Monitoring→Economy→The Socioeconomic Environment

Banking sector

Last week over 100 depositors of the “Guinea”, “Bankosind”, Banca Turco-Romana banks, “InterCapital” financial consortium, and other financial institutions that went bankrupt in the 90s staged a protest rally in front of the Parliament. “Give us the money back!”, “Talmaci give us the money back” were some of their slogans.

Those people were brought into streets by desire to recover the money deposited in banks and financial institutions that went bankrupt for various reasons, either incapacity or because their leadership frittered money away. Some of the banks were doing murky bargains involving high risk, an illustration in this respect being “Guinea” bank (after spending its own capital it incurred huge debts and finally went bankrupt).

Chair of the Association of Cheated Depositors, Nestor Samofalov calls on Parliament to amend the laws on National Bank and National Securities Commission as well as the Law on Investment Funds so as to insure transparency of the banks and investment funds’ activity.

Great many protestors are striving to recover their money for five years now, however not very successfully. Depositors of the bankrupt institutions believe they were deceived by the banks’ administration, whereas National Bank, law enforcement forces and state authorities did nothing to help them. Previously, officials at the National Bank stated that the nine banks undergoing liquidation procedures have returned 32 m Lei, i.e. 55.7% to their depositors. Banks still owe another 27 m Lei. Neither of the banks under liquidation managed to return all the money to the depositors.

In 2003, a special commission of the Parliament entrusted to investigate the causes that had led to the bankruptcy of the said institutions found that “great many” citizens that made deposits at the said banks throughout 1996–2001 wouldn’t manage to recover their money. Bank deposits would not be returned as the said banks “haven’t taken necessary measures in due time” so as to ensure sound management of the funds.

Foreign currency policy

National currency has constantly appreciated against USD and reached its highest in the last five years being traded over 11,5 Lei per USD. According to the National Bank experts and economy-watchers the fluctuations are largely due to strong supply of foreign currency, mainly money sent home by Moldovans working abroad.

National Bank issued a press release last week reading that the supply of foreign currency from the natural entities reached in the first quarter of the 2004 119 m USD, i.e. a 76.5% increase over last year. As a result throughout January 1 — May 7, 2004 the official exchange rate has appreciated in nominal terms by 11.2% against USD and 15% against Euro.

To diminish the negative effects of the excessive supply of foreign currency on the domestic market, National Bank intervened and bought throughout January — April foreign currency amounting to 34 m USD. At the same time central bank sterilized monetary base via open-market operations worth 453 m Lei, including via REPO operations with HVS worth 163 m Lei, and deposit auctioning worth 217 m Lei.

At the same time, to meet the excessive demand for national currency without affecting foreign currency reserves, throughout the aforesaid period National Bank used reversible instruments of the foreign exchange policy, such as swap, amounting to 14.8 m USD.

Many financial analysts point that from a commercial point of view the exports are the ones being heavily affected by the weak dollar, given the nominal appreciation of the Lei in the first quarter of the year. A drop in exports would swell the trade balance deficit, whereas current account would be considerably affected. On the top of that, energy imports mainly in USD would greatly affect the latter.

Investors who underestimated foreign exchange hedging operations would be affected, if they have to make payments in Euro, whereas cash-in Euros. If Euro/USD parity would drop below 1:1, their would be a certain pressure on the banking sector from those who borrowed in Euro. National Bank of the Republic of Moldova is the “lucky one” benefiting from the current evolution of the USD, on the other hand a higher appreciated Leu would propel inflation further upwards.

National Bank claims that excessive supply of foreign currency on the domestic market might be diminished by a raft of measures, strategies and programs aimed at establishing a favourable investment climate that would encourage Republic of Moldova’s citizens to invest not only in consumption, but also in the real economy sector. In this respect National Bank experts believe a raft of measures should be undertaken at the state level so as to ensure a favourable legal framework, financial incentives.

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