IMF Resident Representative in Moldova, Volodymyr TULIN, answered the questions from the journalist of the "Economic Review" (Logos-Press) Alexander TAKII

On April 17, 2020, IMF Executive Board approved emergency assistance to Moldova in the amount of $235 million to combat the COVID-19 pandemic. Already this week, the entire amount was transferred to the Treasury account. The IMF provided this loan without the traditional Memorandum. That is, without setting out the commitments to be undertaken by the authorities, as well as without setting prior actions and structural benchmarks to be achieved. This time, the IMF was fine with the “Letter of Intent”, which briefly summarized, on two pages, the intentions of the authorities of the borrowing country (see https://www.imf.md/pub-memo.html). 

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LP: Mr. Tulin, which statements from the “Letter of Intent” of the authorities of Moldova are considered by IMF representatives as essential ones? What provisions you pay a special attention to and are going to be monitored?

Let me point out, first, that IMF financing is intended to facilitate strong and comprehensive policy response to slow the spread of the virus and mitigate the immediate economic and social impact. This is a substance of this financing instrument. Hence, putting forward a quick and well-rounded policy package was absolutely key. Here I mean enhanced health system support, social protection and business support measures, underpinned by a pragmatic adjustment of the state budget and financial stability management – all these are integral components of the package.

Also, I want to tell you that commitment to ensuring strong accountability and transparency was of outmost importance to credibility of the authorities’ financial assistance request. This obligation entails enforcement of the AML framework and asset declaration regime and publishing procurement and contracts beneficiary information. By the way, all crisis-mitigation spending will be subject to a dedicated audit by the Court of Accounts which will have to be made public. To quote our Managing Director Kristalina Georgieva “spend what you can, but keep the receipts”.

LP: Should the investment projects prepared with the support of the public sector be postponed during the crisis? Do IMF experts have a common view on this? What are the pros and cons in such cases?

First of all, the recession the global economy has now entered is frightening not only in terms of its possibly unprecedented magnitude, but also in term of its unusually unpredictable nature. We simply don’t know how long it will take to contain the spread of the virus until we have an effective treatment or a vaccine. The current assumption of a gradual normalization starting mid-year was factored into our economic forecasts. And policy formulation is also based on such a scenario.

But all this is subject to sizable downside risks. While policy response is evolving rapidly, we see as paramount authorities’ conscious commitment to implement, if needed, additional measures to preserve macroeconomic and social stability, including by reviewing and adjusting spending plans. Obviously, under such circumstances, the priority of anti-crisis measures is higher than of long term programs, and this to some extent refers to capital investments also.

Second, policies with respect to both crisis management and facilitating the recovery need to be attuned to the unique, very specific, nature of this shock. Unlike the recent crises, which were generally financial in origin, this crisis has hammered the real economy. Therefore, the immediate concern is to reduce the knock-on risks of wide-spread balance sheet impairment and avoid a spread to the financial system.

From past crises we know that when balance sheets are affected in a material way, then the post-crisis recovery tends to be much slower and protracted. In practical terms, this calls for supporting incomes and liquidity of households and enterprises, because it will help facilitate an early recovery once the medical emergency has been overcome.

Given Moldova’s sustainable public debt level, we see the widening of the fiscal deficit as appropriate, with focus in terms of facilitating the recovery on protecting households by means of strengthened unemployment schemes and direct income support.

This thinking also calls for measures to support viable businesses, potentially via well-targeted loan guarantees, while steering clear of socializing preexisting losses or compromising on financial sector prudential framework.

There is no doubt, that to achieve an economic growth and higher living standards, Moldova needs to build roads and bridges. But to sustainably finance public investment and growth in the future, what is needed today is not to shy away from preserving the taxpayer revenue base.

LP: - The authorities of Moldova in the “Letter of Intent” committed not to introduce or intensify exchange and trade restrictions and other measures or policies that would compound balance of payments difficulties. Mr. Tulin, how would you comment this?

Actually, this commitment boils down to Moldova respecting its legal obligations as a member of the IMF. The specific language refers primarily to Article VIII of IMF’s Articles of Agreements, prescribing general obligations such as avoiding discriminatory currency practices or restrictions on making of payments and transfers for current international transactions. There is also an obligation to provide the Fund timely reliable economic data, as well as to consult with the IMF on planned and ongoing policy measures.

Two of the main purposes of the IMF, as stated in its Articles of Agreement, are to facilitate the expansion and balanced growth of international trade, and thereby to contribute to the promotion and maintenance of high levels of employment and real income; and to assist in the establishment of a multilateral system of payments in respect of current transactions between IMF members.  By having accepted the obligations of Article VIII, Moldova gives confidence to the international community that it will pursue sound economic policies that will obviate the need to use restrictions on the making of payments and transfers for current international transactions, and thereby contribute to a multilateral payments system free of restrictions.

LP: - Every time Moldova receives an IMF loan, along with positive statements we also hear skeptical and even critical statements. Critics usually talk about the "IMF's anti-social nature and dictatorship". What can you answer them, especially in the light of this loan agreement?

While, indeed, one of the most often repeated criticisms of the IMF is that the economic reform programs it supports restrict social spending by governments, the numbers usually paint a different picture. Studies tend to reveal positive effects of IMF-supported programs on health and education expenditures, with positive effect more pronounced in developing countries. More so, protecting priority social assistance has become a common element of IMF program conditionality. The recently concluded Moldova’s three-year program had a specific indicator targeting the minimal social spending of the government, warranting that it is not subject to cuts or redistribution.

With regard to the COVID19 crisis, the Fund is also stepping up with exceptional action. We have already received over one hundred requests from our member countries for emergency financing, and few dozen of them, Moldova including, have already been approved. The reality is that this is everybody’s fight and victory is indispensable in every single case.

Our global policy agenda has also been reshaped. The first and foremost priority, as we see it, is protecting lives. Every country needs a healthy population to have a healthy economy. This is an axiom. We see merits in supporting essential containment measures to arrest the spread of the virus and prioritizing health spending.

Second priority is protecting livelihoods. Liquidity pressures, such for households and business on lockdown, need to be prevented from becoming solvency problems. This means creating financial lifelines to affected households and businesses, with indispensable role for monetary stimulus and liquidity provision.

Third priority is planning for the recovery with today’s policy action focused on reducing irreversible economic scarring, such as protracted unemployment, poverty, and inequality.

LP: - What are the prospects for continuing the collaboration between the IMF and the Republic of Moldova after the completion of the crisis associated with COVID-19?

IMF always stands ready to help Moldova address its immediate and medium-term policy challenges. At this moment our engagement is focused on COVID19 crisis response. That said, we also stand ready to support reforms via our more usual lending arrangements. Prior to the pandemic, the authorities had officially requested to initiate negotiations of a full-fledged governance-focused multi-year arrangement with the Fund that would build on the progress of the recently concluded program. So, we do see good perspectives here.

by Alexander TAKII