- Mr. Mathisen, how important can be the decisions made by this representative forum for such a small country as Moldova is?

- As a rule, each IMF member state has a governor and an alternative governor. At this high-level Forum Moldova is represented by Mr. Talmaci, he is not only the Governor of the National Bank of Moldova, but also IMF Governor. He has a voice and representation in the Board. On the forum’s agenda there are certain issues, the governors are supposed to vote for, usually concerning the IMF’s future activity. Much attention would be given to the IMF, it’s activity and relationship with the rest of the world. There are two issues that got the most attention, but in my opinion the most important one is the reestablishment of quotas in IMF. These quotas have many functions, but one of them is actually deciding individual countries votes. The quota determines the voting power in decision-making process. It is proposed to increase the quotas of four countries, which play much more important role in the Fund than they did at the initial stage. These are China, Korea, Turkey, Mexico. The next step would be to reassess the quotas for all the countries and this process may take two years. The problem is that the quotas in IMF haven’t changed much since its foundation in 1946. Since then, a lot of time has passed and the economic situation of the countries changed, that’s why IMF wants to keep pace with time and modernizations. The second issue discussed at the forum is the implementation of the strategic plan, proposed by the IMF Executive Board. This has to do with surveillance.

- This year, IMF changed it’s position in relations with Moldova sharply enough. Assisting Moldova –is this a result of effective reforms that took place in the country or, for instance the result of the new liquidities appeared after the pre-term debt reimbursement of some big countries, including Russia? Or, there are other reasons?

- There where two instigating factors that made IMF reengage with Moldova. One was that over the last 12-18 months before the Memorandum signing in May, Moldovan authorities have proved to be capable to maintain stability in the country. First of all by improving the fiscal situation, but also by bringing down inflation through implementing sound monetary policy. The other main factor was the reintegration of the structural reforms. Basically, these changes took place as a result of the EU-Moldova Action Plan, and also EGPRS. This clearly indicated that Moldova was moving in the right direction and that it has the necessary instruments to carry the reforms on. Signing the Memorandum is a result of the IMF’s desire to support the country in this very positive moments and not to lose the chance, and beside this to ensure the sustainable growth.

- For many people in Moldova the IMF’s position is still unclear, because they don’t see the authorities’ role to strengthening the economic situation in the country. The experts consider that the economic growth is a result of the general growth in the region and is sustained by the people who work abroad. At the same time, many claims IMF had to Moldova by now: protectionism, lack of fair competition on the market, consumption character of the economy –continue to exist.

- Our engagement with Moldovan is trying to reach an overall objective – to gradually move away the economy from the consumption growth base financed from remittances to the one based on investments, both domestic and foreign. In this sense we rely on the system approach. The most important – we assist the Government in maintaining the macroeconomic health, because the first thing investors take into account is the macroeconomic stability, which is also very important for inflation decrease and reducing the interest rates for credits. The second task – improving the investment environment. Here is crucial to determine the Government’s role, because government is the one to carry on the basic work in this direction. Certainly, it’s very important for you to know that we have good signs already. At least, we were very glad to hear the Government started the privatization process again, which in part, means the intention to privatize “Banca de Economii”. And of course, it would be very useful that a big foreign bank would come to the country. This will contribute to attracting clients from abroad, and in this way direct investments, because the client will know about the bank’s liquidity and will come by himself in the country.

- What does the Program between Moldova and IMF envisage?

- If speaking about elements from the program, then IMF is focused on three of them. First of all is to assist the state in implementing the best International practices, one of which is to have a stable and independent central bank running the monetary policy. As you may know we had the key conditionality in this area. We consider, the task of the National Bank be to ensure price stability. Beside this, the vicious practice to finance the government from the NBM resources should be prohibited. But this is an ongoing process.

Second area– the fiscal; or public finance management. We contribute to the improvement of the taxation system, to reduce the burden of comply with existing tax regulations. Moreover, in Moldova a World Bank project is implemented in order to strengthen the public finance management, which also has it’s specific elements.

The third side – the work with the state enterprises, which is a lot broader than privatization. The state has to manage its property-assets more efficiently. For this particular reason, it’s necessary to develop a new accounting and audit system, according to which, the key state enterprises should submit to the Parliament their annual financial statements.

- There is a question, asked very often recently in Chisinau: “What is the sense in getting credits from the IMF, and then to freezing these money in reserves, instead of using them for economic development?”

- Let’s start from the fact that IMF is a monetary organization, the main purpose of which is to ensure the monetary stability at the global scale. We have to be sure that the global monetary network works well, that our members have enough reserves to accomplish their external obligations. The reserves are replenished form the account that the central bank either purchases currency, or borrows it. If the country doesn’t have enough international reserves and if it’s not capable to fulfill its external obligations, than a financial crisis may occur, like it happened in Russia in 1998 and in Asia as well. We try to assist the member-states that face a imbalance in their balance of payments. Instead of introducing any kind of commercial restrictions, the countries can make use of the IMF crediting. In many cases, Moldova like any other country has a balance of payments needs. The resources Moldova gets from the Fund go directly to the National Bank and form of the International reserves. These money are not meant for investing in country's economy, they are used in critical situations for supporting the global monetary stability. In this case, we speak only about the international reserves, they have no connection with the money the budget is formed from.

- You said, the NBM reserves are used only in critical situations. Isn’t it a critical case, the Russian ban on Moldovan wine, when we need to use the reserves for supporting the economy?

- I’d like to explain one more time how the system is working. For building foreign reserves the NBM purchases currency which comes in the country from export. If the export drops rapidly, in the country come in less foreign currency resources, and the importers, in this case, are not able to purchase foreign currency from the market, and a shock may occur. The central bank can compensate these loses from the currency reserves. Basically, this is what the reserves are meant for – to avoid sudden fall of the exchange rate. If there is a shortage of foreign currency on the market, then the central bank draws this resources and places them on the market. In this way, it helps to balance the international trade. This money do not go directly into the branches of the economy. They are used only on the external currency market, in order to maintain the exchange rate at the a stable level.

- One of the tasks IMF has, is the policy of debt relieve of the small countries. And at the same time IMF grants credits. Where is the “ceiling” for receiving credits, and not only credits from IMF? Where is that border when the country is not able to accomplish it’s obligations? How much from it’s debt can Moldova repay?

- There is a long term analysis. In this case we take into account two key indicators. First – solvency risk. We look at the total external debt and compare it with total export. The ceiling is 150 percent from current debt to export. The second indicator – this is the liquidity risk. If specking of the debt obligations of Moldova, then a more accurate report on this question will give the December IMF mission, because every year we update this data. The previous analysis showed that Moldova has no problem in this sphere (see 2006 Staff Report, chapter on Debt Sustainability Analysis).

- The prime Minister, Vasile Tarlev, declared after signing the Memorandum with IMF, that Moldovan Government elaborated together with the Fund “a range of measures, that will ensure us from prospective shocks”. What kind of measures did he mean?

- This is ongoing discussions we have with the authorities. It’s clear that the lost of export revenues and higher energy prices is appearing to be shock in terms of trade. These loses should be offset some how. We are making clear adjustments to the Program. It also means to make changes in the fiscal and monetary policy, which should be tightened further. Since a big share from the export revenues are lost – of course we need to borrow for replenishing the loses. In the next month, in Moldova will work an IMF mission, which will continue the discussions regarding the package of measures.

- Will then be known the precise prognosis of IMF for inflation, GDP and other indicators?

- Especially the December mission will review the macroeconomic indicators jointly with the Government. We expect already corrections on the inflation prognosis, after the July mission makes its conclusions. It’s evident that some indicators will be less than we predicted in the previous program.

- How do you evaluate the new economic policy of the government, presented the last week?

- Positively. The proposed strategy fits our common approach, it allows the shift from the consumption principle, realized until now, to the investment one.

- Does it mean IMF is fully satisfied with Moldovan Government’s activity?

- The way the authorities behaved during the Memorandum preparations and also while signing the Program – is one of the best examples I saw in other countries. In general it’s a very good approach, it contributes to keeping the same positive economic tendencies. Regarding the program accomplishments, until now it’s going in a good pace. That’s why we are satisfied with the Government’s performances. And, looking ahead, we remain optimists.

Irina Astahova

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