No More Money? Why Has the IMF Loan for Moldova Been Postponed

Vladimir ROTAR Contrary to the optimistic president and the government’s statements, the IMF did not consider a new half-billion-dollar cooperation program with Moldova in September and that means the loan is to be waited for longer than previously expected. "An unprecedented program" As it became known last week, the International Monetary Fund did not include in the September 30th Board of Directors meeting the issue of considering a new interaction program with Moldova. This was all the more unexpected given the President Igor Dodon and Prime Minister Ion Chicu multitude of previously made statements radiating absolute optimism about the first half-billion IMF loan tranche receipt in September. Now this money will come to the republic not earlier than the end of autumn, that is, after the presidential elections. It should be recalled that the last program completion was generally held on a high note. Despite a number of scandals related, for example to tariff adjustments and a sharp VAT rate increase for the HoReCa sector, the government called the agreements with the Fund "a breakthrough" and expressed its readiness to immediately start developing the next program. Corresponding negotiations started in July this year and ended up signing a preliminary agreement between the government, the National Bank of Moldova and the IMF. This time loud epithets came into the picture. Ion Chicu noted that in terms of financial component and planned range of reforms, this program is unprecedented and is the most ambitious that Moldova and the IMF have ever signed. Even Alexander Slusar, opposition representative and deputy head of the DA platform participating in the negotiations called it unique. It really looks good on paper. The new three-year program provides for $ 558 million allocations to Moldova (more than three times higher than the previous one), thus, 85 percent of this amount will be directed to budget support while the rest is meant to replenish the NBM's foreign exchange reserves, carry out reforms, etc. ... It was planned that the first $ 100 million tranche would be provided to Chisinau in September. At the same time, as Chicu reported the negotiators came to agree on many issues and the government "did not undertake a single obligation to raise taxes or tighten tax administration and the overall tax burden on citizens and entrepreneurs." However, to receive the money the authorities had to fulfill six preconditions related to improving the fiscal sphere, financial sector supervision, NBM governance, the energy sector, market regulation, improve the business environment, reform the justice system, fight corruption and terrorism financing. The head of the Cabinet especially emphasized the work volume that state bodies were facing to implement the entire scope of the planned reforms. “Therefore, on behalf of my colleagues in the government, the National Bank and other state structures I call on responsible political parties to provide maximum support when implementing this ambitious reform program,” the Prime Minister noted. Who is to take advantage of loan approval postponing? The Ministry of Finance only threw up hands when the IMF decided not to include the Moldovan program in the meeting of Board of Directors agenda. At the same time, Sergiu Puscuta admitted Moldova has not yet met all six preconditions. The president and the government, however prefer maintaining a total communication silence regime not commenting on the current situation. Therefore, one can only guess about the real IMF motives to postpone considering the agreement with Moldova. One of the reasons lying on the surface is, apparently, the long-suffering justice system reform and its progress that has long been one of the Fund conditions. The Constitutional Court rejected recently a draft constitutional amendment prepared by the government; that, in the president's opinion did temporarily block the reform once again. At the same time, the Cabinet of Ministers soon re-approved the constitutional amendments without any significant changes, and that is likely to lead to a similar outcome. Another controversial episode is Victoriabank's assets arrest during the billion theft investigation. The point is that this bank, along with two others got transferred to foreign investors, being exactly one of the IMF’s conditions. Thus, Victoriabank found itself controlled by the Romanian Banca Transilvania and the European Bank for Reconstruction and Development that held the controlling stake. Therefore, the rather harsh Moldovan judicial authorities’ actions, according to some sources, caused discontent in a number of Western capitals and international institutions, including in the Fund. At the same time, all the above may only be formal reasons while real new program approval slipping reasons actually lie somewhat deeper. It is worth recalling that for our republic, cooperating with the IMF is not only important just to obtain credit money but as a prerequisite for the Republic of Moldova receiving macro-finance from the European Union. Thus, postponing consideration of the loan to a later date may reflect the obvious reluctance of the West to sponsor the current Moldovan authorities and thereby give them extra trump cards during the election campaign. Therefore, if the elections end “correctly” there is no doubt that the new IMF program for Moldova will be no problems approved while the victory of the undesirable candidate is quite capable to indefinitely delay this process. Some experts point to another possible option. It is no secret that agreements with the Fund are often conditioned by the need to implement a package of measures far from being the most popular ones. It is not surprising that during negotiations the government repeatedly stressed it did not take on any shock obligations in terms of social and economic affairs. This is quite unusual. After all, there is the Ukraine example which recently entered into a new agreement with the IMF under a number of very strict conditions. Moldova is now in no better position than its eastern neighbor and it is not entirely clear what exactly could have strengthened the position of the Moldovan side during negotiations with representatives of the Fund. And here it remains either to believe in the impeccable skills and talents of the Moldovan negotiators or something is hidden from us and the program contains not very convenient points that Chisinau would not really like to show to the public, at least until the elections are over. Therefore, it is in no hurry to fulfill the conditions of the IMF, thus, delaying the process of new program approving.