VZCZCXYZ0000
RR RUEHWEB

DE RUEHCH #0530/01 1881354
ZNR UUUUU ZZH
R 071354Z JUL 09
FM AMEMBASSY CHISINAU
TO RUEHC/SECSTATE WASHDC 8145
INFO RUEHMO/AMEMBASSY MOSCOW 3285
RUEHKV/AMEMBASSY KYIV 0655
RUEHBM/AMEMBASSY BUCHAREST 4342
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC 0769

UNCLAS CHISINAU 000530 
 
STATE FOR EUR/UMB, EUR/ACE, EEB/OMA 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV EREL ETRD MD
SUBJECT:  IMF AND WORLD BANK REPS SEE BLEAK 
ECONOMY FOR MOLDOVA IN 2009 
 
REFS: (A) CHISINAU 0496, (B) CHISINAU 0493, (C): 
CHISINAU 0485 
 
Sensitive but unclassified.  Please protect 
accordingly. 
 
¶1. (SBU) SUMMARY:  At a donors' meeting on June 
25, IMF Resident Representative, Johan Mathisen, 
and World Bank Country Manager, Melanie Marlett, 
assessed the current status of the Moldovan 
economy as bleak and reviewed possible measures to 
assist Moldova.  The IMF projects a GDP 
contraction of nine percent.  Imports and 
remittances, the lifeline of the Moldovan economy, 
have dropped substantially.  Moldova can do little 
to insulate itself from the economic crisis in the 
region.  The ruling Party of Communists of the 
Republic of Moldova (PCRM) is unwilling to 
mitigate the effects of the economic crisis in 
advance of parliamentary elections on July 29. 
While the World Bank could not provide budget 
support without an IMF agreement, the bank is 
considering increasing its support to several 
existing programs to help Moldova.  END SUMMARY 
 
GOM UNABLE TO ENGAGE WITH IMF MISSION 
------------------------------------- 
 
¶2. (SBU) An IMF mission arrived in Moldova on May 
28 for two weeks of negotiations with the 
Government of Moldova (GOM) on a USD 550 million 
18-month IMF program.  The failure of the recently 
elected parliament to choose a new president in 
two rounds of voting and the subsequent 
dissolution of the parliament made it very 
difficult for the mission to work with government 
authorities.  Many government officials were also 
MPs engaged in the political drama unfolding in 
the parliament.  The ruling PCRM caretaker 
government was concerned primarily with political 
developments and the need to set the date for new 
elections.  The mission departed on June 8, 
planning to return in the fall once a new 
parliament and government were in place. 
 
GOM TAKES NO ACTION 
------------------- 
 
¶3. (SBU) The caretaker government is unwilling to 
take emergency measures such as delaying salary 
and pension increases to deal with the worsening 
state budget and economic crisis in Moldova.  It 
doesn't want to draw more attention to the issue 
prior to elections.  The reluctance of the GOM to 
take action until after new parliamentary 
elections will lead to further deterioration of 
the economy.  Mathisen said the IMF had revised 
its projection that GDP would drop from six to 
nine percent.  He added that it could decline even 
more. 
 
EXPORTS SHOW SOME RESILIENCE 
---------------------------- 
 
¶4. (SBU) The IMF resident representative explained 
that exports were actually doing rather well in 
the current economic crisis, having dropped only 
30 percent.  Moldovan exports suffered not only 
from the impact of the economic crisis on the 
region but also from the strong national currency, 
the Moldovan leu (MDL).  All other currencies in 
the region had dropped significantly in the past 
six months and then recovered slightly.  The 
continued strength of the MDL had made Moldovan 
products increasingly more expensive for customers 
in neighboring countries, as their national 
currencies lost value.  If the MDL had also 
declined to the same degree as other currencies in 
the region, the prices of Moldovan goods would 
have remained more or less the same in other 
countries.  The National Bank of Moldova had 
intervened in the currency markets over the past 
six months to support the MDL.  Mathisen noted 
that the GOM derived approximately 70 percent of 
its revenues from taxes levied on imports.  The 
 
government was intent on maintaining a strong 
currency in order to enable consumption and keep 
imports (and duties on imports) flowing. 
 
¶5. (SBU) The major reason for a degree of 
resilience in the export market resided in the 
record harvest of 2008.  Moldovan farmers had 
exported many of their commodities from 2008 in 
the first half of 2009.  The projections for the 
2009 harvest were for a 30 percent drop.  Lack of 
available credit was another problem for the 
economy.  Persistent rumors of the MDL's 
devaluation before and after the April 5 elections 
had discouraged businesses from seeking loans, 
although interest rates had dropped from 25 
percent to 20 percent.  Inflation was currently 
minus 1.6 percent for the year which differs from 
other countries in the region where inflation is 
running from five to ten percent.  The phenomenon 
of deflation in Moldova combined with inflation in 
neighboring countries made Moldovan products more 
expensive.  Despite the deflation/inflation 
development and the strong MDL, exports had not 
declined as sharply as imports and remittances. 
As a result of exports dropping less than imports, 
Moldova's trade deficit had decreased. 
 
MOLDOVA AND THE REGION IN CRISIS 
-------------------------------- 
 
¶6. (SBU) The depth of the economic crisis in 
Moldova will depend largely on the seriousness of 
the recession in the region.  The IMF projects GDP 
for the region to drop slightly more than in 
Moldova.  Moldova is highly dependent on Russia 
and Ukraine as export markets and can only hope to 
sell more goods as the economies in those 
countries improve.  Russia is also the single 
largest destination country for Moldovan migrants. 
An improving Russian economy will mean increasing 
remittance flows to Moldova.  Moldova will remain 
in a recession longer than neighboring countries 
because its economy has been driven by remittances 
and investments.  These elements will likely be 
the last to recover from the crisis. 
 
WORLD BANK CONSIDERS ASSISTANCE OPTIONS 
-------------------------------------- 
 
¶7. (SBU) Saying that the country's state budget 
was "in a dire situation," World Bank Country 
Manager, Melanie Marlett, mentioned three options 
she and her colleagues were considering to assist 
Moldova.  The World Bank could not provide any 
cash to cover the government's expenditures 
without an IMF agreement, but the country manager 
explained that ongoing World Bank programs that 
could be enhanced to help Moldova.  Marlett said 
the World Bank was reviewing aid in the areas of 
employment generation, financial sector and social 
protection.  In employment generation the World 
Bank was looking for ways to support more 
community activities through its Moldovan Social 
Investment Fund and to restructure its roads 
rehabilitation project.  A component of the roads 
rehabilitation project had been cancelled due to 
misappropriation by the GOM, but the World Bank 
was searching for a mechanism to reset that 
component.  In the financial sector the World Bank 
was looking at possibilities to provide funding to 
support exports and supplement the Rural 
Investment Services Project.  Finally, in the area 
of social protection the World Bank hoped to scale 
up its health and social assistance programs. 
 
COMMENT 
------- 
 
¶8. (SBU) The GOM's current focus is the July 29 
elections.  As long as Moldova does not have an 
IMF program, doors to assistance from the World 
Bank, the European Commission, Paris Club and many 
bilateral donors will remained closed.  Acting 
President Vladimir Voronin traveled to Moscow on 
June 22 where Russian President Vladimir Putin 
 
announced a USD 500 million loan to Moldova. 
Voronin himself noted that the first tranche would 
not arrive before the end of 2009 and does nothing 
to assist the economy now.  Many observers 
considered the loan a campaign ploy and are 
doubtful any of the funds will ever make their way 
to Moldova.  The current political crisis paired 
with the economic crisis means Moldova will likely 
suffer longer and recover more slowly than its 
neighbors. 
 
CHAUDHRY