CHISINAU -- It's still not entirely clear what happened during a series of questionable banking transactions that took place in Moldova in November, just a few days before the country's parliamentary elections.
What is known, however, is that money amounting to nearly one-fifth of the country's gross domestic product (GDP) -- over $1 billion in total -- vanished into thin air.
The bad loans made by three of Moldova's biggest banks -- the Banca de Economii, Banca Sociala, and Unibank -- were discovered earlier this year by the country's central bank, which was forced to throw an emergency lifeline of 16 billion Moldovan lei ($870 million) to the three or risk immediately tanking the financial system.
The three banks will likely never be able to repay the bailout, meaning the debt will eventually be converted to the country's sovereign debt and charged to Moldova's beleaguered taxpayers.
It's a staggering amount of money in local terms, according to Adrian Lupusor, the executive director of the Chisinau-based economic think tank Expert-Grup.
Moldova is a small country of fewer than 4 million people. The $1 billion translates into approximately 16 percent of the country's total annual GDP of $6.2 billion.
"It's one of the biggest scandals in Moldova's history," Lupusor says. "It's one of the biggest scandals anywhere in the region."
Recession In 2015
Expert-Grup, in a report published April 15, says it now expects Moldova's economy to contract by between 0.2 percent and 1.8 percent in 2015, after expanding by 4.6 percent the previous year and an impressive 9 percent in 2013.
Not all of the contraction can be attributed to the banking scandal. The economy was already facing stiff headwinds before the full effects of the scandal came to light in early 2015.
Recessions in neighboring Ukraine and Russia this year were already expected to dampen appetite for Moldovan exports.
In addition, Russian import bans on important Moldovan products like wine and fruit were expected to take their toll this year.
Russia unilaterally imposed bans on wine, in 2013, and agricultural products, in 2014, supposedly on health and safety grounds. The timing of the bans, however, shortly after Moldovan officials assented to a European Union association agreement, led many to believe they were political in nature.
The banking scandal, though, adds an unexpected negative impact that will likely hurt the economy in several different ways.
News of the scandal provoked a run on the Moldovan currency, the lei, knocking it down some 40 percent before it regained some ground in recent days. The devaluation of the currency hurts many individuals and companies holding foreign-currency loans.
Lupusor says banks are now likely to restrict their lending in order to build up liquidity.
Finance officials will also move to tighten fiscal policy, raising taxes and cutting subsidies in order to raise revenue to cover debt payments. The moves will hit the poorest members of society hardest.
Not much is known about how the money was taken, only that the cash appeared to exit the banks via a series of specious loans.
The central bank and the U.S. auditing firm Kroll are investigating, and the government is now considering a preliminary report. Officials have declined to comment, saying they don't want to compromise the investigation.
Pro-EU Parties Bear The Brunt
The timing of the scandal, shortly before parliamentary elections which returned to power a weak coalition of pro-European Union parties, has left a lingering feeling that the pro-EU parties let the country down. After all, the scandal happened on their watch.
While it's early yet to predict the political consequences, the results of one recent survey of public opinion appear to support the notion that pro-Western attitudes, generally, have been tarnished.
A recent Barometer of Public Opinion, conducted by the CBS-AXA organization of approximately 1,000 people, shows support for the Russia-led Eurasian Economic Union (EEU) is now stronger than for the European Union. The survey, released on April 16, showed 60 percent of respondents said they would support Moldova's membership in the EEU, compared with 40 percent for the EU. More residents said they would vote against EU membership than for it.
That same poll found that most Moldovans regard Russian President Vladimir Putin as a trusted foreign leader -- the highest score of any foreign head of state or government. Further down came German Chancellor Angela Merkel, Romanian President Klaus Iohannis, and U.S. President Barack Obama.