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Weekly Magazine "Saptamîna"

Interview with Mr. Edgardo Ruggiero, Resident Representative of the International Monetary Fund in Moldova:

"There are not so many examples in the world where governments decide on who and where should invest"

Mr. Edgardo Ruggiero, the context of our dialogue is marked by absence of financing from the International Monetary Fund to the budget of the Republic of Moldova. With the risk of repeating some previously made statements we would like you to tell us why financial flows stopped to our country. 

If you remember, in May, we agreed once again on the assistance program, on some specific actions that could be undertaken immediately after that. It should be noted that some of these actions were going to be taken in January but they have not been implemented. As a result, it has been decided on a fixed date to discuss lending to the government of Moldova, provided that the government of the Republic of Moldova will meet the early agreed conditions. One of these conditions was implementation of the pre-shipment inspection. The second related to elimination of restrictions on export, in particular on export of scrap metal. 

This was about elimination of monopoly encouraged by the State in the field of scrap metal exports. 

Exactly. At that time, it has been agreed on all aspects related to the implementation of the pre-shipment inspection and with the consent of the both parties it had to lead to the reinstatement of the pre-shipment inspection of goods. This is a totally new inspection, much more favorable to the importers but which ultimately was not implemented. 

Mr. Ruggiero, there are views that there is double pressure put on the Chisinau government. First of all, there are international financial organizations with the IMF not the least, that insist on the pre-shipment inspection of imported goods and there are local businesses that do not want very much to have the businesses under the scrutiny of some control authorities, including the pre-shipment inspection. 

Do you mean that local businesses would exercise pressure over the government?

Yes. In the whole world, businesses exercise pressure over the government. From this perspective Moldova is no different than any other country. If we, however, refer to how Moldova and other former Soviet Union countries are different from other countries, it should be recognized there are much more businessmen in the  parliament than among the legislators of other countries. This is my impression. Besides, Moldova is a small country and businessmen are quite close to those in the government and parliament. They know each other and are in different relations. 

How do you appreciate the investment climate in Moldova and the second part of the question is, do you believe that settling the conflict between Chisinau and UNION FENOSA Group is a true signal that the power reconsiders its attitude towards the investment environment? We are referring to UNION FENOSA for the simple reason that the relations between the government and Spanish investor was going to represent a more general relation – between the government and foreign investments. 

Well, these are two questions that will need time to be answered. But I will answer briefly starting with the first one.   

When we say UNION FENOSA, we mean one company. But we do not talk about defending only one company. It is just that we sometime take one business entity as an example to illustrate a certain state of affairs. This matter has to do more with the World Bank, i.e. structural reforms in energy sector. However, if there is a case for UNION FENOSA to lose the investments that it made, then the next step would be for the Agency that insured the operations of UNION FENOSA Group – MIGA (Multilateral Investment Guarantee Agency) – to pay significant amounts to UNION FENOSA. This would in fact mean immediate stoppage of all the World Bank financing activities to the Republic of Moldova. If you remember, USAID has withdrawn for similar reasons i.e. for government’s involvement in the tariff policy, $1.6 m dollars financing that it intended to provide. 

Now I would like to refer to the investment environment in general. First of all I would like to show you a representative example vis-à-vis the situation in this field. But first I need to say that the investors are coming to us and consult on the problems that they face here. Here is a chart prepared under a Stability Pact report that tracks the increase in investments in the South-Eastern Europe. This chart includes nine countries that set specific tasks related to implementation of some key reforms in order to attract foreign investments. According to this chart, Moldova is on the last position in this area. The chart was prepared in March 2003 and reflects the stage of implementation of some critical tasks for the attraction of investments. Regarding the investment climate, I could give other examples. When we talk about all components of a business – licensing, certification, standardization – surveys show that enterprises  are constrained in their activities. Especially, when we talk about the regulatory environment, it is believed that it is more restrictive in Moldova than in other NIS state. Therefore, this means in general services and not only one business, such as UNION FENOSA, or former owners of Farmaco company. 

State’s interventions in the last years in some sectors, in entities that have been already privatized, are usually presented as attempts to make order where certain violations have been noted. On the other hand, if looked from outside of the government, these actions are qualified as attempts to redistribute property that does not have many things in common with making order. 

Any decision adopted by government adopted decision means in the end a redistribution, including decisions related to taxation. However, it is difficult for me to say what is happening in the field of privatization. If you look carefully to the enterprises privatized through tender through 2001, a few contracts have been cancelled in one way or another. By definition, formally, this means a redistribution. After what happened, we need to analyze the legal reasons of such decisions. If we are talking about legally justified reasons, than no one can reproach anything. Regarding the enterprises privatized in 2002, there are only few of these but they have not been privatized through a tender, they have been privatized as a result of direct negotiations.  

Recently there was a government meeting in Chisinau with the foreign investors that are present in Moldova. As far as we know, when offered to speak the investors kept mainly silent. How do you think, why they neglected this opportunity to express their views, objections, proposals? 

In fact this was a possibility to have a dialogue with the government. Obviously, if there was no discussion, it means there is a problem, in terms of a dialogue between the respective parties. May be the foreign investors are shy. Certainly, the government is trying to understand the reasons why foreign investors did not go into a discussion. It is as if you are meeting a friend of yours and ask him to discuss, talk, while your friend does not show any intention to discuss. In this case you should try again, to see what is the true reason. 

It might be that they just do not have anyone to discuss with. 

It might be. It might be or may be the foreign investors are simply not used to a dialogue with the government. May be they just have been surprised by the possibility that was offered to them. May be they thought that there were too many people in this conference to talk about certain issues. There could be many reasons. I am just trying to presume that if similar meetings would be organized more often, than a dialogue could be accepted by all the parties.  

Like I said, this end of the year we will not have financing. It is also likely that there will not be any assistance in the first half of 2004. 

I understand that you are referring to the Budget. This document developed for the next year has some positive aspects, such as elimination of VAT exemptions but there are at the same time provisions that present certain risks. I mean proceeds from privatization. If things will work normally, clearly there should not be any serious problems. The risk, however, is with the expected proceeds from privatization but it is doubtful that there will be any significant revenues. There should not be any hurry in reducing the corporate income tax. Like others say, the situation is such that may be we should tighten the belt, by reducing expenditures and increasing collections. 

A new IMF mission will arrive to Chisinau in just a few days. It will be here for two weeks, it will review the country’s economic and financial situation and will initiate discussions with the government about the development strategy. Will the respective assessments be at the basis of development of the new lending program for Moldova or not? 

After the working visit of the mission to Chisinau, we will prepare a report for the Board of Directors that will meet in January to later decide about the next steps. This could mean that another mission might come in February, March or April to negotiate the new program. 

People say that the new mission wants to see how the State sees its role in the country’s economy. What answer do you expect to this question? 

We want the government to present its vision about the government’s role in the economy. There are not too many examples in the world where the government decides on who should invest and where he should invest. Certain rules of the game need to be established that will be in place for a certain period of time. These rules should be clear, transparent and should not provide space for administrative discretion, for example in customs or tax administration, in licensing activity. There should be independent agencies, such as ANRE, agencies that establish tariffs or adopt other decisions.   

Does the Pro-European option that was articulated a few days ago by Chisinau have any chance to be implemented without the government to re-establish its relations with the international financial organizations? 

If the government will take certain measures to approach the European Union this would automatically mean an earlier dialogue with the International Monetary Fund, because the government would be adopting laws and regulations that are conducive to a market economy.

Constantin OLTEANU