Veaceslav Ionita: Tight monetary policy has left the economy without money

Moldova's economy is underdeveloped due to a lack of alternative financing. The only solution is banks, but the National Bank tight monetary policy restricts lending. This happened after the robbery banking system in 2014 that caused the Moldovan Leu depreciation, increased prices, and the slowing of the economy.

"National Bank tightened the monetary policy by increasing mandatory minimum reserves for the resources attracted in Lei from 14% to 35% and 5.5 times and the base rate from 3.5% to 19%. All these actions had some consequences: the economy was drained of money, the momentary mass fell from 62.3% of GDP in 2013 to 52.4% in 2015. Thus, through its policies, the NBM has stolen over 13 billion lei from the economy, if we compare the GDP. Moreover, people were scared of the Leu depreciation and reduced savings in Lei in favor of foreign currency", said the expert of IDIS Viitorul, Veaceslav Ionita at the program "15 minutes of economic realism".

The expert argues that monetary instruments look good in theory, but in practice things are different. An example is loans to individuals and businesses. "In late December 2016, the volume of loans to households for consumption, purchases of property and starting a business amounted to 6.48 billion Lei. 3.5% of these loans are bad loans or compromised. Meanwhile, credit to the operators amounted to 29.1 billion Lei, and compromised or non-performing loans are 3.5 times higher than in the case of individuals and reach the average of 12.4%. In constructions and services, they touch an alarming rate: 31.1% and 40% respectively".

In his opinion, the explanation is very simple for individuals: loans are low and credit decision is taken at the level of banks usually by lower hierarchical level loan officers. That is the case for large companies. In Moldova, nobody wants to discuss that a corrupt relationship exists between the large businesses and managers the all commercial banks. Or, struggling with bad loans is not done through tightening the monetary policy, but through the Anti-corruption Prosecution Office.

The expert suggested reducing the base rate to 3.5% and reduced reserve requirements to 20%.

The entire show can be watched here

For further details, please contact the Press officer, Victor Ursu at or by phone 069 017 396.

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