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New inequality
Anatolii Gudym, 20 October 2004

The World Bank and International Monetary Fund eventually seem to agree on the date (November) of discussion of "Moldovan triennial" or Economic Growth and Poverty Reduction Strategy (2004-2006), which also took the government three years for its preparation. Most probably the Fund and Bank will approve this strategy and then our Parliament will put it into a legal document, the more so as the first year of this triennial comes to an end.

Do we switch to reforms of a new type?

Meanwhile, it was in parliament where a new initiative was stated: i.e. a transition to new type reforms. First this was said by the President V.Voronin at the close of summer session (on 28.07.2004) and then supported by speaker E.Ostapciuc at the opening of an autumn parliament session on 23.09.2004: "We are to initiate reforms of new types that would facilitate a more sustainable development".

The essence and methods of realization of the reforms of a new type yet to be interpreted. Still, it is encouraging that the President has acknowledged that the reforms should continue since the very fact of "both social stabilization and economic growth does not mean anything in a poor country". And this is true. GDP growth has resumed in Moldova since 2000 (its increase came to about 34% in 2000-2004) and this happened while the employment reduced (!) by 10%. Only about 40% of the growth was brought out by industry and agriculture; its growth was mainly caused by service sector, a rise in consumption and taxes levied on goods and import. Besides it was influenced by remittances transferred by our fellow citizens working abroad. It is clear that this pattern of growth guarantees the country neither sustainable development nor high rate of growth of GDP nor social rehabilitation of the population.

From equality to inequality

The assertion of Moldova being the poorest country of Europe became a stereotype. Here it should be added that such drastic social inequality between the new rich and the new poor has not evolved in any of the other 14 post socialistic countries of the Central-East Europe as it has happened in Moldova. After 1990 income inequality in terms of Gini coefficient applied by UNO has doubled and reached 40-44.

Thus, in the mid of 2004 only 6.2% of total household income volume fell to the share of 20% less secured families and 44.2% - to the share of 20% the most well-to-do families. Recent years revival of the dynamics has reduced a poverty zone in Moldova but it has not removed contrasts of inequality.

Nevertheless the majority of citizens of the RM still remember realia of a "developed socialism", when the state secured relative equality of incomes that basically depended on a salary (except nomenclature' privileges and "blat" - profitable connections).

Inequality began to increase rapidly during the transition period. At first it was caused by the fact that many people lost jobs and their money saving, and then - by process of privatization of enterprises, land and dwelling. Salaries paid in certain sectors became sharply different. Moreover, entrepreneurs have derived an income from shadow economy and employees of public offices - from corruption.

In Moldova in 1997-2003 real salaries grew annually by 7.7% starting from the mid 90s and after 1999 they have risen on average by 14.7% per year. On the other hand, at the same time the contrasts became even sharper. If in 1996 salaries in agriculture made up 2/3 of average salaries of national economy, then in 2003 they already came to ½. The same tendency took place in education and public health sectors. In 2003 salaries that exceeded an average level were paid in construction, transportation, industrial and financial sectors and public administration.

It is strange, but remittances sent from abroad also spurred the inequality. As the most initiative and educated part of the population went abroad for earning, 70 % of remittances get to well-to-do households. These remittances are spent mainly for consumption and also for "family investments" - for children education, purchase of apartments, land and investment into small business. Additionally, state social programmes do not facilitate much to elimination of inequality. Rendering of assistance in the programmes is based on a principle when citizens are assigned categories but it is not based on their real needs.

As a result, according to the Ministry of economy estimates (2003) only 6.6% of social transfers (without pensions) fell to the share of 20% less secured families and 46.0% to the most well-to-do families - recipients of such assistance.

Images of inequality

Inequality is many-sided. The tenseness of the situation also consists in that the inequality becomes apparent not only through contrasts in incomes or availability of property (which is an obvious sign for today), but through unequal conditions of access to the future - access to education and health care.

According to the sociologists data (2003) the number of days spent by the poor and the well-to-do in hospital are in the ratio of 1:11. The number of matriculated persons from the poor is tree times less than the number of matriculated persons from the well-to-do. Only every tenth is matriculated from the village youth that apply for admission to institutions of higher learning, while from the town-dwellers - every second.

It should be mentioned that the inequality in job opportunities available in Chisinau municipality (small business, construction, service and security sectors) and persistent stagnation for the rest of the territory, except 3-5 other towns (Edinet, Balti, Ungheni and Cahul).

Thus, many of the rights of citizens declared by our new democratic Constitution (1994) are difficult to realize. Thereby life of many people, especially young generation, is dominated by sense of vulnerability, impossibility to plan their future.

What is to be done?

One should not assert that the government does not see the inequality as a dangerous reason of social and political tension. Thus, in EG-PRSP for 2004-2006 "elimination of inequality and increase in participation of the poor in economic development" are mentioned as the priority. Basic approaches for this are well-known and approved in countries that undergo active reforms in transition:

  • To increase employment for those who want and are able to work, to stimulate opening of new jobs - especially in a sector of small and medium business;
  • To focus attention of the central government and administration of regions on the poorest localities;
  • To make social assistance targeted for those who really need the state support.

At present the draft budget for 2005 is considered in Parliament. Again, the Government mentions that the state budget is "real and socially oriented". But to whom is it directed toward? Confucius said: "in a well-governed state they are ashamed of poverty, in a poorly ruled state they are afraid of wealth". Inequality is a real danger for a young, weak state. Or we are neither ashamed nor afraid?






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