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Edgardo Ruggiero: "Moldova is developing and changing visibly"

Edgardo Ruggiero, the International Monetary Fund Resident Representative in Moldova, ends his mission in Chisinau on October 7. On the eve of his departure, Ruggiero gave an exclusive interview for the radio station Free Europe and for the independent news agency REPORTER.MD.

Moldovan authorities declared not only once that they want to sign an agreement with IMF that would not envisage Moldova’s financing. Can the fund accept such a scenario?

In general, the fund can conclude such a kind of agreements, but the conditions will not be less ambitious. As a rule, such agreements are signed when a country is ready to graduate from the IMF school, when a country does not need the money and assistance of the fund anymore to administer its economy. This was the case of the Baltic States before accession to the EU. At the last annual assembly of the Board of Executive Directors, the IMF analyzed the possibility of concluding agreements without offering funding, but with technical assistance. We have not discussed this kind of agreement with the Moldovan Government yet.

What do you think about the structural reforms and privatization, especially in the energy and telecommunications sectors, which are stipulated both in EGPRSP and in the Plan of Actions Moldova-EU? As you know Minister of Economy Valeriu Lazar has recently stated he is against the privatization of these sectors.

We are aware that the privatization slowed down and it is important for the Government to define its new policy on privatization and on administration of state property. The Government must decide what it wants to privatize and what it wants to administer by itself. We cannot give indications in this direction. In principle an enterprise can be directed by the state, but it must function on commercial basis, under a private competition. The competition must decide which enterprise, state or private, is more efficient. We do not mean the natural monopolies, as the water supply sector, where prices should be regulated. I must emphasize that the privatization of some enterprises usually results in new workplaces. Moldova has a clear advantage in the telecommunications sector. It can become a telephony center for the French-language and Russian-language speakers. Moldova yet does not profit from these advantages. When Moldova joined the World Trade Organization, it committed itself to reduce the tariffs for international telephone conversations, increasing simultaneously the tariffs for internal conversations. The first rebalancing of tariffs was performed, not yet the second and the third. Thus, local consumers benefit by the current prices, but the persons working abroad pay more. I reason that economy’s liberalization is more important than privatization.

How do you assess the observance of anti-monopoly and competition protection rules as well as the fact that the Government returned to the idea of merging the energy, telecommunications and informatics regulatory agencies?

What is important here is the application of the Law on Competition Protection adopted in 2000, which envisages the setting up of an anti-monopoly and competition protection agency. Yet, this law does not take effect five years after its adoption. Many companies, associations of businessmen sought the institution of this independent agency, as the law requires.

As regards ANRE (national energy regulator) and ANRTI (national telecommunications and informatics regulator), they are more in the World Bank’s area of competence. I can tell you that the separate existence of these agencies is the model that prevails in Europe. Their merging will not save very much money, but the decisional process of these regulatory institutions can get worse.

Do you think the fiscal policy of the Moldovan Government, which continues to reduce the tax rates, can improve the business climate and extend the fiscal basis for supporting economic growth?

The rate of the corporative tax is not the most important indicator of the business environment. The fiscal and customs administration as well as the diminishing of bureaucracy are more important. This concerns each institution in Moldova. The implementation of the Law on Guillotine will be a major step forward because there is a lot of work to do. I am astounded by the number of procedures one must follow to renovate an apartment.

A good method to extend rapidly the fiscal basis is to eliminate all the exemptions. There are too many exemptions, not necessarily for state companies, but for certain sectors of economy, certain enterprises, certain free economic zones. If you open, for example, a restaurant in a free economic zone with certain fiscal facilities, then the other enterprises will suffer, the other businesses will face difficulties.

International experts urge the Government to work out “an ambitious program” of public investments and the IMF and WB to restructure Moldova’s debts. How realistic these recommendations are?

The investment program must center on the country’s investment necessities as they are stipulated in the Economic Growth and Poverty Reduction Strategy Paper (EGPRSP). It is important to establish a hierarchy of the objectives formulated in EGPRSP and not to deviate from these priorities. It must be an ambitious program indeed because country’s necessities are big. There must be set certain priorities because the budget is limited, but an investment needs to be maintained. For instance, you can build a country road on donors’ money. This road must be kept in good condition but the upkeep is rather costly. There must be established long-term budgetary priorities.

You speak about the establishment of priorities 5-6 years after the present government took office. Why did it take so much and we still do not have certain priorities set?

The drawing up of the Economic Growth and Poverty Reduction Strategy Paper, which is being implemented for eight months, took a very long time. The year of 2005 is the first year when the state budget bases on this strategy. We will see if the investment priorities will be stipulated in the next year budget as well. It is a long process.

How dangerous is the rising trade deficit for the balance of payments and for the Moldovan economy taking into account such factors as the increasing volume of transfers from abroad?

The trade deficit is large but at the moment it is financed entirely from remittances. Taking account of the financial inflows, Moldova is in a good situation. To a certain extent, the trade deficit is a consequence of the large sums sent by the Moldovans working abroad as they fuel consumption and imports. That is why the business environment must be very attractive. When a businessman comes to Moldova he has no idea of all the procedures he must follow to register a business which is rather difficult. It is not enough to attract large companies. Conditions must be created for smaller companies also. They come to Moldova but when they realize how difficult it is to start a business they simply give up. Yet, they could help Moldova integrate into the world because they are mainly European. The best way of integration is to create good conditions for small enterprises.

Another important thing for foreign companies is the presence of an international bank in Moldova…

I think the lack of foreign banks affects the quality of services provided by the Moldovan banks for clients and for those that have small deposits as well as the loan policy. Probably, there is not enough competition between the banks, but the existence of practical innovations is important. When I am talking to potential investors in Moldova, if they are Italians they ask me if an Italian bank is operating in Moldova, the Austrians ask me about an Austrian bank and so on. When they find out there are no such banks they inquire if there is a European bank at least. Sometimes, it is just more comfortable for them to work with the banks from their countries, but the Moldovan banks are also good.

How would you characterize your four-year work experience in Moldova, your experience while working with the Government, with the business community?

I can say I gained valuable experience. I have learnt a lot about diplomacy, about the decision-making process, how the development processes are working, how difficult it is to give a good piece of advise to the Government, and not only to the Moldovan Government, to any Government. It is a difficult but valuable experience. I was very happy to come to Moldova which is a wonderful country, with nice people. It is very difficult to find another country so rich in national traditions in the European Union.

Now, at the end of your term in office, what message would you send to the Moldovan Government, population, business?

Moldova is developing and changing visibly. It is clear that there is more money in Moldova now. I wish there were more opportunities for the youth. Most of the young people I spoke to want to leave Moldova namely for this reason. It is a situation similar to that in Italy several years ago. I hope it will change soon. The country is developing speedily enough to offer opportunities for each citizen.