The Coming Storm?

Woman selling daffodils on the local equivalent of Palm Sunday,
April 12, about a block away from the opposition's peaceful protest.

The dire financial situation into which Moldova appears to be headed is an important part of the background to last week's events. It may explain why Moldova's Western partners initially appeared willing to take a hands-off posture and let Voronin make his own way out of last week's political crisis if he could - in these tough times, even the US is less disposed to get involved, and perhaps everyone would prefer to deal with a known quantity than with a fractious opposition.

The article below describes just how unfortunate the coincidence of political and financial crises could be for Moldova, although the last line sort of buries what could turn out to be the lede:

Moldova burdened with $1bn budget shortfall (Financial Times)
By Thomas Escritt in Chisinau

Published: April 15 2009 01:33 | Last updated: April 15 2009 01:33

Moldova could face a severe financial crisis later this year, if it fails to cover a $1bn budget shortfall, creating the prospect of unpaid salaries and heightening the political tensions in the country following contested election results 10 days ago.

The country, already Europe’s poorest, with a gross domestic product per capita of just $1,800, is dependent on some $2bn a year in remittances from residents abroad, which amount to a third of the country’s GDP.

Bleak conditions in Romania, Russia, Ukraine and southern Europe, where most of the Moldovan diaspora is to be found, mean remittances fell 28 per cent year on year in January.

Three quarters of Moldova’s tax revenues come from import-related indirect taxes, including value added tax, and imports have fallen 50 per cent year on year as Moldovans feel the pinch. Government revenues would fall to $2bn on current trends, leaving Moldova dependent on external financing.


“You have small, shallow domestic securities markets ... so to finance the deficit you only have external financing or you have to revise the budget,” said Johan Mathisen, the International Monetary Fund’s representative in the country.

A transition country with a low credit rating, Moldova has very limited access to commercial credit markets abroad, while there is no government in place to revise a $3bn budget drawn up before the impact on the crisis became clear.

An IMF delegation is due to arrive in the capital Chisinau next week to begin talks over the shape of a support package to replace a long-running agreement signed in 1995.

But Moldova has nobody to negotiate a deal. The results of elections 10 days ago, in which the ruling Communist party won 49 per cent of the vote, are contested by opposition parties who say the Communist victory was bought fraudulently. With the political process bogged down in recounts and ballot checks, it could be autumn before a new government is formed.

But with the political process at a stalemate that may drag on into the autumn following contested elections 10 days ago, there is no government to trim government spending or negotiate the terms of an international support deal.

Moldova’s economy has performed strongly under eight years of Communist stewardship, doubling in size to $6bn last year from $3bn in 2005, with public debt at only 18 per cent of GDP. But salaries are still low, with a policeman earning just $120 a month. And with the atmosphere already tense following the elections and the violence that followed them, a caretaker government could be forced to turn elsewhere for help.

Privately, western officials in the capital Chisinau suggest Russia may be waiting in the wings to offer financial support.