Lack of progress in the stolen billion case is pushing Moldova’s President Igor Dodon to search for new solutions to recover the public debt left behind as a legacy of the theft of the century. Dodon proposes to reduce the debt by channeling part of the National Bank’s profits, amounting to over €260 million to the state budget. And while the economic experts claim that the proposal is especially dangerous for the bank’s independence, Dodon states that the project was discussed with the International Monetary Fund and will soon be approved.

ZdG analyzed the expert’s opinions regarding Dodon’s proposal to reduce the public debt left behind by the theft of the century.

The so-called Stolen Billion Law

The stolen billion law was adopted after the theft of the century through which the emergency loans granted by the National Bank to the three banks (Banca de Economii, Banca Socială, and Unibank), under the state guarantee, were converted into public debt.

The stolen billion law involves €696.9 million (13.34 billion lei), with an additional interest amounting to €572.1 million (11.1 billion lei), a debt placed by the Moldovan government on the citizens’ shoulders, which will be paid until 2041.

The project was approved in 2016, under the responsibility of the cabinet of ministers headed by the democrat Pavel Filip, and subsequently, the package of laws was promulgated by the then president, Nicolae Timofti.

On September 26, 2016, during the meeting of the Cabinet of Ministers, the Filip Government decided that all the emergency loans offered by the Executive to the three banks that were liquidated should be converted into state debt. 

According to the annex of the law, in the first year, the volume of money paid from the national budget in the National Bank’s accounts will be €2.6 million (50 million lei) and will increase, from year to year, as will the interest rate from 1.4 percent in the first nine years to 5.3 percent in the next 16 years. 

What’s Dodon’s proposal?

Dodon claims that previously there were discussions about the stolen billion law, to cancel it or to reduce the sum. He claims that there is a mechanism that will make it possible to reduce the burden by around €260 million- €312.1 million (5-6 billion lei). 

According to Dodon, the mechanism is supposed to channel part of the National Bank’s profit, around €260 million- €312.1 million (5-6 billion lei) into the state budget. 

“The project was also discussed with our external partners, with the International Monetary Fund (IMF). It will be approved by the government in the next few days and submitted to Parliament for approval,” said Dodon.

In the election campaign for the 2016 presidential election, Dodon stated that one of his priorities, if he will become Moldova’s president is to cancel the Stolen Billion Law. 

Although Dodon declared that he will cancel the law, at the end of his term as Moldova’s president, this has not yet happened. 

What are the risks of Dodon’s proposal

Dodon’s mechanism to reduce the stolen billion debt is not a new one for Moldova. According to economic experts, the solution will reduce the independence of the National Bank, ruining its image and entailing certain risks in the event of a crisis. 

According to Veceslav Ioniță, an economic expert at IDIS Viitorul, this mechanism was implemented in 2003.  

“We had such experience when the National Bank’s profit enters the state budget. Thus, the Government spent the money obtained by the National Bank. After 2003 this practice was stopped, as it was considered that this profit should remain with the National Bank to strengthen the institution’s capacity so that it can intervene in case of crisis. What the president proposes is that this practice will be reversed. That is, the bank’s profit will go to the state budget, and the debt will be returned from the budget. However, we have given up this practice in order to protect ourselves in crisis conditions,” says the expert.

Veaceslav Ioniță also stresses that, if the National Bank will remain non-profit, the risks increase as in a possible crisis, the National Bank will have to intervene and the government, in turn, will have to cover the bank’s financial needs. According to the expert, Dodon’s solution could raise the IMF’s suspicion.

“I think we will have to come up with explanations to the IMF, because it was the IMF that said not to take the National Bank profit in the state budget, and we are going back to what it was,” emphasizes the economic expert.

In conclusion, Ioniță specifies that the state should do nothing but hold those who are guilty of bank fraud accountable. 

Likewise, Dumitru Pântea, an economic expert within the Expert-Grup, argues that with this solution, the political factor is unable to complete the file on bank fraud and is looking for alternative solutions to recover the billion.

• How the Money from the Stolen Billion Cases Is (Not) Recovered

“After the frauds on the three banks, the National Bank has tried to restore its position and independence. And the independence of the National Bank means the ability to implement monetary policy. However, when you come up with ideas to reduce the National Bank’s profit, the capitalization of this institution decreases. 

The National Bank will not be able to implement the monetary policy as it wishes and this will reduce them from independence and ruin its image. If we go back to the idea of ​​what this money is for, that is to compensate the government’s debt to the National Bank, other questions arise. The political factor is incapable of completing the bank fraud file and begins to look for other sources to repay the money. This solution is not very good,” points out Pântea.

The initiative announced by the president is criticized by the former Minister of Finance of the Government led by Maia Sandu, Natalia Gavriliță. According to the minister, the solution for the recovery of the billion does not consist of transferring some revenue from one state pocket (National Bank) to another (Ministry of Finance”) but recovering that money from those who stole it.

“The maneuver of Igor Dodon with the so-called easing of the burden of the Stolen Billion Law is actually removing the money from the National Bank’s reserves to finance the huge expenses of the government in the election year. 

The Moldovan Government has never planned to spend so much money, with uncertain sources of financing. The relevant question is not where do we get the citizens’ money to return the stolen billion. […] The question we have to ask Igor Dodon is how much he has recovered from the stolen billion so far and what he plans to do to recover this money including from his old friends in Parliament, “ Natalia Gavriliță wrote on her Facebook page.

Another economic expert also considers that Dodon uses this idea only to cover up the lack of progress in the stolen billion case.  

“This, like the recently launched initiative on reallocating part of the foreign exchange reserves for economic development purposes, directly affects the level of capitalization of the monetary authority and, respectively, risks undermining the institution’s independence. These processes confirm one of the main risks identified by the Expert-Group for the year 2020 regarding the attacks on the monetary authority’s independence,”  mentions the Executive Director of the Expert-Group center, Adrian Lupușor.

According to Expert-Grup, the practice of sharing the profit of central banks with the state budget is considered dangerous to the independence of the monetary authorities, which affects their credibility and the ability to promote a balanced monetary policy and to ensure macro-financial stability of the country. 

At the same time, Dodon’s proposal exposes the institution to political influences (eg: a possible decapitalization of the National Bank will require budgetary support, which will allow political factors to have additional leverage over the institution).

The expert also points out that the initiative proposed by Igor Dodon will not reach its objective, amounting to €312.1 million (6 billion lei), as the sum might exceed the bank’s profit. In 2018, for example, the bank generated a profit of only €12.9 million (249.13 million lei), and in 2019 this could be even smaller due to the specificity of the monetary policy.

In conclusion, according to Adrian Lupușor, the president’s initiative can be categorized as an attempt to camouflage the lack of real progress on investigating the theft of the billion.

“It is important for politicians to focus on the core of the problem and to abandon the attacks on the independence of the monetary authority. It is true that, most likely, the National Bank bears much of the blame for fraud committed in the context of the “billion theft”. But it is the role of the justice system to identify and hold responsible for the ones involved in the billion theft. The justice system should do that not the politicians, government or the presidency,” concludes the expert.