“NO GOD, NO TSAR, NO HERO…” *
Signing of the agreement with the
International Monetary Fund has raised people interest towards to the
role of this organization in a country like Moldova. Together with Johan
Mathisen, IMF Resident Representative in Moldova, let’s try to clarify
this question: what can the Fund really offer to our country?
“Same as any other member-state of the
IMF, Moldova enjoys the right to solicit financial support. In order to
place an official request for the funds the government of any country
needs to first formulate substantially concrete plans for the future and
stipulate such in the so-called “Memorandum”. As a rule, the Memorandum
serves to outline perspectives for the forthcoming 6-months period. In
our specific case, financing was requested under specially designed PRGF
facility targeted towards poverty reduction and economic growth. This
mechanism envisages access to IMF-supported financing during a term of
36 months. “Disbursement of tranches is expected to take place once
every six months after the approval of the mission report and having the
Memorandum for the forthcoming period in place”, says Johan Mathisen.
“It is worth noticing that for Moldova
loans are extended on a very favourable terms. The IMF releases funds to
countries featuring different levels of development. Thereat, proceeds
from crediting more developed countries allows the Fund to render loans
to less developed counties on preferential terms”, says our
We could only add to that that the rate
on the loan currently extended by the IMF is below the rate of return on
deposits in USD or Euro in any of the first class bank. Hence, Moldova
does not bear any real costs on paying out interest on these loans;
quite the contrary, at the background of minimum risk and overhead
charges, Moldova has a chance to make a pretty penny out of it.
It is hereby worthy to explain that the
IMF disburses these loans onto the account of the National Bank of
Moldova to replenish country’s foreign exchange reserves. These loans
cannot be used for any other purpose. Or better say it should not be
used for any other purpose. This condition could only be fulfilled
straight-out if the National Bank will abstain from crediting the
government. (Currently, the IMF requested that the Moldovan authorities
in addition to entering this statement into the Memorandum pass it
through the Law of the National Bank as well. That should cut off any
temptation with the government to acquire credits “at the expense of
money printing machine” so as to get hold of foreign exchange through
readily available national currency.)
“While offering financing to the central
banks of certain member-states the IMF acts as the International Central
Bank. The loans are made available in convertible currencies called SDR
(Special Drawing Rights). These funds should sustain the foreign
reserves of some or the other country at the required level”, - says J.
“The main rule applied by the IMF to that
end is to firstly assess what time period of imports could be covered by
the reserves available with the NMB. The standard period is usually
three months. Answering to your specific question on the need to
increase the reserves, the answer is yes, it is necessary to booster the
reserves so that they could cover more lengthy period of import. This
measure is important for better preparing the economy for all sorts of
possible critical situations”, says J. Mathisen.
The issue of the sufficiency of foreign
reserves became rather pressing during the recent months. Following
embargo introduced by Russia on wine and canning products exported from
Moldova, the foreign exchange proceeds have reduced here. Although at
the moment we far from overestimating the significance of this factor
for the domestic foreign exchange market we still treat it as a
“challenge”. In order to have adequate response to this “challenge”, the
market and its players need time so as to assess the situation and get
readjusted with due account for the new realities.
Under such a situation foreign reserves
play the role of a “shock absorber” helping to cope up with external
shocks affecting primarily the stability of the national currency.
The foreign reserves are replenished at the expense of means extended by
the IMF in cases when the central bank of a country does not have
sufficient domestically available sources to build up such. Sufficient
level of reserves is a certain pledge of financial solvency of a
country. This factor is of prime importance for its creditors, business
partners as well as to domestic and overseas investors. Just get into
these shoes yourselves, dear readers: wouldn’t you feel much at ease
discovering information on growing foreign reserves of the NBM?
Especially when you feel uncertain about the future outlook of the
“Here in Moldova the most frequent
question we get is about the projects we intend to finance”, says my
interlocutor with a smile. “I believe the majority of the “Logos-Press
Economic Review” readers are well aware of the fact that the IMF is
financing the NBM exclusively and that the scope pursued is to replenish
foreign reserves. Naturally, Moldova has other important uses for the
external financing, but this is outside our profile. The IMF does not
extend funds to finance economic projects; its loans cannot be used to
directly support the budget of a country”.
Talking about the priorities – the funds
extended by the IMF by itself is a less important fact. What is really
important is its confirmation (availability and implementation of a
program) of the fact that the Moldovan authorities are “observing the
rules of the game”. Assessment made by IMF missions is equivalent to
auditor’s statement. If it exists and if it is positive – it serves as a
signal to other international creditors. Primarily, for the World Bank,
EBRD, other financial institutions as well as to the so-called
donor-countries and solid foreign investors.
It is also worth noticing that for the
private rating agencies availability with a country of a successfully
implemented IMF-supported program serves as last but not least argument
when conferring higher rating score. These ratings are influencing
choices made by the potential or already acting private investors.
Domestic commercial banks are using these ratings to estimate the cost
of externally borrowed funds. Lately, too many times we hear sighs of
regret from our local financiers: “A bank’s rating cannot be higher than
that of a country. Low rating means high cost of externally borrowed
resources; rates common for the countries with good financial standing
are doubled or even tripled for us”.
Besides, it is worth mentioning as a
special case that we do need the reputable international audit and not
just for the outer world but also to bring in order our own “household”.
Evidently, in the long run this has more value than the loans and
ratings building up the image of the country.
A good quality auditing implies that in
addition to highlighting “wrong” one would be told how to do “right”. As
a rule, though, for an extra pay. It is time we start valuing the fact
that the IMF is eager to render us advise, within the framework of its
competencies, as technical assistance, which means - practically free.
However, in our country same as in the rest of the world, there are
debates on to what extent these recommendations are good.
Johan Mathisen while answering to this
question mentioned that the IMF same as any other similar stricture
cannot be considered impeccable. “The things that cannot withstand
testing against practice are subject to changes. Perceptions shared by
the economists on what is “right” and “wrong” are updated and sometimes
new ideas are replacing the old ones. This is a normal process
underlying accumulation of expertise and improvement of knowledge. We,
at the IMF are trying to generalize and digest the practice of many so
as the others could avoid making same mistakes and apply positive
experience in their own countries”.
Just to remark that during the recent
years the IMF became more flexible in the approaches it takes to solving
different issues and tends to discuss a whole range of possible models.
Which is most important, the IMF is trying to avoid dogmatic approach in
its relations with different countries. Our interlocutors making part to
those who participated in preparing new Memorandum and had numerous
discussions with the IMF missions visiting Moldova are confident that
“representatives of the Fund could be persuaded and over-persuaded,
provided one could come up with reasonable arguments”.
Passing through the “IMF school”, both in
the country and abroad, in the past years was a significant number of
leading specialists from the NBM, Ministry of Finance, Ministry of
Economy and Trade as well as from the National Bureau of Statistics. It
all helps to build up common grounds. Lately the IMF is offering
teaching programs (unfortunately short-term ones) for the members of the
Parliament. Within the framework of this initiative members of our
lawmaking body had a chance to attend Vienna course in April of the
“This year we are planning to hold in
Moldova special seminars for journalists and civil society”, promised
Johan Mathisen. – “Training is just one of the possibilities. I believe
that more appealing to our Moldovan colleagues is a chance offered by
the IMF to invite to the country leading experts-economists eager to
discuss different issues and share their expertise and knowledge. And
what is really important not just on anything but rather on the topics
chosen and favored by our Moldovan colleagues”.
PS: On May 10th, the first tranche
($19.9m), granted by IMF, was transferred to the NBM’s account.
* Excerpt from a national Russian