Johan Mathisen after acting for more than three and a half years
as Resident Representative of the International Monetary Fund in
Moldova was transferred to the IMF's European Department. Before
leaving Moldova J. Mathisen agreed to answer the "LP's"
correspondent questions. We hereby offer the first part of this
discussion to the attention of our readers.
- I believe that
at the moment the IMF, same as all citizens of Moldova, is
concerned about the succession. Succession of legislative
power, government, management of the National Bank.
J.M.: One of the assignments specified upon my move to a new job
was to help streamlining the cooperation between the IMF and the
Moldovan authorities. For me this is so much crucial as we at
the IMF also have changes at the managerial level that was prior
responsible, inclusively, for the relations with your country.
Still, for us the change of individuals does not imply change in
the line of policy. The specifics of the Fund is such that its
policy remains unchanged, transparent and predictable. In
relation to each country the Fund’s policy is bearing on the
well-known grounds. We are using same approaches to the
assessment of the situation; we give similar recommendations and
apply same instruments.
- In view of the global crisis, I believe, we see a lot of
J.M.: The reasons underlying the crisis bear on different
grounds. And therefore methods of fighting against it are
different. In the countries, let us call them conditionally
Western, the efforts were targeted towards injecting finances
into the private sector of the economy. But one cannot just pick
up and transfer this experience into the developing countries,
such as for example Moldova. Manifestations of crisis here have
different reasons and hence different instruments should apply.
- Could one say that countries that find themselves at
different stages of economic development experience crises that
are different by nature?
J.M.: No, not at all. There are more similarities than
differences. Therefore we consider that these are one type
crises. On the other side, we see that in the developing
countries there is more fragility and that their positions and
institutes are not as robust as such in the developed countries.
- Upon the onset of the active manifestation of the global
crisis, Moldova had a rather good financial standing. Moldovan
banking system, as mentioned by many as well as by the IMF
staff, featured positive trends amongst the developing countries
by its compliance with the international standards of managing
and avoiding risks.
J.M.: We do recognize that Moldova was rather prepared for
encountering the crisis. The shocks experienced during the
previous two years, i.e. embargo on exporting wine products to
Russia and severe drought, made the authorities give a serious
thought to risks and take care of measures that could mitigate
such. But these were not sufficient before the new challenges
and one should understand that.
- When this winter the National Bank of Moldova began
selling foreign currency using for the purpose international
reserves accumulated during last year – do you think this was
feasible? Shouldn’t it be the case that the international
reserves are only used in case of briskly growing demand for the
foreign currency in the domestic market? More so that used for
the intervention this time were the resources purchased earlier
by the NBM in the domestic foreign exchange market.
J.M.: There are short-term shocks and there are also permanent
impact factors. The methods of responding to such should be
different. When there was a crisis bound to banning import of
Moldovan wine products – this was a single-time shock. By then,
we considered it fully justified to use international reserves
as “safety cushion”. But when we talk about a shock that have
acquired lengthy nature then we recommend to smoothly depreciate
the exchange rate of the national currency rather than making
attempts to maintain it. There are different sets of instruments
for responding to short- and long-term impacts.
- I agree. But is the answer to the question about
existence of excessive demand for the foreign currency this
winter fully unambiguous or it was rather a speculative demand
triggered by the political situation in the country. For such
countries as Moldova (and you mentioned earlier that the
developing countries are distinguished by “fragility”) even
negative expectations rather than real factors could produce a
lengthy and serious effect onto the situation. More so in such a
flexible market as foreign exchange one. Shrinking inflow of
foreign currency as well as the recession was our reality. The
question is whether the response of private players in the
market was adequate to the degree of impact produced by real
J.M.: Let us consider the situation in Moldova at the background
of the countries in the region. Not the Ukraine but Romania,
Bulgaria and others where they use the floating exchange rate of
the national currency. All these countries lived through the
collapse of demand. Primarily it affected the volumes of import.
As a result the volume of import dropped down and accordingly,
the trade balances improved. And still depreciation of the
national currency took place in all of these countries. If this
is not done, the exchange rate appears to be overestimated. And
then we have a situation which facilitates maintenance of demand
and high interest to import. This is risky. We believe that
under conditions of long term crisis serving as “safety cushion”
for the economy of the country is the exchange rate of the
national currency rather than the international reserves. While
the international reserves serve as a resource which prevents
the exchange rate from collapsing overnight.
- Should one go along with such logic, still a question
remains – down to what level it is feasible to devaluate the
exchange rate of the national currency?
J.M.: Probably it would be more rational to allow for gradual
devaluation with due account for the actual signals sent by the
economy rather than being guided by the subjective expectations
and interests of the individual market players. The pattern of
action attempted by the NBM in December-March shows decisive
opposition to devaluation of the exchange rate of leu. But same
obviousness way following April elections the NBM allowed the
exchange rate of the national currency to shape independently
based on the market demand and supply. By then the verbal
interventions and the condition of uncertainty if not totally
disappeared – at least became more habitual and the population’s
reaction to these factors became more adequate.
Let us imagine what would have happened if the National Bank of
Moldova would have left the national currency without its
support in January. Probably the devaluation would have been
much below the rates that it actually deserves. As it appears
now, even in the EU countries that did not manage to join the
Euro zone the exchange rates of their national currencies hit
the “bottom” and for certain time period appeared to be
substantially undervalued. During the last three-four months the
national currencies of Czech Republic, Hungary, Poland and some
other Central European countries showed a reversed move towards
appreciation against the US dollar and Euro.
Excessive undervaluation of the national currency is also posing
threat to the economy of the country. Especially when talking
about a small country falling into the category of “developing”.
In case if the exchange rate of the national currency is
devalued sharply even for a short period, say for six month or
one year then even in such short time period one could expect
rather serious disturbances to take place. Here I do not refer
myself to just social consequences for that part of households
that gets its main part of income in the national currency. It
is most probable that we would have witnessed to large number of
takeovers amongst the acting enterprises. Attraction of foreign
investments into the national economy through a method “buy it
for almost nothing” could be an interesting prospect for some.
But I believe it would be more rational to ask people of this
country whether they are prepared for such development of the
situation. In this senses the issue of leu exchange rate is of
course a political one.
* * *
The International Monetary Fund stands ready to
offer to the Republic of Moldova financial assistance required
for surmounting the negative consequences of the global economic
crisis. To that end, the Fund’s representatives will be
prepared to initiate negotiations with the Moldovan authorities
as soon as the new government of the Republic of Moldova is
formed, said Johan Mathisen, the resident representative of the
IMF in Moldova. When answering the question on the terms of
offering such assistance J.Mathisen said that Moldova could
receive the first tranche at the beginning of 2010 provided we
manage to agree on the conditions and approve one of the new
programs proposed by the IMF before the end of the current year.
The effective term of the PRFG expired on 4 May 2009.