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"Independence" of Moldovan economy
Iurie Gotisan, August 31, 2006
We should note from the very beginning that the economic independence of Moldova is still far from being real, even after 15 years of political independence. It is important to assess the initial conditions of economic reforms in order to paint a more detailed and ampler picture of the current economic deficiencies of Moldova. Moldova has been integrated into the ordered Soviet economic system for several decades. It was pretty developed in essence, but it had a harmful ideological foundation in which the germs of future troubles were maturing. All components of the economic activity - production, circulation, redistribution, till consumption - were controlled and directed by the Russian metropolis. In its quality of union republic, Moldova was not actually developing foreign relations but via Moscow and, therefore, it did not have markets, reliable partners and managerial skills in the field.
Less than 5% of Moldovan exports were formally surrounding the central decision-making courts, but they were oriented exclusively at REAC (Reciprocal Economic Assistance Council) countries. As a result of these and other structural factors in that period, the comparative advantages of Moldova still remain underused. The current base of "independent" economy was created in a plenty of political and social events at the crossroad of the 8th and 9th decades of last century, inheriting grave structural distortions from the Soviet economy. At the same time, we consider that we must not invoke the inherited problems as a primary cause of our problems, a fact confirmed among others by notable economic accomplishments of the Baltic Countries, which were integrated into the economic system of the Soviet Union in a much bigger measure than Moldova did. In addition, those who ruled the country did not know how to use their political independence in order to gain an economic independence.
The political and social instability that dominated in Moldova in the past decade along with the lack of skills and knowledge of managing the national economy through coherent and adjusted economic policies are the critical factors that produced the lack of notable economic accomplishments. Despite the economic growth registered in the past five years, we may affirm that the Moldovan transition was not successful in general; the GDP of 2005 was only 40% of the level of 1990. Being involved in foreign debts (about 1.9 billion dollars) and interior debts (over one billion dollars) and facing huge commercial deficits, Moldova's economy will have to work for creditors the next years. Another pretty important indicator - the unemployment rate - should be also mentioned. Official statistics show an unemployment rate of around 7%, which is comparable with that of most developed countries, but the real unemployment rate has reached very high levels in reality, with the World Bank estimating a rate of 11-12% (15-17%, according to other sources, this fact being also confirmed by hundreds of thousands of Moldovans working illegally abroad). The foreign investments allocated to Moldova in the past years are estimated to be lower than the value of international trafficking in drugs which is penetrating our country. The low inflow of foreign direct investments was due to the economic crisis, political instability and ambiguous legislative framework.
Most trenchant deficiencies of Moldovan economy have a structural nature at the level of production. Few East European countries demonstrate such an exaggerated share of agriculture in GDP (about 20-22%) and this produces an overwhelming dependence on climatic factors. At the same time, the share of population employed in agriculture (about 40%) is higher than the contribution of this sector to GDP, this demonstrating the fact that the lowest labour productivity is registered in agriculture, which remains of subsistence in a big measure. The industry is still a big consumer of energy and it is inefficient as we have inherited it from the Soviet Union, while the physical but especially moral wear of technologies and technical capital (some installations are older than 40-50 years), as well as old marketing and management systems are the main cause. An important but often ignored fact is that Moldova was not capable to administrate the conversion of production made by military-industrial factories, losing at the same time the markets for their specific goods.
The lack of a technical and institutional infrastructure obstructed and still halts the normal circulation of goods. The state kept the monopolist positions regarding the acquisition of agricultural materials, with entrepreneurs working in this field having to accept derisory prices for their products. In addition, nobody has worked hard to create a regional agricultural exchange capable to ensure not only outlets for Moldovan agricultural production but also to serve some East European countries. The domestic market is small or it does not exist, while the access of Moldovan industrial production to foreign markets is often blocked. Eastern markets are instable (the financial crisis from summer-autumn 1998 and the recent commercial-economic blockades of Moscow are eloquent examples), while most of European markets are closed for our products, which do not meet the European quality standards so far. In addition, the involvement of different criminal circles and often transborder, which hold enough means and branches to control this bearing of national economy, is a critical factor in the field of circulation. It should be mentioned that businesspersons have to work illegally or to export their capitals to other countries because of the hard fiscal pressure and administrative-bureaucratic barriers.
We have lost one part of bench marks in these years of transformations and changes marked by huge social and human costs, moving from inertia in continuation. The arrival of communists to rule the country has marked this fact one more time. Their impressive political ascension is explained by fact that the precedent governors have failed to capitalise the support that the population seemed to grant to transition at the beginning. The setup of the communist government was marked by a clear course of suffocation of private initiative, a fact that President Voronin has admitted more than once.
At the same time, the state's institutions should not be blamed for everything, as they are still weak, inefficient and face a deficit of financial and human resources. Civil society carries a big guilt because it is indifferent and lacks initiative. Or, the private initiative is the fundamental condition for prosperity of a society, as demonstrated by classicists of economic liberalism. One should rely on own capacities when the state remains corrupt and incapable. Therefore, more action, incision and personal courage would be the ingredients of our success as society, since they are capable to ensure a normalisation of things in a predictable future.