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Activity of public institutions

Parliament
Government
Presidency

It's clear than nothing is clear by Igor Botan
Domestic foreign exchange market: on-going volatility by Iurie Gotisan

I. Activity of public institutions

1. Parliament

1.1. Tensions build

Parliament convened for only two sessions during the past two weeks, which were as tensed as the previous ones. Again Christian-Democrats blocked the central tribune, thereby demanding data on the controls conducted by the Court of Accounts on public funds spending by central public administration to be made public and calling on Parliament Chair resignation.

As usual, at the beginning of the session Parliament Chair called on Christian-Democrats to observe the Parliament Regulation, however they refused to do so. Last week thought, majority faction proceeded to amend the Parliament Regulation that would allow sanctioning deputies who obstruct plenary sessions.

1.2. Legal acts

Law on establishing diplomatic duty free shops provides for opening a duty free shop in Chisinau to serve diplomatic corps where goods shall be sold based on identity cards issued by the Ministry of Foreign Affairs in amounts enough for personal or family use, which shall not be subject of resale. Foreign missions would be allowed to purchase goods in larger amounts with the previous authorisation of the Ministry of Foreign Affairs. The Government is to decide on the establishment, operation and sale of goods in the diplomatic duty free shops.

The law does not stipulate whether duty free shops would be state-owned, joint venture or private; no does it specify whether a tender is to be held to select the successful bidder. The Government would have to decide on those issues in the Regulation it is to develop. And only then, would we see whose interests are at stake.

Via Law on converting the debts of the "Tracom" tractor plant into shares Parliament decided to convert the 12.5 million Lei debt into shares to be owned by the state. Thereby state would hold 93% of the registered capital, fact that reportedly would boost production of agricultural machinery and tractors in the country.

Law on settling historic debts to the state budget of "Mezon" joint venture under insolvency procedures authorises Ministry of Finance and Creditors Council to settle Mezon's debts worth 1.7 m Lei by transferring its patrimony into the property of Basarabeasca rayon. The patrimony shall be transferred via alienation. Noteworthy, the plant was part of the industrial military complex. Upon the collapse of the Soviet Union its production shrank and in 2000 it undergone insolvency procedures under a resolution of the Economic Court at the request of the Ministry of Finance.

Law on the modification of the Law on Local Public Administration provides that privatisation and other auxiliary activities shall fall within the competence of rayon public administration. Given that territorial agencies of the Privatization Department were shut down, their functions have been delegated to rayon (municipal) local public administration. Therefore, selling plots, real estate in state property shall be the prerogative of local authorities.

Via the Law on ratifying the Protocol on free railway tickets for veterans Parliament ratified the Protocol on enforcing the Resolution of the Council of the CIS Chief of States that entitled WWII veterans to a free railway ride once per year. The Protocol also enables veterans to choose a 50% discount on maritime or airfare.

Also, Parliament passed the Law on modification of the Law on Budgetary System and Process. Under the law funds administrators shall be responsible for executing writs of execution issued by courts, namely in the case of local and central authorities - their heads, whereas in case of debts to the central budget - Ministry of Finance via State Treasury.

Law on the modification of legal acts on social protection of citizens affected by the Cernobil accident increases monthly allocations to 100 Lei for the following: spouses incapable to work of those who took part in liquidating accident consequences and died; children up to 18 of deceased participants in liquidation; one of the parents unable to work of the deceased participants in liquidation; I degree disabled unable to work as a result of the accident, etc.

Law on modification of legal acts on declaring and control of the incomes of public officers distinguishes on the status of various categories of public officers and state officials. Also the law obliges officials to declare their income and estate, the failure to do so being sanctioned. The law extends the list of persons obliged to declare their income and estate to include elected bodies, heads of various central or local control bodies and law enforcement bodies. The minimal amount of goods to be declared is set at 50 thousand Lei. The law also perfected the mechanism of checking the declarations.

Law on the modification of legal acts on the free economic zones, provides for:

1. enlarging the territory of the Free Economic Zone Expo-Business Chisinau, to include a 27 ha plot belonging to "Tracom" joint stock company;
2. establishing a sub-zone as part of the FEZ "Ungheni-Business". It will be located at the "Covoare-Ungheni" joint stock venture, and seek to attract investments and boost manufacturing output (establish a joint carpet manufacturing enterprise).

(For further details on Parliament activity see http://www.e-democracy.md/en/comments/legislative/)

2. Government

2.1. Reshuffles

On April 28, Valentin Mejinschi was appointed as Director of the Centre for Fighting Economic Crime and Corruption. Noteworthy, until February 28 the position was held by Alexei Roibu, who was ousted by the Supreme Security Council as a result of the grain scandal.

Another reshuffle had Boris Cojuhari replacing Valeriu Starenco as Republic of Moldova plenipotentiary representative to the Commission on economic issues of the CIS Economic Council.

2.2. Decisions

• On April 28, Government approved the draft Law on governmental agent. Under the draft a governmental agent would represent Republic of Moldova at the European Court for Human Rights and would observe the hearings right from the beginning. The position would be part of a special department within the Ministry of Justice and be part of the diplomatic corps of the Republic of Moldova.

• Same day the following acts were approved: a Regulation providing for recognizing foreign scientific degrees by the Supreme Attestation Commission; a program aimed at renovating cultural institutions in the countryside in 2004. The latter is to be enforced on expense of local budgets.

• In the next three years 2005-2007, Government plans to gradually reduce income tax for natural and legal entities. Provisions in this respect were included in the draft expense budget for mid-term approved on April 30. Based on it, draft budgets for 2005-2007 are to be developed.

  According to Finance Minister, Zinaida Grecianii, throughout 2005-2007 income tax shall be reduced to 15% and shall be applied commencing 2006 for legal entities and 2007 for natural entities. Furthermore, commencing 2007, minimal taxation quotas shall be reduced for natural entities to 7% - first level and 10% - second level.

  It is also intended to gradually increase throughout 2005-2007 exemptions to the income tax for the natural entities. In 2005 those exemptions would reach 4,500 Lei, in 2006 - 5,400 Lei, whereas in 2007 - 6,000 Lei. Exemptions for supported persons shall be increased from 240 Lei to 1,200 Lei in 2005, 1,440 Lei in 2006 and 1,680 Lei in 2007.

  Note worthy, the lowest income tax in Central and Eastern Europe is to be found in Hungary, boasting 17%. In Bulgaria companies have to pay a 18% income tax, plus 8% to regional budget. In Poland, income tax amounts to 20%, whereas in Slovenia and Bulgaria exemptions from income tax are granted to companies for 3-5 years, provided they invest in national economy and open up new jobs.

• On May 5, Government decided to set up a new interdepartmental Commission to work out an Action Plan aimed at increasing the efficiency of law enforcement's co-operation in fighting crime and corruption that pose a treat to the political and economic developments in the country. Undoubtedly, increasing the cooperation between the law enforcement and control bodies is a worthwhile effort, however it would have been more efficient to include those measures in the draft Action Plan on enforcing the National Strategy on preventing and fighting corruption. A multitude of documents on fighting crime and corruption do not necessarily guarantee a breakthrough. Moreover, a systemic approach is needed to deal with those problems, which is exactly the case of the National Strategy and Action Plan.

• In addition to the Parliament Regulation on dignitaries and public officers amended by the Parliament last week, Government also approved a Regulation on May 5, thereby public officers shall be tested at least once in three years. Evaluation commissions shall include heads of public administration and shall conduct a professional assessment of the officials, their role in achieving the tasks set for the department, their communication skills, responsibility and initiative. The Regulation also provides for additional assessments.

• Another programme adopted by the Government is "Education for everyone" for years 2004-2008. Its rather ambitious goals refer in particular to: decreasing differences in education in rural and urban area, setting favourable education conditions in kindergartens for at least 75% of 3-5 year old kids, and 100% for preschool children.

3. Presidency

3.1. Press liberalisation

On the eve of International Day of the Freedom of Press, President Voronin addressed Parliament, Government and other state institutions with "a message encouraging press liberalisation from legal and economic point of view". A press release issued by the Presidency reads "the message includes suggestions and propositions on ways of supporting domestic press". One of the propositions refers to examining possibilities "of making amendments to the Fiscal Code so as to lower local taxes on advertising, as well as VAT on advertising for informative publications". In addition, President recommended a project to be developed by the Academy of Public Administration that would bolster regional media and would urge local public administration to support media.

President also referred to the onerous state of mass media in his inauguration speech at the National Conference of the League of Professional Journalists held on May 3. While pointing to the numerous deficiencies of the domestic press President advised the journalists to hold "the mirror of the press always clean so that the shortcomings of the power be well reflected in it" thus insinuating that the reflection should not tarnish Republic of Moldova's image. It is worth mentioning yet another memorable phrase of the President "a good press should be the watchdog of the society, it should be smart and loyal to its citizens, rather than a cur easy to deceive with a piece of "mamaliga" thrown by a political mogul from the country or abroad".

3.2. International conference "BIT +"

As a follow-up to his decree of March 19 on building an information society in the Republic of Moldova, Vladimir Voronin attended International Conference "BIT +" and briefed the participants on his legal initiatives in the field, among others: law on electronic and digital signature; law on e-commerce; amendments to the legal acts exempting IT companies from income tax. Another promise was that a draft law on amending Article 49 of the Fiscal Code on favourable taxation to small business would be submitted for the examination of the Parliament.

President believed it was more important to establish "innovation climate in the country" that was to be fostered via: establishing favourable conditions for better interaction between education, science and entrepreneurship; establishing a preferential innovation climate; determining science intensive activities that bring an added value so as to exempt them from the income tax on a long term; introducing new type of management via uniting the four social ministries into a single human development ministry that would develop a well-coordinated single policy on social, educational and cultural standards.

What is striking is that during the recent restructuring of the Ministry of Environment and Territory Planning into two separate structures a totally different logical was cited, from that for uniting "social ministries".

II. Economic polies

1. Banking sector

Last week over 100 depositors of the "Guinea", "Bankosind", Banca Turco-Romana banks, "InterCapital" financial consortium, and other financial institutions that went bankrupt in the 90s staged a protest rally in front of the Parliament. "Give us the money back!", "Talmaci give us the money back" were some of their slogans.

Those people were brought into streets by desire to recover the money deposited in banks and financial institutions that went bankrupt for various reasons, either incapacity or because their leadership frittered money away. Some of the banks were doing murky bargains involving high risk, an illustration in this respect being "Guinea" bank (after spending its own capital it incurred huge debts and finally went bankrupt).

Chair of the Association of Cheated Depositors, Nestor Samofalov calls on Parliament to amend the laws on National Bank and National Securities Commission as well as the Law on Investment Funds so as to insure transparency of the banks and investment funds' activity.

Great many protestors are striving to recover their money for five years now, however not very successfully. Depositors of the bankrupt institutions believe they were deceived by the banks' administration, whereas National Bank, law enforcement forces and state authorities did nothing to help them. Previously, officials at the National Bank stated that the nine banks undergoing liquidation procedures have returned 32 m Lei, i.e. 55.7% to their depositors. Banks still owe another 27 m Lei. Neither of the banks under liquidation managed to return all the money to the depositors.

In 2003, a special commission of the Parliament entrusted to investigate the causes that had led to the bankruptcy of the said institutions found that "great many" citizens that made deposits at the said banks throughout 1996-2001 wouldn't manage to recover their money. Bank deposits would not be returned as the said banks "haven't taken necessary measures in due time" so as to ensure sound management of the funds.

2. Foreign currency policy

National currency has constantly appreciated against USD and reached its highest in the last five years being traded over 11,5 Lei per USD. According to the National Bank experts and economy-watchers the fluctuations are largely due to strong supply of foreign currency, mainly money sent home by Moldovans working abroad.

National Bank issued a press release last week reading that the supply of foreign currency from the natural entities reached in the first quarter of the 2004 119 m USD, i.e. a 76.5% increase over last year. As a result throughout January 1 - May 7, 2004 the official exchange rate has appreciated in nominal terms by 11.2% against USD and 15% against Euro.

To diminish the negative effects of the excessive supply of foreign currency on the domestic market, National Bank intervened and bought throughout January - April foreign currency amounting to 34 m USD. At the same time central bank sterilized monetary base via open-market operations worth 453 m Lei, including via REPO operations with HVS worth 163 m Lei, and deposit auctioning worth 217 m Lei.

At the same time, to meet the excessive demand for national currency without affecting foreign currency reserves, throughout the aforesaid period National Bank used reversible instruments of the foreign exchange policy, such as swap, amounting to 14.8 m USD.

Many financial analysts point that from a commercial point of view the exports are the ones being heavily affected by the weak dollar, given the nominal appreciation of the Lei in the first quarter of the year. A drop in exports would swell the trade balance deficit, whereas current account would be considerably affected. On the top of that, energy imports mainly in USD would greatly affect the latter.

Investors who underestimated foreign exchange hedging operations would be affected, if they have to make payments in Euro, whereas cash-in Euros. If Euro/USD parity would drop below 1:1, their would be a certain pressure on the banking sector from those who borrowed in Euro. National Bank of the Republic of Moldova is the "lucky one" benefiting from the current evolution of the USD, on the other hand a higher appreciated Leu would propel inflation further upwards.

National Bank claims that excessive supply of foreign currency on the domestic market might be diminished by a raft of measures, strategies and programs aimed at establishing a favourable investment climate that would encourage Republic of Moldova's citizens to invest not only in consumption, but also in the real economy sector. In this respect National Bank experts believe a raft of measures should be undertaken at the state level so as to ensure a favourable legal framework, financial incentives.

III. Transdnistrian Conflict

1. Transnistria Political Settlement: the five-sided talks resumed on 27 April

The five-sided political talks on the Transnistrian issue were resumed on 27 April after a five-month pause. The talks joined representatives of the Moldovan and Transnistrian sides and those of the three mediators - the OSCE, Russia and Ukraine. The Transnistrian side, which had announced earlier that it would present to the meeting its proposals on the settlement plan drafted by the mediators under the OSCE aegis last year, proposed to the Moldovan side to sign a joint statement "On the approval by the peoples of the Republic of Moldova and of the Transnistrian Moldovan Republic of the creation of the federal state between the Republic of Moldova and the Transnistrian Moldovan Republic". The statement provides for the organisation of separate referendums in Moldova and Transnistria, by the model of the Cyprus referendum, whereby the "peoples of Moldova and Transnistria", according to principles of self-determination, would either approve or disapprove of creating a common, federal state. Should the vote be positive, then a Constitutional Assembly would be created to draft a Constitution. The future federal state will consist of two equal federal subjects, free to leave the federation at any time, with federal bodies made up of representatives of the two subjects on a proportional basis, and with all rights of ownership being recognised and protected.

William Hill, Head of the OSCE Mission to Moldova commented on the results of the meeting by saying that the two sides remain on divergent positions, but expressed hope that these might be reconciled. Given that this was the first round of talks this year, the participants did not adopt any decision, save for an agreement to meet on a monthly basis henceforth. The next meeting was provisionally scheduled for the w/c 24 May.

The Moldovan authorities have not made any official comments yet on the contents of the Transnistrian proposal, but only said that it goes beyond the current framework of talks and hence needs to be considered separately.

The Transnistrian leader Igor Smirnov, on the other hand, told the Transnistrian TV on 28 April that the Transnistrian proposal should be regarded as a step forward in the negotiations process and a way of salvaging the negations from the deadlock to which these had been brought by the Moldovan side after its failure to sign the Kozak Memorandum last November.

At the same time, during a media-briefing on 5 May in Tiraspol, the Transnistrian "foreign affairs minister" Valerii Litskai told the press that despite the resumption of talks, it is very unlikely that the two sides will reach any significant agreements in the near future. He announced that the "Supreme Soviet" of Transnistria has yet to consider, within currently ongoing debates on Transnistria's foreign policy concept, whether to continue the reunification efforts or insist on a "civilised divorce" with the rest of Moldova.

These developments mark an important, although not unexpected turn of events in the process of the Transnistrian conflict resolution. Transnistria's proposal looks even more unacceptable to the Moldovan side than the Kozak Memorandum and there is little, if any, chance the parties can reach a compromise on it. Transnistria is receiving ever greater support from Russia, which, it seems, is determined to promote the Kozak Memorandum as the basic document for talks on the structure of the future federal state. While the Presidents of Russia and Moldova have not talked to each other for more than five months, the Transnistrian leader Igor Smirnov is a regular guest in Moscow and Saint Petersburg, where he has received lately a number of civic and religious awards. Russia's support to and involvement in Transnistria is growing beyond these symbolic ties to expanding financial control of the region with reportedly about 60% of privatised assets in Transnistria being owned by Russian firms.

This asymmetry in the Moldovan-Transnistrian relations may only be balanced by a timely and adequate support to the Moldovan side by the European powers, in particular the European Union. Last week the Moldovan Foreign Minister Andrei Stratan told the press that the currently being drafted Moldova-EU Individual Action Plan would include a special compartment on Transnistria, including provisions on the deployment of international peacekeepers to the region. At the same time, the German Bundestag has adopted a Motion on Moldova which calls for the enforcement of German and European efforts at solving the Transnistrian conflict and reintegrating the country. The question that remains is whether this time the Moldovan leadership will find the will and vision to pursue a genuinely European course in its reintegration policy, as in all its policies.

IV. Foreign affairs

1. Republic of Moldova - EU Action Plan

Last week after a two months break in the negations of the Republic of Moldova - EU Action Plan, Moldovan Minister of Foreign Affairs Andrei Stratan announced that the third round would resume on June 4. On June 15 the document should be examined by the EU Council for General Affairs, said Stratan. Moreover, Stratan also announced that as a result of EU enlargement of May 1, one of the new EU member states, either Poland, Slovenia or Hungary would be designated to "oversee Republic of Moldova's efforts on the path of EU integration".

In this respect, Minister Stratan hoped that once the Action Plan is enforced (within two years), Moldova would have all the grounds and would stand real chances of getting the status of associated member.

V. Studies, analyses, comments

It's clear than nothing is clear
Igor Botan, 12 May 2004

Three years passed since the presidential decree no. 46-III of 15.05.2001 on resolution of the Transdnistrian conflict was issued. Under the decree "settling Transdnistrian conflict by observing the principles of territorial integrity and state sovereignty is a key task for the public authorities of the Republic of Moldova"

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Domestic foreign exchange market: on-going volatility
Iurie Gotisan, 12 May 2004

In the last two weeks Moldova Lei constantly appreciated against USD by 11.2% and reached its highest in the last five years being traded over 11,5 Lei per USD. According to the National Bank experts and economy-watchers the fluctuations are largely due to strong supply of foreign currency, mainly money sent home by Moldovans working abroad

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