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A Good Friend of Moldova

March 26, 2015

Alex Kremer profit.md

Photo: Ana Mocreac

It is no secret that a good piece of advice, let alone a good friend, is much more valuable than a good amount of money. Alex Kremer, the World Bank Country Manager for Moldova, says that in these difficult and turbulent times the World Bank wants to be a good friend of Moldova – not somebody who flatters and says that everything is fine but somebody who tells it honestly what the problems are and how to address them. And to prove that he is a good friend of Moldova, the World Bank official calls the recent dubious deals involving three Moldovan banks by their proper name – "fraud".

Profit: Mr. Kremer, what did you know about our country before taking up the post of World Bank Country Manager for Moldova in August 2014? What have been your first impressions about Moldova and how have they changed since your arrival?

A.K.: I wanted to come to Moldova for a long time. In fact, I started asking the World Bank back in 2012 if I could come to your country. I think the reasons I was interested in Moldova were its transition from an ex-Soviet state to a democratic country, its European ambitions, very complex politics and very interesting geopolitical position.  So I was interested in how the World Bank can be a neutral and objective adviser and friend of Moldova during this transition. That is why I asked to work here.

The first thing that was very pleasing to discover in Moldova was the openness and tolerance of the Moldovan people. Long before I came here I had heard that Moldovans were very open-minded and friendly people and this turned out to be absolutely true. That was another reason why I wanted to come here because, no matter what the scenery, climate or wealth of a country are, you can always be happy if you are among people who are friendly and open.

Profit: Two-and-a-half months after the parliamentary election, Moldova has finally a new government. The new prime-minister, Chiril Gaburici, has taken up office at a time of gathering economic difficulties, with stalled growth and a plunging currency. What would be the World Bank's three key recommendations to the new government?

A.K.: My first recommendation is that the banking sector needs a clean-up and it needs it right now. In specific terms, this means that the three banks which are under the National Bank's administration (Banca de Economii, Banca Sociala and Unibank – Profit) should be put in a condition where they can never again become a charge to the public budget.

The second recommendation is that there is still a lot of work to be done on improving the investment climate. This becomes particularly urgent in the context of the Deep and Comprehensive Free Trade Area with the EU. When you join a free trade area it is very simple – competition become tougher, the stronger do better and the weaker do worse. So it is very important for Moldova to address the investment climate issues which are still outstanding.

A survey done and published recently by the World Bank and the EBRD and called Business Environment and Enterprise Performance has showed that on a whole range of areas, from electricity supply to functioning of courts, businesses have been seeing improvements since 2008. But two issues were not improving and, therefore, becoming more visible as impediments. One is political instability and the other is corruption. This is what businesses are saying, so that is what the go-vernment needs to fix. Access to electricity, the ease of liquidating a business and protection of minority shareholders – these are all areas where progress is also needed. 

The third and probably the most important issue is that the new government must fight corruption in every shape or form, large and small, because this is the number one issue that is discou-raging Moldovans and foreigners from investing in the country.

Profit: At these difficult times, the Moldovan officials openly say that they rely very much on West's help. What concrete support could the government expect from the World Bank?

A.K.: Our programme for the next two years is quite clear. We have financial resources of about $68-70 million a year in cheap credits, plus the normal World Bank credits which are also very low cost. But I do think that, alongside with the World Bank money, what is the most important for Moldova right now is to have a friend, and by a friend I don't mean somebody who flatters and says that everything is fine. A very good friend is somebody who tells you honestly where there are difficulties that need to be addressed. We want to be precisely that kind of friend.

Profit: The image of the Moldovan banking system, which has been quite stable over the past decade, has been badly tarnished by recent suspicions of money laundering at three banks. Recently you wrote on the World Bank Voices blog that the "banking sector needs a clean-up". What exactly do you mean by this? And how to achieve it?

A.K.: First of all, as I have already said, the amounts of money that ordinary Moldovans have lost through fraud from the three banks that are now under National Bank administration are staggering. Even if I am a trained economist who is supposed to see these things in a very objective way, I cannot help getting emotional about this – to think how much money has been stolen and how much Moldovan citizens are going to suffer because of this. So the first and the most important thing to do is to put these three banks in a condition where they can never again cost money to ordinary Moldovan taxpayers. Then, for the longer term, measures have to be taken to make sure that this never ever happens again in these three banks as well as in any other banks, meaning that standards and international principles for banking supervision and regulation of the financial sector should be put in place and implemented.

The community of development partners working in Moldova has given a short note  to the government, explaining what next steps need to be taken and that they should focus on ensuring the political independence of supervising institutions and on revision of the legislation governing the banking sector.

Profit: But how exactly to ensure the political independence of supervising institutions in a country like Moldova where most posts are distributed according to political criteria? Is this an achievable mission?

A.K.: This question relates to political processes in Moldova which goes beyond the World Bank's mandate and is the business of every Moldovan citizen.

Profit: Last year, the World Bank, the EBRD and the IMF took a tough position regarding the transparency of the shareholder structure of Moldovan banks. The EBRD has even suspended financing through some banks. Has the World Bank's position changed since then somehow? Have you seen any improvements in this area? 

A.K.: Our sister organization, the International Finance Cooperation, in most countries channels financing to the private sector through the banking sector. In Moldova they do not do that for the reasons that we have been discussing and I am very hopeful that based on what the new government has told us about the determination to clean up the financial sector that we should soon see improvements.

Profit: Moldovan producers, who can now export more to the EU, have been complaining that the EU market is over-saturated and our products are non-competitive there. At the same time, more and cheaper goods are coming to Moldova. You said earlier that "competitiveness is critical" in these conditions. But how to raise competiveness when Moldovans farmers and producers are poor, while the government is short of funds to help them?

A.K.: I think the answer has two parts. The first part is what we have already discussed – the investment climate which means anti-corruption measures, political predictability, protection of minority shareholders, trading across borders, access to electricity – all of these things where progress has been made and we hope that more progress will be made.

I think the other area which is perhaps not so obvious is the skills of the Moldovan population. If one looks at the global competitiveness indicators, there is lot of room for improvement in the vocational education and higher education, making it of quality and relevant to employees. I think the World Bank is very supportive of the efforts of Education Minister to reform the sector. Compared with other countries, Moldova spends quite a lot of GDP on education, so with those resources it should be possible to see results in terms of employable skills.

Profit: In which sectors of the Moldovan economy do you see unused potential? 

A.K.: Everywhere. The worst thing that a so-called expert could do is to try to predict which sectors are the favourable ones. Who would have predicted for instance that Moldova was going to be a very successful exporter of coaxial cables or electricity meters? The private sector knows much better than a bureaucrat where there is opportunity and I think that with Moldova's favourable geographical position, with a highly modern and entrepreneurial culture, particularly among the younger people, there is no reason why Moldova could not be competitive in a huge number of sectors. But for this, the right governance and the right policies are needed to be implemented.

Profit: What should be done so that people welcomed reforms rather than rejected them?

A.K.: There has been a lot of psychological research on why people sometimes support change and sometimes reject it. In this case the key word is fairness. If we, human beings, can see that everybody, especially our leaders are making personal sacrifices, then we will accept any amount of difficulty in order to reform. But if we see that the costs of reforms are being imposed only on the poor, while there are some people who are playing the game by other rules, then of course the population will see this as unfair and will resist change.

Profit: What are the World Bank's plans for Moldova for the near future, 2016-2017?

A.K.: We have been preparing for some time a budget support operation and we hope that we will be able to release that money to the government when necessary measures to stabilize the financial sector have been put in place. We hope that will be very soon. We have also been considering very seriously the former government's request to finance compensations for farmers who were affected by the Russian embargo on fruit and we are making every effort with the Ministry of Agriculture to see if that money can be approved and made available to farmers as soon as possible.

We are also planning with the Ministry of Transport a very big investment in roads - not in big trunk roads but in local roads. This is particularly important for farmers who need to get their produce in good condition to the market and also to schoolchildren who, as part of the school consolidation programme, need to travel farther to get to the local school.

I think that focus on local roads is very much part of World Bank's efforts to think always of those who are worst of in the country.

On average we will provide around $60 to 70 million per year of International Development Association funds, plus a slightly smaller amount from own resources of the International Bank for Reconstruction and Development. 

Profit: The authorities say that taxes in Moldova are lower than in many countries in the region. Do you think many Moldovan businesses choose not to pay taxes because they are a heavy burden or because they know that they will not be punished?

A.K.: Moldova's taxes are not particularly high - about 19% of GDP compared to the regional average of 20%. Together with the national tax authorities we have been preparing a tax administration modernization programme and, jointly with the IMF, have been involved in dialogue on taxation policy. So I would not say that overtaxing of business was a major competitiveness problem for Moldova. The focus should be on transparency, simplicity, anti-corruption and streamlining processes.

Profit: In your opinion, the fiscal policy in Moldova should be tightened or, on the contrary, taxes should be reduced?

A.K.: Because of the economic downturn in Russia, Moldova is going to be going through some difficult macro-economic times in 2015 and this will certainly require some kind of adjustment to spending plans. I think this is well understood by the go-vernment and will be reflected in the 2015 budget.

Profit: What has pleasantly surprised you in Moldova and what has upset you here?

A.K.: I think what has upset me and even made me angry is to see how much money has been stolen from ordinary Moldovans through the banking system. I am told that my predecessor Abdoulaye Seck made public statements about this long before I arrived, so it is taking nobody by surprise.

Another thing that saddens me is that, when my Moldovan friends talk about their children, the assumption in their mind is that there is no future for an ambitious, educated and honest person in Moldova. Actually this is the kind of persons that Moldova needs.

But to end on a positive note, I would like to say that a very positive surprise has been to see the entrepreneurialism, dynamism and creativity of Moldovan people, as well their ability to remain patient, tolerant, good humoured and sometimes optimistic despite many disappointments.

"With Moldova's favourable geographical position, with a highly modern and entrepreneurial culture, particularly among the younger people, there is no reason why Moldova could not be competitive in a huge number of sectors. But for this, the right governance and the right policies are needed to be implemented."

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