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The draft law developed by the Ministry of Agriculture and Food Industry and endorsed by the Government provides for writing-off the debts to the state budget (as of January 1, 2004) for 30 agricultural entities, great many of them sovkhozs, kolkhoz and production cooperatives. Furthermore, the draft obliges local government to take "measures in the next years in view of totally or partially writing-off historic debts incurred by the economic entities subject of this law". No wonder the list of those entities was never made public, nor were details of the would-be writ-off; however one may only guess who would be the lucky ones. Indeed, this draft law would prove quite handy to moguls in Government or Parliament, who are in fact behind those entities.

Probably, officials refrained from making public the data not for the fear of westerns, but rather for fear of their own people! It comes as no surprise that Communist ruling has made keeping secret or even distorting data a daily business. Specifically, information impossible or not advisable to hide was "cosmeticised". Writing-off arrears as well as restructuring state-owned companies' debts may ruin all official forecasts on inflation, say analysts. To give just an example, according to Sociology and Statistics Department inflation rate for the first half of the year was 13.3%, Republic of Moldova ranking the second after Belarus (20.3%) among CIS countries as regards rising pattern for inflation. Experts claim the psychological threshold of 10% inflation rate would never be reached, unless of course "official data are falsified". Officials though stay calm and see no harm in soaring debt.

No one could asses precisely the impact of those write-offs and restructuring, as nobody works seriously on economic models in Moldova and there are no sufficient statistics (there are even some gaps). Having said that, authorities are walking in darkness when making their economic forecasts. In the end inflation rate is much lower in the statistics than in the peoples' pockets, as is economic growth much more significant than the one felt in economy and state budget. On the contrary, "disturbing" data not included in the obligatory reports were simply forgotten. Still, what happened with data on arrears per economy was far too much. Communist Party 2001 governing program pointed to the dangerously high arrears incurred during the previous rulings, claiming that they had reached 30% of the GDP in 2001. Hence, data related to arrears are classified. Not even annual reports of the Ministry of Finance were published, not even an official estimate of the arrears was released. The reasons are easy to guess: during the incumbent ruling arrears continued to grow and probably at a faster pace than before! If they had dropped, the data would have been made public long ago and listed under new governing "achievements".

Normally, during incumbent ruling arrears continued to soar due to some objective as well as subjective factors. On the one hand, a string of constraints from outside imposed either a massive restructuring, or pushed suppliers and state to go for non-payment. Companies have chosen the second, especially as there was a political consent to that. Banking sector restructuring shut the doors to bank financing for bankrupt and inefficient state-owned enterprises. On the other hand, never was the state more tolerant towards non-payment of financial obligations. All kind of schemes for restructuring debts, providing additional benefits, or even writing-off historic debts provided current debts were paid, have been put in place. Noteworthy, last week Government together with the State Creditors Council passed a resolution on restructuring historic debt to state budget for two CET (thermo-electric plants) worth 187.5 million Lei. Moreover, one month ago Government and State Creditors Council froze the historic debt of seven tobacco companies worth some 25 million Lei.

Worryingly, manufacturing based on indirect financing was encouraged, namely from fiscal credits (non-payments of obligations to public budgets) or from state aid (non-payment of financial obligations by state-owned energetic units). Never bad debtors enjoyed such a heaven having a political blessing from the top. All of the aforesaid propelled the arrears to public budgets further upwards (that were turned into heaven for tax dodging), as well as to energy suppliers, which being state-owned were not allowed to cut supplies to bad-debtors.

One year ago, total arrears per economy were 4.5% higher over the end of 2001, i.e. 200 million USD, according to IMF report. Anyway, out of the total arrears estimated at 30% of the GDP, budget arrears do not account for more than 3%, according to the Ministry of Finance. On the contrary, scoring high after arrears to public entities are arrears to public budgets, in which bad-debtors found the perfect loophole.

High rate of bad-debts has determined banks to raise interest rate. Noteworthy, even though a growth of industrial output has been registered in the last two years, cross debts among business plus debts of the latter to commercial banks is estimated at 4 billion Lei, i.e. 14% of the GDP in 2004. Excessively high rate of bad debts in financial institutions undermines economy, whereas the level of obligatory reserves, an instrument used by National Bank to control liquidity, raises the cost of commercial banks, thereby making crediting of real sector more onerous. On top of that, the cost of a credit in national currency is more expensive, and this amidst over-appreciation of national currency that neglects its real value. This is why other than governmental credits in foreign currency show signs of growth and according to National Bank amounts 200 million USD.

As of August 1, companies' debt to consolidated budget reached 1,059 million Lei (88.2 million USD) a 9% increase (87.5 million Lei) since early this year, reads a press release of the State Fiscal Department. Bad debts account for 72% of the total debt. Bad debtors include businesses that are not operational for more than three years - 226 million Lei, litigating businesses - 102 million Lei, bankrupt businesses - 97.5 million Lei, as well as businesses having no assets - 100.7 million Lei. Thermo-energetic sector owes another 228 million Lei to the consolidated budget.

However governmental program does not refer to areas to state budget. It envisages decreasing new arrears that annually add up 4% of the GDP to the historic arrears. The latter more or less equals the amount public budgets and entities are supposed to get. By reducing "historic" debts one does not really diminish the arrears. One might only diminish them by reducing new debt that adds up. In this respect, Ministry of Finance failed to honour its obligations. It comes as no surprise that IMF opposed Ministry of Finance initiative to use additional budget revenues coming from economic growth for social spendings. If not for other things, at least IMF has the merit of disclosing figures and actions authorities remained tight lipped about. Finally, if freezing debts shall not be accompanied by payment of current debts, in a year or so Moldovan economy would be on the verge of collapse, while the debt burden would be so great that it would likely suffocate state budget and private sector.