USD 1 BILLION CHINESE LOAN FOR MOLDOVA

UNCLAS SECTION 01 OF 02 CHISINAU 000613

STATE FOR EUR/UMB, EEB/IED, EEB/ESC, EEB/IFD/OMA, EEB/EPPD

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAGR EINV EFIN ETRD PGOV KTDB MD
SUBJECT: USD 1 BILLION CHINESE LOAN FOR MOLDOVA

Sensitive but not classified. Please protect accordingly.


1. (SBU) Summary: On July 23, Moldova's Minister of Construction
and Territorial Development and the president of Covec signed a
memorandum of understanding for a USD 1 billion loan. Some news
about this loan had circulated earlier, as Moldovan press noted in
early February that China's largest construction company, Covec,
announced a possible 15-year, one-billion dollar loan for Moldova.
This loan would hold particular significance as the IMF and
Government of Moldova (GOM) were unable to come to terms on a new
agreement in June as the economic crisis hit Moldova harder. With
repeat parliamentary elections set for July 29, the GOM was not
willing to implement the policies an IMF agreement had required in
the period leading up to elections. Moldova sought other sources of
financial support. Russian Prime Minister Putin announced a USD 500
million loan to Moldova on June 22. End Summary.

THE DISUCSSION OF A CHINESE LOAN BEGINS
--------------


2. (SBU) Initial reports of a potential loan from China appeared in
the Moldovan press in early February. The first public discussion
of the loan arose during a video conference at the Novosti news
agency in Chisinau. The Covec representative in Moldova, Ruslan
Barladeanu, stated in an interview with the weekly Ekonomicheskoe
Obozrenie that China was prepared to offer the loan for 15 years at
three percent with a five year grace period. According to
Barladeanu, China would offer the funds for infrastructure projects
and the construction of manufacturing facilities. Several media
noted the development but gave it limited attention. For example, an
interview with Barladeanu in Ekonomicheskoe Obozrenie appeared on
page 16.

THE IMF AND THE RUSSIAN LOAN
--------------


3. (SBU) Moldova's IMF agreement ended in May and an IMF mission
visited Moldova from May 28 to June 8 to negotiate a new
arrangement. Following unproductive discussions with GOM officials,
the mission departed without a new agreement. With a dire budget
crisis and with GDP projected to decline nine percent in the current
year according to the IMF, the GOM sought funding through other
sources. Neither other IFIs nor bilateral agreements were options
for support as long as there was not a new agreement with the IMF.
Russian Prime Minister Vladimir Putin announced a USD 500 million
loan to Moldova during acting President Voronin's visit on June 22.
The first tranche of USD 150 million would supposedly be available
in 2009. Upon returning from Moscow, Voronin had noted that the GOM
was seeking similar loans from China.


THE MEMORANDUM OF UNDERSTANDING WITH COVEC
--------------


4. (SBU) On July 23, Moldova's Minister of Construction and
Territorial Development, Vladimir Baldovici, and the president of
Covec, Fang Yuanming, signed a memorandum of understanding for a USD
1 billion loan. Local press reported that discussions would follow
regarding the terms of the loan. Baldovici stated, as had been
reported in February, that the loan would be for 15 years at three
percent with a five year grace period. He noted that negotiations
on the final terms and parliamentary approval would take about four
months. The initial tranche could arrive in Moldova by the end of
the year, he added. Moldova would focus on road construction,
energy production, treatment plants, the industrialization of
agriculture, and the construction of production facilities for high
tech products with the funds. He added that Moldovan workers would
provide most of the labor force for the projects.

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


5. (SBU) The signing of the memorandum of understanding took place
six days before the parliamentary elections of July 29. It was
widely believed that the loan announcement was meant as an electoral
boost to help the image of the ruling Party of Communists of the
Republic of Moldova (PCRM). (Note: In the election, the Party of
Communists went from a majority of 61 in the 101 seat Parliament to
a plurality of 48, against a combined opposition of 53. Voronin
remains Acting President until 61 MPs can be found to vote for a
successor. End note.) Although the amount of the loan is huge for
Moldova, the PCRM elected to have the Minister of Construction and
Territorial Development sign on behalf of the GOM. Neither acting
President Vladimir Voronin nor Prime Minister Zinaidii Greceanii
showed up - this could be because they considered the moneys
unlikely to actually appear. Alternatively, it is also possible
that both of them were being careful not to give the opposition or

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the international community any chance to accuse them of
capitalizing on the event just before elections. We suspect that
Moldova many never actually see these funds.


6. (SBU) Acting President Voronin's grandson, Alexei Voronin, began
work in the Republic of Moldova's Embassy in Beijing in September
2006 following his graduation from Johns Hopkins University. The
Moldovan Ambassador to China, Iacov Timciuc, is considered a good
friend of the Acting President. Timciuc left Beijing in April 2009
and in July 2009 Alexei Voronin was named Charge d'Affaires. There
is speculation that the grandson has helped Moldova forge closer
ties with China.


7. (SBU) The international press speculated that China may be
offering such loans as a means to both increase their influence
overseas and to boost domestic demand by exporting Chinese equipment
and Chinese expertise. The Chinese government is likely concerned
about domestic migrant workers arriving in its cities seeking jobs
and the unrest unemployment could cause. Local experts speculate
that the Russian loan might depend on whether the PCRM is able to
stay in the government. Likewise, the Chinese loan will depend on
the composition of a new government and whether it turns eastward or
westward.

CHAUDHRY