Moldova becomes lenders' pet

By bne IntelliNews July 26, 2010

Graham Stack in Kyiv -

Moldova is where the International Monetary Fund (IMF) comes to feel good about itself; while loan programmes to other countries in the region have been fraught with tension and backsliding, the going has been smooth in this little overlooked corner of Central and Eastern Europe. Changes on the political front are proving less straightforward.

In July, Hungary followed Romania and Ukraine in becoming the latest country to cause a headache for the IMF, stalling on corrective fiscal measures due to a reluctance or inability to implement those agreed with multilateral lenders. However, Moldova, recovering from a political meltdown in 2009 and lacking a properly elected president for nearly a year now, has managed to rise above it all and keep delivering.

This is the sort of end-of-term report the IMF dreams of delivering: "Fiscal policy has embarked on an adjustment path... The central bank closely monitors financial indicators of the banking sector, which appears liquid and well capitalized... Taking advantage of the faster-than-expected recovery, the amended budget for 2010 appropriately saves the bulk of the extra revenue while allocating more funds for public investment and social protection," ran the statement of the deputy chairman of the IMF executive board, Naoyuki Shinohara, on giving the green light for a $91m loan disbursal to Moldova on July 16. "The ongoing and envisaged structural reforms are appropriately focused on stepping up liberalization and deregulation... Implementation of government plans to divest state enterprises should help improve their efficiency and attract additional foreign investments."

The rhetoric matches the statistics: according to Economy Minister Vleriu Lazar, speaking at the Moldovan Business Week investment forum in Chisinau on June 24, the economy showed substantial improvement in the first half of 2010, with GDP growth of 4.7%, well above the IMF's forecast for the year of 2.5%.

Rising prices

The World Bank also looks favourably on Moldova, doling out $25m at the end of June for a number of worthy projects. Much of the sum will go to expanding the targeted social assistance for the country's myriad poor. This has been an essential flanking measure accompanying the long-overdue, but potentially politically hazardous, series of energy price hikes as Moldova inches towards economically justified prices for gas and utilities. The last energy price hike in early May saw gas tariffs rising 14.1% and heating tariffs 15.0-17.5%.

Opinion polls show a drop in popularity for the coalition government, the Alliance for European Integration, due to the price hikes, but not as much as might have been expected, which is at least partly testimony to the success of the targeted social assistance. "Such a development in the polls is completely normal in conditions of crisis imported to Moldova, which continues to be extremely exposed to international fluctuations and dependence on remittances for internal demand," says Ion Munteanu, head of the think-tank IDIS Viitorul. "The opinion polls are a reaction to the crisis, but also a warning to a government that regrettably has only been in power for a brief spell, and the fruits of whose labours and impact of donor money will only make themselves felt positively starting 2011."

Any decline in the government's popularity could spell trouble in the autumn, which could see three popular votes: a referendum on introducing presidential elections, parliamentary elections and a presidential election. On the other hand, if everything goes well, these votes could put an end to Moldova's drawn-out constitutional crisis.

Political deadlock

Moldova has lacked a president since elections in June 2009 resulted in a "hung president." Moldova's system has an influential president who appoints the government, but the president is in turn elected indirectly by a three-fifths majority in parliament, and in June 2009 no candidate proved able to muster the necessary votes depite the anti-communist Alliance for European Integration holding a majority in parliament.

As a result, parliamentary speaker and head of the Liberal Party, Mihai Gimpu, became and remains acting president. He in turn appointed Vlad Filat, head of the Liberal Democratic party, as prime minister of a reform-oriented government. But as of June 16, a year after the elections, Moldova's Heath-Robinson constitution requires parliament to be dissolved "within a reasonable period of time" and fresh elections held.

To eliminate the risk of another "hung president," the government has decided to hold a referendum on September 5 about introducing direct presidential elections, and, with the Communist Party calling for its supporters to boycott the referendum, the motion is likely to be passed if a 30% minimum turnout requirement can be met. This will then see direct presidential elections held.

However, the head of the Constitutional Court, Dumitru Pulbere, said on July 19 that parliament must also be dissolved and new elections called immediately after the referendum being held. Thus, there is a risk of a political vacuum arising in the coming fall.

Further muddying the waters, Pulbere refused to comment on whether former president Vladimir Voronin of Moldova's Communist Party could stand again as president, saying no such enquiry had been submitted to the court. Voronin stepped down as president last year after having completed two successive terms. But with Ghimpu as interim president, he claims he is now eligible to run again.

The latest opinion polls show that if Voronin were allowed to participate, the presidential race would be neck and neck between Voronin, Filat and Marian Lupu, head of the small Democratic Party, a member of the democratic coalition and former Communist Party star.

One man definitely not in the running to be next president is the current acting president Ghimpu. Polls show him to enjoy the support of just 2-3% of the electorate. Ghimpu, who has spoken out in favour of Moldovan reunification with Romania, is strongly anti-Russian in his rhetoric, even where this is clearly not such a smart idea, considering Moldova's considerable dependency on Russia regarding both exports and imports.

Ghimpu's latest bright idea was to declare on June 28 the "Day of Soviet Occupation," and call for compensation from Russia, a move disowned by his own government. Nevertheless, typically heavy-handed Russia is clamping down again on crucial Moldovan wine exports to Russia, which were only recently restored after a two years long ban. The loss of Russia's huge export market could cost Moldova millions of dollars in the run-up to crucial double elections, and with further energy price hikes likely in the fall, the economy could be impacted enough to hurt the reform coalition's electoral chances.

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