Democracy and governing in Moldova
No. 20, 3 December 2003
Activity of public institutions
Studies, analyses, comments
I. Activity of public institutions
During November 17-23, Parliament examined and adopted a series of legal acts. One of the most important was the Law on Informatisation and State Information Resources aimed at establishing the ground rules for IT, national IT network, as well as clarifying legal relations arising upon using state information resources. The law does not refer to establishment and functioning of mass media, non-governmental IT, undocumented information processing. The law defines such notions as: database; personal data; electronic document; national domain .md; IT network; owner and user of IT, information systems and technologies; subject of law, etc. Under the law the following are considered subject of law in the information field: documented information; information resources, including national domain .md; IT, software and hardware; IT networks, etc. The law also provides for: obligations in ensuring IT security and protection of documented data; information resources of state importance; information technologies, systems and networks; licensing of activities; public authorities' responsibilities in establishing and using state information resources; Information Technologies Department - specialised central government body entrusted to implement Government IT policies and elaborate development strategy in the field. It shall be the owner of basic information resources. This last provision is likely to raise a number of difficulties as IT Department would become a monopolist on the IT market.
Under the Law on Modification of the Law on Political Parties, party bylaws may be registered provided the applicant party includes at least 150 members residing in at least half of the second level administrative-territorial units (currently the law provides for 600 members). The following provisions were excluded:
- obliging parties to reconfirm that they comply with the law requirements on the minimal number of party members, by yearly submitting to the Ministry of Justice by December 1, a list of its members;
- enabling Ministry of Justice to suspend a party, if the latter failed to submit new data for inclusion in the Register of political parties and other socio-political organisations;
- depriving Prosecution from the right to oversee parties' compliance with the law.
By the Law on Modifying the Law on State Social Insurance Budget the Parliament ruled that lawyers shall pay the social insurance quota for year 2003 as provided for in the Law of May 15, 2003:
- 10% of the monthly income, which does not exceed three average monthly wages per economy;
- 20% of the monthly income, which exceeds three average monthly wages per economy.
Law on the Modification of the Law on Compulsory Health Insurance obliges legal entities to transfer to Hincesti budget the compulsory health insurance for their employees working in the branches and representations based in Hincesti rayon.
Government decided to comply to President's initiative to cut down the prices on the most popular types of bread to the level before November 15. There was a strong pressure to reduce the price, albeit the 65.7% growth in the grain prices over June-October 2003 on the markets Moldova imports it from, as reported by the Statistics and Sociology Department. At the same time the Government decided to decrease the sales margin from 20% to 10% for "Franzeluta" products until the next harvest, which in Premier Tarlev's opinion would enable the main producer to drop the prices to the level before November 15.
According to Victor Cojocaru, Director General of "Franzeluta", Government's decision to decrease the sales margin would not bring loses to his company, but rather to the stores selling its products.
In this respects a number of analysts criticised Government intention to regulate the prices on bread, claiming that it should have identified instead some compensatory resources to cover for the additional losses consumers incur. On the other hand, some of the most meticulous business analysts pointed to the fact that the shift in bread price bears a political connotation bringing additional political dividends to President Voronin who called for reducing bread prices.
On November 19, at the initiative of the Information Technology Department Government approved a string of amendments, thereby: citizens born in the Republic of Moldova, but residing abroad, shall be able to apply for Moldovan citizenship based on simplified procedure; children under 16 shall be entitled to have their own passports; Moldovan citizens shall be obliged to declare all the citizenships they hold. During the same session Government decided to establish a national commission to assess the possibility of exempting citizens who apply for the first time for an ID from the state tax, as well as reducing the price for its processing for certain categories of citizens.
On the same day, another document was approved, namely the draft law on the completion of Article 24 of the Law no. 64-XII on Government, thereby a Trade Department is to be established within the Government. The new Department will: monitor and contribute to trade development; work out and enforce measures to eliminate obstacles in the business activity; regulate the control over all the aspects of business; protect consumers' rights; co-ordinate trade infrastructure deployment in rayons, etc. Moreover, one of the prerogatives of the said Department shall be tariff and non-tariff regulation on the market.
After Papauti village and Rezina Rayon Council refused to store on its territory the stock of unused pesticides from the entire country, Government decided that all Chairs of rayons, Gagauz-Yeri authorities and heads of the municipalities in possession of such stocks should arrange for a warehouse for the pesticides storage. This ruling obliges local public authorities to ensure together with the Defence Minister and Department for Exceptional Situations the repackaging, transportation and storage of the pesticides until their liquidation, which is to be done with NATO financial support.
Government granted additional powers to the Ministry of Labour to sign a Bilateral Co-operation Agreement with its Ukrainian counterpart in the field of labour and social security. The move stems from the "bilateral relations among CIS member states and the perspective of establishing a single economic area and a common labour market". Undoubtedly the agreement would have some positive impact, however the interesting thing is that Moldovan Government ties it to the "perspective of establishing a single economic area" in CIS. Needless to say, the latter compromised itself as President Voronin put it at the Yalta Summit when Belarus, Kazakhstan, Russia and Ukraine had established the Single Economic Area.
Government also granted additional powers to Ministry of Energy to sign an Agreement on Energy II Project with International Development Agency, part of the World Bank, worth $35 million USD.
Poverty Reduction and Economic Growth Strategy
On November 27, Inter-ministerial Committee for Sustainable Development and Poverty Reduction approved the Poverty Reduction Strategy, which is to be finalised by February 2004. By that time the PRSP itself as well as another 18 sector strategies are to be subject to public debates.
Two weeks after a new commission was established via a presidential decree to draft and submit to Parliament a National Strategy on Fighting Corruption as well as an accompanying action plan, President Vladimir Voronin convened the Commission on a session. While reviewing "certain success" achieved in fighting corruption, President stressed the need to "consolidate interaction between all the state structures entrusted to fight corruption". The President also indicated that the strategy needs to "outline viable principles of international co-operation and co-operation with civil society", as well as provide for "a consolidation of the mechanisms for co-ordinating the activity of preventing and fighting corruption".
Vladimir Voronin's visit to Italy
Last week, President Voronin paid an official visit to Italy. During his meeting with Italian Prime Minister Silvio Berlusconi, the Two "considered various aspects of bilateral and multilateral co-operation, and expressed a mutual interest for extending the relations between the Republic of Moldova and Italy in various fields". The press release reads, President Voronin "briefed Silvio Berlusconi on the social, political and economic situation of the Republic of Moldova, on the priorities of domestic and foreign policy, but also referred to "the current state of negotiations on settling the Transdnistrian conflict, and of the Memorandum on the basic principles of the unified state structure, developed by the Russian Federation…".
While once again reiterating Republic of Moldova's interest to join European Union, to adhere to the stabilisation and association process and to the Co-operation Process in South-Eastern Europe, Vladimir Voronin was assured that Italy, in its capacity of a member of the informal Consultative Committee, was willing to be Moldova's advocate in its European integration efforts.
Moldovan President also met Italian President Carlo Azeglio Ciampi, who endorsed his counterparts' refusal to sign the Russian Memorandum, before the European Union was consulted on.
The same day, President Voronin met the President of Italy's Chamber of Deputies Pier Ferdinando Casini. At issue was the labour force migration from Moldova to Italy, and the need to perfect the legal framework in both countries so as to protect the labour force and capital.
On this occasion, the parties signed a joint declaration reading that Italy appreciates as very positive the European integration efforts of the Republic of Moldova and undertakes to assist the co-operation between EU and Moldovan state, including within the framework of the "Wider Europe" initiative. The declaration goes on stressing Italy's interest to open as soon as possible a Diplomatic Mission in Chisinau.
Moldovan President also met His Holiness John Paul II. During another meeting with Italian Minister of Justice, Roberto Castelli, Vladimir Voronin asked for assistance in adjusting Moldovan legislation to European standards and proposed to establish a joint commission to transfer Italian know-how in fighting corruption.
The Russian Memorandum
The events around the Transdnistrian conflict during the period covered in this e-journal were dominated by the draft Memorandum "On the Principles of State Organisation" proposed to the Moldovan, Transdnistrian and Gagauz authorities by Russia through the Russian Ambassador to the Republic of Moldova Iuri Zubakov in mid-November 2003.
The draft proposed the institution of an asymmetrical federation in which Transnistria and the Territorial Autonomous Unit Gagauz-Yeri would be the subjects of the future federal state to be called the Federal Republic of Moldova. The federal state is to become a neutral and demilitarised state, with a common customs, financial and defence space. The document did not include any political or military post-settlement guarantees (see ADEPT Comment for a thorough description and analysis of the draft).
The Moldovan President welcomed the initiative as one that offers a "realistic, compromise scheme for overcoming the territorial, political and economic disentanglement of our country" and held a series of meetings with the leaders of the three parliamentary factions, the diplomatic representatives in Chisinau, the OSCE Mission in Moldova and even with the two former presidents of the Republic of Moldova in an attempt to gather support for the proposal. His efforts were paralleled by the shuttle diplomacy of the Deputy Head of the Russian Presidential Administration Dmitry Kozak, who is said to have masterminded the said Memorandum, and who had meetings with the leaders of the three Moldovan parliamentary factions and with the Transdnistrian leader Igor Smirnov as well as mediated the talks on the document between the Moldovan and Transdnistrian experts.
The Transdnistrian side shared to a great extent the excitement of the Moldovan President on the Russian draft and thanked the Russian Government for it, but reserved themselves the right to propose a few amendments to the draft, such as a clause on military guarantees to be provided by the Russian army whose presence in Transdnistria was to be legalised for the next 30 years and granting the Russian language the status of state language throughout the territory of the future federation.
Despite the far from positive reactions to the draft from various sectors of the Moldovan civil society and a statement by the OSCE refusing to endorse the Russian plan (see OSCE Statement), by Monday, 24 November the Moldovan and Transdnistrian sides seemed to have reached an agreement and paraphated the draft. The signature was planned for the next day as was the visit to Moldova of the Russian President Vladimir Putin who was to attend the ceremony of signature. Things seemed to be going as smoothly on other fronts - the Moldovans had stopped jamming the Transdnistrian mobile and put an end to the "telephone war" started about two months ago between the right and the left banks of Nistru River, the Moldovan President had passed an amnesty on those imprisoned as a result of the 1992 military clashes between Moldova and the Transdnistrian secessionists and the Transdnistrians had lifted the travel ban that they had imposed on 17 top Moldovan officials in early 2003.
In a sudden change of mind, though, on 25 November the Moldovan President Vladimir Voronin issued a statement, though which he postponed the signature of the Memorandum because of the negative reaction of a significant part of the society to it. President Putin's visit to Moldova was immediately cancelled and the Russian envoy Kozak left for Moscow but not before accusing the Moldovan authorities of "political irresponsibility" and of lacking "political courage". On a later occasion, Kozak added that Moldova's failure to sign the document could protract the conflict resolution efforts for another 10 years.
In the meantime, a number of international experts and organisations commented on the document and highlighted its numerous gaps, including the OSCE CiO, Dutch Foreign Minister Jaap de Hoop Scheffer, who singled out the lack of a mechanism of solving disputes between the central and regional powers, the lack of a mechanism of multilateral guarantees and the free hand that the draft gives to Transdnistria to block any decision taken at the federal level.
While President Voronin only postponed the document for consultation with international organisations, the Moldovan opposition parties and a number of non-governmental organisations have organised a National Committee for the Defence of the Independence and Constitution of the Republic of Moldova, which since 24 November has co-ordinated the street actions of protest against the Memorandum.
The protest actions climaxed with a Citizen's Assembly organised by the said Committee on 30 November. The meeting joined of several thousands people coming from throughout Moldova and demanded the rejection of the Russian proposed federalisation plan, which the meeting agreed was a threat to the constitutional order and integrity of the Moldovan state. In addition, the meeting adopted an Appeal to the OSCE Ministerial Council in Maastricht calling upon it to stop the process of federalisation of Moldova, which would result in the recognition of the Transdnistrian secessionist state.
Notably, while initially the main motive behind the protests has been to discourage President Voronin from signing the Russian Memorandum, the Sunday Appeal envisaged a broader protest against the current government. Thus, the Appeal accused the communist power of "incapacity to govern" and demanded its resignation to avoid "the economic default of the country and the complete degradation of the society". Earlier last week, the protesters burned Russian flags and portraits of the Russian President Vladimir Putin. These moves of the oppositions have made analysts in Moldova and elsewhere question the adequacy and legitimacy of the protests. They therefore have ruled out the repetition of the Georgian scenario in Moldova, to which many have likened the latest events in Moldova.
Meanwhile, the US Ambassador to the OSCE Stephen M. Minikes told the Permanent Council of the OSCE that the US shared the concerns of the OSCE regarding the Russian proposed federalisation plan. The position of the US was supported by representatives of the EU, who told the same meeting that the EU would support a multinational peacekeeping force under the OSCE aegis.
As the OSCE Maastrich Ministerial Council of 1-2 December was getting nearer - and many analysts have accounted for the swift evolution of events around the Transdnistrian conflict lately principally in relation to this event, statements from various stakeholders have indicated that the Transdnistrian issue and the Russian Proposed Memorandum would feature high on the agenda and in speeches of such top dignitaries as the US Secretary of State Collin Powel and Russian Foreign Minister Igor Ivanov.
Elections in Gagauz-Yeri
On 16 and 30 November, elections to the Gagauz legislative body, People's Assembly, were held in the Territorial Administrative Entity Gagauz-Yeri. About 185 candidates registered to compete for the 35 deputy seats in the autonomy. Only 14 deputies were elected in the first round on 16 November, of which eight were from the Communist Party and six were independent. While the general turnout was estimated at around 43%, in three out of the 64 districts the elections were invalidated due to the turnout which was below 1/3 of the registered voters. The runoff on 30 November resulted in the election on another 19 deputies - 10 independent, eight from the Communist Party and one from the Socialist Party. The remaining two deputy seats will be contested in the runoff in two weeks.
Local and international (Council of Europe, OSCE) observers described the poll as generally corresponding to international standards of free and fair elections, but showed concern at the extensive use of the administrative leverage during the election campaign, the poor voter turnout, and the inadequacy of the voter rolls (see OSCE Statement).
A major campaign issue has been the status of Gagauz-Yeri in the future federal Moldovan state. During the election campaign, President Voronin (who is also Chairman of the Communist Party of Moldova) launched the proposal to grant Gagauz-Yeri the status of a federal subject. It is to a large extent in relation to this pledge by the President that many analysts have accounted for the good performance in the poll of the communist candidates.
IV. Foreign affairs
After the three parliamentary factions signed a joint declaration singling out European accession as the "fundamental strategic objective" of the Republic of Moldova, European Parliament acknowledged in a resolution on November 20 Moldova's right to become an EU member, on condition it complies with political and economic criteria. The resolutions outlines that it should become "a strong incentive" in relations with its neighbours as part of "Wider Europe" policy.
It is worth mentioning in this respect, that on November 25 the "Task Force on Wider Europe" convened on a session. The Task Force unites 12 experts of the European Commission and 4 independent experts representing Belarus, Moldova, Russia, and Ukraine. Moldova is represented by Oleg Serebrian.
At the same time policies on the future EU neighbours are drafted, funds are sought to ensure their enforcement. For instance as part of the new neighbourhood policy EU would grant around 10 million Euro to the Republic of Moldova to implement two programs in years 2004-2006, one on Moldova-Romania bilateral relations, and another one on closer ties with EU member states.
V. Studies, analyses, comments
1. "Kozak plan" Implications
by Igor Botan
Russian Federation's Memorandum on the principles of establishing a unified state, also known as "Kozak plan", has triggered yet another political crisis in the Republic of Moldova.
The document released on November 17 was endorsed by President Vladimir Voronin. Along with his predecessors (Mircea Snegur and Petru Lucinski), leaders of parliament factions, and diplomatic corps accredited in Chisinau, President Voronin was quick in declaring that the Kozak plan "provides an unique opportunity" to settle the Transdnistrian conflict. Nevertheless, one week later President Voronin adjourned signing the Memorandum.
a) The more haste, the less speed
The President was so excited about the possible outcomes of Kozak plan, that he compared them to the implications of the Berlin Wall fall. A rather curios comparison one may say, particularly if considering that the fall of Berlin Wall heralded the end of Communism, and that President of the Republic of Moldova is also the Chair of the Communist Party. Supposedly, the event should have brought some of the sad memories to their mind.
High rank officials in Moscow also expressed their enthusiasm with regard to the implications of the "Kozak plan". Immediately the Memorandum was released, Russian President, Vladimir Putin, insinuated that Russia would comply with its international engagements to evacuate its troops from Transdnistria only after Kozak plan would have been enforced. Although Kozak plan did not include specific provisions on the military guarantees and it had not been signed yet, on November 21 Russian Defence Minister, Serghei Ivanov, announced his intentions to deploy peacekeeping forces in Transdnistria, i.e. a 2,000 squad to be deployed by the year 2020. He even succeeded to issue the necessary orders in this respect. There is no doubt that the move came as a follow-up to Transdnistria's acceptance of the "Kozak plan" on condition that Russia would deploy its military forces on the soil of the Republic of Moldova for a 30 years period.
Therefore it seems all-too-clear what would be the likely outcomes of enforcing a unilateral Russian plan, drafted for a single purpose of safeguarding the interests of Russian citizens who seized the power on a portion of the Republic of Moldova, wherein Russian military is to be stationed for another 30 years.
b) "Crocodile never backs off"?
The impetuous evolution of events around Memorandum signing has revealed that its foremost intention was to take domestic and international public opinion by surprise. Thus, only several hours after President Putin had announced he would pay a visit to Moldova, President Voronin decided to adjourn its signing.
Dmitry Kozak of the Kremlin administration could not hold back and deplored Moldovan President's refusal to sign the already initialled Memorandum by calling it "political irresponsibility". Russian press and Transdnistrian press alike purposefully pointed to the lack of President Voronin's credibility and his indecision.
Signing the Memorandum in the presence of President Putin would have given the event due grandeur, thereby paving the ground for apply the principle - the one who developed and ensured Memorandum signing is solely entitled to guarantee its enforcement, including by deploying its military on the soil of the Republic of Moldova.
Apparently a heavy pressure was wielded on President Voronin. He had to declare that he did not back off from signing the Memorandum, but merely adjourned it until after OSCE Summit in Maastricht. The President knows "the crocodile never backs off". This is exactly how Vladimir Voronin characterised his Russian counterpart when he gave Vladimir Putin a crystal crocodile for his 50th anniversary. Indeed in the context of Russian President's uprightness, President Voronin's indecision stands out as quite burlesque.
c) Arguments in favour of adjourning Memorandum signing
To ascribe some logic to his actions, President Voronin had to make public the reasons behind his decision to adjourn Kozak Memorandum signing. These arguments came in response to accusations of "political irresponsibility" brought by the Memorandum author. First and foremost, the President pointed that to a 70% proportion "Kozak plan" was "the plan of Chisinau", Russian official having the secondary role of mediating on its details. If so than a legitimate question arises, why does Kremlin insist so much on the Memorandum's acceptance? Secondly, Memorandum signing was adjourned because Transdnistria refused to accept the document to be also signed by the Gagauz-Yeri Governor. The funny thing here is that the first article of the Memorandum outlines that the Republic of Moldova and Transdnistria reached an agreement on settling the Transdnistrian conflict. However, Gagauz-Yeri is not a part of the Transdnistrian conflict. Thirdly, the President was probably put on guard by Smirnov's words on the need to have Russian military deployed in the Republic of Moldova for another 30 years. However, the Memorandum itself does not include any reference to this effect. Fourthly, the refusal to sign the Memorandum was due to some "wording cunnings" that allowed for such term as "Transdnistrian Moldovan Republic" to surface in the document. President Voronin believed that such a wording might have meant recognising Transdnistria's independence, especially if it would have refused to enforce the Memorandum after its signing. The odd thing is that during a week since Memorandum had been published Moldovan authorities failed to notice those "wordin cunnings" and even were in favor of signing it, fact confirmed during the meeting with diplomatic corps accredited in Chisinau. In addition, the argument that the term "Transdnistrian Moldovan Republic" might pose a threat is totally groundless. And this because the term "Transdnistrian Moldovan Republic" occurs in Article 3.5 under the prerogatives granted to Transdnistria. It's strange, to say at least, to recognize all Transdnistria's state symbols and attributes and at the same time to deny its right to have the name it wishes to. And finally, supposedly one of reasons for postponing Memorandum signing was that "we should have backed up the entire process of drafting the Memorandum with intensive diplomatic efforts, involving OSCE, EU, NATO, Council of Europe and other European structures … settling the Transdnistrian conflict behind the Europe's back would be beyond the understanding of the European institutions…"
At the same time, President Voronin refrained from commenting other very important issues. It would be very interesting to find out who came up with the idea of granting Transdnistria 1/3 of the seats in the future Federation Senate, and also the right to veto with only 1/4 of the votes. This is not a wording, but rather an issue of principle, which would affect the adoption of ordinary and organic laws, and also Government designation. This particularly raised the concern of the European institutions.
Therefore, on the one hand President Voronin acknowledged that he had ignored the opinion of European countries and institutions when working out the Memorandum. He also insinuated that he was disappointed with the performance of the Russian President's envoy, Dmitry Kozak, who had failed to fulfil the mission entrusted to him. On the other hand, it is all-too-clear that the real reason for adjourning Memorandum signing should be sought in the statement of Russian Foreign Affairs Minister, Igor Ivanov, who accused European institutions of "interference in CIS internal matters". This reference to CIS internal policy was rather curious. Given that it is oriented and supporting secessionist and authoritarian regimes in CIS, we would have been far better off without such a policy.
d) Position of OSCE member states
There is no doubt, Memorandum signing was adjourned due to the fact that it was worked out "behind Europe's back". During his telephone conversation with President Voronin, OSCE Chairman-in-Office Jaap de Hoop Scheffer, outlined the concerns voiced by a series of member-states with regard to "Kozak plan", namely: a) lack of clarity on the proposed division of powers between central government and federation subjects; b) absolute veto granted to Transdnistria for at least 10 years; c) lack of an acceptable system of international guarantees. Diplomats from OSCE member states disapproved the secrecy involved in working out the Memorandum, leave aside the methods chosen to notify international public opinion on the struck deal.
The reaction of OSCE member states is illustrative to the fact that the principle - OSCE will accept any comprise solution the parties may reach - has no absolute value. Especially when the compromise is reached via obscure means.
In this respect US representative to OSCE, Stephen M. Minikes, pointed that US was not even consulted while the Memorandum was worked out. He added "each citizen of the Republic of Moldova will be affected by the way Transdnistrian conflict is resolved, that is why they should be given an opportunity to freely speak up their minds within public debates prior to the eventual referendum to be held on this issue".
The issue of future military guarantees should also gain international approval according to US diplomat. It would be possible to deploy multilateral peacekeeping and stabilisation forces with an international mandate. EU representatives largely supported this US position during a recent session of the OSCE Permanent Council. In short, this is the essence of "interference in CIS internal affairs" Igor Ivanov referred to.
e) Opposition reaction to "Kozak plan"
Opposition reacted to "Kozak plan" in a traditional manner: boycott of Parliament sessions, public declarations, and protest rallies. This time, however accusations brought to public authorities are totally different. For instance, President Voronin was accused of "high treason" for his willingness to sign the Russian Memorandum. According to opposition parties the enforcement of "Kozak plan" would undermine Republic of Moldova's independence and sovereignty and would tie it to Transdnistrian regime and Russian Federation. On the other hand, opposition rightly points that as it stands now Constitution could only be amended, but not replaced with a new one as the "Kozak plan" envisages.
One week after Memorandum was released, the major opposition forces of the Republic of Moldova, parliamentary and extra-parliamentary parties alike, established the Committee for Defending Republic of Moldova's Independence and Constitution. Noteworthy, the parties that founded the Committee gathered around 35% of the votes in the last local elections. National Assembly of the Citizens of the Republic of Moldova that gathered thousands of citizens on November 30 at the call of the Committee was illustrative of the oppositions' ability to join forces.
Interestingly the arguments that were cited in the declarations and appeals issued by the Committee are very much in tune with the ones cited by international organisations and OSCE member states. On the other hand, speeches of various party leaders that are members of the Committee highlighted different nuances of their positions. Thus, for instance the messages calling for the resignation of the President and Parliament are in contrast with those voicing "concerns" or condemning the "excesses".
Under those circumstances the crisis may perpetrate as long as the signing of the Memorandum is adjourned. It's up to the President whether the crisis would aggravate or decrease. Apparently though the "adjournment" would be perpetrated for quite a while.
Moldovan authorities have found themselves in the worst crisis ever. They have fallen into Kremlin's disgrace due to their indecision, they have put OSCE member state on guard due to murky bargains struck behind "Europe's back", they have given Transdnistrian propaganda an opportunity to speculate on Chisinau's lack of credibility, and finally they have triggered protest rallies staged by united opposition, which up to now has failed to find common idea for joint actions.
2. Reflections on the state budget for year 2004
by Iurie Gotisan
The state budget, approved in the third and final reading by the Parliament was declared to be aimed at enforcing the Government work plan, in reality it has proven Government's incapacity to translate Communist Party ideological message and political options into a clear budgetary policy.
First and foremost this is a political document, thereby the Communist majority in Parliament undertook a raft of measures to consolidate its repressive and administrative apparatus. The 2004 budget has ended with an excessive funding of the law enforcement forces, seen by the Communist governing as a means for improving the socio-economic situation in the country by means of "blackjack", rather than by passing and enforcing laws able to prevent various forms of corruption and embezzlement. Populist promises made during the electoral campaign have once again dashed against dire economic straits. Previously such promises have been tempered by the dead hand of financial isolation brought up by the frozen relations with international monetary institutions.
Next year budget provides for an 80 million USD debt to be restructured via the Paris Club. At the same time, there is no effective debt restructuring agreement and apparently this would not be secured this year either, given that Chisinau's relations with international monetary institutions, especially IMF and World Bank are not exactly in good terms. Therefore we might expect that being confronted with growing shortage of foreign funds, Communists are likely to go against their doctrine and accept privatisation to be continued. Out of the total budget revenues, around 500 million Lei are expected to come from privatisation. However, this amount could be secured only if economic and infrastructure units are efficiently privatised. Some members and supporters of the ruling party have set their heart on those units, but because of shortage of funds they prefer to postpone privatisation. This refers in particular to the North and North-West electricity distribution networks as well as to some winery and tobacco units.
The document also provides that 80 million USD, or 22% of the forecasted budget revenues, shall be used for servicing the foreign debt. Given that a country's long-term foreign debt in USD terms is the main criteria for assessing a country's risk rating, a number of international rating agencies scored Republic of Moldova very low, especially on financial-grade rating, viewing it as a country posing a threat in terms of attracting investments, business climate and servicing foreign debt. In this respect, we might claim that international agencies decreased the rating because of the growing foreign debt, which at the moment is worth 1.62 billion USD (!), i.e. 90% of the country GDP for 2004. Governmental debt accounts for a great proportion thereof, worth 840 million USD, i.e. 52% of the total foreign debt.
We should not forget the internal debt as well, namely public debt, which has lately rocketed ahead at its fastest pace reaching 3 billion Lei, or 200 million USD. If disbursement of foreign credits is not resumed, internal borrowing might as well turn into a classical financial pyramid, thus jeopardising financial and banking system of the country. Although it went through a number of onerous situations, financial and banking system has avoided a wide scale system risk, and consequently a major crisis. Under those circumstances, mention should be made that similar to the way international monetary institutions impose a set of requirements for the Republic of Moldova to comply with, domestic state structures should proceed alike with their debtors. Generally speaking, Government should approach the issue of state enterprises' management in a more consistent manner, especially in cases when such a solution as privatisation is not at hand. In this respect, it is worth mentioning a recent Government resolution on freezing debts worth some 500 million Lei. Government didn't even go into the trouble of assessing what would be the likely outcome of such a decision. Even in the short-run, it might have disastrous repercussions on the state budget.
Indeed, a wide range of enterprises would capitalise on such a fiscal philanthropy. It should not come a surprise then, that the list of the said debtors was not made public, nor were the details of freezing the debts. However, it's a quite easy guess which enterprises would enjoy the Government goodwill. There is no doubt that the aforesaid resolution comes as rather handy to certain high-rank officials in Government, or Parliament for that matter, who stay behind those enterprises and tinker with the law to their personal will.
If freezing historic debts is not coupled with paying back current debts, in a year or so Moldovan economy would be on the verge of collapse. The debt would be so great that it would bear the risk of suffocating state budget, as well as private enterprises. This national scale debt "bomb" might explode one day bringing about the worst financial crisis ever. And the repercussions of such an explosion would reach us regardless of how well we try to "hide" behind a relatively balanced budget. Under the given circumstances, all the implications of such economic measures must be weighted carefully, so as not to risk the alleged "victories" scored by the incumbent Government for a short lasting "bubble".
Another very interesting, though quite annoying aspect - as it stands now in the state budget, the revenues exceed by 340 million Lei the expenditures. This might lead us to the conclusion that next year budget would no long bear a deficit, but rather a profit, which is to be used for servicing external debt. It's a good thing for the Government to pursue such an honourable objective as securing budget balance, especially via reducing administrative spending and directing the resulted savings at economic development. However, such an objective is not exactly in line with local officials'style, who prefer instead to rise taxes and fees to be paid by business.
The 2004 budget provides for a 22% income tax for legal entities, the same as last year. And this despite the fact that last year Minister of Finance publicly stated that he would decrease the income tax for businesses via various fiscal levers to 15%, whereas for natural entities to 10% and 15% respectively, however those intentions never materialised. Further, those quotas were concealed by the Government being unable to explain IMF representatives how would it cover for the loses incurred by decreasing the income tax. Moreover, although many called Government to decrease the taxes, several members of the ruling party stated that by means of this budget, Government sought to carry on and preserve the stability of fiscal rules, as frequent changes in legislation as a rule destabilise fiscal system and boost financial embezzlements. The message behind those statements is that fiscal burden on real economy would not be reduced, as was requested by businessmen and several opposition parties.
Therefore, post-soviet management stereotype, i.e. high taxes bring high revenues, was meticulously observed in this budget as well. In reality though, one may easily prove that even if the corporate and income taxes on natural entities are reduced by 10%, whereas VAT by 5 points, the state budget will still not be affected. Further, such initiatives might be strong incentives for boosting economy and considerably reduce the level of shadow economy.
Despite its social character, the current version of the budget is a follow-up to the fiscal and budgetary policies of the previous years. Therefore, one of the theoretic principles of the economic policy, i.e. budget is a financial reflection of the state policy, hasn't yet gained grounds in the Republic of Moldova. This year macroeconomic indicators at the core of 2004 and cited by Prime Minister hŕve excited the entire Cabinet of Ministers. Metaphorically speaking, there's only one step to go from extasy to agony.