IMF still worried about inflation in Moldova

The foreign direct investment in Moldova is on the rise and is now at the same level as in many EU member states at the start of the period of transition. The present situation in Moldova is similar to that in Bulgaria and Romania five-eight years ago, IMF’s Resident Representative in Moldova Johan Mathisen said. According to Mathisen, the local investments are also increasing. If the investments are generally directed towards production, the incomes and the salaries will rise. To achieve this aim, the efforts aimed at improving the investment climate, including the activities related to the privatization of large state-owned companies, should be continued in 2008. Constant steps must be taken to implement the reform of the Government and of the system of employing public functionaries. A productive and efficient public service is needed to encourage larger incomes and investments, the IMF representative said. According to Johan Mathisen, the IMF predicts that the economic growth indicator in the second half this year will decrease to 6%. The growth in the first six months was 8%. However, the high rate of inflation in Moldova, which is expected to reach 14% by this yearend, is the IMF’s main concern. Asked if the high inflation can be a reason for halting the IMF programme, Johan Mathisen said that this will not happen, stressing that the maintenance of the inflation rate is not a condition of the programme. At the same time, the high rate of inflation worries the IMF because it influences the money supply. The Fund recommends promoting an austere policy, implicitly by increasing the interest rates. The third IMF assessment mission will be in Moldova between December 7 and 21. Initially, the mission was scheduled for late November. Johan Mathisen explained that the visit was postponed owing to health problems among the mission’s members and not due to misunderstandings. The IMF experts will assess the impact of the drought and will examine the economic indicators for the next year and the results of this year. The Executive Board of the International Monetary Fund resumed disbursements to Moldova on May 5, 2006. Moldova’s performances under the three-year agreement with the IMF are formally assessed twice a year.