VZCZCXRO8248
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHCH #0045/01 0261405
ZNY CCCCC ZZH
R 261405Z JAN 10
FM AMEMBASSY CHISINAU
TO RUEHC/SECSTATE WASHDC 8810
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 02 CHISINAU 000045 
 
SIPDIS 
 
STATE FOR EUR/UMB 
 
E.O. 12958: DECL: 01/20/2020 
TAGS: ECON EFIN EPET EAID RS MD
SUBJECT:  IMF CONDITIONS FOR AGREEMENT WITH 
MOLDOVA 
 
Classified by: Ambassador Asif J. Chaudhry for 
reasons 1.4 (b) and (d) 
 
¶1. (C?) Summary:  In late October, the new four- 
party Alliance for European Integration (AIE)- 
coalition government of Moldova (GOM) negotiated a 
preliminary agreement with the IMF for a USD 588 
million loan.  IMF resident representative Tokhir 
Mirzoev told us on January 15 that the primary 
conditions of the new agreement were in the areas 
of budgeting, increasing external reserves and 
regulating energy tariffs.  The GOM met the final 
condition of setting new energy tariffs on January 
14, the final day permitted by the IMF.  The IMF 
board will meet January 29 to formally approve the 
agreement.  End Summary. 
 
IMF Negotiations 
---------------- 
 
¶2. (SBU) The GOM reached a staff agreement for 
Extended Credit Facility/Stand-by Arrangement with 
an International Monetary Fund mission for USD 588 
million on October 28, 2009.  The IMF will 
allocate the funds in installments until 2012.  In 
addition, the agreement enabled the GOM 
immediately to use its special drawing rights of 
about 180 million dollars for budget support.  The 
IMF board will review the agreement on January 29, 
¶2010.  The new program will follow the previous 
three-year IMF agreement which expired in May 
¶2009. 
 
 
 
IMF Conditions 
-------------- 
 
¶3.  (C) In a January 15 meeting with Pol/Econ 
Officer, IMF resident representative Tokhir 
Mirzoev listed the five major conditions in the 
new agreement as (1) adjusting the 2009 budget, 
(2) adopting a realistic 2010 budget, (3) 
replenishing the external reserves of the National 
Bank of Moldova (NBM), (4) granting tariff setting 
authority to the National Agency for Energy 
Regulation (ANRE) and depoliticizing the 
appointment of directors to the ANRE board, and 
(5) setting new energy tariffs. 
 
Budget Conditions 
------------------ 
 
¶4.  (C) Mirzoev noted that the GOM adjusted the 
overly optimistic 2009 budget it inherited from 
the previous Party of Communists (PCRM) GOM by 
passing amendments reducing expenditures on 
December 3, 2009.  Among the measures the new GOM 
took to reduce expenditures was a freeze on salary 
increases promised by the previous government. 
(Note:  The previous Communist-led GOM had 
promised raises of up to 25 percent -- to go into 
effect on October 1, 2009 -- to government 
employees and military officers.  Minister of 
Economy Lazar told us during negotiations in 
October with the IMF that the IMF demanded a 
freeze on public-sector wages as a condition for 
agreement.  End Note.) 
 
¶5. (SBU) Mirzoev said that the 2010 budget, which 
Parliament approved on December 23, 2009, held to 
the IMF target of a deficit under seven percent of 
GDP and increased taxes on tobacco, alcohol, 
perfume and jewelry in order to increase revenues. 
Under IMF conditions, the budget deficit should 
not exceed seven percent in 2010, five percent in 
2011 and three percent in 2012. 
 
Reserve Conditions 
------------------ 
 
¶6. (SBU) Regarding external reserves, from January 
1, 2010 to September 30, 2010, reserves fell 23 
percent from USD 1,672 billion to USD 1,290 
billion.  The NBM increased external reserves each 
of the last three months of 2009 after the new GOM 
came into office on September 25, 2009.  Reserves 
increased by USD 12 million in October, USD 72 
million in November and 106 million in December to 
total USD 1,480,250,000 on December 31, 2009. 
 
CHISINAU 00000045  002 OF 002 
 
 
 
Energy Conditions 
----------------- 
 
¶7. (SBU) In order to meet the fourth IMF condition 
and depoliticize the setting of energy tariffs, 
the GOM moved the responsibility for setting rates 
from the municipality of Chisinau to the ANRE 
board of directors.  In a further step, the power 
to appoint the five members of the board was 
transferred from the GOM to the Parliament.  These 
changes were introduced in December. 
 
¶8.  (C) However, the GOM took longer to meet the 
IMF's final condition on energy tariffs, which led 
to some tense moments since the IMF board required 
fulfillment of all conditions two weeks prior to 
its scheduled meeting on January 29.  On January 
14, the ANRE finally set new tariffs for gas, 
electricity and heating, raising them by 16.5 
percent, 20 percent, and 29.2 percent, 
respectively.  The new rates were officially 
announced on January 15.  Mirzoev told us that he, 
World Bank Country Director Melanie Marlett, and 
GOM officials worked late into the evening of 
January 14 to ensure that the GOM had adequately 
met the IMF conditions in this area. 
 
Comment 
------- 
 
¶9. (C) The new GOM continues to make hard choices 
in its efforts to deal with the economic crisis. 
The AIE coalition had less than three months to 
formulate a new budget and also introduce 
amendments to the 2009 budget to reduce 
expenditures.  While working diligently to fulfill 
the conditions of the new IMF agreement, the GOM 
now must consider the possibility of new 
parliamentary elections in fall 2010.  The 
substantial increases in energy costs will hit the 
poorer sectors of society hard and provide 
political fodder for the PCRM.  The PCRM is 
already focusing on the increased energy tariffs 
as an attack on the weak and defenseless members 
of society. 
 
CHAUDHRY