Johan Mathisen, IMF Resident Representative in Moldova:

The first signs of recovery will be observed in 2010

The economic recovery will not start in 2009 as we were hoping before; the first signs of recovery will be observed only in 2010.

Talking about Moldova it is true that the effects of crisis onto the financial system and especially onto the banking system were only limited but what concerns the impact onto the economy in general the prospects are worth that we have anticipated earlier.

During our recent discussions with the Moldovan authorities we tried to outline the precautionary measures that would ensure prevention of a serious impact through adequate fiscal and monetary measures. We are talking about actions attempted in order to bring the inflation rate down to single digit. It means that when the wave of the global crisis will reach Moldova there will be some grounds for slackening slightly fiscal and monetary policies so that to ensure adequate access to financial resources, first of all, to loans.

There is sufficient space for implementing certain measures that would allow for reducing impact of crisis. The impact will manifest itself through decrease of demand for Moldovan export, reduction of jobs and smaller size of remittances. Under these conditions, Moldova could be able to enhance its competitiveness through regulatory framework reform, creation of new more favorable conditions for private sector in view of increasing exports. In regard to attracting direct foreign investments the competition will be more fierce as before and accordingly, it will be extremely important for Moldova to send the right signals that would show that the country is attractive for the investors, including privatization.

There are all the conditions for slackening monetary policy at the appropriate moment. The things are getting complicated due to considerable fluctuation of currencies in the international market it is desirable to further maintain rather tight monetary policy. One shall not mix up what happens in Moldova with what happens in other markets of industrially developed countries where the key objective pursued by monetary authorities lies with reducing the aggregate demand and this is done by enhancing austerity of money demand, i.e. by raising interest rates in the first place.

The financial sector of Moldova is underdeveloped and this rescues it 

The Moldova financial sector is underdeveloped, non-integrated into the international financial system and this saves it. In the recent years, discussions took place in the Republic of Moldova on the issue of liberalization of capital account. Nonetheless, Moldova maintained these restrictions. The effect of these restrictions is that Moldova is less vulnerable and does not feel the direct impact of crisis. May be we need to question ourselves what could have happened if lending in foreign currency to natural persons would have been allowed?