Massive thefts such as the infamous 2014 bank fraud or large state budget embezzlements are no longer possible in Moldova today – believes the economist Adrian Lupușor, executive director of the Expert-Grup think-tank – “and for this reason foreign donors are open to provide direct budget support, which has an unprecedented proportion”.

The economist made this point during an IPN debate on socially responsible management of external financing. According to him, the significant amount of direct budget support today is proof that the current government is considered trustworthy by Moldova’s foreign partners.

Regarding external financing of the state budget deficit, Adrian Lupușor underlined the contribution of the International Monetary Fund. Although it generally prefers instruments of indirect support, the IMF has understood how important it is for the tax policy to be stimulating in times of economic crisis and war. In other words, the IMF has chosen to help the Moldovan government in its efforts to directly support vulnerable groups, the expert explains. Thus, direct budget support is preferable in times of crisis, when money is needed fast in order to run social policies in particular.

This is not to say that there are no infrastructure development projects as well, such as the modernization of the Moldovan Railways, for example. Adrian Lupușor also singled out the “Livada Moldovei” project, but rather to reveal one of its problems, that of underutilization of funds. A project to facilitate access to finance for local horticulturists, it was unfortunate to be launched after the 2014 fraud, when several major banks became ineligible due to non-compliance with the new standards of shareholder transparency. “This problem has been completely remedied; we must say this clearly. Now the banking sector is completely transparent, after going through reforms that were very actively promoted together with the IMF and other development partners”, assures the expert.

Another project mentioned by Adrian Lupușor is “Good Roads”. Launched in 2016 with the support of the World Bank, the project has become controversial because it has been turned into an “electoral bait”, but also because of the poor quality of some works and “procurement issues” during previous governments. According to the expert, to date only a quarter of the funds initially offered have been used.

Yet another example of a less successful project is the one aimed at delimiting publicly owned land. Adrian Lupușor believes that there is not enough political will, because a proper delimitation of lands would affect some “obscure private interests”. “The project needs to be unblocked, because the tax base of local authorities depends on it, so we are talking about money that local administrations could have used for development”.

However, there are well-managed projects as well, especially if the implementer is an agency with “well-developed processes”, such as ODIMM, which currently has a record large budget for the development of small and medium-sized businesses, said the expert.

“In general, Moldova is not the best assimilator of foreign opportunities and we must work on this”, said the economist, offering the example of Poland. The country has an agency that accumulates donor money and turns it into viable projects. “There is a centralized institutional framework, the money comes to a development bank, the bank has exemplary governance processes, with the participation of representatives of both civil society and the private sector, so there is a board that ensures that the money is used transparently and properly. That bank is much more connected to the needs of the economy and can channel this money much faster. I believe that a similar model for Moldova would be a good idea”, said Adrian Lupușor.

As for the costs, the economist pointed out that external financing is much more convenient, given that domestic loans have interest rates of even 15-17%, compared to 1-5% in the former case. In addition, this is “long money”, meaning funds which would not be available internally are offered for long term projects such as infrastructure ones.

The debate was the 251st installment of the “Political Culture” Series, run by IPN with the support of the Hanns Seidel Foundation.