JOHAN MATHISEN: IF PROGRAM GOALS ARE INTACT THE IMF WILL CONTINUE TO FINANCE
BASA-press Agency's exclusive interview with Johan Mathisen, IMF Resident
Representative to Moldova (translation)
BASA-press: Mr. Mathisen, what do you think of the authorities' recent
initiatives on fiscal reform that would directly affect Moldova’s program with
the International Monetary Fund?
Johan Mathisen: We consider it is paramount that any changes of the monetary and
fiscal policies are consistent with preserving macroeconomic stability. I
stressed this in our press statement issued on Thursday, too.
As I said repeatedly, the anchor that keeps our program with Moldovan
authorities in place is the reining of inflation by using prudent monetary and
fiscal policies. What really counts for us is the fact that if there are any
changes operated to the macroeconomic framework, the meeting of the targets
related to monetary indicators and budget deficit of maximum 0.5% of GDP, should
be taken into consideration.
As I have already noted in the press statement, more fundamental steps, of a
more general nature, namely enhancing market competition, developing financial
market, reducing corruption in the judicial system and other such steps, are
likely to be more important than just these recent initiatives for such reforms.
It means that additional investment flows, both local and foreign, will come
only provided that the judicial system improves, as well as other reforms are
carried out, such as the recent establishment of the Competition Agency, which,
in order to be successful, must be independent and autonomous. Also, is
important to have a financial system that intermediates piopulations’ savings
BASA-press: They say that these initiatives have been discussed for some time
now and had not been launched several months earlier, as it was initially
planned, because the IMF opposed to that. Is that true?
Johan Mathisen: This is a question you should ask the authorities about. What I
can say is that our interest in these proposals relies on two motives. The first
is that, as representatives of the international community, we are lending money
to Moldova. It means that any changes of the macroeconomic and fiscal framework
in this case question Moldova's capacity to reimburse the loans.
Another important reason why we are interested in this matter is the fact that
there is a program with Moldova comprising specific indicators, which has been
developed with a view to maintain a low inflation rate. And, of course, to
ensure a faster economic growth and poverty reduction.
I would also like to add that Moldova, as any IMF member, is entitled to ask for
consultancy regarding any initiative it wants to launch.
We are trying to acquire the best practices from all IMF member countries and
replicate them in other countries.
We established a very close and efficient dialogue with the Government.
BASA-press: Do you think the announced initiatives affect somehow the
objectives laid out in the Memorandum on Economic and Financial Policies signed
by the National Bank and the Government?
Johan Mathisen: Let's refer first to the proposal to reduce the income tax for
economic entities to zero.
We have reached an agreement with the Government that budget deficit should not
exceed 0.5% of GDP. Any changes, any lowering of the income tax rate would be a
potential loss of revenue for the budget. From the macroeconomic point of view,
this step would have an effect similar to increasing wages. Difficulties appear
if you reduce revenues, increase expenditures and at the same time try to
maintain the preset budgetary deficit. In particular, if we take into account
the fact that one of the key objectives stated by the Government is to enhance
But please understand me correctly: we think that lowering income tax rates in
order to attract investments is a welcomed step.
However, there is one "but". Namely, this step should be carried out in such a
way that the fiscal system affords it financially. We fear that increasing
expenditures for wages, reducing income received from taxes will lower capital
BASA-press: Is there a "but" in relation to the legalization of capital or
Johan Mathisen: As I said, we are still analyzing the details. But we do have
comprehensive international experience in what regards such proposals. And,
generally, experience shows that the outcomes of implementing such initiatives
are both positive and negative.
There are three reasons of concern when we speak of fiscal amnesty. Concerns
arise in any country, Moldova is no exception. One is loosing budget incomes.
The second is being fair with all taxpayers. And third, the implications for
fiscal revenues in the future. I mean, paying taxes in the future.
When we speak of losing income to the budget, international experience shows
that generally, the best practice in this regard is this: write off the debts
that cannot be collected, namely, the debts of the companies that do not exist
anymore. As to the fiscal arrears that could be collected, international
practice suggests to establish a debt management system that would make possible
the payment of a part of it. Hence, if you cancel a part of the arrears that
could be collected the budget will loose income.
If we take on one hand an economic unit that honored its obligations to the
state and paid taxes, was disciplined, and complied with the legislation, and on
the other hand, another economic unit that was incapable to pay taxes to the
budget, it is the latter’s debts you pay off. At this point businessmen may ask
themselves to what extent this amnesty is fair.
And, thirdly, it was noted that in some countries such initiatives undermine
fiscal discipline in the future. Some countries have unfortunately repeated
these steps several times. As soon as taxpayers understand that there might be
another amnesty in the future, there willingness to observe legislation wears
From our experience, we can say that there should be two prerequisites for such
an initiative to be successful. Firstly, it should be an one-time thing that
will never repeat again. The second condition is strengthening fiscal
If fiscal arrears are cancelled then the capacity to impose observance of fiscal
legislation should be strengthened in the future.
The implementation of the tax inspectorate reform strategy, in my opinion, and I
think it is the IMF’s opinion too, is absolutely essential.
There are many organizations such as MONEYVAL that might say more about the
capital amnesty initiative. It is essential that Moldova maintains a close
dialogue with such organizations in order to ensure that such initiatives will
not have negative repercussions for the economy.
It is essential for the new draft law on preventing money laundering to
anticipate the capital amnesty initiative. To this effect, the IMF Legal
Department provides technical assistance to Moldova. We are maintaining a close
dialogue on the draft that is being worked out. We encourage authorities to make
progress in this regard.
BASA-press: These initiatives have been launched shortly after a visit of an
IMF technical mission to Chisinau. Did the mission discuss the initiatives?
Johan Mathisen: The details of the talks are confidential. This information
stays with the experts and Moldovan authorities.
Generally, we welcome the initiative of lowering the corporate income tax
provided that the fiscal framework can afford it. So, the discussion stays at
whether the country is able to honor such costs without undermining the fiscal
framework for this year and the years to come. And it is important not to
experience consequences regarding Moldova's image abroad.
BASA-press: It was said that these initiatives will be widely discussed by
the upcoming mission and Moldovan authorities. Will they discuss to what extent
these initiatives are covered financially or their advisability in general?
Johan Mathisen: This will be one of the main topics of discussion when the
mission arrives on April 25. The mission will update the information on the
implementation of the program until that point in time. The data on program
evaluation will be presented on March 31. Half of the discussions will focus on
these issues, and the other half on the perspectives, monetary and tax policies,
structural steps that are to be taken during the next six months of program
The objective of lowering inflation below 10% and having a budget deficit of
0.5% of GDP will be preserved. The mission will take into account the proposals
made and the recent salary increases in the public sector, and the wish
expressly stated by authorities to increase capital investments.
BASA-press: In the past, did the authorities' actions that brought about
expenditure increase, led to suspension of IMF financial program?
Johan Mathisen: I cannot comment on what happened in the past. I do not know the
details. What I can say though is that if the program objectives stay intact,
then the IMF expects to maintain its commitments to Moldova.
I will stress again, that the deficit level of 0.5% of GDP and inflation under
10% should be maintained for the Fund's program to continue.
I think we will have interesting discussions between the mission and
BASA-press: From what we see, the IMF relations with the Government are very
Johan Mathisen: Of course. I can confidently confirm this. From my experience, I
can tell that the degree of the authorities' commitment and ownership is much
higher than in any other country I’ve worked in.