Moldova: End of Year Interview with Ms. Melanie Marlett, World Bank Country Manager for Moldova

February 4, 2010

Q. You have been working in Moldova for the past two and a half years. What have been the highlights for you during this time? 

A: Actually, the entire period has been one continuous highlight for me. I arrived in Moldova during the summer of 2007 when Moldova was facing one of the worst droughts in history. That summer was a very challenging one for the entire country. The Bank responded with support for irrigation through the Rural Investment Support project. In 2008, we had the floods and soaring global food prices. The Bank, working with UNICEF, responded with food supplements for mothers and children in need as well as with cash transfers to social institutions. And, of course, 2009 was a year when Moldova was hit hard by the global economic crisis while also going through an extended political transition. The World Bank has responded swiftly with financial support and expertise to address the effects of the crisis. I have felt very fortunate and privileged to be working in Moldova during this important and critical period of Moldova’s development.

Q: You mentioned the global economic crisis. Do you think that the international community is doing enough to support Moldova in addressing the impact of the crisis?

A: Let me start by talking about what the Government is doing. In my view, the government has reacted quickly to respond to the crisis. They immediately launched a consultative process to develop an Economic Stabilization and Recovery program (ESRP). This program rightly focuses on:

1) making fiscal adjustments in the budget due to declining revenues,
2) jumpstarting the economy by liberalizing markets and improving the business environment;
3) and protecting the most socially vulnerable segments of the population.

You may have seen the Government’s "100 day" report which outlines the concrete actions that the government has taken to help get the economy back on the right track. The results have been impressive but, of course, there is still much to be done.

The international community has responded positively. In fact, over the past few weeks, several important benchmarks have been reached. On January 12, the Government initiated negotiations with the European Union on a new Cooperation Agreement. On January 22, Prime Minister Filat signed the $262 million Millennium Challenge Corporation Compact with US Secretary of State Hillary Clinton. The Compact provides support to the agriculture and road sectors. And, on January 29, the IMF Board of Directors approved a $574 million program of support. This is all very good news for Moldova!

Q: What is the World Bank doing to support Moldova during this crisis period?

A: We actually started working during the first months of 2009 to prepare for the new government. We developed a set of policy notes, together with the UN, IMF, EC, SIDA and DFID. This set of policy notes provided suggestions to the incoming government on policy actions they could take in the short-term to address the impact of the crisis as well as over the medium to longer term to address the longer term development challenges that the country is facing. We hope that the notes were useful to the government in the preparation of the Economic Stabilization and Recovery Plan (ESRP). As a follow-up to this work, the World Bank hosted the first-ever joint Government-Development Partner retreat at Chateau Vartely in October, 2009. The retreat was chaired by the Prime Minister. The purpose of the event was to come to a common understanding of the impact of the crisis on Moldova and the Government’s response, i.e. the ESRP.

The next important event that the World Bank is organizing together with the Government and the EU is a Consultative Group (CG) meeting in Brussels on March 24. This meeting will be co-chaired by the Prime Minister, the EU and the World Bank. It will bring together all of the various development partners, including new and emerging donors. The purpose of the event is to share information about the situation in Moldova and garner support for the Government's Economic Stabilization and Recovery Program. The event will also be an opportunity for the development partners to commit to working more effectively together in a coordinated and harmonized fashion.

In addition, the World Bank has moved quickly to help mitigate the impact of the crisis by scaling up existing, well-performing projects through additional financing to: a) the Rural Investment Support Project 2 (US$10million) to provide credit to rural entrepreneurs; b) the Competitiveness Enhancement Project (US$24 million) to provide credit to Moldovan exporters; and c) the Social Investment Fund 2 (US$25 million) to create jobs and build community infrastructure. Additionally, an Economic Recovery Development Policy Operation (US$40 million) which will provide support directly to the government budget is under preparation. The Bank is also discussing with the government a new operation to help roll-out the new targeted social assistance program. This aim of this project would be to help improve the administration of this new program.

Beyond our crisis response, we are also discussing future assistance in the areas of climate change, agriculture competitiveness, information and communication technologies (ICT), and energy efficiency.

In 2010, World Bank financial support to Moldova will total approximately $100 million.

The World Bank also has a large portfolio of existing projects with a total undisbursed balance of $157 million. Some of these projects are generously co-financed by our development partners, i.e. EC, SIDA, DFID, the Netherlands, and Japan. Projects in the portfolio include: Central Public Administration, Public Financial Management, Competitiveness Enhancement, Health and Social Assistance, Quality Education in Rural Areas, Education for All, Avian Flu, Rural Investment Support 2, Moldova Social Investment Fund2, Soil Conservation, Community Forestry, Energy2, Roads Sector Support, National Water Supply and Sanitation, Environmental Infrastructure, National Commission for Financial Markets, Support to the Commercial Court, Public Sector Accounting, Hepatitis A and B.

The International Finance Corporation (the private sector arm of the World Bank Group) is also actively engaged in Moldova. IFC is well positioned to provide an integrated package of advisory support in removing the investment climate constraints to agribusiness development. In the financial sector, IFC will continue to provide trade finance, credit lines and advisory services to financial intermediaries for lending to MSMEs, as well as support to regional private equity funds that would help support the competitiveness of Moldovan companies. IFC has committed US$15 million for Union Fenosa to improve the electricity distribution in Moldova.

Q: What do you think is needed to get Moldova on a sustainable growth path?

A: Let me start by giving an overview of the current situation.

Moldova’s economy has been severely weakened by the global crisis. From 2000-2008, growth averaged 6 percent, led by consumption which was financed from remittances from Moldovan migrants. Throughout the period, the economy remained overregulated and was hampered by relative price distortions, creating very few additional jobs and forcing Moldovans to migrate in increasing numbers to find work. Whereas poverty fell impressively, remittance income played a big role, reaching 30 percent of GDP in 2008. The crisis exposed the vulnerability of this growth path, with remittances falling by 40 percent in 2009. GDP fell by 8.5 percent in 2009 and household consumption by around 12 percent.

As mentioned previously, implementation of the Government’s ESRP will certainly help to stabilize and stimulate the economy. However, Moldova will need to start thinking about its future growth model. What are the potential sources of growth for Moldova???

In this regard, I wanted to mention my recent trip to Washington, DC where I participated in a meeting with the World Bank President, Mr. Robert Zoellick and Prime Minister Filat. In addition to this meeting, the Bank organized a couple of events for the delegation with US businesses. During a roundtable meeting with several US information technology (IT) companies, e.g. Hewlett Packard, Sun Microsystems, Oracle, Google, Boeing, and others the discussion focused on using IT as driver of economic growth in Moldova. We think that there are potential opportunities here and we are therefore currently working with the Government to explore how we might deepen our efforts in this area. For example, we are supporting the establishment of a new partnership between Moldova and Singapore on the use of Information and Communication Technologies (ICT) as a tool to stimulate growth and improve governance (e.g., e-government, e-procurement).

Beyond ICT, the Government, together with the development partners will need to start thinking about other important drivers of growth. For example, can Moldova become a tourist destination with its good wine, friendly people, wonderful traditions and beautiful landscapes? Why not market Moldova as an Eco-tourism destination? Of course, this would require better and cheaper flight connections to Chisinau! Also, Moldova’s comparative advantage is its people and rich soil. How then can agriculture become more competitive? How can Moldova effectively brand its good wine so that it becomes widely recognized and internationally competitive? These are important questions which we would like to explore together with the authorities, development partners and civil society.

Finally, I would like to emphasize that the focus of the Bank’s dialogue post-crisis has been on the importance of achieving an orderly fiscal balance and hastening economic recovery. Our support seeks to ensure that social assistance spending is better targeted at the poorest, that road maintenance is increased and small-scale social investments are preserved, and that agricultural support is increasingly channeled towards investments. To kick start a more sustainable recovery, the Bank is encouraging the Government to liberalize export sectors, and to seek to attract new private investment in ICT and energy sectors. Through the medium term, Moldova has scope to achieve productivity growth by removing the market and trade distortions and monopolistic practices.

Q: How optimistic are you about Moldova’s potential to achieve a prosperous, sustainable future for its citizens?

A: I am 100 percent confident that Moldova has all of the ingredients needed to become a prosperous and successful economy. It has tremendous human potential and it is critical that it finds a way to channel this potential into all spheres of social life. The Government needs to strive and modernize the public sector. Cutting red-tape, attracting and retaining the brightest of Moldova’s citizens is critical to improving the quality of public administration. Of course, this is no easy task and doesn’t happen overnight, but it is important to commit and move ahead on the reform of public administration. The dynamism, creativity and energy that Moldovans are blessed with needs to find its way into the offices of public institutions. In all my travels across the country I have been impressed with Moldova’s young people. Their skills and drive to make Moldova a successful place must be encouraged and supported. The new Government has a window of opportunity to introduce far-reaching and irreversible economic reforms. They have made a very good start and should be congratulated on their efforts. The World Bank stands ready to continue its support and is grateful for the strong collaboration with Government and development partners.

Thank you!