Russian Loan for Moldova: A Strange Inter-Governmental Agreement

Russia and Moldova signed an inter-governmental loan agreement on April 17, in Moscow, at Chisinau’s insistence. Chisinau had initially sought a Russian loan for infrastructure development, but it may have to spend these Russian funds (along with Western assistance) to mitigate Moldova’s current fiscal emergency and recover from the effects of the novel coronavirus pandemic (see accompanying article).

Moldovan President Igor Dodon made public the agreement’s text on the day of its signing, on his Facebook page (Facebook.com/dodon.igor1, April 17). Moldova’s parliament narrowly ratified the loan agreement a week later, on April 23, by 56 votes out of 101 (Moldpres, April 23, 24). The agreement’s Russian-language version alone is accepted as official; a “Moldovan”-language version does not seem to be in circulation.

This loan agreement is not without its attractive features for Moldova. But it looks dubious and even strange in many other ways, both in its content and its procedures.

On its advantageous aspects, the agreement envisages a loan of “up to” €200 million ($217 million) to Moldova for budget-support, to be disbursed in two tranches of €100 million ($109 million) each within the year 2020. The interest rate of 2 percent annually is certainly a favorable one. Reimbursement is staggered over a ten-year period, starting from 2021, in two installments per year at fixed dates. The reimbursement shall be made in euros or rubles, at Chisinau’s discretion. The budget-support destination enables Moldova’s government to allocate the funds flexibly—whether for social spending or investment—again at Chisinau‘s discretion.

Apart from those attractive features, however, the loan agreement’s content is replete with loopholes and ambiguities that should warn Moldova of serious potential risks. Equally dubious is Russia’s handling of the agreement’s formal procedures.

At the core of the agreement, “up to” €200 million is a vague wording that does not guarantee full disbursement of the declared amount. The first €100 million tranche shall only be disbursed after the signing of a further agreement. This will be a technical agreement on loan management between Russian and Moldovan banks. But the agreement specifies neither the banks nor a date for the technical agreement’s signing.

Chisinau wants, and assumes, the loan-managing banks to be the state banks (with Moldova’s National Bank acting for Chisinau). But the agreement’s nonspecific wording does not guarantee this. Moreover, the missing target date for the follow-up technical agreement throws the timely start of disbursement into question. By the same token it casts doubt on the timely delivery of the second €100 million tranche, putatively due by October.

The loan’s disbursement is conditional on the absence of overdue debts from Moldovan entities to Russian creditors for Russian state-guaranteed or state-insured loans. If such overdue debts are ascertained to pre-exist this agreement, or if they develop during the agreement’s lifetime, this agreement gives Russia the right to consolidate all such Moldovan debts into one state debt and demand immediate repayment.

In that case, Russia may well demand repayment through Moldovan property, as Moldova could not pay cash. This is how Gazprom acquired a controlling stake in Moldovagaz some 20 years ago. The loan agreement just signed gives no clarity on whether Russian debt-collection through property in lieu of cash would or would not apply to: a) Moldovan private entities’ debts (these would become state debts if that provision does apply); b) Moldova’s debt arrears for past Russian natural gas deliveries; or c) any unknown or hidden Moldovan debts, whether pre-existing or subsequent to this agreement, that Russia might surprisingly discover and seek to collect.

According to the Moldovan government, its main non-gas debt to Russia is a $30 million “historic” remnant, which Chisinau has been servicing on time (Noi.md, April 30). In ratifying the loan agreement on April 23, Moldova’s parliament added a reservation whereby any conversion of a Moldovan private debt into state debt to Russia would be subject to the Moldovan parliament’s approval. But this is only a unilateral position, and does little to avoid the risks it tries to address.

Under the loan agreement, Moldova shall “strive to” encourage Russian-Moldovan joint projects on Moldova’s territory, offering Russian companies equal access to public procurement tenders for goods and services. The agreement does not link this stipulation to projects funded from this loan but makes it a general commitment for Moldova. Although the “striving” is nonbinding, the present government would probably welcome Russian companies into Moldovan projects, all the more so as major international investors are absent in Moldova—an absence bequeathed by former “pro-Europe” governments to the current, Socialist-led government.

Any disputes in the course of executing this agreement are to be resolved by Russia and Moldova on a bilateral basis. Chisinau obviously would have preferred in such eventualities to turn to international courts, but it has conceded this position also.

As if to cap a strange agreement, the document, purportedly signed on April 17, does not carry any date. The April 17 date was penciled in, post factum, in the text presented to Moldova’s parliament for ratification on April 23 (Moldovan media have widely picked up and re-posted both documents). Moldova’s signatory to the agreement is Andrei Neguta, incumbent ambassador to Russia, whose name and signature show clearly at the bottom. Russia’s signatory, however, is represented through an undecipherable signature, and his name is not spelled out. Moldova later learned from a public statement by Russia’s Ministry of Foreign Affairs that the signature belongs Deputy Finance Minister Timur Maksimov (TASS, April 23).

The Russian government has not officially announced the agreement’s signing as yet. Russian state news agencies have merely quoted Moldova’s announcements of the April 17 signing and the April 23 Moldovan ratification.

On April 30, Russia’s foreign ministry publicly claimed that Moscow has “completed all the internal state procedures for bringing this loan agreement into force” (TASS, April 30). The phrase “internal state procedures” in Russia usually denotes ratification of an inter-state agreement by the national parliament. That parliament, however, has not announced any ratification or even debate on the agreement with Moldova thus far.

The agreement in its published form cannot be said to be valid or binding without Russia officially recognizing it. Meanwhile, the existing document contains serious flaws and risks to Moldova. Whether from over-eagerness, a sense of urgency to address the pandemic-induced fiscal emergency, or sheer professional negligence, Moldovan negotiators and the parliamentary majority seem to have accepted these flaws and risks. Moldova’s Constitutional Court has been asked to address these problems at its upcoming session by requiring the government to re-negotiate the agreement with Russia (see accompanying article).