Moldova Counts on Solid Financial Aid - In Exchange For What?

Anton SHVEС

The incumbent president's team coming to power will provide access to the huge international funding for Moldova, much-needed in the current crisis period. The only question is on what terms the international assistance will be provided and how authorities will repay the credits

The key donors of the Republic of Moldova were downright optimistic to learn about the Action and Solidarity Party's win in the early parliamentary elections. Congratulations and positive instructions followed from high officials of the European Union, the US Department of State and the President of Romania Klaus Iohannes. Maia Sandu and international community representatives talk about the planned financial flows as a fait accompli, which is facilitated by the president's declared intention to fight corruption, reform the judiciary and the prosecutor's office, and achieve effective governance of institutions and the state as a whole. Maia Sandu, given her professional career, is more concerned about the economic sector and objectively inclined to address it thoroughly. In 2020, due to the negative impact of the COVID-19 pandemic and serious harvest problems, the country's economy immediately collapsed by 7%, which in fact nullified the GDP growth over the past couple of years. Thus, the agricultural sector, the real estate market, wholesale and retail trade faced crisis, leading to the decline in domestic consumption and exports of goods and services. According to the Ministry of Economy and Infrastructure, this year's GDP growth may reach about 6%. However, much will depend on the pandemic developments and the agricultural and industrial production recovery. Economy might get a boost primarily through large-scale external flows, which will stimulate consumption, infrastructure development and investment. In recent years, Moldova has in fact been on a tight budget, as the Western community was reluctant to provide financial support to the state captured by Vladimir Plahotniuc and later led by the Socialist-Democrat coalition and Shor supporters. In the summer of 2020, Moldova also did not receive a Russian loan. As a result of the long-term lack of international money, the living standards of the population suffered seriously, infrastructure plans of the Socialist Party and the Ion Chicu government were not implemented, which largely affected the results of the presidential and parliamentary election campaigns. However, Maia Sandu and the parliamentary majority of the PAS running the country is seen by major donors as a sufficient guarantee of the safety and targeted use of their investments. Thus, the European Commission approved a plan for economic recovery of Moldova. According to the plan, Moldova may receive the 600 million euros financial aid in the form of grants and investments in the next three years. The program involves dealing with the pandemic aftermath and long-term economic recovery. The funds will be spent in five basic areas: public finance management and economic management; competitive economy, trade and support of small and medium enterprises; infrastructure; education and employment opportunities; ensuring the rule of law and judiciary reform. Progress in justice and anti-corruption reforms will be a formal condition for funding. Comparable amounts can be provided in the line of the International Monetary Fund through US guidance. Back in the summer of 2020, the IMF developed a three-year financial support program, which provided for 558 million US dollars to be allocated through the expanded lending mechanism and the extended financing mechanism. These funds are intended to ensure macroeconomic stability, promote institutional reforms aimed at addressing numerous vulnerabilities in the areas of fiscal management, supervision of the non-banking financial sector, market regulation, the fight against corruption and the rule of law. Maia Sandu will make every effort to restore the Romanian agreement on financial assistance. A scandal erupted this spring as the Moldovan government failed to raise about 60 mln. euros (out of 100), reportedly for bureaucratic reasons refusing to sign one of the co-operation protocols. These funds, which were spent mainly on infrastructure projects (repair of educational institutions and construction of the Iasi-Ungeni-Chisinau gas pipeline), can be accessed rather quickly, according to the Romanian Embassy in Chisinau. Substantial funding could come from the World Bank, which has already provided € 24.8 million this spring to purchase the COVID-19 vaccine. At the same time, Maia Sandu's team, which has close ties with this financial organization, is determined to discuss a comprehensive cooperation program for the coming years and unblock the allocation of funds to cover the budget deficit. The U.S. government, primarily through the International Development Agency, is stepping up assistance to the Moldovan authorities. The cost of current (including long-term) USAID projects in Moldova is estimated at approximately $ 73 million. Most of them have been suspended for political reasons. At the same time, it may increase several-fold in the near future: President Maia Sandu had recently a telephone conversation with U.S. Deputy Secretary of State Victoria Nuland who promised Moldova support in carrying out government reforms. Development agencies of several European Union countries will predictably follow the United States' example, such as the traditionally active Swedish Development Agency, especially given Sweden's current OSCE chairmanship. According to rough estimates, the amount of funds that Moldova can receive from the international community in 2021 is quite comparable to the decline in GDP last year - 14.4 billion lei. If the government succeeds in using these flows wisely, Moldova's exit from the recession can be quick and painless, since harvest forecasts and the public health situation boost optimism. Along with this, Moldova will traditional pay for the international economic assistance with its sovereignty. In this regard, Victoria Nuland's involvement is a key indicator. No matter how often Maia Sandu denies the geopolitical factor and sends pragmatic messages to Moscow, the fact is that "the one who pays the piper calls the tune". Therefore, Chisinau's active involvement in anti-Russian organizations and projects, as well as the growth of mutual conflict rhetoric, is a matter of the near future.