The Government Struggles to Go Forward with the Russian Loan, the Opposition Tries to Stop It

The Government Struggles to Go Forward with the Russian Loan, the Opposition Tries to Stop It
by
27 April 2020 | 16:39

The Parliament approved in two readings the agreement through which Russia is granting a loan of €200 million to support infrastructure projects in the country. The opposition highly criticized the agreement claiming that it favors Russian companies and acts against Moldova’s economic interests. At the same time, the economic experts claimed that the Government can’t use the money as it deems appropriate. Moreover, the loan aims to support the electoral projects announced at the beginning of the year, rather than support the country’s fight against the coronavirus. 

At the same time, the conditions of the Russian loan are disadvantageous compared to the conditions offered by other international institutions. For example, the International Monetary Fund offers budget support of $78 million with a zero percent interest rate and another $156 million with a 1.5 percent interest rate. At the same time, Russia offers the €200 million with a two percent interest rate.

Following the Parliament’s decision regarding the Russian loan, the Constitutional Court overturned it. 

In November 2019, Prime Minister Ion Chicu was claiming that Russia will offer to Moldova a $500 million loan to support infrastructure projects in the country. However, as time passed the loan shrunk from $500 million to $300 million. Recently, Dodon announced that Moldova’s Ambassador to Russia, Andrei Neguță signed the loan agreement with the Russian Minister of Finance. Dodon pointed out that these is the first real financial support offered to Moldova by a foreign partner. 

According to the signed act, the first tranche of €100 million should reach Moldova within 30 days from the entry into force of the agreement between the two countries. The second tranche, in the amount of €100 million, would be transmitted to Moldova no later than October 31, 2020.

The Conditions of the Loan Agreement 

According to the contract loan, Moldova agrees to implement joint projects on the territory of Moldova by Russian companies. Henceforth, Russian companies will have access to participate in competitive procedures for the procurement of goods and services, established in Moldova, under conditions no less favorable than those offered to companies in Moldova and other companies.

Also, according to the Agreement, Moldova would return this loan within 10 years, based on 20 equal half-yearly payments. Payments will be refunded on March 15 and September 15 of each year. The first repayment will have to be made on March 15, 2021. At the same time, the loan is granted based on an annual interest rate of two percent.

If the payments and interest will not be paid within 10 calendar days from the date of payment, this debt will be declared outstanding and interest will be calculated in the amount of 150 percent of the interest rate on the loan, starting with the respective payment date and until the debt is paid off.

According to the opposition, the financing agreement from Russia was drawn up with serious violations of the Constitution, favoring Russian companies. At the same time, the deputy of the Pro Moldova group, Sergiu Sârbu, claims that in case of misunderstandings the disputes will not be able to be resolved in international arbitrations. At the same time, article 7 from the loan contract provides that third-party loans may become government debt. 

The Ministry of Finance claimed that there are no debts under this article. At the same time, the Ministry of Justice stated that any disputes arising under the contract could be mediated internationally.

Also, the Action and Solidarity Party announced that it will notify the General Prosecutor’s Office of the abuse committed by the state officials who negotiated and signed the Russian loan agreement to the detriment of Moldova’s interests and its citizens.

The Parliament Allows the Loan, the Constitutional Court Suspends It

Last week, the Socialist and the Democratic Party adopted the law on the loan of €200 million provided by Russia. The two parties that are also forming the governing coalition passed the law in both readings. At the same time, the deputies in the opposition harshly criticized the loan calling for its renegotiation. 

At the same time, deputy Sergiu Sîrbu, from the Pro-Moldova Group, previously part of the Democratic Party, asked the Constitutional Court to verify the constitutionality of the Agreement between Moldova’s Government and Russia’s Government regarding the loan of €200 million offered by Russia to Moldova. 

Following Sîrbu’s request, the Constitutional Court decided to suspend the agreement between Moldova and Russia regarding the loan of €200 million. 

Politicians reacted differently to the Constitutional Court’s decision. While the opposition parties claimed that the justice system works and the court’s decision is logical, other deputies didn’t want to rush to comment on the court’s decision. 

Opinions on the Loan 

Prime Minister Ion Chicu describes the opposition’s criticism of the Russian loan adopted by the government as political speculation. He is convinced that the loan offered by Russia meets the best conditions for Moldova.

Both Prime Minister Ion Chicu and the Minister of Finance, Serghei Pușcuța, declared that the two percent interest rate is optimal and acceptable in the current conditions. Earlier, Prime Minister Chicu stated that the loan from the Russians was contracted under acceptable conditions, and all speculations are unfounded. The Prime Minister suggested that if the opposition can find a cheaper loan than the Government will choose it. The Prime Minister assures that everything is transparent and the loan is the most advantageous. 

The Prime Minister claimed that the country’s deficit is financed from loans for more than 30 years. And this agreement does not involve any financial or political risks. This agreement does not threaten the economic security of the country.

At the same time, the Prime Minister gave assurances that the debt of the breakaway Transnistrian region to Gazprom cannot be included in the respective agreement.

The President of the Action and Solidarity Party, Maia Sandu, claims that the agreement on the Russian loan contains dangerous provisions, which are not found in the loan agreements signed by Russia with other countries. The former Prime Minister Sandu claims that the credit agreement contains a provision which implies a guarantee that the state will cover private debts if they are not paid on time. 

At the same time, the former Minister of Finance in the Sandu Government, Natalia Gavrilița,  referred to the use of this money. According to the agreement, the money will not be transferred to the National Bank, as is the rule, but to a bank established by the government after signing. The former minister is worried that this loan might serve another country’s interests rather than Moldova’s. 

Another deputy from the Action and Solidarity Party claimed that this loan has many hidden gems, being more expensive than the loans provided by other institutions. The deputy also believes that President Igor Dodon will use this loan to fund his electoral campaign. 

According to the deputy of the Truth and Dignity Platform Party faction, Alexandru Slusari, the Chicu Government negotiated this contract badly. Slusari mentioned that they might initiate the dismissal of this Government. Alexandru Slusari also mentioned that in this sense a motion of censure will be submitted, which will be coordinated in the context of the pandemic situation.

Previously, an economic expert told ZdG that this credit obtained by Moldova appeared in non-transparent conditions with an obvious political substrate. He claimed that the credit is inspired by propaganda campaigns that, aim to show that Moldova can find money in Russia too, not only in the European Union.

At the same time, economic experts from the Expert Group, an independent analytical center, performed a comparative analysis of the financing conditions offered by the international institutions and Russia. Following the analysis, the experts concluded that the credit conditions offered by Russia do not allow the Government to use this money as it deems appropriate. Moreover, this credit has the purpose of supporting the electoral projects announced at the beginning of the year.

The experts believed that the revenues of the national public budget will decrease by more than €378.69 million (7.5 billion lei), while the spendings will increase by about €655.4 million (1.3 billion lei). In this context, the budget deficit would reach the value of €817.97 million (16.2 billion lei), more than double the value estimated at the time the Government approved the State Budget Law for 2020.

In addition to its expenditures, the Government has included new programs aimed at supporting the health care system, economic agents, and the population. Funding will be provided by loans from international financial organizations and bilateral loans from governments of other countries, such as the International Monetary Fund (IMF), the World Bank, the Council of Europe Development Bank, the European Union (EU), and the Russian Government.

In the context of the pandemic, the IMF and the World Bank announced a support of about $300 million for Moldova. In response to the crisis, the EU also announced non-reimbursable financial support of around €87 million and the possibility of providing assistance of around €100 million.

The experts concluded that while the loans and grants coming from the EU, IMF, or the World Bank are directed to support Moldova’s fight against the coronavirus, the loan provided by Russia will be used for the road infrastructure development program with the support of Russia. Moreover, €65.64 million (1.3 billion lei) have already been included in the budget for infrastructure projects.

Dumitru Pîntea, an economic expert indicates that the infrastructure works will help economic agents in times of crisis, but the Credit Agreement signed with the Russian Government raises questions about financial provisions and non-financial conditionalities.

Reimbursement conditions appear to be among the toughest on the list of all financing agreements

Even if it is mentioned this is a credit for budget support, the Government cannot use this money as it sees fit, but only to support joint development projects and with the involvement of companies in this country. Thus, the Government does not seem to have the possibility to individually evaluate the opportunity of the projects, the decision will be taken together with the Russian side.

In the expert’s view, the agreement signed with the Russian side cannot be compared with any financing instrument granted by other creditors, either in the context of the COVID-19 crisis or other loans for budgetary purposes.

AUTHOR MAIL eng.zdg@gmail.com

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