The Republic of Moldova - a Wild West in crisis. The IMF suspended talks on a new loan programme in June, then the World Bank blocked its loan. To make things worse, in July the European Union froze approx. EUR 50 million in aid.
Withdrawal or suspension of aid for Moldova stems from the inadequate transparency of financial and banking institutions in that country. The lenders are demanding the closure of three Moldovan banks: Banca de Economii, Unibank and Social Bank. When Dorin Drăguțanu, Governor of the National Bank of Moldova, announced on 6 August that in line with the IMF instructions, three banks out of which USD 1 billion (12.5% of the annual GDP of the Republic) was withdrawn in November 2014, would be closed, queues of people formed in front of them. The NBM head tried in vain to assure them that their funds were safe and secure.
The banks’ tracks lead to Russia
The plan is to close down three banks by October, with approx. 3,000 employees to be made redundant. A total of 2 million accounts that they hold will be transferred to other banks. The three above-mentioned institutions are banned from opening new accounts.
The Kroll agency, which was hired to detect the masterminds behind the crime, has been confronted with a difficult task from the very beginning. The data, both in electronic form and in the internal reports concerning money transfers made between the banks, have been destroyed. Even the vehicle used to transport the Saving Bank records of key importance for the investigation was stolen and burnt.
Under the pressure of public opinion, the Speaker of the Moldovan Parliament published a report on the investigation. It reveals that the money was transferred by way of fraudulent transfers and loans: via a network of Russian companies and shell business entities based in the United Kingdom it supposedly reached Latvian banks. Ilan Shor, a 28-year-old billionaire and the owner of duty-free shops and other service outlets at the international airport in Chisinau, was the alleged mastermind of the operation.
The Court sentenced him to house arrest, and the most interesting part of this Moldavian financial soap opera is that, despite the charges and the protest of the Moldovan citizens, who took to the streets, chanting: “Down with the thieves” and “We want our billions back”, Shor took office as… Orhei town Mayor in the June local-government elections!
Oligarchs in power
Moldova has lost a lot on the Bankgate Affair – its good name, credibility and sources of financing, especially those from the European Union.
Regaining the above as well as the rationalisation of the economy and improving the coalition rankings poses a challenge for the local politics which is also undergoing changes. On 30 July, the Moldovan Parliament approved the new coalition government, the Alliance for European Integration (AEI), which comprises the Liberal Democratic Party of Moldova (PLDM), the Democratic Party of Moldova (PDM) and the Liberal Party (PL). And as usual in Moldova, it was approved by a narrow margin – the cabinet gained the support of 52 out of 101 MPs.
The Moldovan Parliament also passed a vote of confidence in the new government. Valeriu Streleț, a millionaire and businessman, has become the new Prime Minister. Well, as a matter of fact, apparently new, yet somehow old. Originating from a strong, well-established oligarchic group, 45-year-old Streleț is the owner of one of the major Moldovan companies engaged in the distribution of fertilisers. On top of the above, being a co-founder of the PLDM, Streleț is also a long-term collaborator and crony of Vlad Filat, Prime Minister of Moldova from 2009 to 2013, who was also acting President for two days in December 2010.
The “new” political approach may fall short of expectations. The truth is that it is Filat, in tandem with his namesake, Vlad Plahotniuc of the PDM, an oligarch and billionaire, who are actually holding the reins of power. Streleț is most likely going to be merely yet another Prime Minister in the service of Filat. At the oath-taking ceremony, he promised to draw Moldova closer to the EU, stabilise the tense relations with Russia, take a firm stance in the anti-corruption campaign, and also assured that the government is “determined to redress the situation and take the country forward”. Nonetheless, it is doubtful that he will do anything with regard to the de-coupling of politics from business in his country. After all, he himself is deeply rooted in that system.
Had the Moldovan government been genuinely dedicated to the de-politicisation of the State administration, at least the judiciary, it would not have been Streleț who became Prime Minister, but Maia Sandu, put forward by the PLDM, Minister of Education and previously an economist with the World Bank, who openly advocates fighting corruption. Not everyone is happy about this idea, though. The other two coalition parties opposed the idea of changes in the posts of the Governor of the National Bank of Moldova and the Prosecutor General, whom Sandu blames for allowing the bank scandal.
The government has been strongly dependent on the business community for a number of years now. And the odds are that the reshuffling will be decided by the oligarch Plahotniuc, as has been the case so far. Whereas Sandu, an economist, has been excluded, Streleț has remained – a convenient compromise known as “we have changed the Prime Minister, but little has changed”.
The old new team is facing a considerable challenge: a fight for its good name and lost financing. Whereas the fight for the former is debatable, because how can one fight to regain something that you’ve never had, the struggle to regain financing options is a priority. In June, the IMF suspended talks on the new lending programme for Moldova. Then, the World Bank blocked a USD 45 million loan. As it never rains, it pours, in July the European Union froze approx. EUR 50 million in aid. Moldova will not manage without the EU aid as it relies heavily on assistance programmes. Moldova obtained EUR 550 million from the EU in the period between 2010 and 2013 alone!
The fight against corruption also proves to be a lost cause. Even the Moldovans themselves display a rather ambivalent approach to the phenomenon in question. Prime Minister Streleț in a move aimed at regaining the endorsement of the citizens, the EU and international institutions on whose financing he counts, announced the appointment of a special investigation team dedicated to tracking down the embezzled funds and bringing as much as possible of them back to the country. However, the hopes that the money will come back to the country in a miraculous way seems like a pipe dream.
As Dumitru Ursu, President of the Moldovan Bankers’ League, commented: “It is 100% sure that the money will not be recovered and that the loss will be counted towards the public debt”. The public debt currently stands at USD 1.7 billion, so if it is increased by another billion, the flagging Moldova will certainly not manage without external aid.
A fall on every front
The financial crisis in the Republic is plain to see – no earlier than a couple of months ago, the value of the Moldovan currency, the leu, hit the record low, depreciating by nearly 40% against the euro and the dollar. Over the first six months of 2015 alone, the exports of the Republic declined by 15.3%, and imports by as much as 22.1%. The State Treasury receipts and income of the citizens are pursuing a path of steady decline, while expenditure is soaring. To the dissatisfaction of the citizens, the National Power Regulatory Agency had no choice but to take a decision in July to raise the prices of electricity by as much as 37%, and of gas by 15.4%.
The aggravated financial situation coincides with the security crisis, that is to say the unfolding conflict between Moldova and the breakaway state of Transnistria. Both Transnistria and Gagauzia are pro-Russian. Even the labour migration of Moldovans targets mainly Russia. Labour migration constitutes one of the main sources of external revenue for the country – the transfers of Moldovan expats in Russia account for 1/3 of the Moldovan GDP. It is Russia, on whose raw materials Moldova depends, that reaps a harvest from each and every scandal and crisis in the Republic.
The new political coalition will probably be incapable of closing its ranks and striking a compromise for the sake of its homeland. As usual, its members are at odds with one another. For this reason it will be rather difficult to reach an agreement on putting forward a common candidate for the post of President in the elections in March next year. The coalition has fewer than 61 votes, which is the required 3/5 majority. And as is well-known, Moldova breaks the records in this sphere. As a result of the political tensions, the incumbent President Nicolae Timofti was elected only after 917 days of deadlock! Hopefully, this will not happen again next year.
September is to witness the visit of the IMF mission to Moldova, aimed at assessing the prospects of the new programme. The forecasts are hardly optimistic: corruption and its social acceptance prosper too well in Moldova to count on the transparency of policies whether it is pursued by the state administration or by the business sector. “The parties have failed to develop internal democratic procedures, the process of financing political parties and electoral campaigns lacks transparency” – reads the report of Transparency International. Corruption in the legislature only draws the criticism of over 80% of the surveyed citizens!
Europe no longer hides the desperate situation in Moldova. On 10 August, Thorbjørn Jagland, the Secretary General of the Council of Europe, stated in the Opinion pages of The New York Times that Moldova was on the brink of disaster, and if it does not implement reforms hastily, it may become a new hotspot.
The author is a journalist. She lived in Moldova for a couple of months and wrote a book with feature stories: “Moldovans do not travel to outer space without wine”.