WILL MOLDOVA’S NEW GOVERNMENT KEEP RELATIONS WITH THE IMF ON TRACK?

The overwhelming victory of the Party of Moldovan Communists (PCM) in the February parliamentary elections raised questions about whether larger budget deficits and slower privatization will bring Moldova out of compliance with its agreements with the IMF and other international financial institutions. In the previous parliament, the Communists repeatedly blocked government initiatives to privatize and deregulate the economy, undermining Moldova’s ability to attract foreign direct investment (FDI). The IMF memorandum signed by the previous government–which required Chisinau to sell off two wineries, select an advisor to prepare a tender for a majority stake in the state telecommunications operator Moldtelecom and bankrupt twenty-four insolvent enterprises–was an object of particular vilification.

But despite its ideological orientation and its mandate from the Moldovan population to stop the pain of economic transition, the PCM will have difficulties in turning its populist rhetoric into economic policies. Without financial support from multilateral institutions and significant inflows of FDI, Chisinau will face great problems in financing imports and meeting Moldova’s rising debt-servicing costs. Without such support, Moldova will be at substantial risk of default on its external debt, including its US$75 million in Eurobonds that mature in 2002. The risk of default is not quite so stark in 2001, because Moldova’s official reserves (in excess of US$200 million) exceed the country’s debt-servicing obligations. But even in 2001, servicing the foreign debt will require some fiscal tightening, a measure the PCM will be loathe to take.

Recent moves indicate that the PCM may be coming to appreciate the benefits of staying within the IMF’s good graces. The new seventeen-member cabinet (which was sworn in on April 20) combines PCM representatives with technocrats from the government of outgoing Prime Minister Dimitru Braghis, as well as associates of former President Petru Lucinschi. Aged 37, new Prime Minister Vasile Tarlev is not a PCM member, and he has successfully managed a state-owned candy factory since 1995 (see the Monitor, April 26). These appointments suggest that Moldova’s Communists aim to maintain good relations with the IMF. A new IMF delegation is expected to visit Chisinau by the end of July to study the new cabinet’s economic program, and it remains to be seen whether the PCM will be willing to take the measures necessary for the release of credits (Moldovan and Russian agencies, May 2).

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