Pressure builds on Moldova's fragile government

By bne IntelliNews June 8, 2015

Iulian Ernst -

 

Moldovan Prime Minister Chiril Gaburici urges the dismissal of the country’s head prosecutor, Corneliu Gurin, as well as the head of the central bank and the National Committee for Financial Stability, which are all investigating the country’s fraud-hit banking system. Just a few days before, the prosecutor had received a report on Gaburici’s allegedly forged high school diplomas, and the banking probe was extended to investigate top politicians and influential business people.

The connections might be coincidental, but even so they are likely to complicate the political situation in Moldova at a time when the country is already in a high state of tension.  

The country’s banking system has suffered a $1bn fraud, while secessionist sentiments are rising in two regions, not including the self-proclaimed independent republic of Transnistria.

The country’s economy will likely fall into recession this year amid weakening exports and wage remittances sent from Russia.  Economically, the Association Agreement with the EU is yielding dividends, foreign trade data has revealed, but at a slow pace. The European Bank for Reconstruction and Development (EBRD) expects Moldova’s GDP to contract by 2% this year, and recover only partly, by 1.5%, in 2016, according to its May 14 Regional Economic Prospects report.

On top of this, the informal agreement between the fragile minority coalition and the Communist Party is hardly functioning and, in the lead up to local elections on June 14, rumours circulate about the formation of a new majority government.

Pro-European sentiment in Moldova has lost much of its impetus amid sluggish progress, particularly on judicial reforms, which has frustrated the electorate. Indeed, the two main parties of Moldova’s ruling coalition, the Liberal Democrat Party (PLDM) and the Democrat Party (PD), would currently not pass the 6% threshold required to enter parliament, according to a poll run by sociologic studies centre CBS-Axa between May 6-18.

Moldova’s main issue is corruption, according to James D. Pettit,  US ambassador to Moldova, speaking in an interview with Jurnal TV station on May 2. People feel frustrated by the lack of reform, he added, and this has weakened the support for European integration and led to a steady shift in voters’ preferences toward Russia.

Meanwhile, only the government’s financial support keeps alive the three banks at the heart of the banking fraud, and their collapse could have a systemic impact on the banking market and on the economy. At risk are Moldovan household deposits that, in the absence of a functional guarantee system, would have to be covered by the government. 

On May 25 Moldova’s head prosecutor announced that investigations will start into top public officials in parliament, the Ministry of Finance and the central bank, as part of a new probe into the bank fraud that will cover a period of time beyond just the most recent developments.

To top it all off, tensions in Moldova’s pro-Russian separatist region of Transnistria have increased, the president of the region, Evgheni Sevciuk, recently said, according to Deutsche Welle. Late last month Ukraine formally cancelled transit rights for Russian troops to and from Transnistria, creating major logistical problems for Russian troops stationed in the Moldovan separatist republic.

This delicate military situation comes on top of economic challenges for the separatist region. Public wages and pensions have been cut by 30%, supposedly temporarily but with no clear deadline. The remaining 70% is often left unpaid, as revenues to the budget have plunged. Industrial activity contracted a further 17% in April, and half of industrial production is currently generated by power production that is primarily delivered to Moldova, and produced using Russian gas that is not paid for.

Finally, separatist sentiment is rising in Gagauzia, which already enjoys limited autonomy, and in Balti, the country’s second largest city, which is located in the majority Russian-speaking northern region of the country.

Pro-Russian politicians in Balti want the semi-autonomy that Gagauzia already enjoys. Maverick politician Renato Usatii is running in the local elections and his win could smooth autonomy plans. A referendum on the subject of autonomy is scheduled by the local authorities in Balti for November 1, while central authorities in Chisinau plan to challenge the legality of any referendum.

All in all it looks like a worrying summer ahead for Moldova and its current premier, who is facing mounting pressure to resign.

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