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Interview with Ambassador Carlos Pascual, Coordinator for United States Assistance to Europe and Eurasia, by Valentina Ursu, Moldovan National Radio

June 02, 2004

Valentina Ursu: This is a political diplomatic radio program, which is why we try to keep in touch with all the developments in the bilateral Moldovan-American relations. I would like to avail myself on this occasion for you to describe the US-Moldovan relations at this state. First of all the political aspect of relations and how satisfactory is the level of relations in your view, sir.

Ambassador Pascual: First let me thank you for having this opportunity to speak with you on the radio today.

Thanks to the leadership of Ambassador Hodges our relations with Moldova are excellent and we are trying to take every step to make them better. The key to this challenge is to move from general statements of common interests to practical and concrete realties where we work together and cooperate with one another toward goals that benefit both of our countries. On foreign affairs our work together on Iraq has been extremely good and we very much appreciate the support that Moldova has provided. In turn, the United States continues its support for Moldova through the Foreign Military Financing Program and the International Military Education and Training Program.

We fully support Moldova's ambitions to become and show that it is a part of Europe. But to be part of Europe, one has to also look like Europe. And that means in the character of a country's political system and the nature of its economy, the way it treats businesses, the nature of its court system. For that reason, the United States has cooperative programs with Moldova in all of these areas -- so that our talk about European integration is not just rhetoric but something that we can translate into concrete action. Our hope is that Moldova, for its part, will do what is necessary to create the kind of climate and environment, internally within the country, that will allow the political system to develop, that will allow the economy to be open and competitive, so that it can indeed be seen as European in the way that its political and economic system looks.

And, of course, the United States has consistently supported a peaceful political resolution of the Transnistria situation. We played a leading and key role in the 1999 Istanbul summit, which established the limits for Russian troops and we look to Russia to abide by its commitments and withdraw its troops in accordance with its commitments at Istanbul. Through our Ambassador here, and Ambassador Mann through the Minsk group, we maintain a very active dialogue and overall cooperation and overall political dialogue on the Transnistria settlement.

Of course, our cooperation has an economic dimension as well, and that will be one of the principal areas of my focus over the next few days.

Valentina Ursu: We will get back to the economic issue later but since you mentioned Transnistria and the Istanbul summit in 1999 and the need of Russia to fulfill its commitment taken in 1999. There will be another summit soon in Istanbul, a NATO summit and my question is if you will reiterate the need for Russia to fulfill its commitment at the 1999 summit at the new NATO summit?

Ambassador Pascual: This has been a consistent United States position, and it is not one that we feel is necessary to change because it is one that all of the parties arrived at collaboratively together based on the interests of all of the countries in the region.

Valentina Ursu: The United States is not part of the current mechanism of the Transnistrian settlement -- and I refer here to the five-sided talks. Moldovan authorities are among those who mention that the United States plays very important role in solving the conflict. How do you see a more active, a more direct involvement of the United States in resolving the Transnistrian issue?

Ambassador Pascual: Rather than me get into this question in a lot of detail, I will allow you to take this up in greater detail with Ambassador Hodges, because this is essentially her area, as well as that of Ambassador Mann who is the US representative to the Minsk group. These issues obviously are evolving and changing every day; even yesterday with the presentation that was made by President Voronin. We will review it and Ambassador Hodges will be coming back with specific comments on it at a later time.

Valentina Ursu: You mentioned Moldova's ambition to become a member of the European Union. Our listeners know that the United States is not a member of this organization, but they also know that it depends very much on the United States if Moldova will be able to ever become a member the EU, even an associate member to the European Union. What chances do you give to Moldova in its accession into the European Union? And I ask this question because I understand that both the EU and the US press very much the need to promote reform in democracy and economy.

Ambassador Pascual: Most fundamentally Moldova's prospects for integration with the European Union depend on Moldova. It is true that the European Union has a major agenda in front of it already, with the ten new members that it has taken in and future prospects for additional members in 2007. But that only reinforces the importance of working more aggressively internally within Moldova to show that you are committed to the kind of principals and values that characterize the members of the European Union.

Let me give you an analogy. In 1997, Russia drew a red line and said that it was impossible to ever consider the Baltics as future members of NATO. And the Baltic countries reacted to that by saying, "We will demonstrate to you that internally we have the character of members of NATO and therefore you will allow us to join that organization to which we rightfully belong." Today a similar and a parallel situation really exists for Moldova and its relationship with the European Union. You are looking forward to extremely important parliamentary elections and the way you conduct those elections and the environment around the elections -- the way that you treat the media, the way that non-governmental organizations are allowed to participate and the preparatory process those are all going to be key factors in the way that Europe sees the character of Moldova's democracy and whether it is truly a European democracy.

In the economic sphere, perhaps one of the most important issues that Moldovans face today and is also reflective of the nature and character of your economy -- it is what you do to create jobs and improve the standard of living. For this, nothing is more important than the kind of investment climate that you develop internally within Moldova. Investors need to feel that their property rights are going to be secure, that if they have disputes that they can take them to court and that they will get a fair hearing, that there is an opportunity to charge fair prices and that they will not be over-regulated, that they will have an opportunity to export their products.

And finally, the issue which comes up over and over again in transition countries and countries that are seeking to become part of Europe is how these countries address the question of corruption. It's not surprising that corruption exists when a centrally controlled system is breaking apart and those who have been at the middle of that system have an opportunity to control resources and when businesses have a self-interest in perhaps paying bribes to actually get favorable treatment. The big difference is whether countries really believe in the rule of law and adopt legal systems that prosecute corruption, send the corrupt to jail and do everything that they can to eliminate those roadblocks in the economy, those places that are like traffic lights where there are opportunities for those who stand guard at the traffic lights to ask for bribes and payments.

Valentina Ursu: I wanted to ask how would you describe the investment climate in Moldova, because there are very contradictory discussions going on in the society now. On one hand they say we have a legislation that is favorable for foreign investment, but on the other hand foreign investors don't come to Moldova. How would you explain that?

Ambassador Pascual: I think the fact that foreign investors aren't coming to Moldova speaks for itself about the investment climate. By comparison investment throughout southeast Europe has increased by about one-third over the past few years. A good investment climate must depend in part on the laws that are on the books. But it's not just the laws on the books -- it's also how those laws are enforced.

A key issue for Moldova is still a lingering uncertainty about whether property rights are going to be respected, whether private property will still remain private. It would help Moldova a great deal as well if it were able to reach a constructive understanding with the IMF that would allow programs to go forward and where there would be an international seal of approval indicating that Moldova is pursuing the kind of macroeconomic policies that would give investors confidence. And of course an agreement with the IMF would also open the door to rescheduling of Moldova's debt at the Paris club, which would reduce the demands on annual debt service payments and make investors more confident that Moldova would be able to maintain a strong and constructive fiscal environment.

Valentina Ursu: In comparison with the Moldovan authorities, you are not very worried with the fact that they that Moldova failed to unblock the IMF and the World Bank programs. There are statements saying that Moldova has received grants and technical assistance from abroad and Economics Minister Marian Lupu once said Moldova will not insist to resume negotiations with the two international financial institutions because it is not very profitable for Moldova to get credit from these two bodies.

Ambassador Pascual: Moldova has to decide for itself what it believes the economic strategy for the country should be. It has to be committed to it; a strategy cannot be imposed from the outside. And so for Moldova to adopt an IMF program simply because it's a way of getting additional money is not a good thing. It only should enter into a program with the IMF if it indeed is convinced that these are things that are good for the economy, that are going to generate jobs, that are going to generate investment and going to make the country better off. For its part, the IMF provides the best advice that it can based on international experience, based on lessons learned from throughout the world on what kind of steps are necessary in order to have a sound fiscal and monetary system.

We, the United States and other countries, as shareholders in the IMF have in effect invested our money in the IMF as a bank and the IMF is, in a sense, our banker and they are going to make choices on whether or not they will invest resources into a country, on whether or not they believe that a country is following sound policies. Just like a business in any country that goes to a commercial bank to get a loan, if it has a good proposal the bank can be responsive and it could in effect invest in the business. If the proposal is not sound, the bank will make its choice. That doesn't mean that the business has to take the bank's advice, but there are consequences if businesses violate standard business practice and there are consequences for countries if they don't adopt policies that are consistent with the best lessons that we have learned internationally.

Valentina Ursu: But I know that there are other criteria for actually giving grants and the assistance and any other kind of aid and among this criteria you often have an aid program with the IMF and the World Bank.

Ambassador Pascual: There are different types of assistance that are provided by different organizations. The IMF generally provides balance of payments or budgetary support to countries based on their macroeconomic policies. The World Bank generally focuses on structural reforms and specific sectors, and can provide support to the budget but also makes investment in specific projects. Bilateral donors like the United States usually focus on technical and humanitarian assistance, on issues such as improving the agricultural sector or strengthening producers associations or strengthening the capacity of agribusinesses to function affectively or dealing with issue like the trafficking in persons.

The amount of assistance that the United States will provide this year, for example, to Moldova will be in the range of about $40 million. But that does not fill the gaps in your budget. Indeed if I remember correctly the amount that Moldova would have to pay in debt servicing alone every year would be over 40% of your total budget revenues. And if you cannot rationalize this situation you cannot have a government that functions because the revenues that will be left for the other things that your government needs to do -- to deal with heath care and education for example -- will be extremely small.

Valentina Ursu: Washington has granted a tremendous amount of assistance to the agricultural sector of Moldova. What is your commentary on the Moldovan government's criticism towards the land projects?

Ambassador Pascual: This is one of the issues that we will focus a great deal of attention on in our bilateral meeting tomorrow, so I will be very interested in the comments that the Government will make on how it seeks to move forward with its agricultural program.

This I can say, we consider the agricultural program here and the privatization of agriculture a tremendous success. After the initial privatization of land the marketplace itself has begun to encourage the consolidation of landholdings into more efficient parcels. Indeed in Moldova now the average size of the landholdings -- the private landholdings -- are about three times the size of Western European farms. And productivity on private farms is much, much greater than it is on state farms. So what I look forward to in the next days is a discussion that will reinforce the directions of private agriculture in Moldova, because we think that the agricultural sector here has tremendous potential. It can be a source of productivity for Moldovans themselves, but it is already is a source of export and can be even a greater source of export for the country.

Valentina Ursu: How do you assess the US currency depreciation in Moldova?

Ambassador Pascual: The issue of managing Moldovan currency is actually a very important issue for the central bank of Moldova, and they have been doing a very good job. Internationally, this has been a period where the dollar has been relatively weak and that obviously is the case here and it's true in all countries. But the real challenge for the central bank today is managing the large flow of remittances that are coming into the country. The positive side is that these remittances allow for investment and consumption and construction. They are also a reflection of the character of the Moldovan people that they care about their families and their relatives and they send funds back to them when they are abroad working.

But that large flow of remittances can have either one of two impacts. One is that it can cause an appreciation of the Moldovan currency, which makes it more difficult for exporters who are trying to sell their products. The second option is that the central bank can purchase a significant amount of that foreign currency that is coming into the country. But when they purchase it, they admit local currency onto the market and that can cause inflation. Managing the balance between these two issues -- export competitiveness and inflation -- is extremely difficult and we think that central bank has been doing that extremely well.

Valentina Ursu: What are your impressions about Moldova and what is your message to our listeners?

Ambassador Pascual: It is hard for me to give you a very deep impression so far because I just got off the plane about an hour and a half ago. I am extremely excited to have a chance to see various sites throughout the country and here in Chisinau. It has been about five years since I have had a chance to visit Moldova and I am sure that there have been very extensive changes.

What I can say, just coming from the outside, is that today's international environment is different and is better for Moldova. Difficult as it may be, Moldova does have a chance of establishing itself today as a European state -- if it takes the kind of actions that it needs to in its democratic system, in its economic system that it is indeed European. We think that the benefits that this could bring to the Moldovan people are indeed enormous and, if the Moldovan people do believe that that is a priority for them, we hope that they will take advantage of this upcoming political process and season so that they can express their views to their leadership and the Moldovan people can be the guide to where they want to see their country move in the future.