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"Happy" accident and foreign financing
Iurie Gotisan, January 31, 2007
The National Bureau for Statistics (NBS) released last week updated data on economic growth for 2005. According to NBS, a 7.5-percent growth was registered in 2005, which is by 0.4 percentage points more than officially announced (7.1 percent) in March 2006. Experts explained the "miracle" as a practice applied for a long time, in line international standards, but the data are updated after presentation of final reports. Thus, a 6.6-percent growth was reported in 2003 after the data were updated, compared with preliminary estimates of 6.3 percent, 7.4 percent in 2004, compared with 7.3 percent. If a 4.5-percent growth is registered in 2006, the NBS could report again in early 2008 that a "happy accident" took place, intervening with a correction of 0.5 percentage points, for example.
I have nothing against this updating and those who process the data. Although domestic economic analysts and experts often doubt over correctness of the economic growth (GRP) expressed in rises and declines, the recent updating should make us happy, not confuse because the "advance" achieved by economy in the past years seems to intensify. But if we study the things more carefully, we raise one question only: how healthy are the latest growths? The generally valid and known answer is that the bases of economic growth are pretty rotten: massive imports and greedy consumption. We may say that the performance of the economic growth achieved until now is firstly due to anaemic structural reforms and consumption of population.
In spite of a declining productive sector, the economic growth was achieved on basis of massive imports from which considerable taxes on product and import are collected, while the final consumption of households has violently grown. The IMF mission that visited Moldova in late 2005 warned the Chisinau Government then that "such an economic growth is not sustainable and it will slow down the next years due to appearing internal and external factors." Forecasts by IMF experts have become true. We have what we have. The economic advance registered in the past years was rather conjectural and it did not have healthy bases, while most of the structure of Moldovan economy did not change in the past decade.
President Voronin said last week that "the impressive bonus received by Moldova from the Group of Donor Countries at the recent Brussels meeting is an advance on account of future transformations and a proof of "solvency of Chisinau’s policy and a trust vote given to the European modernisation course of Moldova." The 1.2 billion dollars which will fuel the country’s economy starting 2007 is regarded as an engine and key of success. However, the fact that foreign finances cannot treat an ill economy must be taken into account. The foreign financial assistance is a dangerous trap for transition economies, if it is not accompanied by inversion of proportions of power between state and private sectors, reforms needed for this purpose.
It happened so in the mid-1990s in Asia, Africa and Latin America, recipients of massive infusions of foreign funds. The foreign financing eliminated the pressure of governments to implement reforms, supplying them with resources, with which they had often nationalised own economies. The assistance created dependence and stopped the development of private sector. If the reformation of Moldovan economy does not become a priority, we run the risk to face the experience of some states from Africa, Asia or some of new members of the European Union, which received a lot of money but failed to administrate it. The economic condition of countries such as Mozambique or Uganda is known. What is demanded now from authorities is the existence of a strategic vision capable to encourage an efficient management of foreign finances. However, the implementation of such a vision requires an "intellectual control" on public policy, which is a desideratum of transition in Moldova so far.