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Democracy and governing in Moldova
II year, no. 22, 15 January 2003
Activity of public institutions
Studies, analyses, comments
I. Activity of public institutions
On January 14 the Government designated the Director of the Chisinau International Airport, Ion Crohin, to the position of Director of the State Administration of Civil Aviation. Also the Government approved the resignation of Valeriu Canna from the position of General Director of the Organisation Promoting Exports from Moldova. One week later, the former Prosecutor General, Vasile Rusu, was appointed Chief of the Legal Department of the State Chancellery.
"To ensure the unity, coherence, and efficiency of the foreign policy of the Republic of Moldova and co-ordinate the activity of specialised central bodies in the field of foreign affairs" on January 14 the Government approved a draft law defining the role of the Ministry of Foreign Affairs in enforcing the foreign policy of the Republic of Moldova. Under the document, all the diplomatic missions accredited in the Republic of Moldova will keep direct liaison with the Ministry and will communicate with other institutions via the Ministry. Moreover, "any visit abroad and any invitation to Moldova of an official from abroad" should be endorsed by the Ministry of Foreign Affairs. Also, the Ministry shall approve official delegations, including membership and their mandates at the international conferences and reunions, after prior consultation with the Presidency and Government. In their turn, the delegations would have to abide "written orders and instructions outlining the position of the Republic of Moldova as approved by the Ministry".
The Government amended its decision on obligatory medical insurance. The amendments would allow beneficiaries to ask for medical assistance without having consulted the family doctor first. However, Healthcare Ministry officials claim the family doctor institution would thus be neglected, albeit it lied at the core of the medical insurance system, and therefore jeopardise the entire system. On the other hand, people would benefit directly from the amendment, as they would get to choose themselves the medical institution and would enjoy quicker the services. Also Government obliged medical institutions to go back to the old tariffs on medical services in force prior to December 1, 2003. Those tariffs would be in force for at least six months.
Government approved also on Action Plan on credit reimbursing by the beneficiaries of foreign credits guaranteed by the state throughout 1991 - 2002. According to Minister of Finance, Zinaida Greceanii, Moldova received direct foreign credits worth 1 billion 156.6 million USD and credits guaranteed by Government worth 166.6 million USD. As of January 1, 2003 the arrears on direct foreign credits and on guaranteed ones reached 724.3 million USD and 88.5 million respectively. Noteworthy, almost 418,6 million USD were spent to cover the budget deficit, 357.8 on imports, 36 on infrastructure, 240.2 were invested in energy sector, 45.8 invested in social sector, 37.5 in private sector, and 20.7 in agriculture and food industry.
After President Voronin pointed that raising average wage to 100 USD was a top priority for year 2004, a commission was established to outline the measures to be taken in this respect. Given that a 30% increase would be necessary to reach the 100 USD wage and that international rating agencies forecast only a 3.5 - 4.0% GDP growth in 2004, it is very unlikely that the target set by the President would be actually achieved. Either the President is willing to assume all the risks, or this is only a propagandistic stunt in a pre-election year. One way or another we'll have to wait until the end of the year to see whether the target is hit.
On January 21, Government approved a draft law envisaging establishing new work places for handicapped persons throughout 2004-2006. The draft provides the following: as of 2005 subventions equal to one minimal wage to be paid for a 18 months period to businesses employing handicapped graduates of the state funded institutions; state orders to specialised enterprises of the handicapped; professional training services; developing a list of positions to be primarily occupied by handicapped; as well as establishing enterprises and departments to employ handicapped.
Also Government revised the Regulation on registration of political parties and socio-political organisations so as to bring it in accordance with the amendments to the Law on Political Parties (see e-journal, no. 20, December 3, 2003). It also added a new article to the Law on Government providing that State Chancellery shall oversee law enforcement in the Republic of Moldova and Gagauz-Yeri.
New goals for the new year
During a meeting on January 15, President Voronin reviewed the Government success in 2003 and outlined new tasks for 2004. The latter include improving the legal framework on insolvency and obligatory medical insurance. President stressed the importance of avoiding companies "bankruptcy on purpose", ensuring "that company leadership would assume responsibility for insolvency", supporting companies "in need because of some objective reasons" and preventing the economy from ruining. In addition, Government was entrusted to ensure a smooth transition to the obligatory medical insurance via "an efficient communication campaign aimed at informing medical staff and company leadership on the gist of the reform and financial sources needed to provide quality medical assistance".
Meeting with Rudolf Perina
Shortly after President Voronin and US Ambassador Hodges agreed on tightening bilateral relations between Moldova and US, a special US State Department negotiator on Eurasia conflicts, Rudolf Perina paid an official visit to Chisinau. During a meeting on January 19, the Two "exchanged opinions on the current negotiation status on Transdnistria" and ways of speeding up the resolution of the conflict. According to a press release of the Presidency, the Two also stressed "the need to join the efforts in speeding up the peaceful resolution" of the Transdnistrian conflict.
Reiterating European integration goal
During a meeting with diplomatic corps accredited to Moldova on January 22, President Voronin reiterated Moldova's interest to join EU. Voronin pointed that the country "was ready to comply with EU criteria, to gradually enforce communitary policies, to bring national standards and legislation in accordance with the communitary ones". According to the President, European integration was justified as a priority of the foreign policy by the social consensus on the issue, as well as by the latest economic achievements that have had a social impact as well. President indicated that he was aware of the fact that "the positive trends are only the first step towards economic recovery and the entire society would have to joint the efforts in conducting the structural reforms that would allow Republic of Moldova to join the large European family". The President promised that the efforts undertaken in 2003 in view of European integration "will be continued at a bigger scale this year".
We are pleased to find that President acknowledged that our success on the road of European integration is heavily reliant firstly on our efforts, and only then on the support we do get from EU. An illustration to this effect is that the President referred firstly to the need of strengthening our capacity to "promote the reforms in line with EU requirements" and only then to Moldova's interest to have a permanent office of the European Commission in Chisinau and to tighten its ties with European countries.
The Transnistrian conflict high on the agenda of the international community
In his opening speech to the OSCE Permanent Council, Solomon Passy, Bulgarian Foreign Minister and Chairman in Office (CiO) of the OSCE, expressed confidence that the mediators and the representatives of the two conflicting sides would continue their efforts within the five-sided negotiations mechanism towards a viable constitutional mechanism that would enjoy the support of the majority of the Moldovan people. Should such a solution be found, the OSCE would be ready to provide adequate international guarantees. At the same time, Passy expressed hope that the Russian Federation would continue the process of unconditional withdrawal of its weaponry from the Transnistrian region in accordance with its earlier international commitments.
As a fist step towards fulfilling its objectives with regard to the unresolved conflict in Transnistria, the Bulgarian CiO will organise on 26-27 January in Sofia a meeting of the mediators to discuss the issue of resuming the work of the five-sided negotiations mechanism, and the contents and periodicity of talks. It is necessary to remind that following the failure by the Moldovan authorities to sign the Russian proposed plan of resolving the Transnistrian conflict in November 2003, the negotiators stopped holding their monthly meetings. In this context, representatives both of the parties to the conflict and the mediators have expressed high expectations with regard to the meeting in Sofia. They nonetheless continue to hold divergent views as to the role of the Russian proposal in the future negotiations process. Thus, it appears that Moldovan has prepared a new draft based on the Russian one, the Transnistrians have put together their own plan, which includes distributing the powers between Moldova and Transnistria on principles of parity, the OSCE has suggested it would propose a plan that had been drafted by the mediators within several rounds of negotiations prior to the Russian proposal, and the Russians said they would insist on adopting their November proposal as the basis for future talks because that was the only document able to forge a consensus between the two parties.
In the meantime, the current stage and future prospects of the Transnistrian conflict resolution process have been tackled at a meeting of the President Vladimir Voronin with the US State Department Special Envoy for Conflicts in Eurasia, Rudolf Perina. It is expected that during the visit of the US State Secretary Colin Powell to Moscow on 26-27 January, the issue of the unresolved conflicts in the former Soviet Union will be raised, in particular with regard to the conflicts in Georgia and Moldova, along with the compliance by the Russian Federation with its international commitments to withdraw its armies from these two states. On the eve of Colin Powell's meeting with the Russian President Vladimir Putin, the former published on the front page of the Russian daily Izvestia of 26 January 2004 an article in which he mentioned that Russia had a "natural interest" in its neighbours' affairs but that "we recognise no less the sovereign integrity of Russia's neighbours and their rights to peaceful and respectful relations across their borders". The comments were interpreted by many western analysts as a thinly veiled reference to Russia's manoeuvring in Georgia and its failed attempts to bypass negotiations in Moldova to reach a settlement with breakaway region Transnistria.
As for the issue of the Russian weapons withdrawal from Transnistria, the Russian Ambassador with Special Missions who will represent Russia at the Sofia talks, Aleksandr Novojilov, stated that there are no proofs that the one-month break in the process of withdrawal is due to the obstruction of the process by the Transnistrian authorities. Novojilov did admit, however, that the Transnistrian administration could have caused a break in the process in order to obtain security guarantees in the form of the Russian military presence in the region. Russia would understand such a move, but would still complete the withdrawal of its weaponry from the breakaway region.
Moldovan political detainees in Tiraspol
Andrei Ivantoc, one of the three political detainees of the "Ilascu Group" detained by the Transnistrian authorities for over 12 years, stopped the hunger strike on which he went on 28 December 2003 in protest against the inhumane detention conditions. Ivantoc stopped the strike after he had been seen by a Red Cross doctor.
The OSCE Mission to Moldova showed concern over the detention conditions in which the three Moldovan detainees are held and called upon the Transnistrian authorities to free them as a humanitarian and reconciliation gesture, as well as in response to the decree issued by the Moldovan President last year whereby the combatants who fought in the 1992 war on the side of the Transnistrian paramilitary troops were amnestied.
The European Court for Human Rights (ECHR) and the European Parliament have called upon the Republic of Moldova and Russia to take action to improve the situation of the three political detainees in Tiraspol. These moves were to a great extent the follow up to a series of diplomatic actions by Romania, whose citizens all three detainees are.
At the same time, the Bucharest daily "Ziua" and the Association Civic Media from Romania have launched a campaign to collect signatures in support of freeing the "Ilascu Group" detainees. Apart from a series of outstanding Romanian political and cultural personalities, and a significant number of ordinary Romanian citizens, the campaign was joined by a number of renown associations, such as the Romanian Association of Sociology, the Agency for Press Monitoring, several trade union confederations and a few organizations of the Romanian Diaspora.
III. Studies, analyses, comments
1. Ratio of forces: power - opposition
by Igor Botan
1. Right-wing opposition
Although there is still one year left until the next parliamentary elections the major political parties have already engaged in talks on possible alliances as well as testing what messages would the electorate go for. Considering the results of past local elections and recent opinion polls, only four political parties do have a chance to get seats in Parliament, namely: Christian-Democrats, Moldova Noastra Alliance, Democratic Party and Communist Party.
The first three are members of the Committee on Defending the Independence and Constitution, established on 24 November, 2003 to oppose the Kozak plan. It is these parties that the Christian-Democrats' January 14 declaration addressed, calling them to establish a single opposition electoral bloc. The reactions that followed were more negative than positive. Therefore, it is believed that the three parties would most likely become centres of attraction for other smaller centre-left and centre-right parties. At best, Moldova Noastra and Democratic Party would form an electoral bloc, however there are more and more doubts in this respect. It may well happen that the leaders of the said parties would give up the idea of establishing electoral blocs in order to have wide berth for manoeuvres on an eventual post-electoral coalition with the Communist Party, in case the latter fails to secure enough votes to form a Government and elect the President.
From all the parties on the centre and centre-right spectrum only three parties, i.e. Social Democratic, Social Liberal and Centrist Union (having in all around 6% that is equal to the threshold of representation) might be of interest in establishing coalitions. On the other hand, none of the three parties could be sure that it would gather alone 3% of the votes, which represents the progressive threshold established for the electoral blocs. That is why, it makes sense to form alliances only with strong parties or blocs made up of two or more parties, for whom passing a 9% and respectively 12% threshold is not an issue. Otherwise, the right-wing would again waist the considerable number of votes, which once again would be redistributed proportionally in favour of the Communist Party.
The other 4-5 centre-right parties together may attract no more than 1-2% of the votes. They represent the so-called "political plankton" which only "dims the waters" and might be of use in feeding "political sharks". Anyway, the chances of the united right-wing opposition, whether it chooses to go united in the upcoming election, or in two or three groups able to pass the threshold, are still quite vague.
2. Communist Party potential in elections
For now, the Communist Party is the only one on the political scenery endowed with practically unlimited financial resources, access to state mass media and administrative levers. Moreover, Communist Party promoted loyal persons into the new membership of the Central Electoral Commission, a key institution in administering elections. Communist Party also practically subdued a part of the trade unions of Moldova, who together with the public officers promoted by the party, veteran organisations and party structures may become the most efficient propaganda squads and electoral agents in the upcoming elections. They would employ all the mechanisms at hand to convince electorate that Communist Party is the one and only party caring for the vulnerable strata of the society, a rather profitable strategy in a poor country. Wage and pension raise, European integration and many other things the incumbent ruling takes the credit for, would be heavily exploited. And it would be the opposition's task to show the other side of the coin.
The aforesaid factors, coupled with the last election results and recent opinion polls may give the impression that Communists would dominate the next polls in the legislature. However, one might have such an impression only if casting a static eye on the state of affairs. When viewed in dynamics, the aforesaid factors might considerably depress Communists' morale.
For one thing, in the recent May local elections Communists had at hand a good portion of the arsenal it does have today, nevertheless it registered a slight decrease in electorate's sympathy. Secondly, the impact of the aforesaid factors would be slightly diminished by the constant monitoring from the European institutions, which Christian-Democrats sought so badly when initiating a new round of protest rallies. Thirdly, President Voronin himself confirmed in an interview to ORT-Moldova TV that the economic growth registered in the last three years was largely due to applying an exploitative form of economic growth, that is, the outcomes of structural reforms promoted by so-called democrats were fully exploited, reforms which were halted by Communists and which are to be resumed. Everybody has already seen Communists' ability to conduct reforms, especially in as far as healthcare insurance is concerned. That is why it is very unlikely that in a pre-election year Communists' would have the guts to resume structural reforms, they would rather pursue populist policies. Therefore, it is to be expected that the relations with international monetary organisations would not improve and the coffers for populist measures would be empty. This is the more so, as the prices on food and energy have significantly increased lately. Despite this, authorities announced a further increase of the gas and electricity prices, which would likely bring about an increase in the goods and services prices.
And last but not least, Communist Party has ended with no political allies having at least some power. During the celebration of the 10th anniversary of the Communist Party, President Voronin mentioned only Agrarian Democratic Party among the "friendly parties". The latter has a 2-3% rating, percentage not to be neglected in the upcoming elections. On the other hand, Agrarian Democratic Party is solely responsible for securing and misusing the greatest portion of the foreign loans Republic of Moldova has received. Therefore, to make alliance with them is to tarnish their own image. Moreover, Communist's arrogance has brought the left-wing opposition to the limelight, which might again affect Communists' outcomes in the parliamentary elections.
3. Left wing opposition
Permanent clashes between the Communist Party and right-wing opposition have cast the left wing in a shadow. However, this outgoing phenomenon is quite dangerous for the Communist Party for several reasons. Firstly, the arrogance displayed by the Communist leaders compromised the idea of Centre-Left Union. It could have brought together 10 political forces, including Democratic Party and Agrarian Democratic Party, and would have enabled Communist Party to ingest the entire "political plankton" of the left and even some of the big "fishes". Secondly, the ever-growing discrepancy between words and deeds of the Communist party moguls has taken aback many of the Communist supporters. For instance, Communist Party's political message pools together things apparently running counter to each other, like: edifying Communism and fostering economic liberalism; praising God and praising the militating atheist - Lenin; soviet-type free healthcare system and obligatory medical insurance; EU integration and joining Russia-Belarus Union, etc. Thirdly, it is the Russian's factor influence wielded on Moldovan politics, namely economic pressure and Transdnistrian conflict.
President Voronin's manoeuvres in settling Transdnistrian conflict have peaked in the change of the Republic of Moldova's political course, even if only in rhetoric, as well as in the refusal to sign Kozak plan. The latter considerably damaged the relationship between Moldovan and Russian authorities, who are now openly supporting Tiraspol regime.
Communist party moguls know far too well what might be the likely impact of the Russian factor on election results. Vladimir Voronin's visits paid to Moscow during the last electoral campaign, as well as Kremlin's open support to him influenced the votes of the Russian speaking electorate of Moldova. That it is indeed so, one may just remember the way Chisinau official propaganda tried to convince the people that even after Voronin had refused to sign Kozak plan, he was still viewed by Kremlin as the only political figure worthy of their trust.
One may also asses the possible effects of the Russian factor if considering Georgian example, when before the recent presidential elections the leaders of the two breakaway regions and Adjara were summoned to Moscow in an attempt to show the would-be winner, who is really behind the separatist movements in the country. The greatest declared friend of Russia, Alexandr Lukanshenko, also had the chance to feel on his own the power of market arguments and levers used by Russia when it recently cut off the gas supply to Belarus. In this respect one should also consider President Putin's interest in presidential elections in Ukraine scheduled for fall 2003.
In their turn Moldovan authorities have received a very clear signal from Kremlin administration that it won't give up the Kozak plan of settling Transdnistrian conflict, which President Voronin had rejected. In this respect, the Transdnistrian and Russian factor will go hand in hand in the upcoming electoral campaign.
An illustration to this effect is the recent declaration of the two socialist parties in support of the Kozak plan. Several other pro-Russian left-wing parties, as well as the New Communist Party to be founded, would most likely join the two socialist parties in an attempt to build up a strong political force similar to Interfront of the 90's. Even among the incumbent MPs one may find political figures among the "independents", who do have a large experience in this respect and are able to take the leadership of the united left-wing opposition. Most likely this opposition would enjoy the moral and political support of Russia and financial support of Transdnistria. It would also enjoy wide coverage from Russian media, the leader on the Moldovan market. And most importantly, this left-wing opposition could secure all of them legally. Therefore, due to the Russian factor, the establishment of a united left-wing opposition would have more chances for success than a similar right-wing opposition.
Moreover, Tiraspol has another ass in its sleeve that it hasn't used so far. On the eve of the next parliamentary elections, Tiraspol might set itself up for being the main proponent of the country integration, of course in line with Kozak plan, and open the polling stations for around 400 thousand voters (around 15-20% of Moldovan electorate) in the upcoming parliamentary elections. Even if only a part of them do cast their ballots it would induce a "domino effect" shifting the preferences of the Russian-speaking electorate of Moldova by veering them to the left, in particular in favour of the left-wing opposition.
One may not also exclude the possibility of massive exodus of dissatisfied party members from the Communist Party to the left-wing opposition. In this respect a mention should be made that recently while President Voronin assured foreign diplomats accredited in Chisinau of Moldova's strong commitment towards European integration, the leader of the Communist faction in Parliament, Victor Stepaniuc, attended the session of the Union of Communist Parties' executive committee, which did reconfirm rebuilding URSS as a strategic goal of the Union. What the President called opposition to do - not to change their political message depending on the geographic location where it was delivered - was breached by the very Executive Secretary of the Communist Party, Victor Stepaniuk. Another factor to consider is that the potential partner of the Communist Party in the much thought but never achieved Centre-Left Union, i.e. Democratic Party, has recently excluded from its political programme the provision on EU integration. Instead, Democratic Party outlined the stake that would determine it to join an eventual coalition in the upcoming elections or afterwards, namely Prime-Minister position. The aforesaid examples highlight that leaders from different political spectrums, as well as some leaders of the Communist Party, seek to adjust themselves to the Russian factor and to exploit it at full in the upcoming campaign.
In conclusion, official propaganda should better refrain from mocking right wing opposition and claiming that the next Parliament would be of a single political colour. One may not rule out that the Communist Party would secure again an absolute majority in Parliament, given the resources they have at hand and their willingness to unscrupulously make full use of them. However, all the factors listed above might have their saying as well, resulting in a multi-coloured Parliament. That is why it's hard to predict yet what colours would prevail in the next legislature.
The uncertainty is so high that one may well venture into predicting all kinds of combinations, such as a coalition of the reformatory Communists, Moldova Noastra Alliance and Democratic Party, and this only if the President sticks to the European integration idea. If the Russian factor proves to be decisive, the strategic goal of Moldova might again shift towards CIS structures. In this case, Communist Party might form a coalition with the would-be left-wing opposition and Democratic Party so as to enforce the federalisation plan. Other scenarios are less likely. However, one thing is for sure - the parliamentary system established in Moldova after the modification of the Constitution in 2000 is still quite fragile to cope with heterogeneous coalitions, especially as Moldovan political elites' culture and principality went to the most ludicrous length and is likely to bring about political instability.
2. 2003 economic overview
by Iurie Gotisan
In an interview to a TV channel at the end of 2003, Prime-Minister firmly stated that it was under the incumbent governing that GDP registered a steady growth three years in a row. The Government is indeed facing an economic upturn, however many economy-watchers rightly point that at least a part of the credit the incumbent Government has been so quick to assume, should be given to the previous two governments as well, which are said to have been the most efficient ones, and this despite some of their mistakes and failures. Playing with macroeconomic indicators so as to report an economic growth, which mainly refers to the soaring industrial output, keeping inflation under control (which nevertheless exceed by twice Government forecasts for 2003 and reached 15.7%), keeping consumption basket under control, did not allow the Prime-Minister to mock a really favourable economic environment. There is a risk that those positive achievements would be undermined by the numerous strategic mistakes the incumbent ruling has made, such as: administrative-territorial reform that garnered a rich harvest of criticism both from civil society and international institutions; attempts to "revise privatisation", etc. The aforesaid as well as many other initiatives of the incumbent ruling are nothing but an attempt to redistribute the power and the private property in the country. In a related note, Prime Minister failed to mention that his governments' failure to comply with IMF Memorandum provisions has led to the suspension of the foreign aid granted to the Republic of Moldova.
It is all-too-clear that there is indeed a high-level economic growth (as compared to other countries, including those in transition). A 6% GDP growth under a rather adverse environment (to say at least) is quite an achievement. However, this growth, as was the case in the last year, has duly raised some IMF and WB eyebrows, which seem to be the only ones willing to question those figures. Nevertheless, the data released by the official sources does not allow for comprehensive analysis, which would require in depth research based on international standards so as to reflect the real economic growth. Still there are at least two things clear for now - economic growth is still vibrant despite the worsening parity between economic sectors. In fact, economy does not work without measuring. This is the more important as the figures released by authorities serve as input variables in the decision-making algorithms used by the enterprises and individuals in general. The figures speak of government's intentions, and also validate or invalidate the expectations of their end users. In conclusion, those figures either increase or decrease the credibility of economic policies.
It is worth mentioning that Moldovan economy, which is oriented mainly towards exports, is very much shaped by the international and regional economic trends. The great majority of Moldova's trade partners have registered a significant economic growth in 2003 that brought about a surge in demand for Moldovan goods. At the same time, we should point that Moldovan GDP continued to grow throughout 2003 despite the 40% drop in investments and the 25% increase in consumer spending. Consumer spending has exceeded even the economic growth. It was mainly boosted by the money sent by Moldovans working abroad, reportedly 300 million USD. To a large extent they are sent via other channels than the banking ones and therefore may not be precisely estimated, however they are said to exceed the officially reported figures.
Therefore, economic growth was largely due to the surging demand in goods and exports, and the Government has nothing to do with it. That is exactly why, we do believe that Moldovan economy continued to grow throughout 2003 due to the "critical mass" of structural factors in the economic system necessary to overcome the economic crisis and not because Communists, who claim to be experts in macroeconomic policies, were in power. If we are to accept these terms, than one may say the macroeconomic scenario for 2003 is under pressure.
Besides good news, 2003 brought some bad news as well, namely worsening financial discipline, i.e. soaring debts of the big state run enterprises, which account for 40% of the budget revenues. Those enterprises have accrued huge debts especially on energy. Authorities uncertainty with regard to the imbalanced foreign trade and the danger of ending up with a doubled trade deficit estimated at 500 million USD - all indicate rather hard times ahead. In this respect we should mention the worsening international financial climate as well, that is why it is all the more important to keep a close eye on high trade deficit.
Another interesting thing is that throughout 2003 the Government failed to establish a favourable environment for the domestic producers that would have enabled it to capitalise on internal financial sources or to attract foreign investments for projects of paramount importance. Noteworthy, according to the Heritage Foundation's economic freedom rating, Moldova has registered the lowest level of foreign investments in the region. All in all, direct foreign investments in the Moldovan economy hardly reached 60 million USD, that is 20 USD per capita (excluding Transdnistria). For comparison, in Romania foreign direct investments in the same period reached 2.2 billion USD, that is 100 USD per capita, whereas in Czech Republic 9 billion USD or 900 per capita.
Western companies do not view Moldova as an attractive place for diversifying their capital, which on the contrary seems rather fertile for the Russian capital. Out of the total 700 million USD direct foreign investments in the last ten years, Russian companies account for 40%, whereas Spain the second in the list, accounts only for 10% and is represented only by one strategic investor. Thus, poor institutional capacity and inadequate legal framework define Moldovan business climate. A special attention should be given to the state capacity to guarantee businessmen's private property and personal security. Due to the aforesaid the flow of foreign investments in the Republic of Moldova has been rather meagre, whereas the illegal exodus of capital from the country has reached an alarming scale, and this despite the difficulty to precisely estimate the financial outflow. According to some unofficial sources, in monetary terms the volume of international drug smuggling via our country has by far exceeded foreign direct investments in Moldovan economy.
At the same time not enough steps have been taken to slowdown the economic crisis in agriculture and processing industry. Nevertheless the steps to be undertaken are quite obvious: abolishing state monopoly on agricultural acquisitions and establishing agricultural exchanges, especially in the Euro-regions Moldova is part to. In addition, one should not have an agricultural policy as such, without having an appropriate rural policy targeted at reducing the number of people directly employed in agriculture by fostering rural industry and services sector in the rural area. Insufficient funds accrued to the state budget has lead to underspending in the socio-economic field. In this respect, it is not clear why does the incumbent ruling insist on over-spending and keep engaging in over-protectionist social policies when the funds available at the moment could barely cover the existing needs?
In addition, the new territorial division that the incumbent ruling enforced in 2003 garnered a rich harvest of criticism from international organisations, which contributed with more than 500 thousand USD to the previous 1998 reform. Given the worsening relations with foreign donors, enforcing a new administrative-territorial division was yet another reason to limit and even suspend the crediting. It is worth mentioning that the Memorandum on the economic and financial policy signed by the Moldovan Government and IMF provided for a raft of measures aimed at perfecting public funds management. However, these measures could have been enforced only within the framework of the local public funds system at the county level, the only mechanism able to ensure a full transparency. Reduced geographical and economic scale of the administrative-territorial units would certainly result in a diminished fiscal basis and its growing dependence on the central budget. Going back to the old administrative model would require more funds than the current state budget could afford to spend.
Corruption that has turned into a quasi-cultural and socially accepted norm throughout 2003 has had severe repercussions on Moldovan welfare and economic development. Great many economists view corruption as a factor undermining the economic growth. It is known for a fact that a high level of corruption brings about economic slowdown by plunging investments. The same reasoning holds true in the case of Moldova. A country as tiny and as poor as Moldova is not an attractive market and very few investors venture in placing their capital in its economy. Besides economic ones, corruption brings about also wide-scale social repercussions. For instance it was estimated that the bribes paid annually in Moldova exceed by far the public spending on science, education, healthcare and culture. According to some unofficial data the bribes paid in 2003 to various governmental structures and public officers are estimated a 1 billion Lei, i.e. 30% of the revenues to the state budget. This and many other repercussions undermining the economic system, make the 5% GDP growth forecasts quite unrealistic. Under those circumstances even a 4% increase is a wishful thinking.
Many analysts have pointed the effects of the Transdnistrian conflict on the Moldovan economy. For them Transdnistria is the "black hole" of the Moldovan economy, which proved to be quite prodigious for legalising illegal money, for fiscal and customs evasion, as well as for economic embezzlement. A fiscal and customs mechanism of legalising illegal income has been put in place via direct involvement of Transdnistrian, Russian and Moldovan banks. Each year dozens of millions of USD coming from CIS are wired to Transdnistrian banks via Moldovan private banks. Such schemes are nothing but money-laundering. Given Moldovan decision-makers' irresponsibility and their obscure policies towards Tiraspol, Transdnistrian conflict-watchers believe that settling it via federalisation of the Republic Moldova is the least acceptable option viewed from the European integration perspective. If the economic breakthrough had not been short to come, then sooner or later people to the left of Dniester would have settled the conflict themselves, being lured by the high living standards of the other side and even would have put an end to the Tiraspol Mafia clan.
If we are to believe official statistics, stabilisation and even boost of the economic growth marked 2003. However, the most important problem was not solved, namely those two trends have had no impact whatsoever on the lives of ordinary people. Poverty has reached unprecedented levels in the Republic of Moldova with 75% of the population living on less than 2 USD per day and 50% on less than a dollar. According to some official data 40% of the population live below the subsistence level. Huge discrepancies in the citizens' income illustrated by the great number of citizens on the verge of poverty, and worsening social and economic indicators in the context of a weak public administration, should urge the Government to better distribute the income thereby keeping away from tearing down social cohesion, especially when it comes to a population uncertain of the abilities of its political class and disillusioned in what has it been able to deliver out of the electoral promises made.
Skyrocketed prices on food in 2003, including on bread, has taken many aback. Citizens were outraged by the new prices. Indeed, skyrocketed prices affect each one of us. However, when it comes to food, it is the poor who suffer the most. According to official statistics food accounts for 70% of the consumer spending in the poor families. And bread is, as we all know, one of the basic products, which is in demand regardless of the price fluctuations. Having said that, the increase in bread prices has pushed the poor ones even further into the verge of poverty.
In 2003 National Bank of the Republic of Moldova pursued a restrictive monetary policy as it did in the previous years, by strengthening the "holly pillar" of the national economy, i.e. Moldovan Lei. At the same time, National Bank policies have had also an adverse impact, namely inhibited economic and investment activities. Because of the high interest rates bank credits were inaccessible for funding investment projects, whereas a lot of jobs were cut. Such a policy might be effective on a short term, given that the first risk any economy should eliminate is taking inflation under control. In the long run, however, once macroeconomic stabilisation is secured keeping inflation under control should not be a top priority any longer, instead sustaining economic growth and fighting unemployment should become a priority. By introducing regulatory measures, such as norms prohibiting and limiting the free exchange of the Lei and other currencies, and by toughening the monitoring requirements over foreign currency transactions, National Bank only boosted the outflow of capital from Moldova. Indeed, Moldovan economy and its business climate in general are not among the most luring locations for placing investments, and by its actions National Bank has helped even further the capital "exodus". Why is capital exodus so crucial for any economy? Firstly, because it generates such phenomena as: surging unemployment, shut down of companies unable to keep up with the competition because of obsolete technology, lack of highly-paid jobs, depreciation of assets on the financial and monetary market, state incapacity to deliver social promises and to secure budget revenues. These and many other negative factors have drawn back Moldovan economy.
Poverty Reduction and Economic Growth Strategy completed at the end of 2003 with the financial support of World Bank would not be enforced, unless foreign aid is provided. Coupled with the worsening situation in agriculture, it is hard to imagine how Moldova would stay afloat without any foreign aid. Other donors condition their assistance programs on a Memorandum with IMF. Unless it manages to secure funds for this year, the Government would have to resort to loans from National Bank. However, besides domestic policies that are to be financed there are also foreign debts to be paid. It would be almost impossible to restructure them without an agreement with IMF in place. In the absence of preferential foreign credits, the only way the Government would be able to comply with its foreign obligations is to resort to National Bank foreign currency reserves. However, using up the reserves would easily boost inflation and speculations on the national currency. These would ensue in skyrocketed prices, national currency depreciation, and of course more expensive imports. Those risks would be slightly diminished by the money wired by the Moldovans working abroad. However one should not overlook the scenario when people hunching an out of scale increase in prices would hold on to their currency, which in turn would wield a heavy pressure on the exchange rate. The internal debt is already too high exceeding 200 million USD, and even if the Government manages to stabilise the external debt, it would to do so on the expense of the internal one. If the economic crisis is too severe it might end up having a wide-scale social and political impact.
And last but not least, it is worth mentioning the uncertainty on the regional and international financial markets, as well as the unfavourable Euro-USD rate, which more or less have affected the domestic market. Euro appreciation against USD has had a negative impact on exports that have become non-competitive as a result. Bankers also fear the inflating effects of the said phenomena especially after Euro has crossed the critical 1.25 USD per unit rate. More expensive imports and excises in Euro have skyrocketed the prices, tendency likely to perpetrated in the future. Given this bleak international economic outlook, Moldova would face even more challenges to boost its economic recovery. Therefore it would be harder to export, whereas external funding of our deficits would become more complicated.
In its last country report IMF forecasted a lower GDP growth in 2004 then the previously registered 5%. There are other facts to back up such forecast. Private consumption and consumption demand would not be able to boost an economic growth. There are also concerns with regard to the saving process that is crucial for economic growth. It was determined by the fact that several banks dropped the interest rates on deposits to a level even below the inflation rate. Another tendency is the fact that people prefer cash to bank accounts, and this because of shadow economy and low trust in banking institutions. For instance, payments in cash account for 22% of the total transactions in Moldova, as compared to 5% in Western Europe and 3% in USA.
Regardless of the state of negotiations with IMF and WB in 2004 (a pre-election year and a year full of political and economic surprises) the Government would have to focus on restructuring, it would have to communicate to the people why it is important and why the time is not on their side. In general, Government should have more transparent economic policies and a more articulated communication policy. It should stake its future on catching the economic recovery wave. Loosing the momentum by engaging in reckless actions would complicate the economic situation even further. Anyway, the country would face tough challenges, like reducing trade balance deficit, decreasing inflation, etc. The Government would have to be more careful in correcting its foreign debt. In this respect, controlling internal absorption (of consumption and internal investments) is essential, whereas wage policy has a key role to play in keeping a decent level of social justice.