INFOTAG WEEKLY BUSINESS INFORMATION BULLETIN
# 31 of July, 2001
 

DEFAULT ALL BUT INEVITABLE WITHOUT IMF FUNDS

Following is our exclusive interview with Jerzy Osiatynski, formerly Poland's minister of finance, advisor to the three former Prime Ministers of Moldova.

INFOTAG: Which direction do you think Prime Minister Tarlev is going to look to if the IMF and WB funding is not resumed and the government's plans for $36 million in the fourth quarter of this year fall flat?

Mr Osiatynski: I would say the National Bank has given a half-answer to that by making available $30 million for the ministry of finance to start paying off external debt. Still, the National Bank has room for maneuver only within the limits prescribed by the IMF.

I think that an understanding with the IMF is essential not so much because it would clear the way for the IMF funds proper as that it would secure a go-ahead for other multilateral inflows into Moldova, including those from the WB, EU and donor countries.

Furthermore, I think the $30 million supplied by the national bank will fall well short of what is needed to meet Moldova's external liabilities in 2001. I further believe that mending relations with the IMF is crucial if Moldova is to get $30 million from the fund and another $6 million from the EU.

Q: How much of a chance does the government have to get itself back on track with the IMF?

A: I do not think economic and financial policies pursued by the government and the national bank under the 2000 memorandum with the IMF pose any ground for concern. I guess the government's chief challenge is to get to grips with the restructuring program it had agreed on with the fund, all the more so given that the government and the parliament are sending out some
contradictory signals in this respect.

Q: What exactly do you mean by that?

A: Basically, we are looking at a number of draft laws that have been shelved for quite a time now. In Poland, we call these draft laws "colonels", meaning that they can be brought to the forefront anytime. The Moldovan authorities have drafted laws on bankruptcy, territorial-administrative division and agribusiness support. All these moves will translate into more
expenditure, for which no provision has been made in the budget for 2001.

There is another obvious point of concern. The government-run newspaper is known to publish external debt statistics without ever bothering to differentiate between the debt accumulated by the state machinery and publicly-guaranteed liabilities built up by enterprises.

In my opinion, these should not be treated in one. Whenever an enterprise fails to repay a publicly-guaranteed loan, something needs to be done about that. The enterprise should be restructured, or salvaged if that looks possible, or failing that, forced to go bankrupt. Any of these options could have helped the government to recover some money. But the authorities
steered well clear of social upheaval that it thought such policies could entail and in effect continued to bail out the enterprises that looked hopelessly beyond recovery.

First of all, I would say that breaking the country's liabilities into domestic and foreign debt does not make much sense if the national currency is easily convertible. Second of all, none can possibly rest content with where the reforms have been going in Moldova in the past ten years. On top of all is the fact that not a single person seems to be concerned with making a thorough assessment of Moldova's failures and their underlying causes. Except for a number of cursory attempts to do that, I know of no other analysis.

You do not need to have a second look at Moldova's external liabilities to understand that the loans have been mismanaged
Where did the money go? It went to prop up bankrupt enterprises.

I have regularly visited Moldova ever since 1995. International financial organizations have tried to get the Moldovan government to make publicly-guaranteed loans more transparent and they were forcing the ministry of finance to cap this type of liability at a certain level. We have been trying to argue the Moldovan government into capping publicly-guaranteed loans too. Furthermore, we reiterated that the pledge not to guarantee more than the government can afford should be reflected in the annual budget.

The government, however, steered well clear of these proposals on the pretext of unfavorable political impact that such policies could entail. In the end, external loans went to prop up the ailing agricultural sector instead of spurting the restructuring program, as they should have. Rather than creating new jobs, these loans in effect buttressed jobs that had little, if any, chance of surviving in a market economy.

Q: You mean the loans achieved nothing more than keeping the incurable enterprises running for a little more?

A: These loans went to maintain the enterprises' status quo.

Q: Do you think the outlook is different now that the new authorities have come to power?

A: Well, the parliament has shown no commitment to trimming the rampant fiscal deficit. Quite to the contrary, the chief culprit appears to be the minister of finance, whom the parliament whips to deliver more generous social spending. I used to be a minister of finance myself and I know what it feels like. It is essential that the minister of finance be backed up by the Prime Minister. If that is not in place, severe shortage of money will be an everyday reality.

Monetarily speaking, I think Moldova has fulfilled the key loan conditions imposed by the IMF in its memorandum. These figures have been more or less abided by and will not block the way. What does matter now is Moldova's general outlook. What is the government up to now? What will it be up to in future? Where will privatization, agriculture, small and middle businesses go?

The WB said it would be perfectly prepared to send a negotiating team of its own to Chisinau while the IMF mission is still here, provided that progress in relations has been made. Moldova has until October to work out a final agreement with the IMF if it is to get funds from the outside in 2001 at all.

Q: How much is there to agree on?

A: About seven pages. But seven pages mean that the government will have to rush, thoroughly preparing the ground for fulfilling every single point in the agreement, while avoiding mistakes. It is about time that the government's aptitude burst forth in full force, because default is all but inevitable without securing IMF and WB funds.