Precarious bank supervision, lack of transparency in the structure of properties and low quality of corporative governing are key-vulnerabilities of Moldova’s economy – EBRD report

Deficiencies of the financial sector, as well as precarious bank supervision, lack of transparency in structure of properties and low quality of corporative government generate vulnerabilities and affect the competition and efficient allocation of credits, reducing the potential for economic growth. This is one of the conclusions of the EBRD report, presented on Thursday, 23 February, in Chisinau. According to report, the opacity of the structure of banks’ properties, often concentrated in the hands of a single person, or group of persons, through a great number of companies, impede the bank supervision authorities to evaluate the opportunity and integrity of real properties and control of financial sources used for purchasing the shares. This, combined with a deficient corporative leadership, increases the risk that the banks work as „pocket banks” of a certain interest group and endangers banks’ solvability. Insufficient transparency and property concentrated also disheartens foreign investments in bank sector and usually lead to a reduced competition. This fact, at its turn, generates inefficiencies and higher interests rates. A country with a weak bank system, as Moldova, is less probably to resist to a macroeconomic shock, that a country with a stronger bank system, the report also mentioned. Business environment of Moldova improved in the field of taxes and crime level, and at a lower level in the fighting corruption. And state’s interference, weak judicial system and limited access to finances are considered as major obstacles for business. These obstacles for business, according to EBRD, affect especially those companies that bring the biggest benefits to the economy and those that have a greater potential to generate growth and new jobs, namely private companies, export companies, companies that re-invest their profits, as well as small and medium-sized enterprises. In the same time, macroeconomic performance of Moldova was a good one lately. The economy grew in real terms with 7.3 in 2004 and with 7.5% in 2005. But this economic growth is due to high level of abroad remittances, as well as quick enlargement of services and agricultural sectors, the experts mentioned. In order to get some economic progresses, EBRD specialists recommend to Moldova to reduce states intervention in economy, to create a strong financial sector, to consolidate regulatory authorities, to strengthen the efforts to fight corruption and bureaucracy, to improve investment climate and to set equal competing conditions. Report’s conclusions are based on the last survey on the business environment and investment performances made by EBRD and World Bank, to which participated 9,500 companies. The aim of the survey was to set to what extent precarious regulation, inefficient institutions, corruption and crime impede their development.