Economic & Financial News Agency - Daily Electronic Magazine
Wednesday, October 30, 2002
WHY DOES MOLDOVA NEED CREDITS OF THE IMF
The estimation mission of the International Monetary Fund is completing its
In Moldova. It aim is to thoroughly sound the "readiness" of the Moldovan
authorities to obtain two tranches of the credit till the year-end. The main
point of the mission work was the visit of the IMF high ranking official to
Chisinau - the Head of the Europe-II Department, John Odling-Smee. His dialogue
with the high leadership of the country was of the mutual understanding
character, as mass media reports. At least, there is no information about some
That is why, most likely, the mission's conclusion will be positive.
Correspondingly, the IMF Board of Directors will take the decision, concerning
allotment of another part of the credit in the amount of 18.4 (9.2 X 2) million
SDR (what corresponds to $24.6 million at the present quotation) to Moldova,
within the fixed period, i.e. till the middle of December 2002.
Now, when the tranche granting seems to be of the least problematic character,
we think it's time to answer the question: "Why does Moldova need the IMF
But first, we'd remind you that we are speaking about funds granting within the
frameworks of the new credit agreement - Poverty Reduction and Growth Facilities
(PRGF) - to Moldova. It's the most privileged financial program of the
International Monetary Fund for the poorest countries, available to Moldova
December 15, 2002. Then the Fund was planned to credit Moldova at the amount of
110.88 million SDR (about $142 million at the rate as of December 15, 2002)
within three years.
However, within the fixed terms, the IMF granted only two first tranches in the
amount of 9.2 million SDR each - at the 2000-year end and in February 2001.
after the IMF mission had expressed a number of remarks, applied to the Moldovan
Government and Parliament, the IMF's financing of Moldova was suspended. No
earlier than June 2002, when the Moldovan authorities fulfilled the creditor's
requirements, the IMF's financing was restored.
The fact that Moldova lived without credit support of the state currency
reserves almost 16 months may arise the opinion that the IMF's credits are not
such importance for our country. However, in fact, this conclusion is mistaken
for several reasons.
First of all, the INF grants the PRGF credits at 0.5% interest per annum for a
15-year period. The program envisages allocation of funds to Moldova in the
amount equal to more than $146 million at the present quotation. These funds
let to fully replace more expensive credits, granted by the IMF during last
years, for cheap ones. These credits will be as cheap as incomes from their
allocation will give an opportunity to the National Bank of Moldova to both gain
incomes enough for the IMF's debt servicing and to have real profit. (Earlier,
less than $4 million were spent for the purpose annually.)
So, new credits of the IMF do not burden the state debt, on the contrary, ease
it. We explain for those who do not know that funds, received from the IMF, are
not spent if compared with other foreign debts, they only are allocated with
first-class international banks. As a part of the state's currency reserves,
their task is to guarantee both convertibility of the Moldovan lei and the
Based on the specific character of the IMF credits, the grant of any tranche is
a signal to other creditors as to favorable situation development of Moldova.
delay of any tranche is considered warning by majority of International
Thus, the fact whether the IMF will give "green" or "red" signal depends on the
countries-donors' decision on the free donation granting. Many experts point
though the Government does not speak about this, the state budget does not
receive grants in the amount of millions dollar US during "cold" periods in its
relations with the IMF.
"The missed benefit" is quite apparent, though it is hard to estimate it, as
well as in terms of private foreign investments. Western investors, especially
large ones, do not place their capitals in the country without the IMF's
The last reason (in terms of time, but not in terms of its significance) why
Moldova should maintain stable relations with the IMF is its current aim to be
accepted to negotiations at the Paris Club. Its access to the club members will
let our country receive a delay in payments for 15 years with a five-year grace
period with half repayments of interests on the main debt.
It is only the first step. Moldova plans to shortly complete the bilateral
negotiations with the creditors who temporize concerning the Moldova's debt
The second step, if taking into account the state's debt burden, and favorable
tendencies in the countries-creditors' policy concerning their attitude towards
poor countries' debts, Moldova may that reconstruction of the essential part of
its foreign debt within 15 years more - i.e. within 30 years altogether.
If earlier, when the IMF credits cost us more expensive, we may have doubted
whether to take credits in huge mounts, but now, the answer to the question
whether Moldova needs the IMF's credits is apparent.