Moldova & IMF IMF Activities Publications Press Releases

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News Agency "Reporter.MD"

Edgardo Ruggiero, IMF Resident Representative in Chisinau:
"The most important thing for investments growth is to have a favorable business environment"

Now, when the relations with international financial institutions are frozen, the government tries to promote it's own policies, which look different from what had been suggested by the IMF. A number of questions and opinions have emerged in this context. On one hand, government, parliament and presidency claim that Moldova will manage without foreign financing, on the other hand, independent economic analysts say the opposite.

On October 29th, 2003, an IMF evaluation mission will come to Chisinau, and we asked the IMF Resident Representative in Chisinau, Mr. Edgardo Ruggiero, to comment on the tasks of the mission, as well as to shed some light on a number of issues concerning the relations between Chisinau and IMF and the economic situation in Moldova.

Mr. Ruggiero, an IMF mission will come to Chisinau in October, what will be its objectives and agenda?

The International Monetary Fund Mission that will be in Chisinau from October 29 to November 11 will not negotiate a new program with the Moldovan Government but will only evaluate the economical situation, medium-term economic policies that are going to be promoted by the government and the short-term and medium-term economic development strategy. Again, the discussions will not be focused on the program. We can think about this mission as an opportunity to take a break and evaluate the situation. 

It was decided five weeks ago that this mission will not be headed by the mission chief for the Republic of Moldova, Marta Castello Branco, who could not come for family reasons. Mr. David Owen, IMF Mission Chief for Russia, will come instead - he will arrive in Chisinau on October 31. Rumors that Chisinau was thus placed in a zone closer to Moscow do not have any grounds, David Owen being chosen because he had been a mission chief for Moldova in the past and he knows the situation in the post-soviet countries.

What will be the content of the new IMF program, the conditions or the wishes of IMF, having in view the latest declarations of president Voronin, according to which he was glad that the external lending did not resume, and named, in that context, the Paris Club to be a trap. At the same time, the Minister of Economy acknowledged that the new program would not necessarily be a PRGF, but one in which IMF will not offer lending.

For the time being, we don’t know the content of the new program of the International Monetary Fund. In fact, this will be a program of Moldova’s authorities, backed financially by the Fund. This is very important, because I often see a wrong perception, that the IMF imposes some conditions. Our conditions become as such only after an agreement is reached with the government. As regards the PRGF program (Poverty Reduction and Growth Facility) – it is a very advantageous one. It carries an interest rate of 0.5 percent only, a 5.5-year grace period, repayable over 10 years. Hence, money that Moldova received under PRGF were very cheap. I don’t know the context in which president Voronin referred to the Paris Club, that is why it is difficult for me to comment on it. But I can tell you that nobody said that debt restructuring at Paris Club is an easy task. This is Club of creditors – and just imagine that a country comes and says that it cannot repay the debt now, it will do it later! Nobody says that this Club is writing off debts, although some people in the street understand the things differently. But those who know the mechanisms of Paris Club operation realize that this will be just a debt restructuring… Nevertheless, in certain circumstances the stock of debt of some countries is reduced. These are counties that pursue sound economic policies. There were such cases. Moldova may qualify for such a debt reduction, because it is a poor country, although poverty is not an official condition. However, a request from Moldova will not be accepted from the first attempt, but along with implementation of good economic policies.

It is known that each new program provides for less financial resources, presuming that the recipient country’s economy is developing. What would be the volume of credit under the new program?

The volume of the crediting depends on two factors: the first is the need of the country to benefit by external financing and the second is the quality of the program that will be financed by means of PRGF. At the moment we cannot know these things.

Foreign investments are very small in Moldova. What do you think is needed for investments flows to grow. And in this context, how would you appreciate the state of Moldovan economy, having in view that the communist MP, Victor Ciobanu recognize that economy is near in an infarct, as in the pre-Russian crisis in 1998. will Moldova get on its own this and the next year without external lending from the multilateral and bilateral donors?

The most important thing for investments growth is to have a favorable business environment. It’s interesting that people start asking what is needed in order to make such an environment. It is difficult to define these things. One significant thing is to eliminate the discrimination against foreign economic agents. In this respect I can say that Moldova has rather good laws, the problem is their implementation. The message that the corruption won’t be tolerated must be transmitted. I must say here that the international definition of corruption is referring to the Government corruption, in the state structures, but in Chisinau this thing is mixed up with what is called fiscal evasion in the private sector. Yet, the measures for combating these two practices are different. For fiscal evasion we need efficient customs and fiscal administration, and for the combating of corruption – an efficient judicial system and very simple laws. In Moldova, there are complicated laws that allow the customs officials, the fiscal system or the Ministries to impose their decisions as they wish. For example, in order to open a non-governmental organization, in many countries it is enough to put forward a request and if the Government doesn’t react during seven days, the NGO can start its activity. In Moldova, the situation is completely different. So, in order to reduce corruption, they must simplify the regulations.

It would be difficult for Moldova to get over now without grants and financial help from outside. These will come when the vector of the economic policies will allow, for example the European Union, to allocate these grants.

How would you evaluate the 2004 Budget Law, allocation of expenditures, budgetary surplus? Does the amount provided in the budget for servicing the external debt coincide with the figure calculated by the IMF?

We don’t examine how the expenditures are distributed unless there is a special mission in this respect and there is no connection with the surplus of the budgetary incomes. Regarding the external debt, we operate with the same numbers as the Government, The project of the budget for the next year has some positive tendencies, as for example, the exemption from VAT in agriculture and medicine, but there are some risks in this budget. It is possible that the incomes estimated to come from the cancellation of the VAT exemption are too optimistic.

Some people say that this is a crisis situation, we don’t believe so, yet there is no reason to rejoice. The taxes can be reduced in such a way only when there is a financial covering, and the Government must wait with the reduction of the taxes on the incomes of the economic agents, as well as with the unification of the taxes in agriculture. It would have been better to launch a pilot project in one or two districts to estimate the results. Also we don’t believe that Moldova is not ready to implement the new system of medical insurance. It will create new prices for the enterprises which will have to pay contributions without knowing for sure if there is a market for the medical services in Moldova. Many countries tried to implement this system, but it takes a rather long time to pass from the publicly financed system to the one through insurances. I think they should wait for the results of the pilot project launched in July, in the Hancesti district.

Every time you mention that improvement of business environment is one of the IMF’s requests. What do you think about the new hassles of Union Fenosa, both from Moldelectrica and the State Energy Inspectorate, which look like orchestrated, coordinated actions, and their impact on the business environment?

Indeed they seem to be orchestrated, coordinated but there are no proofs. The impression some independent observers can have is that these things do not advantage the business climate. If I were a foreign investor interested in the energetic sector of Moldova, I would have a lot of questions to put in order to understand what is happening in reality.

Do you think that the structure of nominative compensations and the list of recipients of this aid needs to be changed? People say that the parliamentarians are also on this list, while people with high incomes benefit from higher compensations than the poor people.

I think that the entire system of social assistance from Moldova must be revised. And you and I know poor people who do not benefit, for one reason or another, by social or nominal compensations. This thing must be changed, even if we want to help the poor people. We also know people who benefit by social compensations but they shouldn’t. But it is not only about these compensations. If the price on bread is kept at a low price, than everybody benefit by this, even I, although it shouldn’t be so. The bread price must be free, and the poor people must have access to social transfers, money that will allow them to buy bread.

The conflict in telecommunications between Chisinau and Tiraspol hurts both the mobile operators and their customers. In your opinion, how this crisis could be overcome. In this context, the groups of economic experts from Chisinau and Tiraspol do not seem to make huge progresses in the negotiations. Have you been invited to participate in negotiations or at least informed about the status of relationship and Chisinau intentions with respect to the “transnistrian property”?

The so called war of telephones between Chisinau and Tiraspol should end as soon as possible and the first step in this direction should be made by the side who threw the first stone. But I do not know who had started this conflict. I was never invited to negotiations, and in fact this is not our task to be involved in such negotiations. We would like to be consulted when they will debate the economic aspects, in order to understand what it is about and give recommendations to the Government. The two things that we are mostly concerned are who will pay for Тransnistria’s debt, that is much larger for an inhabitant than that from the right bank of the river Nistru, and we also concerned by the fiscal relations between different level administrations. Who and at what level will collect certain taxes, what spending makes every level of administration, what transfers will be allocated by the central Government to the local authorities; these are very important rules that can ensure that the country that will result from the union of the two banks of the river Nistru is viable from the economic point of view.

How would you assess the proposals made by the sides regarding the separation of powers in the future Federal State in the economic and financial sectors, in particular the differences regarding the number of central banks, customs and fiscal administration, etc.

I have seen only some previous projects. But in every new state there must be a single Minister of Finances, a single central bank, a single fiscal and customs administration. Otherwise, it won’t be possible to administer the country from the economic point of view.

The Government refused some actions that have been agreed with the IMF after crediting was definitely blocked and the program with the Fund has expired. For example, cancellation of the deadlines for implementation of the pre-shipment inspection. Are these actions going to be reinstated under the conditions of the new program or you will refuse them?

We are far from the discussions regarding this program and it is difficult to say what it will contain. But there is the possibility that the old stipulations will be included in the new program. I can say that it is not possible that the IMF will finance a program that will foresee export restrictions, the control over the prices or the establishment of monopoles without an economic justification.

There has been some time since returning to the raions, which was opposed by the IMF. Now, what do you think now, was this new territorial reform a success or not?

I can give you just one example of the impact of this reform. More foreign donors had been training the officials from local administrations. Now, many of these people do not longer work there and the investments made in human resources were totally lost in some cases. However, the economy is going to adjust by itself and we hope that this raion system will start working after some time and the people will forget about these costs. Well, this was in the past and let us look in the future, and the future in Europe is that the regions are uniting to obtain more financing for investment and infrastructure development projects. In this case all these sums are going to be coordinated by the central government and not on a raion level, i.e. the government will have more possibilities to make decisions which is sometimes good. The life will show us.

Premier Vasile Tarlev said that Moldova will need a lot of time and money to become a market economy. In your opinion, what kind of economy Moldova has now?

I cannot comment something that I did not hear since it could be taken out of the context. What I can say is that the market economy is defined by several characteristics. Currency exchange rate is free. Salaries or price of labor are free. Then, there are prices of services and goods where we have some problems. More prices are controlled, even if indirectly, through controlling the way how these prices are formed, through setting some margins. The Government should decide how fast to proceed with the liberalization of these prices if such prices do not result in additional expenditures from the Budget or some economic inefficiency. Regarding the services. There were a lot of discussions with the World Bank about the tariffs of telephone calls and electricity. Usually, regulation is done by governments under a transparent and agreed formula, here, however, there is not a 100% optimal situation. Still, the system is moving towards a right direction. In addition, there are some natural monopolies but there are economic activities that do not need to be monopolized. Moreover, everyone should have the right to export any product. People who are collecting scrap metal should pay the taxes that they are supposed to pay. The solution would be not to impose restrictions but to conduct correct fiscal inspections. Ten years ago, Moldova was much farther from market economy, however, Moldova did surprisingly well after the Russia crisis in 1998. The new Airport was put into service several years ago, many supermarkets are opening. That is why there is necessary to make a lot of investments in the infrastructure and this money will come on a convenient terms if sound economic policies will be promoted. 

Rima Placinta