$1 billion cannot be siphoned out of Moldova in one day

As Moldova – the former Soviet republic strategically located between Romania and Ukraine – seeks to undertake reforms of its economy in compliance with its European aspirations, setting the country’s financial sector on a sound footing is crucial.  

Unfortunately, recent developments in this small country are troubling. At the end of 2014, a major financial scandal arose in the country, provoking the Parliament of Moldova to form a special commission on the financial situation in the country. Of special concern are actions to stabilize the Moldovan currency (the leu) and the situation around one of the largest Bank of Moldova.

According to official information, in recent years Moldova’s average annual currency depreciation has been 11%.  However, by the end of January 2015 – a whopping 34%! provoking panic and speculations in Moldova’s cash foreign exchange market. As a result of which, in one day, “Black Tuesday”, on February 18, 2014, national currency slumped dramatically to the lowest level, loosing nearly 40% against U.S. dollar and Euro.

Moldovan leu depreciation, apart from panic, was fueled with a range of external reasons.

First, a decline in exports to Russia under an embargo imposed by Moscow over Moldova’s signing an Association Agreement with the European Union as well as a drop in external loans and foreign investments.

Second, no less important, drastic reduction of money transfers from Moldovan migrant workers whose money is a major contribution to the economy of the small country. Third, Moldova’s contentious political climate before Parliamentary elections and after. All that gave a ground for opportunistic accusations. Some Moldovan officials, including Igor Dodon, leader of the pro-Moscow Socialist Party – Moldova’s largest party, and opposition to the current pro-EU minority coalition, openly supported by Kremlin – placed responsibility for the current crisis on management of three private Banks, including the largest Banca de Economii Moldova (BEM), blaming investors in illegal cash withdrawals of the amount ranging from $100 million to $1 billion.

"Whatever else may be the reasons for the decline of Moldova’s currency, but the withdrawal of $1 billion, announced by the government officials, from the state owned bank is simply not possible. This is not possible even in comparable countries like Georgia. The fact is that most of the former USSR countries have restrictions on single transactions above $150,000, which are subject to strict monitoring by government agencies in particular by the Central Bank,” said an analyst.

“If to take into account total GDP of Moldova $7.97bn and total national exports of just over $2bn, Moldova wouldn’t have been able to accumulate currency earnings of $1 billion quickly, or in one go. Instead, it would take months of methodically buying foreign currencies (while avoiding the $150,000 threshold) and an unrealistically high number of separate transactions – something like 667 transactions to send $100 million and 6,670 transactions to send $1bn. That just couldn’t have happened without someone long since blowing the whistle”. One more important remark, first who would notice suspicious transactions would be the Bank of New York, which admission any U.S. dollar transaction around the world. This financial organization did not blow the whistle - so there were no transactions. Therefore there is only one deduction - the money was not withdrawn.”

The sad fact is, Moldova’s financial woes have been a long time in coming and will require deliberate, sober action to correct. Political grandstanding is not helpful, to say the least.
With respect to BEM’s role, it should be kept in mind that when that bank was on the verge of bankruptcy in 2013, the government stepped in with measures selling its control stake to stabilize the Bank by attracting private investors. Inexplicably, after a year the Central Bank of Moldova took over provisional administration of BEM and suspended its new investors from the decision-making process. Recently, the special Parliamentary commission has finished its work resulting in suspension of the Central Bank vice governor and chairman of the Securities and Stock Market State Commission.

In short, the crisis in the leu was provoked due to incompetent actions of government officials and the current state of the largest Bank of the country is a result of government’s failures for the last ten to 15  years, not their cause.

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