MOLDOVA STRUGGLES TO AVOID DEFAULT ON FOREIGN DEBT.
Publication: Monitor Volume: 7 Issue: 211
Following a withdrawal of outside financing and weaker-than-expected privatization revenues, the Moldovan government is currently taking steps to avoid defaulting on its international debt. In 2000, Moldova’s foreign debt stood at US$1.635 billion–126 percent of GDP. The Moldovan government will have to pay approximately US$100 million in debt service in 2001. Moldova’s debt situation will deteriorate even further next year, when a US$75 million Eurobond, issued in 1997, comes due. Unless new financing can be obtained, the Moldovan government will have great difficulty in paying that sum.
According to the 2001 budget proposal, funds from the World Bank and European Union were expected to reach US$36 million, while privatization revenues were projected to total 151 million lei. However, the communist victory in February has led international financial institutions to reevaluate their lending to Moldova and caused a slowdown in privatization. Tax collection, moreover, has also been lower than expected. In mid-October, Finance Minister Mihai Manoli warned that Moldova’s chances of receiving international assistance this year are slim, adding that the country will be forced to rely on internal resources. In the absence of such funds, Moldova has been accumulating arrears.
Conditions for a restoration of international funding include the privatization of the telephone operator MoldTelecom and of the wine and energy sectors, in addition to land reform and the adoption of a bankruptcy law. In mid-October, the World Bank praised certain elements of the Moldovan government’s program, including the launching of the privatization of electricity distribution firms and MoldTelecom. Nonetheless, the bank noted that many aspects of the program need to be accelerated.
Only after the IMF gives its approval to Moldova will the World Bank and other donors begin considering new loans. Although in early November an IMF official praised the government’s progress in reforms, the Fund is not expected to decide on whether to approve the next tranche of its loan before December. IMF funds worth US$12 million could be dispersed within three days of that decision, and according to an IMF representative, Moldova could receive as much as US$40 million from the international financial community and donor countries by the end of 2001. The World Bank is less optimistic, however. A World Bank decision on a third Structural Adjustment Credit (SAC-III), worth US$30-40 million, will take longer, meaning that no funds will come in before the end of the year.
In a public address on November 5, President Vladimir Voronin promised that the government would fulfill all the IMF conditions over the next several days in order to receive assistance by the end of 2001. However, the communist-dominated parliament indicated that it may be of another opinion. On November 8, the parliament unanimously adopted a 36-percent increase in pensions beginning on December 1, a step that will cost the state over 290 million lei per year. That same day, the legislature approved amendments to the law on privatization, allowing the state to seize privatized firms that have become bankrupt or which owe more than half of their assets to creditors, as well as firms in which the investor does not fulfill its commitments. The privatization amendments will likely complicate relations with foreign donors. Although foreign currency reserves are large enough so that Moldova is unlikely to default on its foreign debt this year, there is a great risk of default in 2002 if policy does not shape up (Basapress, November 5-6, 8, October 15; Itar-Tass, October 31; Infotag, November 5, October 19).
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