Moldova’s Economy Will Be Saved by Loans from the West and East

Marina Dragalin If you’re drowning, you’re not necessarily on your own, according to the government of Chicu Last week, Moldova approved the “investment” budget for 2020. The deficit of about 7.5 billion lei in the document predictably caused concern among experts and the population. Everyone is interested in how the government of Ion Chicu plans to cover the budget deficit. The answer, however, is banal: judging by the statements of officials, the main source of eliminating the deficit is the help of foreign partners. First of all, the International Monetary Fund, the European Bank for Reconstruction and Development, the European Investment Bank, the European Union, Russia, China and even Belarus. However, the lack of information on particular agreements, conditions and timing of funding only fuels nonconfidence in the new government’s ability to cope with the country’s flagging economy. The story of the Russian loan for Moldova is demonstrative. It began after the visit of Prime Minister Ion Chicu to Moscow on November 20. Then President Igor Dodon and the Prime Minister himself openly declared Russia’s readiness to allocate $ 500 million to Moldova for infrastructure projects,  with $ 350 million allocated in 2020. However, within a few days, the promise of real money turned into a modest intention to open a credit line. And if Igor Dodon still hopes negotiations will be finalized before the end of the year, Ion Chicu expects the signing of the agreement only by the beginning of construction work. The Moldovan expert community is watching the situation warily. First, everyone remembers the notorious ‘landromat’, which allowed to launder $ 20 billion in four years. Secondly, half a billion dollars of Russian loan will increase Moldova’s external debt by a third at once. And, thirdly, unlike the usual Western financing, Eastern loans for Moldova are uncharted territory. Russia is an experienced lender, and given the out-of-all-prediction flexible Russian lending model, Chisinau cannot get away only with virtual reforms, like with the Europeans. Today, at least 17 countries are debtors of Russia with total debts of about $ 27 billion. The largest debtor is Belarus with $ 7.55 billion, which this summer due to Moscow’s refusal to refinance the current part of the debt had to borrow from China. In second place – Ukraine, which has $ 3.7 billion of debt. According to the Russian version. Kyiv itself counted only $ 0.61 billion of debt for gas supplies in the 1990s, which was systematically paid back on account of  Russia’s lease of the Black Sea fleet base in Crimea until March 2014. Venezuela pays for weapons, Bangladesh and Hungary – for nuclear power plants, India for loans from the USSR. Moscow forgives some debts, for example to Nicaragua, Angola, Vietnam, Iraq, Afghanistan. In total, nearly $ 100 billion to 23 countries have been written off since 1996. In addition, a Cuba’s record 30 billion was forgiven, and the remaining 3.5 billion will be collected over 10 years and returned in the form of investments. Therefore, it is difficult to predict the development of credit relations between Moscow and Chisinau. Moreover, experts are concerned about how the very announcement of this loan will affect Moldova’s relations with other development partners, especially if they are already not so plain. In particular, I refer to the International Monetary Fund. Last week, Prime Minister Ion Chicu discussed with the Chief of the IMF Mission Ruben Atoyan the expansion of cooperation, agreed on the next mission of the Fund’s experts to Moldova in early 2020... and immediately told the media that he did not rule out a pause in relations with the IMF. “We are determined to invest significant amounts of money in the social sphere. If the IMF shows flexibility, we will continue to cooperate with the Fund. If there is no such flexibility, we do not rule out that there may be a pause in our cooperation,” said Ion Chicu, who this year became one of the biggest critics of the agreements with the IMF. In this context, the island of stability is macro-financial assistance of the European Union that is much more clear and predictable. In 2019, Moldova will be allocated money in the amount included in the budget in autumn 2018, and if Chisinau does the ‘homework’, then in 2020 it will receive the planned 900 million lei from the EU. Besides, according to Dodon, Moldova will receive low-interest loans for infrastructure at a rate of 1.5 % from the European Investment Bank and the European Bank for Reconstruction and Development. The latter has already invested about 1.9 billion euros in the Moldovan economy. In addition, the Chicu’s government is negotiating with China to participate in the New Silk Road Project, which implementation in Moldova will require 300 million euros. “We need finance in infrastructure. We have already talked about the construction of 1,400 km of roads, which require 1.4 billion euros. We do not think that we will be able to get this amount from one source of funding”, says the Minister of Economy and Infrastructure Anatol Usatii. One might think that the government of Ion Chicu became obsessed with the road construction after the investment forum of the Eastern Partnership countries in London. There, the Moldovan Prime Minister was directly hinted that if the country does not have high-quality roads and infrastructure, there will be no investment. However, judging by the fact that there are already preparations for tenders for 350 km of roads, the program of their restoration was not born at the end of November, but is a banal rethinking of Plahotniuc’s “Good Roads”. I must say, with a fairly increased budget, unfortunately, through credit: from 100 million dollars at once to 1.4 billion euros. The Cabinet is well aware that these investments will increase Moldova’s external debt from 25% to 32% of GDP. “But we will have roads. If we do not, in five years we will still reach 35% of the external debt, but we will not have infrastructure, we will just take loans,” Ion Chicu honestly admits. Moldova, of course, needs infrastructure, but not only road infrastructure. Investors are evidently intimidated by the condition of the Pirlita-Nisporeni route, but there is no water, sanitation and human resources in the same Pirlita and Nisporeni. Therefore, such a close focus on the roads, most likely, is associated more with the corruption component, rather than care for Moldovan and foreign drivers. Unfortunately, the current actions of the Moldovan authorities to save the economy, like any stir in the swamp, only accelerate the sinking. Moreover, the new ‘technocratic’ government has yet to live up to its name. Resuscitating the “Good Roads” and obtaining new loans hardly resemble new remedies for breaking the financial impasse, and the whole meaning of Moldova’s economic policy is narrowed to a feverish search for new loans. This state of affairs certainly allows surviving 2020, but the chance of crediting the country’s economy to a fatal outcome increases every day.