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The EBRD today intends to sign a Memorandum of Understanding with the Moldovan government to improve the investment climate and governance in Moldova. What does it envisage?

The Memorandum of Understanding on the Investment Climate and Governance Initiative for Moldova, which Prime Minister Leancă and I have signed, provides a framework for cooperation between the government of Moldova and the EBRD to strengthen the development of the private sector, improve the investment climate and promote good governance. This is a critical step that will, hopefully, result in Moldova being more attractive for businesses, including foreign investors.

In order to achieve this Moldova is committing to strengthen the rule of law, prevent corruption, reinforce mechanisms of dispute resolution, enhance transparency and improve corporate and public governance. The government has also pledged to implement the measures suggested by the business community and adopted by the EBRD-backed Economic Council chaired by the Prime Minister. Enhancing the work of the Council is among the priorities spelled out by the MoU.

The initiative also focuses on supporting the establishment of a Business Ombudsman, developing alternative dispute resolution as well as arbitration procedures and creating a single, transparent registry of shares of Moldovan banks. The EBRD will also provide additional technical assistance in areas such as: public procurement or judicial capacity building. Our intention is also to help strengthen corporate governance in state-owned enterprises and enhance the Competition Council. We would also like to support Moldovan business associations to enhance their capacity.

You are signing an important agreement with a government whose mandate expires in six weeks. Moreover, most of the ministers have resigned in connection with their participation in the election campaign. Why does the Bank not wish to wait for the new Cabinet, with whom it could implement the plans provided for by the agreement? Or does the Bank believe that the identities in the new Cabinet will not be much different after the elections?

The EBRD and the government have been working together on this initiative for several months now, since Prime Minister Leancă requested assistance in May this year. We have developed a programme of clearly defined priorities and tailor-made responses which we believe will serve as a benchmark for any administration and will not only be valid for the present government.

What kind of assistance does the agreement envisage, just technical or financial too? If it is financial, too, what amounts are we talking about?

The MoU provides for a technical assistance programme to be provided by the Bank that focuses on improving the business environment, and helping to fight corruption – the much-needed improvements which will allow the EBRD and other local and foreign investors to invest more and which raise the attractiveness of Moldova as a place to do business.

The agreement envisages the establishment of the Business Ombudsman institute in Moldova. What will the essence of its work be?

The Memorandum of Understanding states that the EBRD intends to support the development of “an independent mechanism to address concerns and complaints by businesses about instances of ill-treatment or unfair competition”.

Business Ombudsman is a working title. We will work closely with the authorities on what the structure, objectives and powers of such a mechanism will be and how it will relate to the Economic Council – and what the institution will eventually be called.

We are currently finalising the establishment of a similar institution in Ukraine.

What will the implementation of this agreement give to Moldova and its citizens?

A successful initiative will make it easier, more transparent and more attractive to run a business in Moldova. The measures under the MoU should help Moldova improve its Doing Business rating. Moldova currently ranks 78 out of 189 countries, so there is room to improve.

We do not deny that there are challenges ahead. It will take time for the types of measures that we have agreed to implement to bear fruit for the wider population, but in the medium term it should empower people who want and can do business to do so, create jobs and raise living standards. An improved investment climate will help Moldova with its ambition to become a healthy European economy.

Recently, Moldova has passed some good laws, the authorities entered into agreements with international partners. But one problem remains — their practical implementation. That is why businesses and citizens say that laws and agreements do not work. Why is this happening? And what can be done about it?

“The more laws,” Cicero said, “the less justice.” In Moldova, as in a number of other countries, many of the laws and regulations “on the books” are generally quite good. The problem is implementation. Our experience and research show that the best way to tackle this implementation gap is not to adopt more laws and regulations. Instead the way to tackle it is to look at each problem area one-by-one, and focus on concrete measures that can be taken to resolve the relevant issues. This is exactly what the Investment Climate and Governance Initiative aims to do.

The agreement, among other things, provides for the establishment of an open registry of shares of Moldovan banks that the National Bank will hold. Why was it created and how will it work?

A single, unified, universal and fully transparent registry of shares of Moldovan banks, under the National Bank of Moldova, will enable investors, creditors, the public and the media to access information on banks’ beneficial ownership, and the regulatory and enforcement authorities to ensure that banking sector approval and disclosure requirements are enforced. Such a register will increase transparency and thus be instrumental in improving good governance in the banking sector.

Will the register resolve the problem of Moldovan banks’ non-transparent shareholder structure and the illegal transfer of shares from one entity to another?

This is exactly the objective we are trying to achieve by setting up an independent and transparent registry.

Does the National Bank have sufficient powers to resolve the issues related to the non-transparent structure of the banks’ shareholders? And does the National Bank use all its legitimate tools for this?

The National Bank supervises and ensures the regulation of the banking sector. Together with the Commission of the Financial Market and other specialised authorities, the National Bank has at its disposal an appropriate legal framework to act to improve corporate governance, increase the transparency of shareholders and prevent money laundering. The new legislation in force since August 2014 – which I welcomed in a letter to the Prime Minister at the time – confers the rights and clear attributions to the National Bank in this respect.

Due to the non-transparent shareholder structure, the EBRD has discontinued cooperation with a number of large domestic banks and finances only banks with foreign capital in Moldova. Can you comment on this?

We are prepared to work with all good Moldovan banks applying the established standards of corporate governance, shareholder transparency and sound banking principles. We are very keen on working with the banking sector in order to reach and support the real economy, especially micro, small and medium-sized enterprises. But we can and will only do this in accordance with strict rules and regulations.

Over the last several years, this Republic’s banking sector has been shaken by constant scandals. What is the reason – is it only the non-transparency of the shareholder structure, about which the EBRD has repeatedly expressed concern?

Lack of shareholder transparency in the banking system is a huge problem. We have repeatedly expressed our concerns and we remain very worried.

Another serious concern is the weakness of the judiciary which is a big obstacle to improving the situation in the banking sector and to doing business in the country. I remain very concerned about certain groups using judiciary to pursue their interests.

But we are also taking action: The EBRD is supporting capacity-building at the Riscani district court in Chisinau, which has sole juridical responsibility for cases brought against the National Bank of Moldova, through technical assistance and training for the court’s judges and officers in Moldovan constitutional and commercial-financial law.

A while ago, shareholders of the Victoriabank wrote an open letter to the EBRD. In the letter, they accuse the Victoriabank management of “embezzlements” and demand urgent intervention of the EBRD as the holder of a large block of shares (15%) in Victoriabank. Will the Bank take any action on the letter?

We have repeatedly expressed concerns over the situation at Victoriabank and we remain very worried. However you will understand that we cannot respond to anonymous letters.

What other plans does the EBRD have regarding cooperation with Moldova?

In Moldova we are focusing on creating an environment that supports private sector activity, promoting European standards and regional integration and developing efficient and sustainable public utilities.

This year we plan to invest €120 million in 11 projects in the Moldovan economy. We are engaged in all sectors of the country’s economy from infrastructure to agribusiness and from the financial sector to financing the real economy, especially SMEs, and promoting energy efficiency with dedicated credit facilities.

Looking ahead also our pipeline looks strong. We are committed to supporting the private sector and offer funding to cover companies’ capital needs. The Bank’s Small Business Support Programme connects businesses with local and international consultants helping them grow and stay competitive.

We also work with the public sector. For example, the EBRD Board of Directors will decide on a restructuring loan to Moldova Railways at the end of the month. We are working on a number of long-term infrastructure projects in close cooperation with the EIB and the EU. At the moment we are conducting a feasibility study regarding the extension of the Iasi-Ungheni gas pipeline to Chisinau, financed by the government of Sweden. Donor governments are providing technical assistance which is often crucial for a project to go ahead or for its implementation.

Will the situation in the region, connected with the Ukrainian crisis, affect the EBRD’s investments in Moldova?

The whole regional macroeconomic outlook is presently overshadowed by the Ukraine/Russia crisis. The situation has had an impact on investments, trade and risk costs. Due to its geographical position and its economic links Moldova is also unavoidably affected. In our latest forecast, the EBRD Chief Economist expects only modest growth of 2 per cent for Moldova this year, with a strong decline in remittances from workers in Russia.

The EBRD is stepping up engagement in Ukraine to minimise the scope of the economic disruption in the country and the wider region. We remain highly committed to Moldova and are maintaining the same volume of investment.

How long do you think this crisis can last? And how devastating will its consequences be?

Frankly speaking, every single day is one day too long. It is becoming increasingly obvious that the crisis is not only affecting the lives of people living in Ukraine, but is also proving to be a huge burden on the economy of the country and the wider region. The outlook is also very serious for Russia. Meanwhile the eurozone is on the verge of its third recession in five years. The Moldovan economy is obviously not immune to these developments.

The last question is about Russia’s sanctions against Moldova. Is it possible to assume that they will make Moldova’s exports re-orient to the West sooner?

The Association Agreement and Deep and Comprehensive Free Trade Agreement between Moldova and the EU can provide a good anchor for reforms, for the adaption of technical standards and codes in accordance with the EU. This can help to increase the flow of goods and services between Moldova and the EU. The European Union is the world’s largest single market with huge absorption capacity and access is crucial for any aspiring nation. In order to be able to benefit from this opportunity, however, Moldova needs to address several key domestic issues. The Investment Climate and Governance Initiative tackles some of those issues and we are proud to lend our support to the country.

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