As prepared for delivery
Presentation to Parliamentarians
Mission Chief for Moldova
European Department, IMF
you Chairman Lupu and respected colleagues for inviting the IMF to take part in
this session. The relationship between the IMF and the Republic of Moldova is an
extremely healthy and dynamic one, and it has changed much in the years since
Moldova joined the Fund in 1992. Indeed, that is the theme of my brief
presentation to you today: the changing relationship between the IMF and
will structure my remarks as follows. First, I would like to discuss briefly how
the IMF itself has changed and adapted over the past 15 years—because it is not
only Moldova that has undergone reforms in that time. The IMF, too, has sought
to learn from its experiences in 185 member countries to better serve their
needs. Second, and in that context, I plan to outline our view of the evolving
relationship between Moldova and the IMF.
I will close with a few remarks about the role of Parliament in ensuring that
the relationship between Moldova and the IMF is successful in contributing to
poverty reduction and growth in your country.
Changing Global Role of the IMF
First, some background. Since the IMF was founded in 1944, it has sought to
promote global financial stability, without which economic growth and poverty
reduction are impossible. In that time, the IMF has faced a wide variety of
breakdown of the Bretton Woods system of fixed exchange rates;
crises of the 1970s;
crises of the 1980s;
emerging markets crises of the 1990s; and
breakup of the USSR, which meant that the Fund would need to support a number of
newly independent countries, including Moldova.
meet these challenges, the IMF’s main activities have been the following:
Bilateral consultations on economic policies with all member countries.
IV of the IMF’s charter mandates that all countries get a “check up” about once
programs – both concessional, as in the case of Moldova, and nonconcessional.
Concessional IMF loans carry an interest rate of 0.5 percent, and a maturity of
10 years with 5 ½ years of grace before principal repayment begins;
and monitoring of the global monetary system; and
and technical advice in the Fund’s areas of expertise, most of which is provided
free of charge to member countries.
During the last 5 years, for example, Moldova has received considerable IMF
technical advice in areas like: tax administration, budgetary management,
financial sector supervision, monetary and exchange rate policy and statistical
systems. Similarly, during that time, about 120 Moldovans have received training
in macroeconomic management or related topics—mostly at the Joint Vienna
Institute where some members of this Parliament participated in a seminar last
IMF began to undergo reforms in the 1990s. Most visibly, we began to make
significant efforts to be more open and transparent. When I joined the Fund 14
years ago, almost no IMF country documents were available to the public (or
parliament, for that matter). Now, almost everything is available on our
internet web site.
the first part of this decade, rapid globalization and a strong world economy
led to a decline in IMF lending and gave many economists reason to believe that
the role of the IMF should be more fundamentally rethought. Thus, shortly after
coming to the Fund in mid- 2004, the new Managing Director launched a thorough
review of the IMF’s role in the interdependent global economy. In September
2005, he presented this
IMF to the Governors who oversee the Fund—including Governor Talmaci of the
National Bank of Moldova.
medium term strategy emphasizes several themes:
the IMF is trying to be more effective in promoting global stability by
modernizing its crisis prevention toolkit. This includes looking more carefully
at exchange rate policies, and by holding multilateral consultations with
key, interdependent countries (US, China, Japan, Euro area, Saudi Arabia).
an important element of the medium term strategy is to address obvious
disproportions in the IMF’s quota system of share holding. In part, it is clear
that the IMF’s legitimacy and therefore effectiveness would be enhanced by
giving greater voting power to fast-growing countries like China and Korea. At
the same time, the IMF’s member countries are committed to ensure that smaller,
poorer countries do not lose their voice in the process.
we are strengthening our work on the financial sector, because we recognize its
crucial role in promoting economic growth, and because we have learned—
particularly in East Asia in the late 1990s—that financial sector crises can
have enormous social consequences.
in low income countries, we are working with the authorities and donors to
assist member countries to reach the millennium development goals, and to
ensure that aid inflows are consistent with macroeconomic stability.
Changing Role of the IMF in Moldova
Having described the changing role of the IMF in the world, I would now like to
turn to the evolution of the Fund’s work in Moldova.
Moldova joined the IMF in 1992, and since that time the Fund has provided
considerable financial assistance—about $360 million, much of which has been on
concessional terms. These IMF-supported programs have aimed to help ease
Moldova’s transition from central planning, and to set the stage for rapid
economic growth over the medium term by promoting macroeconomic stability—that
is, low inflation, sustainable budget deficits, stable exchange rate policies
and supportive structural reforms.
There have been ups and downs in this relationship. There have been periods
where program conditions were met with ease and our Board was able to complete
reviews very smoothly. But there have been other times when the relationship was
strained. Happily, this is one of the good times, as relations between the IMF
and Moldova are proceeding very smoothly at present.
IMF Executive Board approved the current loan, what we call a Poverty Reduction
and Growth Facility, in May of last year. This is a three year concessional loan
of about $118 million to support international reserves of the National Bank of
Moldova, and it is structured to be disbursed following formal reviews that take
place every six months. After Board approval in May, the Paris Club of official
creditors approved a restructuring of Moldova’s bilateral debt, and on December
12, Moldova’s international development partners announced that, taken together,
their assistance to the country could total as much as $1.2 billion over the
coming years. As part of that effort, and to help Moldova deal with the twin
external shocks in the form of higher prices for imported natural gas and
difficulties in exporting wine to traditional markets, the IMF Board approved
the first review under the program on December 15, while increasing the total
size of the loan to $163 million, $47 million of which was disbursed in
that’s just the money. What about the objectives of the program? What does the
Government hope it will help them to achieve? The program is based on the
Economic Growth and Poverty Reduction Strategy Paper and the EU-Moldova Action
Plan, and it was written by the authorities, not by the IMF. This is an
important point, because it is the Government that “holds the pen,” as it were.
They are the authors of the program, which has three broad themes:
first priority is preserving macroeconomic stability. In practice, this entails
ensuring debt sustainability and aiming for inflation that is reliably below 10
percent per year, because we have seen that inflation rates above that level are
associated with slower growth and higher poverty. It bears remembering that
inflation is a tax and that it is paid disproportionately by the poor—who
usually do not have financial assets, and who thus cannot protect themselves
against inflation as well as the rich.
the program aims to support financial sector development as well as stability.
Expanding the financial sector, including by promoting entry of foreign banks,
is welcome, because we have learned that a vibrant, competitive financial sector
supports growth, and thereby contributes to poverty reduction. Robust growth is
unlikely to be sustained if private sector fixed capital investment has to be
financed almost entirely from retained earnings of businesses. But it is also
essential to ensure
financial system, as well as
lesson we learned in the Asian financial crisis.
the program is an opportunity to re-assess the appropriate role of Government in
the economy. In our view, there is scope for the Government to reduce its role,
to limit its interventions, in order to make room for the private sector to
grow. With general government expenditures of well over 40 percent of GDP, the
size of government is high for a country at Moldova’s level of per capita
income. This suggests that there could be a large payoff to finding savings that
make government expenditures more efficient. For this reason, we are very
supportive of the so-called guillotine process, which aims to eliminate
unnecessary regulations. Similarly, we welcome the Government’s public
administration reform, as it aims to rationalize the activities of government
institutions. Further, the Fund and other international partners have provided
considerable support to improve public sector accounting, budget management,
auditing and fiscal transparency—specifically to ensure that public monies, both
from donors and from Moldovan taxpayers—are spent as parliament intends.
Looking forward, what will be the role of the IMF in Moldova in 10 or 15 years?
As I mentioned at the outset, the IMF is a strange financial institution. We are
successful when no one borrows from us, when the international financial system
and the countries in it run smoothly. Just as we have seen other countries in
Europe “graduate” from needing to borrow from the IMF, we hope and expect that
economic growth in Moldova will continue to be robust, and that your country
will soon be doing well enough to cease needing to borrow from the IMF at all!
At that point, our relationship will become like it is in many other countries
in Europe. IMF bilateral annual (Article IV) and technical consultation missions
will visit once every year or so, and our teams will prepare candid reports on
the health of the economy.
Role of Parliament in This Relationship
is particularly important, as it occasionally happens that measures are included
in the program which require action by Parliament. However, to some extent it is
inevitable, since it is the Republic of Moldova, the state, that is a member of
the IMF, not any one level of government or party in power. In every country we
work with the government of the day and the central bank in order to improve
economic policies. The fact that Moldova is a parliamentary republic makes it
imperative that we deepen our dialog with parliamentary deputies and factions,
to meet with you frequently and to listen carefully, to ensure that you and
we—and the government—have a common vision of the economic policies and reforms
that are best for the country.
Hence, I would like to close by asking that—when we periodically visit Chişinău—
you continue to take the time to share with us your views on economic
developments in Moldova. Doing so will help us to give the best possible advice
to the Government, and in that way will ensure that, eventually, we will put
ourselves out of the lending business. Your advice and perspective will help to
improve our understanding of the social and political context in which decisions
are taken. Similarly, we hope that, by giving you our view of economic policies
in Moldova, we can contribute to better economic results for the benefit of all
Moldovans. Thank you for your attention today.
documents on Moldova are at
or on the site of our resident
representative office, www.imf.md.