Transparency International – Moldova: Comments on the draft Law for the ratification of the Credit Agreement between the Government of the Republic of Moldova and the Government of the Russian Federation

Press release


Transparency International – Moldova: Comments on the draft Law for the ratification of the Credit Agreement between the Government of the Republic of Moldova and the Government of the Russian Federation

The context

President Igor Dodon announced in November 2019, with the visit of the Prime Minister of the Republic of Moldova to Moscow, that he has reached agreements with his Russian counterpart for granting a $500 million loan in the near future[1]. The funds from the promised loan were to “transform the Republic of Moldova into a huge construction site[2]” in the 2020 election year.

Meanwhile, with the advance in 2020, the amount of pledges pledged from $ 500 million to $ 200 million, and the terms of allocation of financial means have been postponed, although some of these resources were included in the state budget for 2020.

It all culminated on April 17, 2020, when President Igor Dodon posted on his page on social networks the text of a Financial Loan Agreement between the governments of the Republic of Moldova and the Russian Federation (RF), containing two unnamed signatures and functions, such as and in the absence of the date of signing and the place where it occurred[3].

As a matter of urgency, on April 21, a meeting of the government was convened to approve the Agreement between the Government of the Russian Federation and the Government of the Republic of Moldova on granting the Government of the Republic of Moldova a state financial loan[4]. It should be noted that in the documents submitted for examination to the members of the government, the text of the Agreement is missing, being presented only the draft law for its ratification and argumentation of necessity.

According to the established procedures, the ratification of the Agreement by the Parliament of the Republic of Moldova will follow.

The basic provisions of the Agreement, the sensitive and risk aspects for the Republic of Moldova

1. The Loan Agreement is for a total amount of EUR 200 million and not $ 500 million. Respectively, huge yards can and should be postponed, given the need to prioritize public spending in the conditions of pandemic that seriously affect the public health system of the Republic of Moldova.

2. The loan should be provided only if there are no outstanding debts for loans to the RF or to the banks in the FR, offered with the state guarantee of the RF or insured by the Russian Agency for Export Credit and Investment Insurance. This provision is one with an increased risk of taking over and transposing in the obligation of the Republic of Moldova some debts of third parties, which do not fall within the notion of state or public debts and cannot be included in the legal framework regarding the state debt.

3. The amount of the loan of EUR 200 million shall be divided into 2 tranches to be disbursed in 2020.

4. The first tranche of 100 million will be transferred within up to 30 days from the date of entry into force of the Loan Agreement (i.e. after the completion of the internal procedures for approval and ratification of the agreement, by both signatory governments and both parliaments, respectively), but not before signing another technical agreement and making payments. This technical agreement is a precondition for offering the first installment and will be signed by the banking institutions involved in making payments.

5. The second tranche of EUR 100 million will be granted no later than 31 October 2020. And this date is indirectly connected to the 2020 presidential election cycle and can be considered as a sensitive factor for this year’s electoral competition.

6. Art. 3 (3) provides, with deviation from the object of the Loan Agreement and not limited to its objectives, the commitment of the Moldovan authorities to award contracts to RF companies through public procurement procedures for goods, services and works. The current legislation does not provide for any prohibitions or preferences in free participation in public tenders, but the provision of the Agreement is broader and, in fact, requires arrangements imposed and accepted by the Moldovan authorities for the award of procurement contracts (goods, services and works) certain companies in FR.

7. The interest rate on credit is 2% per annum, this loan seems to be the most expensive credit resource that the Republic of Moldova contracts during this period. The credit resources approved by the IMF for the Republic of Moldova[5] in the amount of US $ 234 million will be cheaper (0% and 1.5%) and with a longer grace period (5 and 3 years for each component). And the credit resources in euro could be accessed by the Republic of Moldova cheaper from Brussels, if such prompt requests were made. The prime minister said that only recently he intervened with an official approach to the European institutions[6].

8. In the event of a 10-day delay in repayment and servicing of the loan, that amount shall be deemed to be outstanding and a penalty of 3% shall be applied for the amount due and for the period of delay (this penalty is, according to the Agreement, 150% at the initial rate of 2%).

9. At the same time, the provision from art. 7 (2) according to which all the debts of the third companies for the loans obtained from the banks of the RF with the guarantee of the RF government, but initially agreed with the authorities of the Republic of Moldova, as well as those provided by the Russian Agency for Export Credit and Investment Insurance and taken over for payment by the Government of the Republic of Moldova. In fact, this provision goes beyond both the limits of a Loan Agreement and the national legislation on public debt and state guarantees. Apparently, such provisions in a Loan Agreement can also be considered as constitutional and legal inconsistencies.

10. The loan is to be repaid for 10 years, from March 15, 2021 it will start to be paid once every half year (March 15 and September 15) in equal amounts and in 20 separate payments.

11. The agreement is considered to have entered into force from the day of receipt through the diplomatic channels of confirmations on the completion of internal procedures (approval and ratification of the agreement).

Based on the above, we would like to note that the Agreement represents and incorporates several provisions convenient to the creditor (Russian side), to the detriment of the interests of the debtor (Moldovan side). Moreover, they contravene the provisions of the Law 419/2006 On Public Sector Debt, State Guarantees and Onlending and the Law 131/2015 On Public Procurement. At the same time, the Agreement contains provisions that go beyond a standard intergovernmental Loan Agreement.

Please note that in the event of ratification of this Loan Agreement, its entry into force may produce immediate legal and financial effects in relations with the creditor. Even a possible subsequent challenge to the Constitutional Court of the provisions of the Agreement will not be able to stop the effects already produced in the future.

Given the above mentioned considerations, Transparency International – Moldova considers as necessary to withdraw this Agreement from the ratification procedure, with a renegotiation of the credit conditions and a subsequent transparent promotion and in the interests of the Republic of Moldova.

This note was made within the project “Strengthening the rule of law and democracy: the contribution of civil society – 2”, financially supported by the Embassy of the Kingdom of the Netherlands (Netherlands). The opinions expressed belong to the authors and do not necessarily reflect the position of the funders.







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