World Bank conditions providing Moldova with budget support on reclaiming banking sector

Chisinau, 16 June /MOLDPRES/ - The World Bank (WB) has informed that it would provide Moldova with a new budgetary support amounting to 45 million dollars in exchange for "decisive action to resolve Moldova's banking sector problems".

"It would be illogical and irresponsible for the World Bank to transfer our shareholders’ money into the budget through the front door while there is a risk of even larger sums of public money being lost out of the back door through fraud and corruption in the banking sector," says an article by Alex Kremer, WB Country Manager for Moldova. The WB says "this has been the World Bank’s position since the banking sector issues emerged in early 2014."

At the Government’s request, the World Bank has reserved $45 million for support to the 2015 budget. An economic recession in the region has lowered the revenue of the Moldovan Government from taxes and customs duties, and the country’s economy is forecast to shrink by 2 percent according to our latest Global Economic Prospects report. These $45 million could therefore help avoid cuts on important public services and investments

"Government will have to issue Government bonds to protect depositors from the banking fraud, and Moldova’s 2015 budget does not yet include the cost of interest on these bonds. The national budget is not therefore ready to receive budget support from the World Bank."

The World Bank is advising the authorities that the three banks currently under special administration, Banca de Economii, Banca Sociala and Unibank, should be liquidated. "Any attempt to nationalize and recapitalize Banca de Economii would not only increase the direct cost to the Government budget, but again would create a risk of taxpayers’ money being used to cover hidden losses and potential future losses. Indeed, it is conceivable that some of Banca de Economii’s remaining debts are to people involved in the frauds. If this were the case, reviving Banca de Economii would allow them to extract even more money at the taxpayer’s expense."

It is useful to restate what Moldova’s Development Partners published in the February 2015 Briefing Book – a set of policy notes: “Although irregularities were apparent since late-2013, the authorities took no meaningful action till late November 2014.” The Briefing Book lists measures to protect the Moldovan public from future banking fraud. The World Bank stands ready to provide technical advice on these measures if and when there is commitment to their implementation.

(Reporter V. Bercu, Editor M. Jantovan)