PAS Policy Under Criticism from Influential International Organizations

Recently, there has been a flood of negative comments from prestigious international organizations about how the ruling regime in Moldova is handling affairs in the country

Let’s start with the long-suffering justice sector. The legal community has long awaited the Venice Commission’s conclusion on the controversial initiative to reform the national prosecution system. The idea of abolishing the Anti-Corruption Prosecutor’s Office and merging it with the Prosecutor’s Office for Combating Organized Crime and Special Cases into a single structure with the abbreviation “PACO” initially arose with only one goal in mind: to remove the uncompromising Veronica Dragalin. But, as we know, this has already happened, and the draft law has remained “pending.” The political logic of the moment suggested that the authorities follow a banal pattern: not to withdraw the bill that had already passed its first reading from parliament, so as not to expose themselves, but to postpone the issue until after the elections. Then the negative feedback from external partners would provide a convenient excuse to shelve the matter. This is exactly what happened. The Venice Commission’s verdict now allows PAS to absolve itself of responsibility for this crude political maneuver. However, it should be noted that the VC’s negative assessment in the current context only exacerbates the negative international backdrop surrounding Moldova. The prosecutor’s office has been operating in a state of complete uncertainty for a whole year. The procedures for vetting prosecutors, which only began in the summer, have only exacerbated the situation. The process is slow, full of contradictions, and threatens to completely deprive the country of its anti-corruption institutions. This is extremely unnerving for external partners and creditors, including the International Monetary Fund. It may seem strange that this organization is meddling in matters far removed from financial issues, but in the case of our country, it has become a matter of principle. Foreign creditors see the paralysis of anti-corruption structures as the main risk of Moldova’s failure to fulfill its obligations. To put it simply, the lack of control mechanisms and the risk of embezzlement of international loans concern the fund so much that they are talking about it openly. The example of Ukraine shows that intervention in the internal affairs of a country through the formation of autonomous anti-corruption bodies is becoming an objective necessity in order to monitor the targeted use of loans. The IMF mission stayed with us for two weeks, thoroughly checking the situation on the ground, and it seems that our officials did not manage to simply “talk over” the experts. Prime Minister Alexandru Munteanu spoke at length about the importance of macroeconomic stability and interest in a new program with the IMF, but no encouraging news on this front has emerged. Instead, the IMF issued a stark warning, noting the systemic failure of Moldova’s economic model. Thus, the formal resumption of growth, estimated at 2.7%, is linked to a temporary consumer impulse, external assistance, and other one-off factors, while fundamental problems are only getting worse. The country is rapidly increasing its external deficit, losing competitiveness, and becoming increasingly dependent on imports, including critically important electricity. The current account deficit has grown to 20% of GDP, one of the highest in the region. As a result, public finances are under increasing pressure, and the authorities’ inability to effectively utilize investment resources is undermining their stated development priorities. Instead of targeted solutions for compensation mechanisms, costly and ineffective support measures are being used, which erode the budget and do not create sustainable incentives for growth. Monetary policy is teetering on the brink of losing control over inflationary risks, while the overheated credit market and surge in housing prices are creating the conditions for new financial imbalances. At the same time, vulnerabilities in the banking sector remain, and the IMF considers the weakening of supervisory barriers to be unacceptable. The fund’s forecast is still characterized as “significant uncertainty” or simply negative: “The risks of deterioration prevail, mainly related to the possible intensification of the negative impact of the war in Ukraine and other geopolitical events, as well as delays in the implementation of reforms under the Growth Plan and the misuse of funds provided.” The most alarming sign is the institutional crisis: the stalling of anti-corruption reforms, staff shortages, and the uncertainty surrounding the future of key institutions are undermining the confidence of businesses and investors. With high emigration, rising labor costs, and stagnant productivity, Moldova is effectively losing its chances for rapid convergence with the EU without a radical overhaul of its policies. The IMF is demanding “serious progress” and concrete measures from the new government, not just more empty words. The recommendations in these circumstances are simple and obvious: cut social spending and abolish benefits. Energy subsidies for the population, as well as tax breaks for businesses, must be cut or eliminated. The fund believes that all these measures are opaque and ineffective. The authorities need to review and actively expand the tax base, which is a clear hint at the coming increase in fiscal pressure. The planned introduction of taxes on all parcels and online purchases from foreign marketplaces starting next summer fits in with the IMF’s requirements for revenue mobilization, which the authorities are now trying to demonstrate in practice. Yesterday, at a press conference, Alina Iancu, head of the IMF mission to Moldova, did not shy away from explaining in detail to journalists what our country’s obligations were and what specifically constituted failures. The debriefing was very revealing. There were no smoothing formulations or positive assessments, which found their way into the official press release. How are the authorities responding to reports of negative investment trends and persistent recommendations to tighten their belts? In the spirit of their previous bellicose rhetoric and expectations of encouragement from Brussels for following the logic of sanctions against Russia. The actual expropriation of Lukoil’s assets in the country, a return to the forefront of the ‘belt of solidarity’ with Ukraine. There is no desire to deal with the economic wreckage left behind by the PAS election saga. It seems easier to ask other financial institutions for help, since the IMF is unwilling to make concessions to the authorities for their loud political slogans and European integration aspirations. Against this backdrop, the visit to Moldova by the President of the European Bank for Reconstruction and Development is significant. It was immediately stated that the purpose of the visit was to confirm the institution’s support for the economic reform programme aimed at accelerating Moldova’s accession to the European Union. Meetings with the president and prime minister, the signing of new investment agreements and high-profile statements about Moldova’s achievements and successes in European integration are all designed to counteract the negative media coverage resulting from critical comments by other international partners. Of course, the encouraging speeches of EBRD representatives will not override the IMF’s unsatisfactory assessments, improve the investment climate overnight, or compensate for the termination of the fund’s loan programme. But it is not the first time that our politicians have put on a brave face in the face of adversity.