IMF FUNDING FOR MOLDOVA POSTPONED AGAIN.

The International Monetary Fund will not renew its financial support for Moldova until after the March 22 elections. The Fund’s decision, while not unexpected, underscores Moldova’s uncertain economic prospects in 1998, as well as the strains plaguing the country’s external finances.

The Fund’s decision, announced by IMF Resident Representative Mark Horton on February 11 (Infotag, February 11) comes at a particularly sensitive time in Moldova’s transition. According to Ministry of Finance data, the Moldovan economy actually grew (by 1 percent) in 1997, making last year the first of economic growth since independence. This tenuous growth (other government agencies report that GDP in 1997 declined by up to 5 percent) occurred largely without the benefit of the IMF’s $185 million three-year extended funding facility (EFF) approved for Moldova in 1996. Only three quarterly EFF tranches totaling $52 million have been disbursed since then, however, largely because Moldovan fiscal policy last year deviated widely from targets agreed upon with the Fund. The central budget in 1997 was in deficit to the tune of 7.7 percent of GDP, well above the 4.5 percent target agreed upon with the IMF. EFF disbursements were halted in July 1997 and are now unlikely to be renewed until Spring.

The IMF’s decision could also focus attention on Moldova’s shaky external finances. The rapid growth in the fiscal deficit in 1997 meant that Moldova’s gross foreign debt increased by 25 percent, to $1.33 billion, in 1997, a sum equal to two thirds of the country’s GDP and double the country’s fiscal income. The Moldovan government has incurred $709 million in debt to international financial institutions and Western governments; the National Bank is in debt to the International Monetary Fund to the tune of $230 million; private-sector debts with government guarantees amount to a further $69 million; while the government and the Moldovagaz company are $308 million in debt to Russia’s Gazprom parastatal (a figure that does not include the $200 million owed to Gazprom by the Trans-Dniester Region). Just servicing the interest on Moldova’s national debt will absorb one fourth of the state budget during 1998-2000. (Itar-Tass, February 13, 15)

As in neighboring Ukraine, prospects for economic reform and growth in Moldova hinge on the outcome of struggles between a relatively reformist president (Petru Lucinschi) and a parliament in which anti-market, leftist elements are strongly represented. The elections this spring could therefore be highly significant for the economic outlook in the Western CIS.

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