The appointment of an ostensibly pro-EU government will not get Moldova very far towards securing urgently needed foreign financing unless it follows up with some concrete reforms.

Among Prime Minister Pavel Filip’s first actions on coming to office in January were to reach out to both Romania and the International Monetary Fund (IMF). Funding is urgently needed in Moldova but most international financial institutions suspended or drastically curtailed their support after $1bn was revealed to have been siphoned off from three Moldovan banks. 

The IMF estimates that the economy contracted by 1.75% in 2015, when a poor harvest compounded the damage done by chronic political instability and a slump in remittances from Russia. Meanwhile, the bailout of around €625mn given by the central bank to the three fraud-hit banks will push public debt close to 40% of GDP.

“The economic situation is difficult. Exports and remittances are falling,” says Alexandru Fala of Chisinau-based think tank Expert-Grup, which forecasts a 1% fall in GDP for 2015 and a further contraction in the first six months of 2016. “In this context, tax revenues decreased and the Moldovan leu depreciated by approximately 25% in 2015. Obviously, amid all these complications, our country needs external financial assistance.”

Speaking to regional leaders on January 27, Filip warned that Chisinau could struggle to pay pensions and wages but promised that the country’s financial problems would be solved when it receives loans from Romania and the IMF.

However, it is not clear when this assistance will be forthcoming. Moldova has already been trying for more than a year to secure a new stand-by arrangement with the IMF, but two planned rounds of talks were cancelled last year; the first when former prime minister Chiril Gaburici resigned, and the second after the resignation of central bank governor Dorin Dragutanu. Other IFIs have also either frozen or dramatically scaled back their assistance to Moldova.

Filip announced on February 3 that an IMF delegation is expected in Moldova on February 21. Previously, an official at the IMF office in Chisinau confirmed to bne IntelliNews that it had received a request for an IMF mission, and was in the process of working out the logistics.

The Moldovan prime minister has also held talks with his Romanian counterpart Dacian Ciolos, but like the IMF, Bucharest has set some tough conditions for extending a €150mn budget support loan to Chisinau.

“As shown during our talks, Romania is willing to provide the necessary support to Moldova in a structured and gradual manner, in connection with Chisinau’s efforts at democratic, economic and institutional reforms,” said a letter from Ciolos to Filip, published on the Romanian government’s website on January 30.

Among Romania’s conditions are “decisive action” on the transparent appointment of a new central bank governor, the drawing up of a judicial reform plan and a new anti-corruption strategy, and a roadmap for an agreement with the IMF.

While in general the conditions set by Bucharest mirror those from the IMF, there is speculation that the Moldovan government will find it easier to please Romania, typically its most sympathetic international partner.

“I think the planned IMF visit is a sign of solidarity with the Moldovan government, but I don’t expect anything solid to come out of it in the near future. There could be more movement concerning the Romanian loan, although that has similar conditions. The Romanian loan is an important sign of political support,” says Kerry Longhurst, senior researcher at the College of Europe in Natolin.

However, she adds that, “The kind of conditionality these organisations are putting on Moldova requires a wholesale set of reforms and reappraisal of basic questions of governance. The domestic political situation isn’t conducive to enacting the necessary reforms quickly. In addition, stakeholders in the country have diverging interests which stymies true modernisation.”

On one of the requirements, implementing the Association Agreement (AA) signed with the EU in 2014, Filip has already admitted that there was a “long list of shortcomings”. According to a February 2 government statement, only 63% of the government’s action plan adopted after the signing of the AA has been carried out, and Filip has given his government 30 days to get up to speed.

But while Filip has called for action in this area, observers are doubtful about his government’s appetite for - and ability to carry out - deep reforms.

“We have not seen any serious commitment to reform from the new government,” says Natalia Otel Belan, senior programme officer, Eurasia, at the Center for International Private Enterprise (CIPE) think tank. She points out that Filip’s review of progress on the AA, “did not look at more fundamental reforms - putting in place a judiciary able to deal with grand corruption, improving the legal and regulatory environment for business, really improving the quality of institutional governance. None of these conditions have been addressed.”

Fuzzy

The formation of the latest government undermines the belief on the part of many western observers that a pro-EU equals reforms. The reputations of the pro-EU parties currently in power have been tarnished by the failure of three successive governments within just one year, and now by the links between the latest government and oligarch Vlad Plahotnuic.

“It seems the interest of the international community is to support political stability and avoid any kind of upheaval,” says Belan. “The letters of congratulation sent to the new government by international leaders were a signal to Moldovan citizens that the international community cares more about stability than the issues really at stake for Moldovans - primarily corruption.”

“Whereas three or four years ago we could distinguish very clearly between the pro-Russian or pro-European parties, it’s now a lot more fuzzy. Perhaps the main axis of politics is between those who want real democracy, transparency in political life and a real commitment to tackling corruption, and those who have a stake in keeping the status quo,” Longhurst told bne IntelliNews.

The imperative to secure financial support is likely to spur the current government on to make at least some of the required reforms, but even with a strong commitment it is unclear how much they will be able to achieve, given the short shelf life of Moldovan governments. Filip himself acknowledged this constraint, telling ministers on February 2 that, “Typically, governments are given 100 days to prove their capabilities. We do not have much time available.”

Expert-Grup’s Fala says that for several reasons it is hard to estimate whether the government will survive long enough to meet conditions set by the IMF or Romania. The government lacks internal credibility and “society views this government as result of an act of political corruption. Second, it is related to the particularly complicated economic situation and in case it will get worse, the society's dissatisfaction towards this government will increase,” he says.

Under these circumstances, 100 days seems a generous estimate given the upcoming appointment of a new president, who will be elected by the parliament. If the current coalition - which has 56 seats in the 101 seat parliament - fails to scrape together the two-thirds majority needed to appoint a president, this will most likely spell the end of yet another government, and back to the drawing board for any hopes of reforms.