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The IMF Mission which started working in Chisinau last week seems to have been long-awaited, particularly by authorities. The potential assistance of the Fund could be a "life buoy". At the same time, the advantage of signing an external funding agreement with IMF is that "import of credibility" if you want, respectively the absence of such an agreement is a major risk for the way Moldova is regarded by foreign investors, especially in the current economic and political conjuncture.

IMF generally gives its funds for macroeconomic stability and central banks of member states are in charge with administrating them. An important aspect is that if the World Bank, for example, agrees to provide funding to a country it consults the Fund and vice versa. Thus, the green light by one or another organisation is reciprocally effectual for the other one. Even more, an agreement with IMF "gives green light" to other international financial institutions such as EBRD, EC, and other institutional creditors.

The main challenge for the Government the next months will be revising or reducing public expenses and state debt when population is angry because of social disturbances and effects of economic crisis. Almost all economic indicators have worsened dramatically. Unemployment is on the rise, negative signals in banking sector made depositors withdraw large savings, external deficits are on the rise and they are very expensive for funding, with Moldova being part of "suspects on duty" in terms of non-sustainability of deficits. Finally, the Government’s capacities will be tested during negotiations with the current IMF mission.

Being an ultimate creditor, I suppose that the Fund could insist on optimisation of budgetary expenses and even their reduction, and it was eventually discussed the reduction of employees in budgetary sector. IMF could ask Moldova to introduce a profit tax for legal entities and eventually apply the single taxation rate, as we could even be witnesses of unpredictable actions by business environment. Premier Filat himself reiterated readiness to reintroduce the profit tax for legal entities, as interventions and "recommendations" by IMF could even seek the reduction of the number of budgetary employees, salary earners, dismissals, actions which would be worse and revive the risk of massive social revolts.

In addition, the Budget Law for 2010 is a very important aspect to be indicated by IMF for sure. I think this would be a major condition. It seems to me strange that nothing was said about this document until now, not even in the media, while the precedent years the Draft Budget Law for next year was already submitted to the Parliament on October 15 in order to be considered and approved. Of course, there were objective reasons. However, Moldova will hardly succeed to meet the IMF requirements, so that to get the credit tranches. The release of funds will also depend on IMF flexibility, which is checked if the direct funding of budgetary deficit is accepted. And this thing is clear from "classical" regulations of the Fund. This is not an economic catastrophe, but a recession which could develop into depression, if the situation does not stabilise the last months of the year.

Perhaps, Moldova found itself in this situation because of the imprudent budgetary-fiscal policy promoted the years when it achieved high economic growth (indirect taxes count for about 70 percent of budget incomes), which exceeded the potential for sure. Too little was invested in production process and infrastructure. Even more, expenses for budgetary personnel have increased excessively. Public funds are very precarious and the ratio between (active) employable population and retirees is unbalanced. The situation could worsen without ample actions.

Of course, budgetary expenses could not be restructured overnight, but some expenses such as certain public acquisitions, expenditures for trips of functionaries could be reduced immediately, or the work programme could be shortened for some services or structures. Twenty percent of budgetary employees cannot be dismissed in a couple of months but the number of personnel could be reduced in several years.

It is primordial on a medium term to reform the salary and pension systems, and this is one of the most pressing problems. An emergency plan on attracting non-reimbursable funds including from EU is needed. The simplified fund access procedures, particularly border-crossing should be used intelligently, avoiding when possible the co-funding from public budget. Of course, there are some uncertainties related to macroeconomic indicators which will be taken into account to build the budget, but they could be overcome with much skilfulness, ability and predictability.