Identifier
Created
Classification
Origin
08CHISINAU306
2008-03-19 15:23:00
CONFIDENTIAL
Embassy Chisinau
Cable title:  

MOLDOVA: ECONOMIC SQUEEZE NON-COMMUNIST LEADERS

Tags:  PGOV PREL MD 
pdf how-to read a cable
VZCZCXYZ0015
RR RUEHWEB

DE RUEHCH #0306/01 0791523
ZNY CCCCC ZZH
R 191523Z MAR 08
FM AMEMBASSY CHISINAU
TO RUEHC/SECSTATE WASHDC 6448
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
C O N F I D E N T I A L CHISINAU 000306 

SIPDIS

SIPDIS

STATE FOR EUR/UMB

E.O. 12958: DECL: 03/17/2018
TAGS: PGOV PREL MD
SUBJECT: MOLDOVA: ECONOMIC SQUEEZE NON-COMMUNIST LEADERS

REF: A. CHISINAU 250

B. CHISINAU 171

C. CHISINAU 009

D. 07 CHISINAU 1509

Classified By: Ambassador Michael D. Kirby for reasons 1.4(b) and (d)

C O N F I D E N T I A L CHISINAU 000306

SIPDIS

SIPDIS

STATE FOR EUR/UMB

E.O. 12958: DECL: 03/17/2018
TAGS: PGOV PREL MD
SUBJECT: MOLDOVA: ECONOMIC SQUEEZE NON-COMMUNIST LEADERS

REF: A. CHISINAU 250

B. CHISINAU 171

C. CHISINAU 009

D. 07 CHISINAU 1509

Classified By: Ambassador Michael D. Kirby for reasons 1.4(b) and (d)


1. (C) SUMMARY: Over the past several months, the Communist Party of
Moldova (PCRM) seems to have used economic pressure to punish and
hamper the ability of non-Communist leaders to govern. Demanding
payment for historic debts incurred by a Communist predecessor and
manipulating the non-transparent budget allocation process, the PCRM
has incrementally tightened the financial tourniquet. Gagauzia
governor (Bashkan) Mihail Formuzal recently told us of economic
pressure on Gagauzia that were reminiscent in tactic to the attacks
on Chisinau's Liberal Party mayor. The PCRM's actions appear to be
part of a pre-election effort to discredit the opposition by proving
its inability to govern. END SUMMARY.

PAYING FOR 2007, LOOKING FORWARD TO 2009
--------------


2. (C) Following the 2007 local elections, the PCRM-controlled
Government of Moldova (GOM) has exerted considerable financial
pressure on opposition-controlled local governments. The rumblings
began last fall following the adoption of the national budget and a
disproportionate distribution of funding for infrastructure projects
in PCRM-controlled raions (REF C). According to a local NGO, average
investment per capita across Moldova for 2008 are projected at
Moldovan Lei (MDL) 30. However, in PCRM- controlled raions the
figure is MDL 60-65 (USD 1.00 equals MDL 10.50) per person, while in
opposition-controlled raions it is only about MDL 7-14. By
channeling more funding to PCRM-controlled local governments, the GOM
bolsters the image of PCRM leaders and their ability to deliver
results.

ECONOMIC WARFARE AGAINST CHISINAU AND GAGAUZIA
-------------- -


3. (C) In Chisinau, upon assuming his new duties last year Mayor
Dorin Chirtoaca was immediately confronted with responsibility for
funding the Valea Morilor lake reconstruction project begun by the
previous Communist-led city government, but for which no money had
been budgeted. (NOTE: The lake in Chisinau's most popular city park
was drained, leaving the park with a marshy crater instead of a

recreation area. END NOTE.) Similarly, the GOM refused financial
assistance to Chisinau, when a court ordered the city to cover
massive debts that the previous PCRM municipal government owed to
heating distributor Termocom after the PCRM city government decided
to subsidize residential heating tariffs (REF B). More recently, the
GOM resurrected a decade-old court order requiring the Chisinau
Municipal Council to provide living quarters for certain public
servants (which would cost about Moldovan Lei 80 million) (REF A); a
court ruled that it would impound and sell all city buses to raise
money to satisfy this decree.


4. (C) In Gagauzia, Bashkan Formuzal recently complained to us about
GOM actions that followed the same pattern of legal action to collect
historic debts accumulated by his PCRM predecessor. The central
government recently announced it would hold Formuzal responsible for
a MDL 28 million debt, and deduct this amount from the central
government allocation to the Gagauz budget. The debt was originally
incurred in 1996 when the central government received credits from
the World Bank to support the wine industry and one of the
beneficiaries was Kirsovo, a Gagauz winery. The Ministry of Finance
guaranteed payment to an Italian company which sold equipment to the
winery; however, Formuzal's predecessor assumed responsibility for
the credits assigned to Gagauzia. According to Formuzal, this sum
will now be taken from Gagauzia's operating budget.


5. (C) Formuzal also complained about the way the central government
was compensating Gagauzia for the loss of tax income because of the
corporate restructuring of Union Fenosa. Union Fenosa, the Spanish
owner of three power distribution companies, recently consolidated
its operations into one corporate entity based in Chisinau.
Previously, one of the three power distribution companies was
registered in Gagauzia, paying MDL 5 million in taxes per year (one
of the largest tax contributors to the region's budget). The change
of juridical address to Chisinau resulted in a significant loss of
tax income for Gagauzia. Formuzal complained that the Ministry of
Finance had agreed to compensate the Gagauz budget for the loss of
tax revenue, but has yet to do so. Formuzal said the Ministry of
Finance has assured him that the transfers would happen (eventually).



6. (C) In yet another complaint, Formuzal said that the central
government previously transferred its monthly budget allocation to
Gagauzia by the 9th or 10th of the month. Now the central government
was withholding transfers until the 28th or 29th, leaving him
struggling to meet his financial obligations.
BUDGET PROCESS LACKS TRANSPARENCY
--------------


7. (C) In late 2007, we heard complaints from local governments about
the PCRM's manipulation of the 2008 budget. The Ministry of Finance
assured us that the budget met all legal requirements and had been
negotiated with local governments. A fair distribution of funds is
difficult to ascertain, given Moldova's subjective and opaque budget
process. The Ministry of Finance and local governments must agree on
per capita expenditures and projected revenues; however, local
governments have no mechanism to challenge the budget decided by the
GOM. The GOM's distribution of funds for investments also lacks
transparency. In the most egregious example of political
manipulation, the PCRM withheld all infrastructure funding for
Chisinau for 2008 (REF D).

COMMENT
--------------


8. (C) Formuzal compared the GOM's financial squeeze to "death by a
thousand mosquito bites." No single bite was enough to kill, but
each one bled the economy a little. The PCRM-government appears to
be escalating its use of financial pressure to hamper non-Communist
leaders, in the hopes of overcoming the losses the PCRM sustained in
the 2007 local elections. As the number of such cases increases, the
pattern is becoming clearer, and we suspect the pressure will mount
as the national elections draw near. Any PCRM attempt to fix the
elections results will not likely come from ballot stuffing or
election-day manipulations, but through deliberate attempts to cause
opposition-led local governments to fail.

KIRBY