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Moldova: The consequences of failed Russian credit. What next?

The story of Russia’s credit to Moldova has ended before it even started. After more than seven hours of hearings conducted on May 7th, the Constitutional Court decided to cancel the approval of 200 million euros of Russian loans. The court sided with the opionion of the Moldovan opposition and declared the credit agreement unconstitutional.

May 15, 2020 - Denis Cenusa - Articles and Commentary

The Constitutional Court of Moldova Photo: constcourt.md

In order to stop Russian credit viewed as damaging to Moldova’s medium and long-term interests, the country’s opposition resorted to the Constitutional Court’s legal weapon of constitutional control over the legislative activity, which curtailed parliament’s eagerness of signing an agreement with Moscow at any costs. The court approved all three of the opposition’s complaints without exception, arguing that the credit conflicted with the constitution. However, this decision could backfire.

Immediately after the decision was announced, President Igor Dodon suggested that the court is acting similarly to a “captured state”, adopting political orders instead of acting independently. Soon after that, the President of the Venice Commission Gianni Buquicchio condemned the “attacks” against the Moldovan Constitutional Court and emphasized the need of effective separation of powers. This narrative is strengthening geopolitical divisions in public debate and has also affected the credibility of state institutions. There is very little time until the EU becomes involved in this situation too. European institutions acknowledge that the court is an independent institution and needs protection from political interference. The Socialists and Igor Dodon argue that the court is a “public enemy” after it cancelled the Russian credit. Any internal or external political support for the Constitutional Court will simply benefit the Socialists’ narrative that the court is a politicised institution.

In the aftermath of the court’s decision, the ruling majority expressed desires to renegotiate the agreement with Russia as soon as possible. Political division suggests that it may be difficult to reach concensus regarding future international agreeements, especially if they potentially affect state sovereignty. Pro-Russian forces have implied that the court’s decision against Russian credit sets a precedent against an already signed and implemented Association Agreement with the EU.

Governmental shortcut towards Russian credit

During the Constitutional Court’s hearings, the government, parliament and the opposition revealed gave various (geo-)political arguments alongside purely legalistic ones. From a legal standpoint, the Russia-Moldova loan agreement represents an international treaty and required the approval of the parliamentary Committee for Foreign Affairs in order to start negotiations. This procedure ensures parliamentary control over international treaties as required by law (Law nr. 595, Art. 7).

Given that Russia accepted the text of the agreement without any preliminary consultations, traditional negotiations were skipped with the blessing of parliament. The only means of quickly signing the deal with Russia was to use the special law on state debts (Law nr. 419 of 2006). This law stipulates that the Ministry of Foreign Affairs and European Integration should give the “green light” to the agreement, rather than the aforementioned parliamentary committee. However, the legal scope of the law on state debts only regulates debt relations between resident and foreign legal and physical entities, not between states.

The government cared little about this legal contradiction and more about the political implications of the Russian credit. In fact, the government attempted to simplify procedures for finalising the deal with Russia on May 15th, before the end of the COVID-19 state of emergency. Desires to approve the Russian credit have subsequently amounted to nothing.

The winning camp

There are two big winners in this legal battle over the Russian credit. On the one hand, the opposition parties have stopped the government from pushing through a dangerous agreement that would have effectively been a “ticking bomb” full of risks. This represents the first crucial political victory for the opposition after the government of the Prime Minister Maia Sandu was ousted in November 2019. At the same time, the opposition has become the first domestic force to simultaneously inflict damage on its pro-Russian rivals, as well as Russia’s overall interests and image in the country.

The Constitutional Court also managed to improve its credibility as an independent institution. This follows a severe decline last year regarding its reputation. Before its decision concerning the Russian loan, Moldova’s constitutional judges complained to the prosecutor’s office that they had been wiretapped and pressured by state institutions. Following the decision, the Socialists and other ruling parties intensified their criticism of the court. By blaming the court for its decision to reject Russian help, Igor Dodon and the Socialists were able to strengthen their geopolitical position with little consequence.

The defeated camp

The government, parliamentary majority and the president’s office clearly lost their gamble on the legality of their desired Russian credit. This exposed a certain degree of political incompetency in the government, as well as its incapacity to act independently from Russia’s own interests. This event deepens distrust in Russia’s “good intentions”, though only among those with a pre-existing scepticism of Moscow.

The court hearings showed that the government was incapable of creating a coherent argument that would justify the need for unusual provisions regarding the agreement with Russia. Testimonies from members of the finance and justice ministries suggest that nobody from the Moldovan side tried to persuade Russia to exclude potentially damaging aspects from the treaty. These involved provisions on private debts, reciprocity regarding public procurement and the exact mechanism for settling disputes. The government’s justifications were also unconvincing regarding decisions to forego negotiations. The representative of the parliamentary majority Vasile Bolea admitted that negotiations for the Russian loan did not occur due to the ongoing pandemic.

To save face, the Minister of Justice Fadei Nagacevschi praised the agreement with Russia for its supposed lack of “political conditionality”. This is in contrast to the Association Agreement with the EU, which supposedly carried such risks.. Whilst it is true that political conditionality exists regarding Chisinau’s relations with the EU, it only affects macro-financial assistance. EU institutions offer a mixture of loans and credits in return for political and sectoral reforms.

The government, the Socialists and President Dodon refused to take any responsibility for the Constitutional Court’s ruling. However, the Russian credit failed largely due to their own refusal to respect the law. Instead, Igor Dodon simply blamed the opposition and the court for hindering the loan. Those most affected by the decision will listen to their stomachs rather than legal arguments. The opposition, therefore, should prepare for tough opposition during the upcoming presidential elections, as well as a potentially early vote for parliament in 2021.

What comes after the failed Russian credit?

Government claims regarding the need to eliminate negotiations in order to quickly access Russia’s loan are hard to sell. In the battle of narratives, however, even the failed Russian credit will pay off. Faced with a limited budget, the government will now simply argue that a lack of Russian credit means that it cannot meet opposition’s own demands. The pro-Russian forces consequently have the chance to transform a failure into a political opportunity.

This geopolitical battle between the government and the opposition will only increase. As aforementioned, the EU is currently offering a large amount of assistance to Moldova. This consists of the 70 million euros remaining from the 2017 financial agreement, as well as 100 million euros more as part of COVID-19 aid. These resources, however, are dependent on the implementation of reforms requested by the European institutions. This money can offset the loss of Russian credit, but it requires a commitment to reform from a government seemingly uncomfortable with the EU’s “political conditionality”.

The cancellation of the Russian credit has only positively affected the country’s international image. The court’s decision has stressed the importance of constitutional rules in relation to any agreement signed with a foreign government. Therefore, Russia is not an exception. Moreover, this precedent set by the court emphasises the importance of transparency during negotiations with foreign governments. Despite the arguments of Igor Dodon and the Socialists, the Association Agreement with EU cannot be challenged as a result of the ruling on Russian credit. The 2014 decision of the Constitutional Court stated that the agreement is fully compatible with Moldova’s constitution.

The Russian loan’s cancellation will greatly impact debate during the upcoming presidential elections. Besides that, president Igor Dodon showed political readiness to initiate new negotiations with Moscow regarding the same credit. The EU’s approach in its delivery of financial assistance to Moldova will play a key role in these events. To help Moldova navigate ongoing political storms and most crucially the recovery after COVID-19, simply maintaining a pre-existing conditionality may prove ineffective. A potential solution to these problems could be to help establish healthy dialogue between Moldova’s political parties. These discussions could focus on reform and economic recovery whilst maintaining conditionary assistance. The EU has the potential to act as an impartial broker in the country. It is capable of bringing all political parties to one table, which could help depoliticise the European integration process. The alternative would be to simply watch the deepening of a social divide along geopolitical lines and new political deadlocks looming alongside with the health and economic crises.

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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