VZCZCXYZ0015
RR RUEHWEB

DE RUEHCH #0306/01 0791523
ZNY CCCCC ZZH
R 191523Z MAR 08
FM AMEMBASSY CHISINAU
TO RUEHC/SECSTATE WASHDC 6448
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

C O N F I D E N T I A L CHISINAU 000306 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/UMB 
 
E.O. 12958: DECL: 03/17/2018 
TAGS: PGOV PREL MD
SUBJECT: MOLDOVA: ECONOMIC SQUEEZE NON-COMMUNIST LEADERS 
 
REF: A. CHISINAU 250 
     ¶B. CHISINAU 171 
     ¶C. CHISINAU 009 
     ¶D. 07 CHISINAU 1509 
 
Classified By: Ambassador Michael D. Kirby for reasons 1.4(b) and (d) 
 
¶1. (C) SUMMARY: Over the past several months, the Communist Party of 
Moldova (PCRM) seems to have used economic pressure to punish and 
hamper the ability of non-Communist leaders to govern.  Demanding 
payment for historic debts incurred by a Communist predecessor and 
manipulating the non-transparent budget allocation process, the PCRM 
has incrementally tightened the financial tourniquet.  Gagauzia 
governor (Bashkan) Mihail Formuzal recently told us of economic 
pressure on Gagauzia that were reminiscent in tactic to the attacks 
on Chisinau's Liberal Party mayor.  The PCRM's actions appear to be 
part of a pre-election effort to discredit the opposition by proving 
its inability to govern.  END SUMMARY. 
 
PAYING FOR 2007, LOOKING FORWARD TO 2009 
---------------------------------------- 
 
¶2. (C) Following the 2007 local elections, the PCRM-controlled 
Government of Moldova (GOM) has exerted considerable financial 
pressure on opposition-controlled local governments.  The rumblings 
began last fall following the adoption of the national budget and a 
disproportionate distribution of funding for infrastructure projects 
in PCRM-controlled raions (REF C).  According to a local NGO, average 
investment per capita across Moldova for 2008 are projected at 
Moldovan Lei (MDL) 30.  However, in PCRM- controlled raions the 
figure is MDL 60-65 (USD 1.00 equals MDL 10.50) per person, while in 
opposition-controlled raions it is only about MDL 7-14.  By 
channeling more funding to PCRM-controlled local governments, the GOM 
bolsters the image of PCRM leaders   and their ability to deliver 
results. 
 
ECONOMIC WARFARE AGAINST CHISINAU AND GAGAUZIA 
--------------------------------------------- - 
 
¶3. (C) In Chisinau, upon assuming his new duties last year Mayor 
Dorin Chirtoaca was immediately confronted with responsibility for 
funding the Valea Morilor lake reconstruction project begun by the 
previous Communist-led city government, but for which no money had 
been budgeted. (NOTE:  The lake in Chisinau's most popular city park 
was drained, leaving the park with a marshy crater instead of a 
recreation area.  END NOTE.)  Similarly, the GOM refused financial 
assistance to Chisinau, when a court ordered the city to cover 
massive debts that the previous PCRM municipal government owed to 
heating distributor Termocom after the PCRM city government decided 
to subsidize residential heating tariffs (REF B).  More recently, the 
GOM resurrected a decade-old court order requiring the Chisinau 
Municipal Council to provide living quarters for certain public 
servants (which would cost about Moldovan Lei 80 million) (REF A); a 
court ruled that it would impound and sell all city buses to raise 
money to satisfy this decree. 
 
¶4. (C) In Gagauzia, Bashkan Formuzal recently complained to us about 
GOM actions that followed the same pattern of legal action to collect 
historic debts accumulated by his PCRM predecessor.  The central 
government recently announced it would hold Formuzal responsible for 
a MDL 28 million debt, and deduct this amount from the central 
government allocation to the Gagauz budget.  The debt was originally 
incurred in 1996 when the central government received credits from 
the World Bank to support the wine industry and one of the 
beneficiaries was Kirsovo, a Gagauz winery.  The Ministry of Finance 
guaranteed payment to an Italian company which sold equipment to the 
winery; however, Formuzal's predecessor assumed responsibility for 
the credits assigned to Gagauzia.  According to Formuzal, this sum 
will now be taken from Gagauzia's operating budget. 
 
¶5. (C) Formuzal also complained about the way the central government 
was compensating Gagauzia for the loss of tax income because of the 
corporate restructuring of Union Fenosa.  Union Fenosa, the Spanish 
owner of three power distribution companies, recently consolidated 
its operations into one corporate entity based in Chisinau. 
Previously, one of the three power distribution companies was 
registered in Gagauzia, paying MDL 5 million in taxes per year (one 
of the largest tax contributors to the region's budget).  The change 
of juridical address to Chisinau resulted in a significant loss of 
tax income for Gagauzia.  Formuzal complained that the Ministry of 
Finance had agreed to compensate the Gagauz budget for the loss of 
tax revenue, but has yet to do so.  Formuzal said the Ministry of 
Finance has assured him that the transfers would happen (eventually). 
 
 
¶6. (C) In yet another complaint, Formuzal said that the central 
government previously transferred its monthly budget allocation to 
Gagauzia by the 9th or 10th of the month.  Now the central government 
was withholding transfers until the 28th or 29th, leaving him 
struggling to meet his financial obligations. 
BUDGET PROCESS LACKS TRANSPARENCY 
--------------------------------- 
 
¶7. (C) In late 2007, we heard complaints from local governments about 
the PCRM's manipulation of the 2008 budget.  The Ministry of Finance 
assured us that the budget met all legal requirements and had been 
negotiated with local governments.  A fair distribution of funds is 
difficult to ascertain, given Moldova's subjective and opaque budget 
process.  The Ministry of Finance and local governments must agree on 
per capita expenditures and projected revenues; however, local 
governments have no mechanism to challenge the budget decided by the 
GOM.  The GOM's distribution of funds for investments also lacks 
transparency.  In the most egregious example of political 
manipulation, the PCRM withheld all infrastructure funding for 
Chisinau for 2008 (REF D). 
 
COMMENT 
------- 
 
¶8. (C) Formuzal compared the GOM's financial squeeze to "death by a 
thousand mosquito bites."  No single bite was enough to kill, but 
each one bled the economy a little.  The PCRM-government appears to 
be escalating its use of financial pressure to hamper non-Communist 
leaders, in the hopes of overcoming the losses the PCRM sustained in 
the 2007 local elections.  As the number of such cases increases, the 
pattern is becoming clearer, and we suspect the pressure will mount 
as the national elections draw near.  Any PCRM attempt to fix the 
elections results will not likely come from ballot stuffing or 
election-day manipulations, but through deliberate attempts to cause 
opposition-led local governments to fail. 
 
KIRBY