MARK HORTON: EXPO-BUSINESS-CHISINAU IS A LOAD ON MOLDOVA'S BUDGET Interview with IMF Resident Representative Mark Horton Chisinau-26.09.1998/(BASA-press) Question: These days you have discussed with residents of the free economic zone Expo-business-Chisinau the emergency situation the zone has plunged into. What would be the ways to solve the clash of opinions between the Expo-business-Chisinau and Moldovan authorities? Answer: During the meeting with residents of the zone, I tried to stress on the importance of some problems. First of all, a free economic zone for sales in retail is something unnatural in the world. Usually, these zones are set up for export. This means that goods are brought in these zones without being taxed, they are processed and then exported. I consider that the existence of this zone, in a way, legalizes the exemption from taxes and the shirk from payment of taxes. This means that the state insures a window for those who want to shirk from taxes and makes more difficult cabinet's credibility for other economic agents. During debates with residents I understood they want the reimbursement of their investments made in the zone or the farther exemption from taxes. I do not see any grounds for maintenance of these facilities, under the budgetary crisis, the payment reduced balance, other. In my opinion, it was a mistake from the very beginning to grant these facilities. Expo-business-Chisinau is not a normal-type zone and it is a load for the budget not to collect these taxes. It seems to me that the business in this area run well. It is also possible that residents have been compensated for investments they made by revenues they have got. To check up this supposition, we need to invite a third part - an audit international company which will study records of all 63 resident-companies. I agree with statements that frequent modifications of the legislation diminish the credibility and investments in Moldova. A modality to solve this conflict would be the compensation of residents for the already made investments. But also they must recognize that the exemption policy has contributed to the aggravation of the financial crisis in Moldova. Q.: What are the Expo-business-Chisinau's development prospects? A.: A free economic zone can exist only under the form of a processing center. Otherwise, it is impossible to find a logical explanation. There are other businesses in Chisinau, other entrepreneurs who have assumed some risks and who cannot rival with the zone because of these tax exemptions. And they try to avoid taxes via bribery, falsifications, other. Q.: The Law on Expo-business-Chisinau reads that if new legislative acts worsening residents' conditions of activity are passed, residents have the right to follow, within 10 years from the enactment of these acts, the initial law passed by the parliament. A.: The Law on Expo-business-Chisinau does not see the exemption from the value-added tax, this is stipulated yearly by the Law on Budget. Also, the exemption from the customs duties and excises are established yearly, on the basis of limits stipulated by the Law on Budget. Q.: How can you comment statements that the Expo-business-Chisinau conflict affects Moldova's image before the international financial bodies? A.: I think that international bodies like the IMF consider that the exemptions must be stopped. The current Chisinau cabinet is the first Moldova's cabinet which had the courage to change the tax collection system, tried to fight the petrol and tobacco smuggling, other. If we look outside the zone, other investments, except Coca-cola, McDonald`s and some others, do not exist in Moldova. Certainly it happens rather because of bad-defined rights to property, strong bureaucracy and corruption than because of the zone. Q.: If the Moldovan cabinet manages to settle the conflict, would the IMF accept to became a guarantee of stability of normative acts on FEZ? A.: IMF voices against any prolongation of exemption from taxes. If the zone deals with import of goods, their processing and re-export, than we will support these facilities. But I do not see the success of such affairs in Moldova, because the zone is a corridor for smuggling.