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Democracy and governing in Moldova

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No. 3, March 25, 2003

Activity of public institutions

Foreign affairs

Studies, analysis, commentaries

I. Activity of public institutions

1. Parliament

During the aforesaid time period the Parliament passed the following legal acts:

Law on modification of the Law on Privatization

The law revises almost completely the 1991 Law on Privatization and defines the goals of privatization: enlarging the private sector; attracting foreign and domestic investments; and boosting securities market and increasing production. The following principles shall govern privatization: social security of the population; transparency of the privatization process; granting preferential conditions to the employees of the privatized companies; and free access to privatization process.

Law on the modification of the Law on the Deputy Status

The law allows members of Parliament to conduct research and didactic activity only outside the working hours as specified in the Parliament Regulation. However the said Regulation does not specify the exact number of hours a deputy should work in the Parliament.

Law on modification and completion of the Penal Code and Code of Administrative Offence, adopted in the first reading

Under the law the Code of Administrative Offence is completed with new sanctions for violating the rules of using cash registers.

Law on Labor Market

The law specifies the measures to be undertaken to provide new workplaces and social guarantees to the unemployed, incentives provided for establishing new workplaces, a new procedure of paying employment benefits. The funds for the enforcement of the law shall be secured from the social security budget, consequently the benefits would greatly depend on the budget revenues and the quota allotted by the Parliament.

Law on amending the Law on Administrative Courts

Under the amendments, disciplinary sanctions to military shall fall within the competence of Administrative Courts and an independent court shall estimate moral damage incurred by an illegal administrative act regardless of the material damage. The modifications have been determined by the Constitutional Court ruling No. 46/2000 outlawing the said provisions.

Law on Consumer Protection

Parliament passed a new Law on Consumer Protection in accordance with the international standards and provisions of the Civil Code. In particular the law defines the notions of consumer, producer, seller, service-provider, service, product, quality, etc. contents previous next

2. Government

Cabinet reshuffle

On March 12, Sergiu Taran was ousted from the position of Deputy Minister of Transportation and Telecommunications, whereas Iuire Moraru was appointed to the position of Senior State Councilor, Chief of the Government Press Service.


On March 3, the Government of the Republic of Moldova passed a very important decision, namely on the enforcement of its governing work plan "Reviving Economy - Reviving the Country" - socio-economic achievements of 2002, key measures and tasks for increasing the efficiency of the local public administration. The decision reads "high speed economic growth and improving the quality of life of the population". According to said document, in 2002 a 7.2% GDP growth was registered as compared to the previous year; inflation rate - 4.4%; revenues to the state social security budget exceed the forecasted ones by 12.2%; arrears to state budget reduced by 76 million MDL; salaries of the social workers increased by 60%, etc. An industrial growth of 10.6% was reported and a 3% in agriculture. Also, in 2002 export increased by 16.8% as compared to 2001, the average salary reached 691.9 MDL (33% increase as compared to 2001), whereas average pension - 166.6% MDL (22.3% increase).

On March 10, the Government approved the Regulation on economic and financial control conducted by the Center for Fighting Economic Crime and Corruption. Under the Regulation, the following shall fall within the competence of the Center, control of legal entities and natural entities (entrepreneurs). Economic and financial control shall be undertaken at the written request of the investigation, prosecutor or court. The Regulation also defines the notions of economic and financial control, verification of documents and facts, topical investigation, etc. In addition the Regulation refers to the way control shall be conducted, how documents should be complied and appeals examined.

The same day the Government endorsed the draft Parliament Resolution "On approval of the Regulation on spending the Fund for subsiding and fostering crediting of agricultural producers by commercial banks, loan associations and Rural Funding Corporation".

On March 11 the Government approved the membership and competencies of the Commission for cross-border cooperation of the Euro-regions, and entrusted the elaboration within 3 months of a work plan aimed to boost cross-border cooperation.

On March 12, the Government ruled Mr. Mihai Popov, Republic of Moldova Ambassador to Belgium to simultaneously hold the position of Ambassador to Luxembourg. In a related note, Mr. Ilie Vancea, Republic of Moldova Ambassador to Republic of Belarus was also appointed to the position of permanent and plenipotentiary representative to CIS bodies.

Furthermore, the Government approved the draft Decree of the President Voronin on opening an Embassy to United Kingdom and North Ireland in London and to the Republic of Portugal in Lisbon.

On March 13, the Government decided to allocate 4,246,400 MDL "for training of scientific workers" and 39,220,400 MDL for "research and development".

In view of defining the actions to be undertaken for the enforcement of the National Plan for fighting human trafficking of November 9, 2001 the Government decided on March 18 to establish a Governmental Commission, which is to define and submit the aforesaid measures within 10 days.

And last but not least, on March 19 the Government approved the Regulation on demarcation of the state border between Moldova and Ukraine. The document provides the procedure of border demarcation, prerogatives of the joint Moldovan-Ukrainian Commission established under the Treaty on State Border signed by the Republic of Moldova and Ukraine. contents previous next

3. Presidency

During the said period, President Vladimir Voronin had a meeting with PACE raporteurs on Moldova, Josette Durrieu and Lauri Vahtre. President Voronin reiterated Moldova's commitment to comply with the previously assumed engagements, i.e. modification of the Electoral Code, of the laws on audiovisual public institution and local public administration, as well as cooperating with opposition parties within the framework of the Permanent Round Table. Vladimir Voronin also stated he would recommend the Communist Party to designated representatives of other parties to the PRT. Finally, President briefed the raporteurs that a plan, entitled "Unity through diversity", was developed for Moldova to more efficiently serve on the CE Ministerial Council.

The President also met with special representative of the CE Secretary General, Jorgen Grunnet. At issue was the presidency of the CE Ministerial Council, reorganization of the Permanent Round Table, etc. Vladimir Voronin indicated he was open to cooperate with any political party, however he would accept proposals on revising the statehood, independence or sovereignty of the Republic of Moldova.

In the said period, President Vladimir Voronin appealed to residents of Transdnistria. The appeal reads that the initiative to consolidate the statehood and reintegrate the Republic of Moldova would succeed only if both the citizens residing to the right of Dniester and Transdnistria residents sincerely and responsively joined their efforts. The President reiterated the importance of working out a new Constitution of the reintegrated Moldova, addressing the previous mistakes and building on the "lessons learned". Vladimir Voronin also guaranteed that reintegration did not mean "conquering" territories to the left of Dniester and that "any attempt to misstate the goals and meaning of country reintegration, any attempt to use the country reintegration as pretext for autocratic actions or revenge will be severely punished". contents previous next

II. Foreign affairs

On March 11, European Commission released a document "Wider Europe - Neighborhood: A New Framework for Relations with our Eastern and Southern Neighbors" referring to future relationships between European Union and Belarus, Moldova, Russia and Ukraine. According to the document the aforesaid countries would benefit of greater aid from EU, due to their new status. Also the documents provides for larger access of Moldovan and Ukrainian products to the EU market, possibility of abolishing visa regime for the citizens of the said countries upon signing the Free Trade Agreements. The document does not rule out the possibility of Moldova, Russia and Ukraine joining the EU, albeit recently several European officials, including Romano Prodi, President of the European Commission pointed that "politically, Europe should end at the borders of Russian Federation, Republic of Moldova and Ukraine". According to Le Figaro, one of the first to challenge the EU borders was President of the European Convention, Valery Giscard D'Estaing, who opted for stopping EU extension and establishing partnership relations with "the new neighbors". Noteworthy, it was Jack Straw Head of the UK Foreign Affairs who came up with the initiative to establish new relationships with Belarus, Moldova and Ukraine. During their reunion in Luxembourg in 2002, Foreign Ministers of the EU countries backed up the Straw's initiative and decided the "special neighborhood status" to be worked out throughout July - December 2002. The special status envisaged trade liberalization, closer cooperation in the field of justice, internal affairs, security and defense.

On March 18, Mihail Camerzan, Deputy Chair of the Moldovan Parliament and Chair of the Parliament Commission on European Integration attended the public hearings on the new EU strategy for South-Eastern Europe.

The same day, at the fifth reunion of the Republic of Moldova - EU Cooperation Council at issue was the current state of relationships between the parties, Transdnistrian conflict, European Commission initiative "Enlarged Europe", etc. Vasile Tarlev, Co-chair of the Cooperation Council asked for a preferential treatment of Moldova in relations with EU as compared to Belarus, Russia and Ukraine and called for an individual Action Plan for Moldova. On March 19, the Republic of Moldova - EU Parliamentary Cooperation Committee convened on a session. Moldovan delegation was represented by leaders of parliament factions, who while in Brussels also met with members of the European Parliament delegation for liaison with Belarus, Moldova and Ukraine. contents previous next

III. Studies, analysis, commentaries

1. Financial challenges lying ahead of Moldova in 2003
by Adrian Dumitriu

It is probably due to the fact that ruling party's electoral program has been declared as socially oriented, that different Ministries and Departments have engaged in a competition of producing socially oriented drafts. However, during the latest session of the Government the lack of financial resources for implementing such kind of programs was at issue, consequently some of those drafts were rejected.

This is the more straightforward given the initiatives to revise the administrative-territorial division and local public administration system due to be enforced upon local elections scheduled for May 25, 2003. Albeit, local public administration reform would require considerable financial resources that were not provided for in the state budget, the Government passed a decision on increasing the minimal salary as well as increasing by 18% pensions commencing April.

The situation gets even more complicated due to the Government's failure to define clear-cut priorities in its relations with international monetary organizations, which are currently looking to define a new strategy for cooperation with the Republic of Moldova. Needless to say, good relations with World Bank and IMF are paramount for disbursement of further tranches and for servicing the foreign debt.

Recently Ministry of Finance has confirmed some earlier forecasts on the financial challenges lying ahead of the Republic of Moldova in 2003, in particular budget enforcement. Although at the time 2003 budget had been worked out it was already clear that some problems would eventually surface, the Ministry preferred to neglect them and adopted a budget, which right from the beginning was labeled as a too optimistic, due to its virtual revenues forecasted from privatization, exaggerated foreign aid and high expectations as far as expenses are concerned.

Ministry of Finance's report published in "Moldova Suverana" (governmental newspaper) highlights some contradictions: on the one hand it praises the effectiveness and cooperation in enforcing the budget, and on the other the very same effectiveness is blamed for the situation Republic of Moldova has found itself in, which in its turn determined Minister of Finance to alert on the financial challenges in 2003.

Preliminary reports on the budget enforcement released by the Ministry of Finance for the first months of 2003 indicate an increase in the revenues to the state budget. It is worth mentioning that the reported increase is compared to the "same period of the last year". However, the latter was characterized by stagnation in foreign trade (both import and export). A number of importers from Moldova anticipated the introduction of pre-shipment inspection and imported huge amounts of goods in November - December 2001, whereas the normal trade resumed only in March - April 2002, when the inspection procedures became clear. This was also confirmed by the data released by the Customs Department reporting high revenues in January -February 2003 as compared to the same period of 2002. Again increased foreign trade (both in value and in number of import - export transactions) accounts for the boosted Customs' revenues.

There is another explanation for the increased revenues as compared to the same period of the last year, namely evolution of exchange rates vs. national currency. This refers in particular to the considerable fluctuations of Euro vs. MDL, some of the excises and customs taxes being calculated in Euro whereas levied in MDL. In early 2003 one Euro was around 16 MDL, whereas in the same period last year it was around 11 MDL.

Even if domestic and foreign developments are favorable for levying higher revenues to the state budget in nominal terms, it is claimed that rather the boosting business accounts for it. Cases have been registered of fiscal administration by imposing businesses to make the payments to the state budget in advance or by means of the newly-established Center for Fighting Economic Crime and Corruption, which is persecuting even the businesses that comply with the law. It seems that domestic business, regardless of its field of activity, is confronted with more and more legal or other constraints raised by the state.

To a large extent the enforcement of 2003 budget would depend on whether international monetary organizations would resume funding Republic of Moldova. Although troublesome, negotiations in this respect might bring 10 million USD from the World Bank and 15 million from the EU. This would enable the country to service its foreign debt. Further, if foreign aid is not resumed it might impact financial markets, interest rates, fluctuations on exchange market and inflation rate in 2003. It seems that the seasonal character of national currency depreciation is taking a longer period, while resumed external funding would reduce its further depreciation.

Furthermore, if the foreign funding is not resumed, the temptation to directly borrow from the National Bank of Moldova would be much higher, although neither the Law on the State Budget for 2003, nor monetary policy provide for such borrowing in 2003. Inflation pressure has become too obvious in the first months of 2003.

Debates on economic, customs, currency and other kind of unions have been recurring both domestically and abroad lately. I would like to dwell on the customs union by pointing that the stability of national currency relies on a number of economic as well as psychological (behavioral) factors. That is, any doubt in the future of the Moldovan Lei (including whether it would be still in use) may lead to some negative outcomes, like depreciation of the Lei (although there would be no economic grounds for such depreciation). A clear message from the authorities, including the monetary ones, anticipating (rather than mere ascertaining) the developments, should calm the spirits to a certain extent.

Year 2003 may be by all means characterized as tough from financial point of view. The last ditches on a short term are foreign creditors. However, they would not guarantee stability in the long run. Worsening business environment and foreign debt burden would continue to destabilize Republic of Moldova economic policy as long as there would be confused, contradicting and chaotic messages and initiatives in the field of economy. contents previous

2. Insurance in the Republic of Moldova
by Cristian Untila

Recently the Parliament passed the Law on the Modification and Completion of the Law on Insurance. So far no studies or analysis have been undertaken in the relevant field.

The Law on Insurance was adopted on June 15, 1993 and has undergone a number of modifications and completions due to the social and economic conditions. The most significant modifications were operated via the Law no. 886 of June 20, 1996 and were determined by a series of problems in the insurance market. Numerous insurance companies used to accrue the savings of legal and natural entities, however refrained from investing the money into risk-free ventures. As a result a number of insurance companies allegedly went bankrupt and in such a manner embezzled population's savings. Albeit delayed, the Parliament managed to operate some modifications, which refer in particular to:

  1. Establishing the quota of foreign capital (up to 49%) in the registered capital of the insurance company;
  2. Defining the notions of insurable risk;
  3. Defining the notion of insurance premium;
  4. Establishing the minimal quota of insurance company registered capital - at least 300,000 MDL (around 67,000 USD). Under the modifications, insurance companies are due to adjust their registered capital to the legal provisions within 1 year;
  5. Guaranteeing insurance company solvency, via observing the correlation between the company assets (registered capital, insured reserves and funds) and the insured amount. In this respect, the law provides that solvency reserve for life and pension insurance formed out of the registered capital, reserve fund and premium reserve should amount 8% of the insured amount; whereas solvency reserve for other types of insurance formed out of the registered capital, reserve fund and reserve fund for other types of insurance shall be at least 1% of the insured amount, plus (less) the total of obligations assumed for reinsurance. Under the law, insurance companies that assumed obligations beyond their actual capacity to execute them shall make the necessary adjustments within 3 months;
  6. Restraints in the insurance activity: - manufacturing activity, trade, brokering, etc;
  7. Obligation of the insurance company to make public in the first quarter of the year the balance sheet and income statement authenticated by an audit report.

The main accomplishment of the 1996 law was the liquidation of insurance companies, which failed to increase the registered capital to the quota required. As a result several big insurance companies survived, including "ASITO" company which is currently dominating the insurance market in the Republic of Moldova.

As for the recently passed law, it includes provisions on:

  1. Foreign capital quota in the insurance company. This time the Parliament decided to exclude the provision allowing foreign investors to hold no more than 49% share of the insurance company registered capital;
  2. Minimal quota of insurance company registered capital in cash. This quota has increased from 300,000 MDL to 2 million MDL (around 138,000 USD), twice the amount established under 1996 modifications. Again the insurance companies shall make the appropriate adjustments within a year and a half;
  3. Restraints to conduct financial and trade activities.

A special consideration should be given to the transitional provisions of the law providing that insurance companies failing to comply with the requirements within 1 year and a half shall be excluded from the Companies' State Register, at the request of the State Department overseeing insurance companies. Until that date, the said companies shall comply with their contractual obligations or "transfer their insurance portfolio to other insurance companies".

The amendments were intended to adjust the legal provisions to the current economic realities, lure foreign investments, etc. However, some experts claim the amendments marked a new stage in the redistribution of interests and dominance on the insurance market.

For instance, it is expected that by excluding the provisions limiting the quota of foreign capital, Moldovan insurance market would seem more attractive to the foreign companies, in particular Russian ones, which already expressed their interest in investing. The increase in the required registered capital would not stop those companies, as 138,000 USD is not a significant amount for a Russian company.

On the other hand, the new provisions would allow legalization of the domestic business savings illegally kept either in foreign bank accounts or in joint ventures. Noteworthy, under the Law on Fighting Money Laundering big money may not be invested in new ventures, however under the recent amendments to the Law on Insurance this money may end up in insurance companies under the form of "foreign investments", without raising any suspicions of the state bodies.

Later on the insurance company may be liquidated at any time, whereas the investments would become the legalized property of the investor.

Last but not least, by obliging insurance companies failing to comply with the registered capital requirements to transfer their portfolio to other insurance companies operating on the market, authorities aimed for nothing but a disguised redistribution of spheres of interest.


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