News Brief No. 99/47

News Brief: IMF Executive Board Completes Fourth Review Under the Extended Fund Arrangement for Moldova

August 6, 1999

The International Monetary Fund (IMF) today completed the fourth review under the Extended Fund Arrangement for Moldova. As a result of the review, Moldova will now be able to access SDR 25 million (about US$ 34 million).

In commenting on the IMF Executive Board's discussion of the review, Shigemitsu Sugisaki, Deputy Managing Director, said: "Directors recognized that Moldova's economic and financial situation had been severely affected by the Russia crisis in mid-1998. They also noted that, since independence, Moldova had been unable to achieve sustained economic growth because of severe structural impediments. Against this background, Directors were encouraged by the structural and financial policy measures recently adopted by the new authorities. They stressed that timely and sustained policy implementation will be critical to help catalyze donors' support for the authorities' program.

"Directors emphasized the need for a determined tightening of fiscal policy and welcomed recent measures notably regarding tax administration. Directors expressed concern that domestic arrears had continued to mount in the first half of the year, which underscored the importance of achieving the reduction in the fiscal deficit targeted under the program. They also welcomed the recent tightening of monetary policy.

"Directors welcomed acceleration of the pace of structural reform, particularly with regard to the privatization of the energy and telecommunications sectors. They supported the recent moves to strengthen the financial system, including the closing of some banks, the takeover and restructuring of the Savings Bank, and increases in capital adequacy ratios. They noted Moldova's commendable progress in liberalizing its foreign trade and exchange regime and encouraged the authorities to firmly resist incipient pressure for protective tariffs.

"Directors noted Moldova's efforts to honor its external and domestic obligations. However, they expressed concern regarding its debt servicing difficulties. They noted the authorities' commitment to clear their external arrears as soon as possible, and encouraged them to seek a prompt negotiated settlement with their creditors," Sugisaki said.