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EU enlargement: lessons for the Republic of Moldova
Iurie Gotisan, 5 May 2004

As of May 1, ten new countries that had successfully passed the "admission test" joined EU and became full-rights members. It wouldn't be long until Poland, Lithuania, Latvia, Estonia, Hungary, Czech Republic, Malta, Cyprus and Slovakia would enjoy the benefits of the marriage between East and West planned ahead a decade ago. The enlarged EU has set a rather ambitious task to become in five years the most competitive world power fully integrated politically and economically, capable of influencing other actors on the international arena.

In this respect, given Moldova's efforts to join EU many analysts wonder what impact would enlargement have on Moldovan economy. To begin with, there is the risk that the trade would drop sharply as would revenues from exports. And this largely due to Moldovan goods being eliminated from the EU market and tariff barriers in trading with the new member states. Another negative impact might be the price hike on goods imported from those countries, as they would align them to current EU standards. As a result, weak and non-competitive companies in Moldova run the risk of being excluded from the market that would inevitably boost unemployment and crime. Finally, free movement of labour would be quiet onerous to achieve in new members as some of them face a fierce shortage of workplaces and high unemployment rates.

Albeit it stepped on its independence path at the same time with Baltic States that were probably integrated in the soviet economic system to a larger extend, Moldova failed to capitalize on its political independence so as to secure its economic independence and is still lagging behind in as far as accession to EU is concerned for quite a while now. That "while" cost Moldova investments worth million euros that would go to countries boasting a better business climate and playing by the rules. That is not the case of Moldova, which according to Moldova-watchers is among the poorest and most corrupt countries in Europe. It has the lowest average annual income per capita worth 230 euro per capita and an average wage per hour of only 0.3 euro. Poverty has reached scary levels with 40% of the population under the minimal subsistence level. Not to mention that the country is struggling to have its Poverty Reduction Strategy.

How was it possible for countries that had stood equal chances to be so far apart? Whose fault was it that Moldova is lagging far behind countries like Estonia with a population three times smaller than Moldova's and far scarcer resources? Economists and politicians alike agree that first and foremost political elite is to be blamed, which acted more like an obstructer than promoter of reforms. Nothing and nobody could guarantee that reforms are irreversible in this country, as it still hasn't got rid of duality in foreign policy. Situated on the crossroads of two superpowers Moscow and Brussels, Moldova failed to understand that staying in two boats at the same time has led to the division of the country.

Previous governments failed to come up with a clear and coherent strategy, not to speak of a viable one. Political will was lacking, in the hope that things would just settle by themselves, without affecting rulers' positions. Economic strategies, if one may call them so, bolstered inefficiency and shadow economy rather than welfare, productivity and investments. Governments were more concerned with promoting exaggeratedly protective social policies having no financial coverage that were eroding state budget, instead of encouraging businesses to invest so as to open up new jobs.

Lack of political will has affected the reform in every sense, i.e. the state still has to privatize Moldtelecom, North and North-West electricity distribution networks and many other wineries and tobacco factories. Infrastructure is a mess; pro forma legal framework, whereas investments amount only to 3% of the GDP, which is far less than in Poland, Czech Republic or Hungary boasting a steady 40%. Clearly a country as small and as poor as the Republic of Moldova is with such a complex, unstable and ambiguous legal framework, hardly seems luring to the foreign capital.

When it comes to foreign investments Moldova has lost so far great many opportunities. There were times when those nostalgic for the good old times stood strongly "We are not selling our country!", at times when Latvia or Estonia were selling state enterprises to such world giants as Pepsi or General Electric. Moldovan businessmen and managers agree that attitude towards foreign investors, failure of investment programs in infrastructure, lack of measures aimed at boosting successful sectors of economy instead of subsidizing unsuccessful ones, and legal chaos are among the major factors that kept Moldova far from Europe. Great many businessmen point that shortage of investments is largely due to poor infrastructure. Differences in mentality and culture between Moldova and new EU members have only highlighted the huge gap between Moldova and Western Europe.

Apparently, rules have been set to bring us closer to European standards, however few observed them. Indigenous businesses are still treated differently by authorities than their foreign counterparts, and that largely because money is the main incentive in decision making. Under given circumstances, Government may want to provide a level playing field for all players, start showing "yellow cards" to those breaking the rules and stop tolerating high rank officials doing murky bargains at their own will.

State owned enterprises accounting for as much as 65% and is kept afloat by subsidies and bad credits, on top of that Moldova is under the watchful eye of Council of Europe for lack of democratic practices. Political and social instability that dominated the country in the last decade coupled with lack of knowledge and skills in running a national economy are those critical factors that thwarted a breakthrough in economy.

At the same time, it should be clear that state institutions are not solely responsible for that state of affairs. They are week, inefficient, scarce of financial and human resources. Civil society has its own share of responsibility in that. However, as the pioneers of economic liberalism showed private initiative is the fundamental condition of welfare in society. Where the state is impotent, corrupt and incapable, one should take his future on his own hands. Therefore, more actions, persistence and personal courage - those are the ingredients of success for our society that in the long term would bring us the family of European nations.






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