Yuri Muntean
But, unfortunately, by that time the space for big topics in Moldovan politics had narrowed down to the exchange of comments without punctuation marks in social networks. And then it became completely hopeless – some local political speakers tried to take up the idea and almost ruined everything by reducing the functions of state investment and commercial banks to the resumption of payment services like Golden Crown.
And finally, a few weeks ago, the Government, represented by Deputy Prime Minister Eugen Osmokescu, started talking about it seriously, as a national task. This is a breakthrough for a country where the state, as a political and economic entity, is not represented in the financial and banking sector.
This fact entails not only annual losses of many millions of dollars of dividends for the Moldovan budget! It is also an obstacle for the development of the real sector and, in particular, infrastructure, as well as small and medium-sized businesses and farming, with which local private banks communicate without much enthusiasm. By the way, Moldovan private banks, and in fact there are at least 10 of them, are more than conditionally Moldovan, as no less than 93% of banking assets belong to foreign residents.
And all this takes place in the context of an inevitable multiple growth in the next 5-7 years of the indicators of the financial depth of the economy or more simply – of the banking market under the influence of such factors as the natural recovery of the Moldovan economy after the shocks of the last years, the long-awaited peace in Ukraine and, of course, the process of accession of the Republic of Moldova to the EU. At the moment, the level of financial intermediation or monetization of the economy through loans – a little more than 20% of GDP – is one of the lowest on the continent. And, in particular, 3-5 times lower than in Eastern Europe and the Black Sea countries.
In this regard, the role of the state in our country is essentially reduced to more than indirect instruments, such as financial subsidies under the 373 Program, guarantees issued to private banks, and grants under the auspices of the Ministry of Economic Development.
This is, of course, wonderful! And let there be as many such programs as possible! But this is not a means of curing the disease, but a form of palliative care.
And here’s why.
Part 1. Why is subsidizing interest rates on loans, in and of itself, not a good thing?
This instrument does not reduce interest rates in the credit market, but rather preserves and supports them. And it is possible that it increases them latently. Even if at first glance the expenses of economic agents-beneficiaries decrease by a few percentage points.
Banks do not care who pays – only the borrower, or both the borrower and the state. The main thing is that they pay at the established rates. Which, of course, are easily coordinated between banks. Or does anyone else seriously believe that on the Moldovan banking market, where no less than 93% of the total banking profit is generated by 4 banks (MAIB, Moldinconbank, OTP Bank, Victoriabank), credit rates are formed in conditions of perfect competition?
Thus, the Organization for the Development of Entrepreneurship under the Ministry of Economic Development (ODA) and other programs like “373” are nothing but stabilizing and guaranteeing the profits of private banks. Profits, which, note, banks invest not in the Moldovan real sector, but in foreign assets. Moreover, starting from this year, the account goes not even to tens, but already to hundreds of millions of US dollars and euros per year!
Part 2. Why subsidizing interest rates turns the financial and banking sector of Moldova into a ghetto?
One of the most destructive consequences of this situation is that the supposedly local banks, in the presence of the above template programs, are not interested in finding cheap capital resources on the international financial markets.
This is aggravated by the fact that the state is a direct borrower of banks to support the country’s budget. And it is a very attractive borrower!
Let us recall that in recent years interest rates on government borrowings have been as high as 23%. And this is at least 10 times more than if the state borrowed abroad. Not to mention the canonical Keynesian effect of displacement and growth of bank interest rates in the presence of such a competitor for credit resources as the whole state represented by the Ministry of Finance of RM.
In this regard, the establishment of a state investment bank/fund and a state commercial bank is one of the, but very significant moments in the state proactive policy to overcome such situations, which create both prerequisites and conditions for all kinds of oligopolistic practices and market failures.
Not to mention the objective and inevitable convergence of interests of the banking sector and political actors.
Part 3. Why do we need both a state investment bank/fund and a state commercial bank?
The state investment bank/fund massively mobilizes and concentrates available external and internal financial resources, providing them to local banks, including the state commercial bank, on market principles. And the state commercial bank balances the private banking sector through prudential but strategically oriented credit policies.
At the same time, state-owned banks have one more public higher authority to act in the interests of the state – the Court of Accounts, which is accountable to the Parliament of the Republic of Moldova. Private banks are primarily accountable to their shareholders and are protected by the legislation on commercial and banking secrecy.
Moreover, it is much easier for a state investment bank/fund either independently or within the framework of banking syndicates to participate in investing in individual projects of national and international importance, as it is done by the development partner states of the Republic of Moldova (EU, Germany, France, USA, Poland, etc.).
And yes! The multiplicative effect of the state investment bank/fund and the state commercial bank will be maximized with the participation of the development partner states of the Republic of Moldova (EU, Germany, USA, UK, Japan, etc.). And the participation of our country’s partners in these financial institutions will be an additional guarantee to prevent the repetition of situations similar to the notorious “theft of a billion” from the country’s foreign currency reserves in 2014-2015.
And in conclusion. These two state banks will be the most important instruments in accelerating the reintegration of the Republic of Moldova and Transnistria, as well as the integral, simultaneous accession to the EU. And there will be no other way!
Not to mention the key role of these banks in the process of joint accession of Moldova and Ukraine to the EU, as well as in the post-war reconstruction of brotherly Ukraine, which will inevitably have its own Marshall Plan and its own Ukrainian Credit Institute for Reconstruction, aka KfW in German!
Yuri MUNTYAN,
Economist, Vice Minister of Economy and Trade in 2008-2009.
