The majority in Moldova’s parliament abrogated the law under which the government is repaying the loans extended by the National Bank of Moldova (BNM) to the three banks involved in the so-called $1bn bank frauds from the public budget, on December 16.

If quickly promulgated by outgoing President Igor Dodon, whose term expires on December 24, the bill will make any agreement with the International Monetary Fund (IMF) impossible, thus blocking the financing promised by the European Union as well. 

The pro-EU parties in parliament, which expect to trigger and win early elections, have promised to find ways to prevent such a scenario by invalidating the bill put forward by Socialist lawmakers. They put forward a no-confidence motion against the government on the day the bill was approved. 

The bill was backed by the recently formed majority composed of Dodon's Socialists and the MPs loyal to fugitive businessmen Vlad Plahotniuc and Ilan Shor. 

It looks like a hot potato prepared for an imminent pro-EU government, as Dodon's prime minister, Ion Chicu, is at risk of losing his position. Also on December 16, Socialist lawmakers passed all urgent bills, including the 2021 budget bill, under accelerated procedures, and declared the recess for the Christmas season. 

In the bill approved on December 16, lawmakers delegated to the government the task of “identifying an alternative solution” for the repayment of the executive’s debt to the BNM. The government guaranteed the rescue loans extended by the BNM to the failed banks in 2014 and 2015 and, under the law now abrogated by lawmakers, issued and handed to the BNM bonds that mature gradually over a 25-year period.

Ironically, Shor — whose MPs voted for the abrogation of the law — was indicated by the financial forensic investigation firm Kroll as “the visible beneficiary” of the frauds in the banking system. He was not seriously investigated during Plahotniuc’s regime that ended in the summer of 2019. Both fled Moldova after their rival Dodon formed a new coalition with the pro-EU parties in June 2019. More recently, however, their MPs have formed a new majority ruling coalition with Dodon’s Socialist after he lost the presidential elections against pro-EU candidate Maia Sandu.

In the summer of 2016, Moldova’s government endorsed and submitted to lawmakers for approval a bill on the issuance of MDL13.6bn (€610mn) of government bonds, to repay the central bank for emergency aid extended to three troubled banks in 2014-2015. The settlement was part of broader reforms in the banking system promoted under the supervision of the IMF, which greatly improved the status of the national banking system. 

The volume of the bonds will be adjusted if any funds are recovered from the three troubled banks, the government said at that time. Not much has been recovered so far. Liquidation procedures were launched at that time at the three banks, Banca de Economii, Banca Sociala and Unibank.

The bonds issued in 2016 have maturities of between one and 25 years and the coupon was set at 1.4% for maturities of one to nine years and 5.3% for longer maturities. The coupon paid by the government on the bonds was calculated based on the central bank’s inflation targeting policy, under which the monetary authority envisages long-term inflation of 5% p.a., the government explained.

The service of the bonds amounted to 0.5% of GDP in 2017-2019.