Monday, July 06, 2009
Debt-free: good for you, but for the economy?
Earlier this year, The Banker, a respected British financial journal, ranked Moldova fifth out of 184 countries for economic stability in recession times, according to the 25 indicators used to compile its World Financial Health Index for 2009. Moldovans complained to me about corruption, the ruling Communists, and the president, but the kreezis ("financial crisis" - kb) did not come up in conversation unless I mentioned it.I'm on my way to a conference about the "kreezis" in Armenia, which has had a rougher time in the last six months. Yet it is also characterized by relatively low lending. If anything, the government has basically force-fed a mortgage market on the banking system, but it's not much more than Moldova's. And in comparison to the rest of the CIS, Moldova has low GDP per capita. It's unclear to me why the author wants to make Moldova out to be some great place just because it lives on a cash-only economy.
Moldova lacks not only the energy reserves that characterize three of the four countries ahead of it on the index (Norway, Russia, and Kuwait), but also most of the attributes now associated with developed (read: leveraged) economies: among others, the prevalence of credit, state debt and debt interest payments, and domestic bank loans. The Moldovan government largely lives within its (admittedly limited) means; Moldovan banks, on the whole, exhibit what a year ago would have been diagnosed as risible, out-of-touch conservatism, lending modestly (35 percent of GDP, as compared with 230 percent in the United States) and maintaining a high capital-to-assets ratio. In fact, the country hardly has a banking or financial sector at all.
�We never think of going to the bank for a loan or using a credit card,� Roman told me. �We operate on a cash-only system here.�
Labels: Armenia, economics, Moldova