-Caveat Lector- WJPBR Email News List [EMAIL PROTECTED] Peace at any cost is a prelude to war! STRATFOR.COM Global Intelligence Update November 10, 1999 Moldova Calls IMF's Bluff Summary: Another former Soviet state is suffering political upheaval because its leaders have failed to agree on an issue of strategic significance: whether the country should tilt to the West or to the east toward Russia. In a vote of no confidence, the parliament of Moldova dismissed the government Nov. 9 after a dispute over economic reforms needed for a new round of International Monetary Fund (IMF) loans. Moldova now joins Lithuania in blanching at the cost of joining the West - an increasingly common reaction in the former Soviet states. Analysis: Moldova’s parliament voted no confidence in Prime Minister Ion Sturza and his government on Nov. 9 in a disagreement over economic policy. The International Monetary Fund (IMF) had conditioned future loans on a series of Western-style reforms, including government divestiture of the country’s tobacco and wine industries - two of the country’s three chief industries. Though relatively isolated in southeastern Europe, Moldova is now engaged in a struggle that has larger strategic implications for the region. The parliament voted 58-42 to oust Sturza’s government. The Alliance for Democracy and Reforms, which created the Sturza Cabinet just nine months ago, abstained from the vote. The Communists and the Popular Front will now form a coalition to choose a new government, which will be appointed by President Petru Lucinschi within 10 days. Essentially, the government fell because of Western demands. With its economy and currency in decline, the country has been due to receive a $35 million installment of funds from the IMF. However the transfer has been contingent on the government meeting certain demands. It must amend its 1999 budget, approve the 2000 budget and privatize the wine and tobacco industries. The IMF played hardball, insisting that these conditions be met quickly and that the reformist Sturza government remain in place. Richard Haass, the IMF mission chief, said Nov. 5 that the government needed to meet all three requirements by early December and that efforts to dismiss the current reformist government would only interfere with loan approval. Sturza’s government tried to push through privatization legislation and the 1999 budget amendments last week. Sturza said he would resign if the bills were not adopted. The parliament quickly took him up on his offer. It rejected the bills Nov. 5, and the IMF indefinitely suspended all loans to Moldova. Since IMF funds are delayed, other loans are now in jeopardy. Financing from the World Bank, the European Bank for Reconstruction Development and the European Union - totaling $150 million, alongside the IMF funds - could all be postponed. Moldova’s economy is in dire straits. The value of the leu, Moldova’s national currency, has dropped by 50 percent against the dollar in the past year. The external debt is $235 million, with a heavy amount owed to the Russian oil giant, Gazprom. Perhaps worst of all, Moldova’s economy rests on the success of Russia’s economy. Moldova’s economy is now in an even more precarious position. In fact, Parliament Chairman Dumitru Diacov said recently that the failure to receive the IMF tranche and its associated World Bank credits will lead to a collapse of the Moldovan budget system. As in Lithuania, Moldova’s national administration is dealing with issues of incredible domestic significance and is opting to risk relative economic stability. Nearly a decade to the day after the fall of the Berlin wall, former Soviet states along Russia’s western periphery are struggling through a deep crisis. Should they orient themselves to the West or back to the East? The West has charged a high price for entry: imposing wrenching economic reforms that in turn threaten the rigid social and political structures of the former Soviet states. When put to the test, many of these states find that they simply lack the will and wherewithal to continue down the hard path to the West. Just last month, Lithuania’s government split over a similar economic choice [ http://www.stratfor.com/SERVICES/GIU/102299.ASP ]. Now, Moldova is also struggling with the decision of whether to orient itself towards Russia or the West. Alexander Moshanu, head of the ruling coalition in Chisinau, told ITAR-Tass that the "resignation of the pro-Western Cabinet of Ion Sturza signifies Moldova’s refusal to integrate into Europe and its turn to the CIS and Russia." Russia could exploit the opportunity in Moldova by offering aid, but so far has not. A disease is taking root in some of the former Soviet states, from the Baltics down into Eastern Europe. The cause is the same but the patient reacts in different ways. Georgia’s parliamentary elections led to victory for the pro-Western faction while Ukraine’s presidential contest has turned into a runoff between the Communist candidate and pro-Western President Leonid Kuchma. In Lithuania, the prime minister and two key ministers resigned rather than take part in spending the country’s treasury on modernizing the oil industry for a western company. In Moldova, the situation is reversed. The president has remained in power while the pro-Western Cabinet has resigned after a losing battle. It seems that neither Western aid nor approval is worth the cost to Moldova. (c) 1999, Stratfor, Inc. ______________________________ **COPYRIGHT NOTICE** In accordance with Title 17 U. S. C. 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