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Moldova: A Russian credit or a Russian roulette?

The decision of the Constitutional Court of Moldova on whether to accept a Russian loan offer could have long term implications for the country.

May 5, 2020 - Denis Cenusa - Articles and Commentary

Vladimir Putin had a brief meeting with President of the Republic of Moldova Igor Dodon on the sidelines of the St Petersburg International Economic Forum in 2017. Photo: Russian Presidential Administration (cc)

Russia’s recent allocation of a 200 million euro line of credit to Moldova opens questions about the country’s intentions. Is this a show of sincere financial assistance or a dangerous “Russian roulette” game? The answer seems easily discernable considering Russia’s rich track record of misconduct, including the country’s refusal to withdraw “forces of occupation” from the eastern districts of Moldova and its withdrawal of support of the Transnistrian separatist regime. Given these actions, the chances that Russia has benevolent intentions towards Moldova seem rather minimal. Even the last year’s collective efforts between the European Union, United States and Russia in legitimising the political forces that toppled the oligarchic regime has been insufficient to correct the pejorative perception about Russia. But the odious image alone is not sufficient to provoke a sudden abundance of concerns about Russia’s credit. However, a set of bilateral commitments, tied to a loan and negotiated in obscurity, can raise a serious alarm. With 56 votes, the parliamentary majority ratified a law on April 23 that approved the Russian credit. But soon after that, the Constitutional Court suspended the law, following a request from the opposition to evaluate the credit agreement against constitutionality criteria.

The Russian roulette game

The credit agreement is embroiled with numerous vague provisions that, if adopted, could have major repercussions on the economic and geopolitical future of the country. The Russia-Moldova agreement’s proposed execution of the credit, scope and designated form of dispute settlement have all raised concerns.

One of the most concerning provisions of the law (Art. 7.2) allows for the unification (“consolidation”) of all unpaid debts that derive from the 200 million euro credit. The nuance of this stipulation is that the debt consolidation clause applies to all loans that Russian banks would offer to Moldovan private entities. In that regard, every private credit solicited from the Russian banks would require the approval of the Moldovan authorities, which are not defined. In other words, this provision would enable the entangling of sovereign debts towards Russia the private ones. This would make it possible to establish “clientele networks” around the governing parties that aim at claiming the right to borrow from Russia. This ambiguous provision figuratively represents one of the cartridges from the Russian roulette.

Another concerning aspect of the credit agreement suggests that Moldova is expected to attract Russian companies in projects of economic and trade nature. Furthermore, it stipulates that the national public procurement system should become available for Russia on non-discriminatory principles (Art. 3). Such advocacy for favoritism of Russia expands the scope of the credit into policy areas that involve the spending of public money. Some critics have even suggested that this law could possibly connect the approximately 7 billion US dollars of gas debts, accumulated from the unpaid gas consumption in the Transnistrian breakaway region, to this credit. Due to the fact that the loan is to be repaid until 2030, these forward-looking promises to Moscow will impose geopolitical obligations on the government through two electoral cycles. This provision is similar to the “export credit” that Russia lent to Serbia, which stipulates the involvement of Russian companies explicitly. But this decision to geopolitically align the country closer to Russia is rather intentional. The incumbent president and the ruling coalition show strong sympathies towards the East and intend to use investments from Russia and the Eurasian region to diversify and minimize the share of the Western ones that come with reforms conditionality. By exposing this logic, the Moldovan government has willingly inflicted the risks of Russian roulette.

Finally, the Russian credit raises concerns that Moldova because there are no stipulations about any reliable mechanism of solving disputes (Art. 11). In both trade and energy, the Russian authorities have demonstrated a persistent habit of politicising dialogues with third countries. Moldova experienced this kind of twisting of hands by Russia during the disputes on gas contracts and wine supplies in the early and middle 2000s. Furthermore, since the final negotiation of the Association Agreement in 2013, Russia has applied various trade sanctions against Moldovan imports. Therefore, there is a high degree of certainty that Russia will sooner or later use the 200 million euro loan to exert geopolitical pressure.

The bitter memory of Russia’s 2013 credit to Yanukovych

The opposition’s first instinct was to turn to Ukraine’s experience with Russian credit. In December of 2013, in a desperate attempt to deter the European Union’s Association Agreement with Ukraine, Russia agreed to lend 15 billion US dollars to then-president Viktor Yanukovych. The initial tranche of 3 billion US dollars was disbursed before the “Revolution of Dignity” that ousted Yanukovych’s regime, and it was followed by a serious of devastating episodes in Ukraine’s history, including the annexation of Crimea and the outbreak of the Russian aggression in Donbas.

The features of “Yanukovych’s loan” vary from the Russian credit to Moldova. On the one hand, Russia’s credit had a powerful geopolitical connotation back in 2013. The 15 billion US dollar loan was meant to help the Ukrainian elites maintain power and exchange the rapprochement with the European Union for some immediate material benefits from the East. The situation is different in Moldova. It has commitments to implement the Association Agreement with the European Union and since May of 2018 is present in the Eurasian Economic Union as an observer state. In the short run, the Russian credit aims to promote the pro-Russian political candidates in the forthcoming 2020 presidential elections. Besides, compared to the support from the European Union, the Russian credit has no explicit political conditionality that would connect the disbursements conducting critical reforms.

“Yanukovych’s loan” is also different than Moldova’s credit because it is currently being disputed in the British courts and is thus saved from Russia’s political interference over the trial decisions. The trial is not over, but the repayment is suspended until a final decision of Britain’s highest court. In the case of Moldova, the mechanism for solving the disputes is limited to political consultations and negotiations. This arrangement unveils a potential weak spot for Moldova because the political dialogue can reach a deadlock easily if, theoretically, Russia decides to retaliate against a pro-Western government.

What should Moldova do?

The decision of the Constitutional Court will be crucial to clarify the contradictions around the Russian credit. The ruling of the Court will confirm whether the agreement with Moscow needs to be re-negotiated. But this could also ruin the plans of the government to put the money in use for the ongoing budget, which was recently modified to better handle the effects of the COVID-19 crisis.

President Igor Dodon admits that an eventual re-negotiation of the credit agreement is always possible. However, he disregards the interest of Moscow that is not used to make any concessions. Certainly, Russia’s support of the pro-Russian government and president is convenient for it’s geopolitical needs, while a step back will favor the pro-European Union candidates in the upcoming elections. A win-win option would consist of revising the bumpy and risky parts of the credit so that prompt criticism is silenced and the agreement can move forward. Such a scenario will be acceptable for all political sides, regardless of their geopolitical preferences, and it will prevent Moldova from voluntarily entering a game of “Russian roulette.”

Denis Cenusa is a PhD candidate and researcher at the Institute of Political Science at the Giessen University in Germany. He is an associate expert at the “Expert-Grup” think tank in Moldova and a contributor at IPN News Agency in Moldova since 2015.

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