The Moldovan Game of Thrones: The takeout

The politics of Moldova has found a new lowest point yet and it's moving rapidly downwards.
Long story, short, the last 6 years were a passive-aggressive showdown between the entrepreneurs turned politicians: Vlad Filat and Vlad Plahotniuc. The later has always had the advantage, having a strong personal intel system and getting hold of the National Anticorruption Center, as well as the Prosecutor's office, as a result of the "algorithm" that was created by the first European Integration Alliance.

Political control over law enforcement is never a good idea, but, in this case, coupled with a corrupt justice system, it created the perfect opportunities for the heist of the century in Moldova, the embezzlement of 1 billion dollars from three banks, one of which was the backbone of the whole banking system.

The fraud took place gradually, as a result, most of the actors knew about it and did nothing. It culminated with guaranteeing of a National Bank loan to Banca de Economii by the government, then led by the liberal-democrat Iurie Leanca. This event gave the perfect opportunity for the embezzlers to put the weight of the missing money on the budget of the stat.

This was merely the first act of the farce that is the Moldovan political process. It went on with calling the Kroll investigators to find out what happened to the funds, which finger pointed towards Ilan Shor, a local business person of Jewish descent with strong connections to the Russian business world.

Also, I want to point out that in a small country with such a diverse pattern of family ties, where the Minister of Foreign Affairs and European Integration is the daughter of the former President, as well as the wife of the now ex-Interim Director of the National Commission of the Financial Market, it would be virtually impossible to realize such bold movements without the help or the knowledge of the two Vlads.

So, most probably, both got a cut. Based on the latter declarations of Ilan Shor, Vlad Filat's cut was about 250 million. Also, the same business person says they've met with Mr. Plahotniuc in order to talk about the "financial problems" of the banks and that Plahotniuc warned Filat about himself taking serious actions if the later would not return the stolen funds. The sarcasm of such a declaration is at least self-evident.

Last Thursday, on the 15th of October, the Prosecutor General presented himself before the Parliament to resign. That was the agreement of the Alliance, as it struggled to maintain some kind of legitimacy in the wake of large public protests.
Instead, the Prosecutor General asked for the lifting of the immunity of the MP Vlad Filat, that was subsequently taken into custody and is still under arrest. He is an obvious, kind of guilty, scapegoat.

The conflict, which was fun to watch at the begging now resembles a slaughter.

Vlad Plahotniuc has a media empire: 3 TV channels, several radio stations and news sites. He is said to control the Communist Party and the Liberal Party fractions, beside his own, totaling a shifty 52 majority. Some claim that he was behind the 5 MPs that left the Liberal Democrat Party fraction and that he is financing the ex Prime Minister's Leanca group of 3 MPs. The only problem is that all of these parties have very different perspectives and the open coalition is impossible.
He also controls the National Anticorruption Center and the Prosecutor General that are to decide what happens next to Filat.

On the other hand, Filat has the Prime Minister that is already under the threat of a dismissal motion and has a Government that is only partly compliant. Also, the Minister of the Interior is particularly quiet lately, signs of a potential "Gentlemens Agreement" with Plahotniuc.
He is said to have co-financed the creation of the "DA" platform, one of the main forces behind the protest, bu their main claim was to get the billion back. Now, their rhetorics are a bit ludicrous.

The conclusions I take out of the last events are:
1. The billion issue isn't going to be solved. It is obvious that both Filat and Plahotniuc were involved and there is a slight chance that a small part is going back to the budget, but nothing more.
2. The Prime Minister will be demoted and a new coalition will be negotiated, most likely, a large one. I think that Plahotniuc is counting on the breakup of the Liberal Democrat Party, now that their leader is imprisoned.
3. Virtually, the whole state system is now under the control of Plahotniuc and the few officials that could oppose him are either inept or think about striking a deal. Moldova is a failed state. No doubt about it.
4. The events happening in Moldova may be a Russian strategy, but Russia may also sit back and relax. Most of the blame is on the inner actors.
5. Filat is a perfect scapegoat. And he gets what he deserves. Unfortunatelly, only him.
6. The Europeans and the Americans will negotiate with the winner. They understand the situation and have their own agenda. Not to lose their influence on the region. Period.
7. The biggest looser in the whole situation is the Moldovan People.

The billion dollar question for Moldova

The issues that the money-laundering bank fraud that has taken place in the Republic of Moldova creates, has been widely discussed in the media, in the Parliament and with the international partners. According to the Expert Group Country Report, Moldova is facing the biggest economic crisis in its short history and that couldn't be far from the truth as the IMF has frozen its negotiations until the forming of a new Government and the EU has followed its example. This country is heavily relying on external financial aid and is lacking the basis for direct foreign investment that could secure its development without the bargains on socially difficult questions (retirement age, the optimisation of the education system etc.). Nowadays, the so-called Pro - European parties cannot continue governing without extended help from the EU, as the loans given to stabilise the failing Banca de Economii, Banca Sociala and Unibank have created a black hole in the budget that won't be easily covered by internal resources, if at all. The Pro-Russian rising stars hint at some kind of Kremlin help, which is also highly unlikely as Russia is notorious to promise help and not deliver it. Moreover, there is an estimated $ 0.5 to 1 billion needed to stabilise the banking system that could go down due to a domino effect. There are numerous facts indicating that the insurance system may be going through a similar process of "fund extraction" and further the crisis already in place. There are a number of factors that have contributed to this situation: 

1. The lack of an independent justice system; 
2. The alleged implication of political forces in the illegal activities; 
3. The lack of transparency and effective mechanisms of control in the banking system; 
4. The relative inactivity of the investigation and prosecution agencies.
All of them have a common root, the lack of political will to realize a real reform in the justice system, as well as in other critical domains that could enhance the predictability of the environment and has ended, allegedly with the participation of some key party leaders, in this difficult situation. 

There are three scenarios we can address now: 

1. The liquidation of the banks as a condition to get the funds from the partners. This is the most economically sound plan, but it would result in a serious political backlash for the leaders that will decide that. Tens of thousands of clients of the three banks would protest losing (part of) their money and this could easily be used by the Pro-Russian Parties in an attempt to overthrow in a more or less legal way the Government. This would mean that the next Prime-Minister would be a sacrificial pawn and not the "New Hope" of the Democrat Party, Adrian Candu. It might even be the now rumoured leader of his own coming party, ex-Prime-Minister, Iurie Leanca. The personal support given to him by Angela Merkel is a known fact and other party leaders may use him to their advantage.

2. The saving of the banks with IMF and EU money An unlikely scenario that implies a Card Blanche from the international partners of the Republic of Moldova to the Pro-European parties. The EU may gamble a geostrategic plan to maintain the country on the right course and give them a second chance. In the context of the Grexit crisis, this comes as a dream scenario, but you never know.

3. A Russian solution to the problem There are signs of coquetry with the Kremlin, especially in the declarations of Victor Osipov, the vice-Prime-Minister for reintegration of the Republic of Moldova. The authorities in a desperate attempt to stay in power could turn to a Russian loan as an alternative to the austerity measures proposed by the IMF and EU. This would mean forfeiting the European integration objectives and risking giving them up and making big concessions to the Transnistrian regime.

 and the intermezzo scenario: 

4. Failing to sign a deal with the IMF This would mean a technical default with the incapacity to pay salaries and continuing negotiations to reach an even harder deal with either the Europeans or the Russians. 

Either way, there are a certain number of issues that we would like to see in the (maybe secret) negotiations with the IMF and EU: 
1. An independent international investigation committee (potentially funded by EU) to investigation the billion dollar case; 
2. A short term EU - LEX mission that would take upon General Prosecutors key functions and the Supreme and Appeal Courts to stabilise the justice system; 
3. A boycott of compromised politicians and government officials that should not occupy public functions; 
4. A real implementation of the reform processes with closer EU monitoring and clear milestones to be achieved. 

We just have to wait and see what happens in a matter of months.