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27/09/2016

Auditors expose failures in EU assistance to Moldova

Europe's East

Auditors expose failures in EU assistance to Moldova

Anti-government protests in Chisinau. [Moldova.org]

The European Court of Auditors published a very critical assessment  today (1 September) of the way the Commission spends EU money in Moldova, a country associated with the EU and with an ambition to join the Union in the longer term.

The 50-page report reiterates the well-known fact that Moldova is the poorest country in Europe. Moldova was also the scene of a huge banking scandal, in which $1 billion disappeared from the banking system – roughly one-eighth of Moldova’s gross domestic output.

Moldova banking scandal fuels biggest protest ever

Tens of thousands of Moldovans rallied yesterday (6 September) in the heart of the capital Chisinau in the biggest street protests in memory, demanding the resignation of the president and early elections over a $1 billion bank fraud that has hit living standards.

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Corruption risks are high in Moldova. Transparency International’s corruption perceptions index indicates that the situation has worsened since 2012.

Wiretaps incriminate Moldovan pro-EU leader

Phone conversations posted online on Tuesday (20 October) are said to show former Moldovan Prime Minister Vlad Filat asking for bribes from a local businessman, who has been accused, along with Filat, of involvement in the theft of $1 billion from three banks.

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In 2015, EU funds for Moldova were frozen, and the IMF and the World Bank made the same decision earlier that year. In the meantime, Moldova managed to put in place a new government, called “last chance government”.

Moldova’s foreign minister: We have been dubbed a ‘last chance government’

The new government has a clear road map of what it has to do, developed together with its EU partners, Andrei Galbur, Deputy Prime-Minister, and Minister of Foreign Affairs and European Integration, told EurActiv.com in an exclusive interview.

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The EU cooperates with Moldova under the European Neighbourhood Policy (ENP) and, more specifically, the Eastern Partnership (EaP). Under the respective schemes, €782 million in bilateral aid were allocated to Moldova from 2007 to 2015. In 2014, aid amounted to nearly €37 per inhabitant — the highest among the EU’s eastern neighbours.

The Court of Auditors’ report says that Moldova’s main problems are widespread corruption and the weakness of its public institutions, which have been a significant recipient of EU assistance since 2007. The auditors examined whether EU assistance had contributed effectively towards strengthening public administration. Their sample covered four budget support programmes in the sectors of justice, public finance, public health and water. It also included 20 projects in various public authorities.

Since little progress had been made in the sectors targeted, the auditors concluded that budget support had a limited effect in strengthening the public administration.

The auditors criticise the European Commission who, they contend, could have responded more quickly when risks associated with the support materialised.

“Programmes were not sufficiently aligned to Moldovan strategies. The potential benefit of the programmes was reduced by the fact that the Commission did not make full use of its ability to set preconditions for disbursement. Some specific conditions were fulfilled between programme negotiation and the start of the sector budget support or were not directly measurable. The Commission could have been more stringent when assessing whether they had been fulfilled. Also, the granting of additional incentive-based funds was not fully justified,” the auditors found.

Regarding the banking scandal, the auditors say it is not possible to prove that EU funds were concerned specifically, since they were merged with the overall state budget.

“At the time of the audit, criminal investigations into the banking fraud had made little progress, and no recovery strategy had been prepared,” the report says.

The auditors are critical of the European Commission for having disbursed funds, even when specific conditions were not met. An example is that in the water sector, one condition required co-financing from the Moldovan side, which was met at only 42% of the required level. And the Commission disbursed its funding nevertheless.

The auditors have formulated recommendations to the executive. The Commission said it accepted all of them.

Background

Moldova is a former Soviet republic, and was part of Romania before being annexed by the Soviet Union in World War II. It is landlocked between Romania and Ukraine. Moldovans speak Romanian, although the country's constitution calls it the 'Moldovan language'. Russian is also widely spoken.

Transnistria, a Moldovan region east of the Dniester River, has been considered a 'frozen conflict' area since the disintegration of the Soviet Union. It has ethnic Russian and Ukrainian populations. Although internationally Transnistria is part of Moldova, de facto its authorities do not exercise any power there.

The EU and Moldova signed an Association Agreement on 27 June 2014. Moldova set a record by ratifying the agreement five days later. The AA is coupled with a so-called “Deep and Comprehensive Free Trade Agreement” (DCFTA).

Moldova sets record in ratifying EU association agreement

Moldova has ratified today its EU association agreement today (2 July) , which was signed last Friday on the occasion of the last EU summit. However, the largest force in parliament, the pro-Russia Communists, boycotted the vote.

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Further Reading