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2003: we managed to hold out, but failed to break through
Anatol Gudim, 16 January 2004
The Government thinks "2003 will go down in history as a year of new achievements in socio-economic development of the Republic of Moldova" (V. Tarlev's speech in the Parliament, 26.12.2003). But Fitch Ratings, an international agency that the Government respects (London/New York), evaluated, nonetheless, 2003 as "another disappointing year for Moldova. The government has failed to accelerate structural reforms" (5.12.2003).
The truth apparently is somewhere in between. One could assess the work of the Government, Ministry of Finance and National Bank as successful based on the fact that they managed to maintain macroeconomic stability, there were positive changes in industry, constructions and services, incomes of the population increased, but the Government's activity along the reformation path has been mostly based on the "one step forward - two steps back" principle, which was the cause IMF and World Bank were so evidently disappointed saying that Moldova's liberal-market economic course is being transformed into state dirigisme.
Any government has to produce optimism. And ours does the same. Results of the year, according to official estimates, are very optimistic: GDP grew by 6.8%, industry - 17.0%, domestic investments - 23.0%, export - 25.1%. State budget incomes increased by 36.2% and incomes of the population - 19%, including average monthly wage in the national economy - by 31% and pensions - by 28%. Social sphere received 53.7% of the total expenditures of the consolidated budget.
These indicators of "achievements" were published many times to confirm that actions to revive the economy were correct. It would be proper, though, at the same time to mention the risk factors as well, that intensified, rather than subside in 2003. Among them are:
- Quality, structure of the GDP growth. Share of real sector is rather small within the 2003 GDP growth (industry, for instance, accounted for only 11.5%). Its largest part is being formed in services, import operations, by means of banking credits, etc. GDP growth given such its structure is not equivalent increase of real resources at all. Especially since the budget has nothing to do with formation and distribution of GDP. Hence the population does not really feel this growth;
- Unsatisfactory state of business environment, which shows through insufficient volume and structure of export (it is still less than the 1997 level), uncertainty of foreign investors' disposition, freezing of privatization and preservation of a vast shadow economy sector;
- Critical state of the country's balance of payment due to almost double (!) exceeding of import over export, while after relations with IMF and World Bank had cooled off, possibilities of receipt of currency through external loans and investments have sharply dropped. Of a little help is replenishment of the country with money transfers of our citizens working abroad - circa 500 mil USD in 2003;
- Inflation leap up to 15.7% in 2003 (4.4% in 2002) and 20.0% increase in prices for foodstuff. Approximate 1/3 increase of wages and pensions also left its traces, even though wage arrears reached 175,7 mil MDL (13,3 mil USD). Danger of a critical gap between the need to expand monetary aggregates and capacities of the inflation-free emission;
- Further increase of external (1,4 bil USD) and internal (2,9 bil MDL) state debt;
- Unreformed state machinery, which is the cause many "2003 initiatives" either were not realized, or yielded small or negative results. Among them are: advancement along the way of European integration, implementation of the strategy of economic growth and poverty reduction, development of a competitive environment and small and medium business support, activization of export and foreign investments attraction, administrative-territorial reform, fight against economic crimes and corruption, rapprochement with Transnistria.
All these circumstances are so evident that the President V. Voronin at the last in 2003 session of the Government (24.12.2003) pointed out that "programme goals of the Government are fully not realized and instruments stipulated for by the government action programme "Revival of economy - revival of the country" are not used to the right degree".
Look from outside
Moldova from the outside is perceived as a country, where due to the inertia of the 90's, but through other methods, "survival policy" is still realized and that does fail to activate factors of sustainable economic growth.
The Government admits the same by implication through its forecast for 2004-2006 of a GDP growth reduction to 5.0% as compared to 6-8% GDP growth achieved during the last two years, while international organizations and rating agencies' forecasts even lower - only 3.5-4.0%. Such rates cannot solve anything indeed. After all our GDP per capita (460-500 USD) today is the level of such exotic African countries as Senegal, Cameroon or Ghana. And in this situation Republic of Moldova, the poorest European country really needs a breakthrough in economic policy, consent between the government and the society on composition, rates and order of transformation of the country's economy.
We aspire to enter Europe. So here is a look from that direction at our starting position: "due to insufficient work of administrative machinery and lack of an efficient democratic control over the former Moldova's economy encounters high level of corruption, informal sector making up almost 80%, which is why incomes from taxes are being lost; there is no control over the eastern border of the country and its social system is insufficient" (Resolution of the European Parliament on Moldova, 18.12.2003).
Unfortunately, 2004 is another pre-election year and, of course, there will be a lot of PR-economy and promises. One could, nonetheless, insist that the country's economy had already adapted to market conditions and therefore growth inertia has already emerged, and given all risk factors no one should expect any force majeure events (as a default) during the new year. There are encouraging signs that, economic policy will finally become intelligent and, according to Marian Lupu, Minister of Economy, we have ahead a "year of active actions" combined into five "baskets": macroeconomic conditions for implementation of structural reforms; raising of competitive economy's potential; social policy; elimination of infrastructural restrictions; state management system reform.
The latter is especially important. During the nearest years it will be modernization of state bodies under the European standards, raising of the society's confidence in the state that will be of decisive importance, rather than so-called market reforms.