Foreign Aid to Help Prevent Moldova from Slipping into a Political Crisis?

Anton Șveț

Recent political scandals, resounding resignations and coups are mainly economic in nature. The Moldovan authorities have also failed to cope with the crisis, but international partners have so far done their best to blur the government’s economic policy deficiencies with what they call helicopter money. But will this enthusiasm last long, given their own problems?

The trade, sanctions and transportation war between Western countries and Russia has had a negative impact on the global economy. Disrupted logistics, difficulties with the supply of agricultural products, fertilizers, raw materials and equipment provoked a rise in prices and shortages in the poorest markets. Rapidly rising fuel prices slow down consumption and economic growth, accelerate inflation, resulting in public discontent and social conflicts. Protest and controversy tides have already washed away the President of Sri Lanka, the much-feared Prime Minister of Great Britain, and the Prime Ministers of Bulgaria and Estonia. The political crisis has hit Italy, but its President hasn’t yet accepted the resignation of Prime Minister Mario Draghi. Our government has been very inefficient in managing the crisis situation, blaming its mistakes only on the neighboring Ukraine’s martial law. While in many ways the poor state of Moldovan economy and population can be explained by the authorities’ shortcomings and incompetence. It was the government, represented by Deputy Prime Minister Andrei Spinu, that created the formula for calculating the cost of Russian gas, the application of which almost tripled the price per cubic meter for household consumers in six months. Last week, ANRE approved a tariff of 22.26 lei. But even such an unaffordable price for households does not cover purchase prices, which leads to tariff deviations and deterioration of financial state of Moldovagaz JSC, which asked to set the tariff in the amount of almost 30 lei. That is, the government manages to destroy the gas company’s financial solvency without providing affordable prices to industrial and household consumers. The picture is no better when it comes to fuel affordability. Over the last year, the price for 92 and 95 gasoline rose by three quarters; the price for diesel almost doubled. As a result, the cost of public transport is growing in a wave triggering strikes of transport companies and conflicts of central authorities with local mayor’s offices, including those in Chisinau. At the same time, the agricultural sector suffers because it is dependent on cheap fuel and optimal logistics. However, the parliamentary commission grandly created to investigate the price hike and its possible connection with the fuel companies’ cartel collusion, reports that there is none of such, that gas stations in Moldova are not profitable, and that prices are among the lowest in Europe (forgetting to mention that excise rates are also much lower than in EU countries and, therefore, the state budget does not receive enough revenue). This year is also marked by higher inflation. Since the beginning of the year it reached 32% for consumer goods and 34% for foodstuffs. Combined with a sharp increase in the cost of utility bills (even despite the spring and summer season), numerous households exist mainly at the expense of funds received from relatives working abroad. The upsetting state of affairs in the agricultural sector stems from the lack of demand for a number of such traditional goods as fruits, vegetables, canned goods and wine shipped to Eastern markets. Products in stable demand, such as grain, are sold cheaper because of logistical expenses. Failure to stabilize wheat exports and food security concept development largely contributed to the decision of the ruling party to dismiss the Minister of Agriculture Viorel Gherciu. There are persistent rumors about a possible rotation of 2-3 more ministers. All these trends, both global and local, raise the question of the quality of governance in a critical situation and of the ways out of the impasse. In order to hold onto power without diving into another protest wave or early parliamentary elections the current leadership needs a respite, to say the least. The golden standard for our government in troubled times is to find ways to attract external subsidies. The ruling party, which has unlimited patronage from Western mentors, has simply no equal in this matter. Donor countries have even created a platform to support Moldova – the initiative came from Germany, France and Romania. At the first conference in Berlin in early April, Chisinau managed to attract a huge amount of international investments – nearly 660 million euros, though, mainly of repayable funds. Assistance in grants amounted to 108 million euros. At the second meeting of donors a few days ago Moldova collected grants worth 432 million euros. Almost 200 million more were taken out as loans. Only through this platform of assistance to Moldova, the government was able to attract a very solid amount of funds, wise use of which could stabilize the country’s budget, stimulate consumption and investment into the real sector. E.g., Germany alone has allocated 77 million euros for energy security and support for vulnerable groups and families of Ukrainian refugees. We should consider that the government has ceased to bear the substantial costs of settling numerous Ukrainian refugees, outsourcing them to relatives, local employers and, above all, international organizations, among them the ICRC and the International Organization for Migration. Back in mid-spring, citing the situation in Ukraine, the government was able to negotiate a sharp increase in IMF receipts through an expanded lending and financing mechanism – a total of 267 million euros. The government also continues to cooperate with programs and development agencies, both universal (UNDP) and country-specific. All additional expenses for the national army rearmament and border security are also covered mainly by external sources. In fact, international partners are doing their best to blur the shortcomings of the government’s economic policy with what they call helicopter money. However, how long their enthusiasm will last, given the internal problems, and whether Moldova will be able to ‘get off the needle’ and manage economic processes independently is a big question.