The authorities are optimistic about the mission and expect that it would
recommend to the Fund's Board to provide money to Moldova.
"We expect to reach an agreement with the IMF", said at a briefing Victor
Doras, Senior Advisor to the President of Moldova.
However, the next day Doras's boss made another rude attack against the IMF
and declared at a meeting with pensioners that Moldova can do without foreign
loans and does not have to run after them "like a goat after a carrot".
The IMF has frozen lending to Moldova after communists came to power in
February. The mission, which will carry out annual consultations with Moldova
and will assess the performance under the IMF-supported programs, will provide
recommendations to the Fund's Board regarding further actions concerning our
Whether the World Bank and the European Union provide $36m worth of loans,
which are already envisaged as the 2001 budget revenue and account for one
seventh of the budget, depends on the IMF's resumption of lending to Moldova not
later than October.
The IMF press release on the forthcoming mission read that it would pay
special attention to the implementation of the Memorandum of Economic and
Financial Policies measures, which Moldovan authorities coordinated with the IMF
late last year.
In December 2000, the IMF Board approved a three-year $142m loan for Moldova
in the framework of the Poverty Reduction and Growth Facility (PRGF). Moldova
received two tranches totaling $24m under the Facility.
This is also when the Memorandum of Economic and Financial Policies of the
Government and the National Bank of Moldova was submitted to the IMF.
The main objective set in the Memorandum for 2001-2003 is furthering of the
policies ensuring high and sustainable economic growth, which is an important
precondition for poverty reduction.
"We are aware that to achieve this objective we have to preserve
macroeconomic stability, deepen the process of structural reforms, improve
governance, and strengthen efforts to attract foreign investment", reads the
The remaining part of the Memorandum sets out detailed measures of
macroeconomic and structural policies in the forthcoming period.
The government believes that the poverty reduction goal can only be achieved
in the context of financial stability accompanied by high and sustainable
growth. The medium-term objectives are: annual growth rates of 5 percent or
higher (which would require an increase in non-government investment); lowering
of the public debt burden (including domestic expenditure arrears) to around 70
percent of GDP in 2003 from 92 percent of GDP in 2000 (including a reduction in
the stock of external public and publicly guaranteed debt from 75 percent of GDP
in 2000 to around 60 percent of GDP in 2003); further reduction in the annual
inflation rate to about 10 percent (end of period); and containing the external
current account deficit to around 6 percent of GDP.
To achieve these medium-term objectives, the government will continue to
implement a prudent fiscal policy. In particular, it will be important to aim at
a primary budget surplus of at least 2 percent of GDP over the medium-term to
reduce the debt burden and avoid crowding-out private investments. This implies
an overall fiscal deficit of less than 2 percent of GDP. At the same time, the
budget allocation for the social sectors will be consistent with the poverty
reduction strategy. The government will also give a further impetus to the
structural reform programs through more vigorous efforts to strengthen the legal
framework, restructure/liquidate firms with large debt to the budget, complete
the privatization program (including wineries, energy and telecommunication
companies), strengthen the market for agricultural land, achieve additional
public administration reform and further deregulation.
The government undertook an obligation to prepare a comprehensive poverty
reduction strategy, which would be included in the Poverty Reduction Strategy
Paper (PRSP) to be approved by the government by early 2002.
A separate section of the Memorandum describes the 2001 program. It reads:
"Macroeconomic policies for 2001 will aim at supporting a turnaround in GDP
as well as reducing inflation and maintaining a prudent level of official
reserves. To achieve the growth target of about 5 percent, we intend to proceed
rapidly with structural reforms, improve governance, and implement the
privatization process as described below. While there are downside risks for the
targeted growth rate in 2001, the implementation of structural reforms,
including the privatization program, a post-privatization plan for agriculture,
the initiation of public administration reform, and a strengthening of the legal
framework, as well as an improvement in the external environment, are expected
to contribute to the turnaround in GDP in 2001. Inflation is targeted to further
decline to about 10 percent (end of year basis) in line with the tight financial
policies. External reserves are expected to increase to over 3 months of imports
of goods and nonfactor services."
The 2001 budget aims at stabilizing Moldova's total stock of public and
publicly guaranteed debt at around 74 percent of GDP through achieving a
sizeable primary surplus of 4 percent of GDP. The overall cash deficit for the
consolidated government is budgeted at 400 million lei (1.9 percent of GDP) with
domestic budgetary arrears (including wages and pensions) budgeted to further
decline by 100 million lei, resulting in an expected deficit on a commitment
basis of 300 million lei (1.5 percent of GDP).
Moldova committed to reduce netting operations to 3 percent of total revenues
of the combined central and local governments, down from 5 percent in 2000 and
10 percent in 1999 (except for those involving debt clearing operations with the
The document further states:
"We will resist all calls for new laws to provide for tax exemptions,
holidays, amnesties, or deferrals of any kind. As regards the Free Economic
Zones (FEZs), we will draft a new law with technical assistance from the Fund
that will restrict the zones to export-oriented production and trans-shipment.
The intention will be to strictly limit privileges and, ultimately, to phase out
the FEZs. We will submit such a draft, together with other necessary legislative
changes, to parliament by end-February, 2001 (structural benchmark)."
"As regards expenditures, public sector salaries, which had been kept
unchanged in nominal terms from 1995 through 1999, are budgeted to increase by
83 million lei in 2001 (after increasing by 30 percent in 2000) as a result of
the increase in the minimum wage to 100 lei per month, from 65 lei in 2000. This
has been made possible in part by the large cuts in public sector employment
which fell from 309,000 in 1999 to nearly 285,000 in 2000. Further
reorganization of the public administration is expected in 2001 and beyond in
line with the World Bank's Public Sector Reform project", reads the Memorandum.
Moldova confirmed its commitment to limit the subsidies in the budget. Direct
subsidies to the agricultural sector in 2001 will be limited to the spending
amount allocated in the 2000 budget for the Agricultural Support Fund (ASF).
Funds available within the spending limit will be targeted to rural
entrepreneurs and farmers through a matching grant credit fund developed in
agreement with the World Bank.
The Memorandum notes that the Administrative and Territorial Reform Law was
implemented in Moldova: "The number of local administrations has been reduced
from 38 to 12 and the number of public sector employees has been cut by almost
10,000. Savings are also being utilized in non-wage expenditures as the new
structures are progressively being put in place. We remain firmly committed to
refrain from directing credits through the NBM or commercial banks, or instruct
banks to extend credits on non-commercial terms, including to local
administrations and the Social Fund."
"The situation at the Savings Bank is under careful continuous review
following the government's take-over of the bank and the installation of new
management in March 1999. The rehabilitation plan is being actively implemented
and the bank has achieved a positive net worth. It is expected that the bank can
be largely recapitalized by a further recovery of assets and efficiency gains in
2001 without any government capital injections. The government will prepare a
plan for the privatization of the Savings Bank", says the Memorandum.
An important section of the document is dedicated to structural reforms and
privatization. The government has undertaken to focus on the following:
“Privatization program. The privatization bill on five wineries and the
tobacco sector was approved by Parliament in October 2000 (prior action). In the
coming period, and according to a strategy to be agreed to with the World Bank,
we will prepare the privatization of these wineries and tobacco companies. We
expect to be able to announce a sales tender for at least two wineries by May 1,
2001. We also plan to proceed with the privatization of Moldtelecom, in
consultation with the World Bank. In this regard, Parliament has already
approved an independent regulatory agency for the telecommunication sector,
appointed a board of directors and physically established the agency.
Moldtelecom has not contracted any external debt since May 1999 and will not be
permitted to contract debt pending its privatization, except for making
necessary pre-privatization investments in agreement with the World Bank. We
will launch a tender for selecting a financial advisor for the privatization of
Moldtelecom by February 1, 2001 (structural benchmark).
Bankruptcy/reorganization procedures against 24 loss-making firms with
arrears to the State and/or Social Fund budgets exceeding 3 million lei have
already been initiated (prior action). Creditors have filed legal proceedings
against these companies. We intend to put increased pressure on these and other
enterprises undergoing reorganization through the creditor council's authority
under the Law on Bankruptcy. However, the Law on Bankruptcy will need to be
amended to accelerate the reorganization/liquidation process. We will submit an
amended law to parliament by February 15, 2001 (structural benchmark) and expect
its approval by May 1, 2001. This should contribute to financial discipline
(i.e., through a demonstration effect), a reduction of tax arrears, and the
promotion of efficiency and growth.
Strengthening legal and regulatory framework. We are continuing our efforts
to establish a firm legal framework for a market economy, a key component to
providing a business friendly environment and to improving transparency and good
governance. In this regard, the first reading of the civil code--which is
indispensable to regulate contractual relations--was approved by parliament in
October; we expect the civil code to be approved by end-June 2001. We recognize
that the liquidation of insolvent banks, after their license has been revoked,
has placed a heavy burden on the NBM, absorbing a large number of staff and
hampering the supervision of other banks. The NBM will submit by end-March 2001
amendments to the Law on Financial Institutions and other related laws to
parliament to transfer the responsibility for appointing bank liquidators and
monitoring progress of the liquidation process to the courts (structural
benchmark). Moreover, the government will also submit an amended law on
collateral and to parliament by end-March 2001, to allow for an easier
enforcement of property rights and contractual obligations. In the area of
improving governance and transparency, we intend to submit, with assistance from
the Fund, a draft law on financial disclosure to parliament by end-June 2001
(structural benchmark), requiring regular reporting by senior elected and
appointed government officials.
A section of the memorandum is called Technical Memorandum of Understanding.
It determines the National Bank’s obligations. The following indicative targets
were set by June 30:
- floors on the stock of net international reserves (NIR) and gross reserves
in convertible currencies of the NBM - $59m and $229m;
- ceilings on the net domestic assets (NDA) and reserve money of the NBM –
1,394 million lei and 2,119 million lei;
- limits on net credit to general government from the NBM – 1,560 million
- limits on the overall cash deficit of the general government - 464 million
- limits on the contracting and guaranteeing of nonconcessional external debt
with original maturities indicated below by the government of Moldova, the NBM
or any other agency acting on behalf of the government, and on the accumulation
of external arrears - $14m with a term over 5 years;
- ceilings on domestic expenditure arrears of the government - 863 million
lei in the general government sector and 200 million lei on wages and pensions.
A lot in the memorandum looks very technical and complicated, but this is
what mission comes for – to conduct a thorough analysis. It intends to hold a
press conference before departure. And the Fund’s Board will answer the final
question "To give or not to give?" The government needs to receive the “give”
answer by the end of October. If the IMF says "no", the government can simply
resign – it doesn’t stand a chance.