This Summer’s Financial Crisis

Next up on the chopping block for financial collapse is … Moldova.

Never heard of it? Read the article linked below, which includes a map showing where Moldova is.

Moldova has been simmering for a while. When the Soviet Union broke up,* some of its “states” became independent formally, and some because independent informally. Ukraine was in the former group. Moldova was in the latter group. When Ukraine became independent, Moldova didn’t want to leave Russia … but was no longer physically connected to Russia. And it’s landlocked. So basically, the locals and Russian in the government kinda’ sorta’ broke away from the new Russia because it wasn’t corrupt enough for them, and no one was going to fly over to Moldova to straighten things out.

These things matter macroeconomically because rich guys in eastern Europe, especially those who got rich through illegal activities, start moving their money through places like Moldova to launder it before they, say, go buy a house in London … or maybe Park City.

Greece has been in the news because the IMF has had difficulties dealing with them, and the Greeks currently owe them a lot of money. The IMF doesn’t even send negotiating teams into Moldova because there’s no one to negotiate with. It’s that bad.

Here’s an example of the problems. A London based consulting company named Kroll was brought in to file a report about the financial crisis. part of the reason why:

I have read Kroll’s report, and I regard it as deeply flawed. I cannot comment on the accuracy of Kroll’s forensic investigation, but the explanation of the liquidity transfers between the entities concerned – particularly transfers between the three banks and Russian companies – displays a lamentable lack of understanding of how banks actually work.

That’s from Frances Coppola, a journalist who writes for Forbes, who I don’t regard as terribly hard on developing countries. But clearly she thinks Kroll was out to make a paying client happy.

Yet this report with a” lack of understanding of how banks actually work” was denounced by what passes for a government in Moldova because it was too hard on them.

Oh … and BTW … the EU had turned a blind eye to so much of this that they were very close to admitting Moldova to their union last December. Of course, we know from the Greek story that that are people working for the EU who will turn a blind eye to fudged economic data because it’s so important to them that Europe be united no matter what the problems.

So, in a couple of years, I’ll be using my Google Search toolbar above to find this article so that I can tell the ECON 3020 students that we’ve been watching this for a while.

* Before World War II, the Nazis and the Soviets had plans for divvying up eastern Europe. As the Soviets started rolling back the Germans in 1944, in some places they put in place sympathetic puppet governments, and in others they pushed out the locals and had Russians move in. Today we call this ethnic cleansing, although that term didn’t come into vogue until about 20 years ago. Anyway, Moldova used to be mostly filled up with Moldavians, who are one of the two big groups that make up Romanians (if you’ve ever seen Ghostbusters II, Vigo claims to be the scourge of Moldavia). But the Russians liked the Moldovians’ land, so they pushed out enough of them, and brought in enough Russians that it’s now like a Russian enclave that’s not attached to Russia any more. Oh … and … Moldova has a breakaway part, called Transnistria, that’s even more lawless.