign trade, mass privatization took place, but here everything ended.


From 1989 until 1999 direct foreign investment in Moldova totaled US$339 million, or US8$ per person per year.  This is not serious.  At the same time the domestic and foreign debt of the country was growing year by year, the level of life was decreasing, corruption was spreading, a vicious circle of non-payments was created, reforms were hampered due to political instability and lack of will and as a result Moldova found itself in a situation when it is possible to overcome the poverty only by having a stable at least five or better 10 percent annual growth.


No Moldovan government can afford to do, what it could do ten years ago.  Even the communists will understand it very soon.  They will have to move from criticizing the “reformers” to concrete work and prove what are they able to do by themselves and will find out that on Moldova’s neck there is a heavy yoke hanging


Our Debts


In February current year the IMF and World Bank issued a report on debt issues and financial stability of Armenia, Georgia, Kyrgyz, Moldova and Tajikistan.  It speaks about the potential for growth, which exists in these countries, taking into consideration their low level of development, but this potential has to be implemented. 


The IMF/WB report says that the analysis of the debt of Moldova shows that it can limit the use and efforts to reduce poverty; there is a need for stable growth of 6 percent and increased investments.  But it even does not consider the scenario under which Moldova may not have normal relations with international financial organizations.  Meanwhile, such a future becomes more real, judging from the deeds of the communists that came to power.


“We are concerned that the reforms in Moldova could slow down”, - said Shadman-Valavi.


The director of the IMF European II Department John Odling-Smee said directly that at the moment the Fund and the new leadership did not come to an agreement yet and it is not yet known when a new mission of the IMF will come to Chisinau. 


“Do not even think about not paying off the debts”


“The IMF and Moldova should come to an agreement.  We did not yet reach this moment.  We are ready to send a mission to Moldova to hold productive discussions.  I can not foresee, when will it happen”, - said Odling-Smee during the videoconference with the Moldovan journalists.


Answering the question of “MV” about his assessment of the relations between the IMF and Moldova, Odling-Smee said: “We have lots of contacts with the new leadership of Moldova.  It tells us that it will continue the reforms of the previous government.  I hope this is true.  At the same time, we hear declarations of deputies-communists about the fact that some privatization project should be slowed down or canceled or social expenditures should be increased without having any sources”.


The IMF considers this situation as arguments inside the new leadership of Moldova that are not yet over.  Until these are over the IMF will not make any decisions to continue crediting Moldova.


“I believe that the leadership of Moldova is aware of the fact that they have little space for maneuver, taking into consideration big debts and low income. We have to wait for the results of all these arguments”, - said Odling-Smee.


“We will be very much against Moldova thinking of not paying its debts, -he said.  – The country will not get any new credits and will join the countries that announced their default in the past.  These countries have now difficulties even to restore their reputation”.


“It would be an enormous mistake not to pay for the eurobonds.  The markets are very sensitive to any discussions about possible non-payments”, - said Shadman-Valavi.


According to Odling-Smee if the leadership of Moldova is conscious about the seriousness of the situation, they will have to come to the creditors and start negotiations with them about the restructuring of their debts.  If it becomes difficult to service the debt, the IMF is ready to negotiate a new program with Moldova and recommend the creditors have a serious approach to the problems of our republic.


In 2000 Moldova has to pay its foreign debt in the amount of about US$80million, and in 2001 is the peak of payments on foreign debt – over US$200 million.  Without a program with the IMF Moldova will not be able to hold negotiations on restructuring the debts both with multilateral and bilateral creditors.


“The country, burdened with debts, can’t be attractive for foreign investors”, - said Shadfman-Valavi.


Moldova has to make the choice


No country is obliged to fulfill the recommendations of the IMF.  Many countries in the world do not have any programs with the IMF, except for the normal consultations.  No one is forcing Moldova to follow the Fund’s advice, which says that it can’t guarantee a favorable result – any country should take by itself the most important decisions.


The reasons for the difficult economic situation of Moldova is not in reforms but in their consecutive finalization, like in the Central and Eastern Europe and the Baltics, were people are living incomparably better than in the CIS.


The more the reforms are delayed, the more difficult the hangover will be.  If we return to the so much liked by the communist comparison of the IMF with the bad doctor, than we can say that the doctor prescribed the badly sick patient a sour mixture (medicine), but the “sorcerers” from the Moldovan politics preferred to feed him with sweet tablets.   The patient is more alive than dead, but the communists can easily finalize their inconsecutive “therapy” of charlatan, started by the agrarians and continued by Voronin’s predecessor.


“Even in case of a good policy being promoted some difficult years are expecting you ahead”, - said Shadman-Valavi.


The creditors will not render any assistance to Moldova, if its leadership will not be able to promote the adequate policy.  The debts can be restructured via the Paris club, but it will not even discuss with the debtor, if it does not have a program agreed with the IMF and WB.


“Moldova has to elaborate a strategy of debt management for the next years.  The IMF is not going to run to the donors – we’ll wait and see what are you doing”, - said Shadman-Valavi.


It is difficult to say, what are the Moldovan communists hoping for.  May be they hope to get assistance from Russia, but Russia itself is a member of the Paris Club, and Moldova owes it about US$1 billion, and this money is not unnecessary for Russia at all.  Any Russian investment – is nothing compared to what Moldova needs, especially if it is done not for cash but in lieu of debt write off.  Notable is the fact that in the not long ago congratulations to the Moldovan president its Russian colleague Vladimir Putin spoke for the implementation of social-economic reforms in both countries.  The poor, not reformed Moldova is not needed even to Russia.


It is true that the choice for the leadership of Moldova is not very big, and this is a choice between bad and very bad.  If the communists remain communists, very bad times are expecting us.  If they look at the situation unbiased, than they’ll have to refuse their communist dogmas, demagogy and populism - than the choice will be simply bad.  The last option is rather unlikely – the communists will better completely destroy everything than agree with the “imperialists” from the IMF.


The most probable prognosis is that we should get ready for even worse times.  It is not true that Moldova can’t get worse.  We still did not reach the level of the poor in Calcutta.  But we can.


Dmitry Chubashenco