Publication: Monitor Volume: 6 Issue: 190

At a briefing hosted by Radio Free Europe/Radio Liberty in Washington DC on October 6, Moldovan Prime Minister Dumitru Braghis announced that Moldova plans, within the next several weeks, to submit to its parliament a proposal to privatize six large state-owned wineries and the Chisinau tobacco factory. The announcement should come as welcome news to the IMF and World Bank. Both institutions suspended financial support to the Moldovan government late last year after its parliament refused to authorize the sales of the six companies in November 1999. According to Hasaan al Atrash, the IMF’s resident representative in Moldova, the Fund has been satisfied with Moldovan fiscal and monetary policies this year, but will not begin negotiations regarding a new credit agreement until parliament authorizes the privatization of these companies (Interlic, October 4). At stake is a new “poverty reduction” lending facility designed to provide medium-term balance of payments support. Moldova’s previous IMF loan, a US$195 million Extended Fund Facility expired in May 2000 with less than half of the amount having been disbursed. The establishment of a new IMF program is expected to allow the government access to other important sources of external financing, including budget deficit financing from the World Bank’s Structural Adjustment Credit.

The government, however, faces stiff opposition to the sales of the wineries and tobacco companies in parliament. Led by the Moldovan Communist Party (MCP), the largest single party in parliament with 40 of the 101 seats, parliament has voted down the privatization of these companies on three separate occasions over the past twelve months. A fourth rejection would virtually eliminate Moldova’s chances for obtaining multilateral financing this year and could threaten lending from the IMF and World Bank in 2001. Thus far this year, a sizeable inflow of direct foreign investment has offset the loss of multilateral lending, enabling the government to purchase imports, service its foreign debt, and finance its small budget deficit. In light of the MCP’s opposition to privatization, however, inflows of direct foreign investment, which, in 2000, have stemmed almost entirely from the sale of several electricity distribution companies to Union Fenosa of Spain, are unlikely to remain as strong in 2001. Under such conditions, parliament’s apparent opposition to IMF-mandated structural reforms raises doubts about the government’s ability to finance energy imports and service the debt next year.

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