Moldova & IMF IMF Activities Publications Press Releases

                                                                                                  Russian (scanned)

No. 3, March 2007 

Fear Has Big Eyes, or Optimism About GDP in 2007

Moldova makes a claim for know-how in summarizing the missions of International Monetary Fund (IMF) in Moldova. It has become a tradition already for the mission to give press-conferences in tandem with the members of the government or the National Bank. However, this happens only when result of the mission are positive and impressive. Only with these results the head of the mission is accompanied by the Prime-Minister Vasile Tarlev, President of the NBM Leonid Talmaci, Ministers of Finance and Economy Mihai Pop and Igor Dodon. This time, when the mission was giving its press-conference at the end of February, the event was a joint one again, as Minister Igor Dodon also came to the journalists.

If we speak about the results of another IMF mission, in opinion of the Fund’s experts, they are quite weighty for Moldova. The mission believes that the government and the NBM do everything possible to meet the objectives of the memorandum signed with the fund. It envisions a three-year cooperation program with financing of over $160 million. However, all this money will be received by the National Bank, which would be able to use it only in extreme situations. It would be better not to have such situations at all, and Moldova to be able to cope with them itself.

During this visit the IMF mission made no secret that it is optimistic about macroeconomic situation in Moldova. Its head Thomas Richardson said that currently, IMF projections of the economic situation in Moldova are more optimistic, than projections that the Fund had at the end of 2006.

This is related to the fact that the government managed to conclude and agreement on gas supply for 2007 at a more favorable price in comparison with the one that was projected and the one that Gazprom scared us with. Moldova managed to conclude agreement on gas import at the price of $170 for one thousand cubic meters, which is lower than European prices the Russian gas monopolist referred to.

The optimism of the Fund’s experts was also increased by political decision of Chisinau and Moscow to resume export of Moldovan wine to the Russian market. It looks like that political barrier for the trade of domestic wine products and alcoholic beverages is removed. Now, only some minor issues remained, it is necessary to solve some technical issues, which in reality turned out to be more difficult than it might seem at the fist glance. In spite of highlight declarations that Russians will see the new 2007 year in with Moldovan champagne, it still has not left the storehouses of winemakers, though it is already March.

And, nevertheless, political decision of the leaders of two countries fills with optimism and hope not only winemakers, but experts of the IMF as well who believe in soon return of Moldovan wines to the Russian market. Meanwhile, Tomas Richardson clarifies that the volumes of wine supply will not be as impressive as prior to the tragic date of March 27, 2006. But he also says that every cloud has its silver lining. Richardson believes that the price range of Moldova wines in the Russian market will be already different and more favorable for the winemakers, however only for those who are able to produce highquality wines.

The experts of IMF are ready to confirm their confidence by specific deeds and examples. The only wish of the Fund to change the projection of Moldovan economic development in 2007 is worth a lot.

As far as the results of the mission in Moldova, Richardson indicated that relations between the government and the IMF are partnership and even good. The mission is satisfied by implementation of the Memorandum concluded by the Fund, the government and the National Bank. It welcomed the idea of the government to develop the national development program with specification of the main priorities and sources of financing.

As far as the issues that still concern the experts of the fund, Richardson mentioned primarily inflation, which he believes slows downs the economic growth and impedes inflow of foreign investments. But the mission expressed confidence that as a result of the monetary policy of the National Bank and well-thought activities of the government consumer price index will be reduced and by the end-2007 it will not exceed 10%. For instance, trends of January 2007 versus January 2006 already show that inflation constituted 12.6%, which is much lower than its annual level for 2007 of 14.1%.

The Minister of Economy and Trade Igor Dodon did not hide gratitude to the IMF for supporting the reforms of the goverenement. Without any false modesty he said that the government “obtained successes” in structural reforms. The Minister had no doubts that with support of IMF the government and the National Bank will manage to suppress inflation and its low level will trigger economic development, inflow of foreign investments and GDP growth.

Dodon announced that a special group of IMF experts arrives to Moldova in March. The government will coordinate with them the options of tax policy for 2008. The Government considers several policy scenarios of tax burden reduction, including some very ambitious ones.

In addition the minister indicated that reduction of the tax burden will not compulsory lead to the state budget losses. He proved that by example of corporate income tax. “In 2001, it constituted 32%, and in 2007 - 15%. However, in spite of over than 50-percent reduction of the rate, this tax revenues in the budget increased by five times”- mentioned Dodon.

Note of Profit: The next mission of the IMF will arrive to Moldova at the end of Aprilearly May 2007. Report will be written at the result of it that should be approved in summer by the Board of Directors of the IMF.