Transnistria’s central bank sets 10% fee on forex purchases after lawmakers oppose devaluation

By bne IntelliNews June 7, 2016

The Transnistrian central bank has set, starting from June 7, a 10% charge on the foreign currency purchases in the foreign exchange auctions it organises on a daily basis. The fee is payable in local currency to the state budget, and it has effects similar to a 10% devaluation.

The move follows a proposal from the central bank for a 10% devaluation of the local currency, but while this has the backing of the government, the parliament - controlled by the opposition Obnovlenie party - has firmly resisted, novostipmr.com reported on June 6. The monetary authority has therefore figured out a way to de facto implement the 10% devaluation.

Lawmakers argued that the proposed devaluation would fuel inflation and, under current regulations, public sector wages and the pensions have to be increased if headline inflation exceeds 5%. Government officials claimed, however, that the inflationary impact of a 10% devaluation would be only 4.6%.

The chairman of the parliament’s economic policy committee Alexander Martynov proposed to the government “a classic set of measures” - namely to further increase import duties in order to stimulate local production, and to regulate prices. He also mentioned the mandatory sale of forex by exporters, which has been partly enforced already by the monetary authority.

Since the central bank’s US dollar reserves have fully depleted, the central bank is selling its Moldovan currency (MDL) reserves under a pro-rata mechanism at a fixed exchange rate in the daily auctions.

"We must recognize that the devaluation took place de facto, it is about to give it a legitimate basis", central bank head Eduard Kosovski explained.

Speaking to MPs, Kosovski noted that the situation in the foreign exchange market became complicated at the beginning of this year. Dollar revenues fell due to the almost 30% decrease in the price of electricity exported to Moldova, which is the main source of foreign currency in Transnistria. The inflows generated by exporters and migrant workers have also decreased, he added. The central bank tried to address the situation by adopting a series of measures, including by setting a 7% quota on the sale of foreign exporters’ exchange revenues. However, the measures were ineffective and as a result, there is a need devaluation, Kosovski explained.

The government, which under Transistria’s political system is headed by President Evgheni Shevchuk, has constantly supported central bank’s policy. However, presidential elections are scheduled in Transnistria this autumn, Obnovlenie hopes its candidate will defeat Shevchuk.

 

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