VORONIN VISITS MOSCOW AND RETURNS WITH USD 500

UNCLAS CHISINAU 000493

STATE FOR EUR/UMB, EUR/ACE, EEB/OMA

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SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV EREL ETRD MD
SUBJECT: VORONIN VISITS MOSCOW AND RETURNS WITH USD 500
MILLION LOAN - NEXT STOP BRUSSELS

Sensitive but Unclassified. Please Protect Accordingly


1. (SBU) SUMMARY: President Vladimir Voronin traveled to
Moscow on June 22, and held bilateral meetings with both
President Dmitrii Medvedev and Prime Minister Vladimir
Putin. Following his talks with Voronin, Putin announced
a USD 500 million credit to Moldova. Some media reports
quoted Putin as saying that some funds might be available
in two to three months. However, at a press conference
in Chisinau, Voronin indicated that the first tranche of
funds would not be available before the end of the year.
Political opposition leaders, including Marian Lupu and
Vlad Filat, later expressed concerns about the loan and
its conditions. Voronin is planning a trip to Brussels
later in the month to meet EC and EU leaders. SUMMARY

VORONIN'S TRIP TO MOSCOW
--------------


2. (SBU) The main purpose of President Voronin's June 22
visit to Moscow was to mark the 68th anniversary of the
Nazi attack on the Soviet Union on June 22, 1941. He
participated in the memorial ceremony and laid flowers at
the Tomb of the Unknown Soldier. He later met with both
President Medvedev and Prime Minister Putin. This visit
was perceived by many in Chisinau as an attempt to win
electoral support from the Russian-speaking population in
Moldova by showing off the President's good relations
with Russia.


3. (SBU) During the one-day official trip to the Kremlin,
Voronin sought to obtain financial assistance from Russia
to support the Moldovan economy on the eve of elections.
Originally, First Deputy Prime Minister and Minister of
Economy and Trade Igor Dodon and Minister of Finance
Mariana Durlesteanu planned to accompany Voronin. At the
last minute, Dodon did not travel. Voronin's inclusion
of his economic team stressed the important role of
economic issues on the agenda, i.e., a Moldovan request
for financial support.


4. (U) Medvedev's joint press conference with Voronin
after their meeting focused primarily on his political
support for Moldova. Medvedev praised Voronin for the
GOM's actions to restore constitutional order in the
republic after the political unrest of April 7. Voronin
said that "in those difficult days when there were
attempts at political destabilization," Russia was the
first country to support the GOM. The interlocutors made
no mention of a Moldovan request for assistance during
the press conference.

PUTIN MEETING AND THE USD 500 MILLION LOAN
--------------


5. (U) Putin announced a Russian loan of USD 500 million
following his meeting with Voronin. The first USD 150
million installment of the USD 500 million loan would be
allocated in the shortest possible time, according to
Putin. Some media quoted Putin as stating that the first
tranche of USD 150 million could be available in two to
three months. Putin noted that he would appeal to the
Russian parliament to approve the credit and amend the
Russian state budget to include the loan. Voronin said
that Moldova had proved its good faith and had honored
all obligations in the financial area. Voronin stated at
a press conference in Chisinau on June 24 that the funds
would not be available before the end of the year. He
explained that the credit would be directed to investment
programs, infrastructure development and construction of
roads. He added that Russia had also granted the GOM USD
20 million for the restoration of the parliament building
and presidential administration damaged in the political
unrest of April 7. He noted that other possibilities
existed for the use of the funds, depending on the
financial and economic situation in Moldova. Further, he
underlined that the money would not be used for
consumption. Regarding the IMF, Voronin said that the
loan should not impact Moldova's relationship with the
IMF. (Note: Moldova's previous IMF agreement expired in
May and an IMF mission was unable to negotiate a new
accord.) Voronin noted dismissively that the IMF behaved
like a wife who dumped her husband from time to time but
always came back. He pointed out the IMF left in 2001

when the Party of Communists of the Republic of Moldova
(PCRM) came to power only to return in 2005 when the GOM
had made great strides forward.

LIBERAL DEMOCRATIC PARTY LEADER CRITIZES LOAN
--------------


6. (U) Moldovan parliamentary opposition leader Vlad
Filat said that Voronin had made a mistake in going to
Moscow and requesting financial assistance. Filat,
leader of the Liberal Democratic Party (PLDM),stated
that the GOM might have problems negotiating a new IMF
agreement in autumn. Filat demanded that Voronin provide
information on loan maturity, interest rate and the
targeted investment projects of the loan. The PLDM
leader speculated that the investments might be intended
for Voronin's son who has interests in construction
firms. Filat accused the ruling PCRM of having missed
opportunities to secure grants from foreign donors.
Specifically, he suggested that the GOM had missed out on
a USD 500 million grant from the Millennium Challenge
Corporation which would have allocated USD 300 million to
road rehabilitation (sic). He further accused Voronin of
using his trip to Moscow to secure the loan as a campaign
event in advance of parliamentary elections scheduled for
July 29.

EX-SPEAKER MARIAN LUPU VOICES CONCERNS
--------------


7. (U) Marian Lupu, former speaker of the parliament and
now leading candidate of the Democratic Party, stated
that the loan would not reach Moldova until the end of
2009 or beginning of 2010 at the earliest. He explained
that the Moldovan parliament and government would need to
complete a complex series of legal and technical
procedures to facilitate a loan accord. The previous
Moldovan parliament was dissolved on June 16 after
failing to elect a president and the new parliament to be
elected on July 29 would not convene until some weeks
afterwards. Lupu emphasized that it was very important
to publish the terms of the Russian assistance. He
indicated his keen interest in knowing whether the loan
included grant components and low interest rates. The
Democratic Party, according to Lupu, would like to see
the funds used exclusively for the rehabilitation of
Moldovan roads. Former Moldovan Minister of Economy and
Trade, Valeriu Lazar, who is running in the second slot
on the Democratic Party ticket for the upcoming
elections, doubted that the loan included good terms for
Moldova. He noted that Russia had recently negotiated a
financial assistance deal with Kazakhstan that contained
very unfavorable terms for Kazakhstan.

VORONIN PLANS TRIP TO BRUSSELS
--------------


8. (SBU) Foreign Minister Andrei Stratan stated in an
interview with the newspaper Timpul on June 18 that, at the
end of the month, Voronin would go to Brussels to meet with EC
and EU leadership. He said Voronin would discuss bilateral
relations, EU aspirations, relations with Romania, and the
visa regime for Moldova. Stratan underlined that Voronin
would try to convince Brussels that AMoldovans could now be
granted a visa-free regime as those who wanted to leave the
country have already done so. We have heard that this visit
was originally scheduled for June 29, but as key European
officials will be at the OSCE Ministerial in Corfu that day, a
new date must be found.

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


9. (SBU) Many political observers see Voronin's trip to
Moscow as political theater for the domestic audience.
The PCRM hopes to garner voter support from the Russian-
speaking population for the upcoming elections. Given
the fact that a recent IMF mission did not negotiate a
new agreement with the GOM and that the GOM is facing a
large budget deficit, Russia is apparently Moldova's only
potential source for financing. However, the funds will
not address the immediate need the GOM has for budget
support which is the country's most pressing concern.
With elections on July 29, the GOM will make the payment

of salaries and pensions a priority in order to ensure
support from the PCRM's base. The fact that the GOM is
four months in arrears on VAT refunds is evidence of how
tight cash is.


10. (SBU) Analysts and opposition politicians speculate
that Moscow's loan contains a quid pro quo. In a press
conference last week, Dodon mentioned privatization of
the energy sector as one way to replenish the growing
budget shortfall. The Russians are known to be
interested in Moldova's natural gas distribution network
and gas transit pipeline. GazProm already owns 50
percent plus one share of the Moldovan gas distribution
company, Moldovagaz, and controls Transnistria's 13
percent share. Down the road, Russia may envision
forgiving Moldova's debts in exchange for acquiring the
remaining shares.


11. (SBU) Voronin denied these rumors in his press
conference on June 24. Some analysts believe the funds
will be contingent on the results of parliamentary
elections. Should the PCRM remain in power, it is
questionable whether Russian funds will ever be
allocated. Russia is facing a GDP decline of five to ten
percent for 2009, promised USD 3 billion to Kazakhstan,
USD 2 billion to Kyrgyzstan USD and a further 350 million
to Cuba. Russia held up the final tranche of USD 500
million in a USD 2 billion loan for Belarus this spring
questioning Belarus' ability to repay the loan. There
have been press reports and rumors in Moldova of a loan
from China circulating for several months but no concrete
developments have surfaced. Voronin's trip to Brussels,
coming on the heels of the Russia trip, could be a signal
that despite whatever deals were made in Moscow, Moldova
is still intent on pursuing European integration.

CHAUDHRY