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Democracy and governing in Moldova
e-journal, II year, no. 40, 18 October - 31 October, 2004
Activity of public institutions
Studies, analyses, comments
I. Activity of public institutions
During the aforesaid period Parliament's attention was focused on draft budget for 2005 and draft budget of state insurance for 2005. As usual deputies heard Minister of Finance and Minister of Economy and raised a number of questions. Later on, leaders of Parliament factions voiced their own positions on the draft. Opposition pointed the lack of a sustainable strategy of economic development, whereas majority faction criticised insufficient funding of certain fields such as education and agriculture. Further, while opposition considered little funds were allotted to social sphere, majority faction on the contrary stated that funding to these areas rose considerably. Finally, following a tradition already, opposition factions refused voting the draft.
1.2. Legal acts
- Law on Governmental Agent at the European Court for Human Rights seeks to make the enforcement of the obligations undertaken by the state in ensuring human rights when it adhered to the European Convention of Human Rights more efficient. Under Article 35 of the ECHR's Regulation, contracting parties are represented by agents who may be assisted by councillor or lawyers. Contracting parties, i.e. countries members of the Council of Europe, have different approaches some have delegated this responsibility to Ministry of Justice, while others to the Ministry of Foreign Affairs. In Moldova, Governmental Agent would be a member of the diplomatic service of the country.
- Law on Real Estate regulates how real estate is formed based on the estate already in possession and registered in the real estate registrar. The law regulates ways to form real estate: separation; division; and combining. The law also outlines the registration and formation of agricultural plots, in case there are several nearby plots in property.
- Law on Ratification of Agreement between the Government of the Republic of Moldova and the Government of Albania on Promotion and Protection of Investments was adopted on the eve of Albanian President's official visit to the Republic of Moldova. The Agreement outlines the legal principles that would bolster economic ties between the two countries and investments by natural and legal entities in the other country. Contracting parties engage to manage, use and distribute the investments from the other Contracting Party and refrain from any discriminatory or unjust measures.
(For further details on Parliament activity see http://www.e-democracy.md/en/comments/legislative/)
- Government in its Resolution no. 1128 approved the Conception of the Integrated Medical Information System (IMIS). According to the Conception IMIS is an organizational group of elements (persons, hardware, software, algorithm, and procedures) interacting so as to collect, transmit, centralize, store, process and display data that would allow solving complex problems of examining patients and administering healthcare services. IMIS is intended to collect and analyze data related to healthcare developments that would help decision making on prophylaxis of diseases, treatment and rehabilitation of patients, efficient administration of resources in public and private medical institutions.
- During the aforesaid period, Government resolution no. 1146 of 15.10.2004 on preferential credits for certain categories of population entered into effect. It recommends commercial banks to provide preferential credits to categories of population who are entitled to it under the law. Funds will be allocated each year in the state budget for reimbursing preferential credits granted to certain categories of citizens, that were guaranteed by local government, plus interest rates.
- On October 20, Government approved the Recruitment Plan in the National Army for the fall 2004. A total of 3,425 persons are to be recruited for the military service, out of which 1,425 in National Army; 1,050 in frontier guard; 950 - in carabineer troops. In addition, 1,625 young men would enrol for alternative service.
On October 28, President Voronin had a meeting with American Ambassador to Moldova, Heather Hodges, and talked Stability and Security Pact for the Republic of Moldova (SSPRM). American Ambassador stated that both US and EU saw the Pact as "a potential mechanism for consolidating regional security" that is why they supported the initiative to sign SSPRM in early December during the OSCE Summit in Sofia. Heather Hodges opted for including OSCE among the signatories of the Declaration, whereas US and EU to act as observers in the process of settling Transdnistrian conflict.
Noteworthy, the idea of SSPRM was launched by President Vladimir Voronin on June 1, 2004 and was to serve as a compromise that "might be reached as a result of a political conference gathering Heads of Foreign Policy Departments from Russia, US, Romania, Ukraine and EU and them signing a Stability and Security Pact for the Republic of Moldova. This document having the status of an international law document, would be an efficient system of long-term guarantees for the entire Moldovan state, would open new unique approaches as regards developing democratic institutions, ensuring civic concord in the country and resolution of Transdnistrian conflict as soon as possible".
That issue was the subject of a telephone conversation the same day between President Voronin and Javier Solana, High Representative of EU for the Common Foreign and Security Policy.
II. Economic polies
2.1 Elections might slow down economic growth
2005-2006 might be tough years for the National Bank and future Government. There are a number of challenges lying ahead the governors: keeping budget deficit below 1% of the GDP, keeping inflation under control (below 10%), making domestic enterprises more competitive. It seems economic growth has slowed down in Moldova and this despite preparations for 2005 parliamentary elections. Regardless who wins elections, European integration would influence the policy led by the Government.
Predictions. A 6% economic growth is forecasted for 2005-2006 impinged by growing investments and consumer spending. It is estimated that inflation would drop to 8% by the end of 2005 and 6.5% by 2006. According to the same forecasts, current account deficit would drop to 5% of the GDP in 2005-2006 from the 5.5% of the GDP in 2004.
As for budget deficit, Government set a target of 1% of GDP in 2005, however there are many lingering concerns that fiscal reforms1 planed for the next year might have a negative effect on the revenues and would likely thwart attempts to reach the target. Recently resumed economic growth (6.5%) has been driven by better levied taxes and VAT, as well as wage raise.
Risks. Economy-watchers say a 6.5% GDP growth in the first half of the year coupled with surging consumer spending, eventually swell the net exports deficit, which raises the question whether such GDP growth rates may be sustained on mid-term. Trade balance deficit is still a source of concern, many questions arising regarding our economy's competitiveness on long-term. Monetary policy led by the National Banks envisages a gradual decrease of inflation while avoiding an excessive appreciations in real terms of the national currency. Keeping inflation steady might work if coupled with a control of exchange rate.
Moldovan goods and services are loosing grounds on the domestic market, covering only 60% of the domestic consumption. Given the lack of an adequate response from domestic manufacturers, surging consumer spending has further deepened the gap between imports and exports, which had a negative effect on the trade balance deficit. Last year, exports surpassed imports by 622 million USD. Businesses worry that direct foreign investments (58.3 million USD) and portfolio (2.03 million USD) failed to balance current account deficit. This also explains why net average salary per economy in Moldova does not account for the tenth part of the average in Europe.
- Over 1999-2003, GDP in Moldova grew by 21%, while in Latvia by 36.4%, and in Estonia by 29.1%.
- GDP per capita in Moldova (related to purchasing power parity) reached 650 Euro in 2003, while in Slovenia 16,410 and 12,960 in Hungary.
- Foreign direct investments accounted for 2.5% of the GDP in 2003, while in Estonia 28.4%, and 26% in Czech Republic.
2.2 Swelling National Bank's foreign currency reserves
According to the data released by the National Bank of the Republic of Moldova its foreign currency reserves hit a record high 391.6 million USD at the end of September. It came as a result of massive purchases of foreign currency - 117 million USD in the third quarter alone. As a result, National Bank managed to restore its foreign currency reserves to the levels before the 1998 Russian financial crisis, that reverberated in the entire region, Moldova being no exception.
Since the national currency was put in circulation back in 1993, National Bank managed to double its foreign currency reserves in three years, when they surged from 180 million to 365.7 million USD. However, after the crisis they dropped 2.5 times to a record low of 143 million USD in December 1998. Even if IMF suspended crediting Moldova over 1999-2003, loans that are usually used to fill foreign currency reserves, National Bank managed to add more than 150 million USD to its reserves mainly by purchasing foreign currency on the domestic market.
In 2004 National Bank purchased over 120 million USD mainly from the transfers of Moldovan citizens working abroad. Evolution of foreign reserves has even handily outstripped forecasts made by independent experts who expected National Bank's reserves to reach 350 million USD by the end of the year.
2.3 Tension growing in sugar industry
Great many sugar manufacturers participating in a seminar concluded that sugar industry would not make it unless both Parliament and Government agree to reduce VAT for sugar manufacturers from 20% to 8%. They voiced their lingering concerns about growing prices on energy that at the end of the day incurs additional costs, thus not allowing them to buy additional raw materials.
The major sugar manufacturers, among them "Suedzucker Moldova" and "Marr Sugar Moldova" conducted a market research estimating that the maximum price for 1 tone of sugar might reach the international market level, i.e. 460-480 USD, VAT not included. Such a price might be set for the Moldovan sugar only when exporting the extra above domestic market's needs and only after introducing a record keeping system2, controlling and regulating the market similar to EU system. An 850-900 thousand tones of sugar beat are expected to be harvested this year, out of which an estimated 90 thousand tones of sugar are to be produced. On average 85 thousand tones of sugar are consumed by the domestic market.
Last year Russia and Ukraine excluded sugar imported from Moldova from the free trade scheme. Later on, Ukraine set a customs tax worth 300 Euro per tone, while Russia a tax worth 45% of the imported amount, or no less than 150 Euro per tone. A draft protocol signed by Republic of Moldova and Russia provides that exports of Moldovan sugar to Russia under free trade scheme would be resumed in 2005 at an annualized quota of 5 thousand tones.
Previously, sugar manufacturers estimated that sugar price on the domestic market might surge by 10%. On top of that, they believed that by the end of the year sugar may not be sold for less than 7 Lei per kg, as otherwise factories would be in the loss. Government decided to set an 8% VAT tax on white sugar (see http://www.e-democracy.md/en/e-journal/20041020/#2), given that factories purchase sugar beat at a 5% VAT tax while sell sugar product at a 20% tax, it is only natural that the price on sugar is set to soar. The new tax would apply both to Moldovan sugar and imported one.
2.4 Relations with international financial organisations
- On October 19 Shigeo Katsu, World Bank Vice-president for Europe and Central Asia left Moldova after a two-day official visit. One of the reasons for paying a visit to Moldova was to present the new World Bank Regional Director for Ukraine, Belarus and Moldova, Paul Bermingham, who as of October 1 replaced his predecessor Luca Barbone.
Shigeo Katsu and Paul Bermingham had a number of meetings with Moldovan officials, among them President Voronin, Speaker Eugenia Ostapciuc, Prime-Minister Vasile Tarlev. High on the agenda of the meetings was WB's support to Moldova in building a market economy and poverty reduction. WB officials reiterated their interest for the Government to implement Poverty Reduction Strategy. In a related note, World Bank completed its Country Assistance Strategy for Moldova due to be examined on December 14, 2004.
- On October 20, Prime-Minister Vasile Tarlev, Minister of Finance Zinaida Grecianii and National Bank Governor Leonid Talmaci met with an IMF mission headed by Marta de Castello Branco on official visit to Moldova between October 19 - November 3. IMF mission looks at the economic and financial situation of the country.
One of the conclusions reached at the meeting was that the country's economic potential was not fully exploited, despite the success registered in the last two years. Moldovan Prime-Minister spoke of the importance IMF to support PRSP and jointly develop an action plan in this respect.
After completing its visit IMF mission would develop a report evaluating economic conditions in the Republic of Moldova and would submit it to the IMF Executive Council.
1 For more details see economic analysis "What's in their for us in the draft budget for 2005?" by Iurie Gotisan
2 Resolution of the Government of the Republic of Moldova no. 1150 of 18.10 2004 "On approving sample report on sugar consumption" published in Official Monitor of the Republic of Moldova no. 189-192/1324 of 22.10.2004.
III. Transdnistrian Conflict
After the resolution, although incomplete, of the issue of Moldovan Latin script schools from the Transnistrian region, the tensions between the Moldovan and Transnistrian sides re-erupted on 15 October, when the Transnistrian administration installed a permanent check point between Severnii district of Tighina town and Varnita village, and another one between Severnii district and Tighina town. The two check points replaced mobile customs points mobilized in June 2004. The Varnita village, situated on the left bank of Nistru River, but under the jurisdiction of the Moldovan Government, is located in the security area, where, according to the ceasefire agreement of 1992, no paramilitary forces may be deployed and all move should be coordinated with the United Commandment of the Peacekeeping Forces. In protest, dozens of villagers blocked from 17 October with concrete barrages the Chisinau-Tighina highway that passes by the village. Russian peacekeepers removed the barrages on 19 October without authorisation from the United Commandment and without removing the Transnistrian checkpoints. At the Joint Control Commission on 22 October, the Transnistrian side accepted to withdraw its two checkpoints on the condition that the Moldovan side withdraws its fiscal checkpoint set at the entry into Varnita in June 2004. For some time now, the Transnistrian customs officials and border guards have constantly intimidating the inhabitants of Varnita village by subjecting them to various unmotivated checks and duties.
In the meantime, the European Union offered its support for resolving the border problems between the Republic of Moldova and Ukraine, according to a press communique of the Moldovan Foreign Ministry of 18 October. According to the communique, during the trilateral EU- Republic of Moldova - Ukraine consultations on 15 October, the EU offered to support the implementation of agreements between Chisinau and Kiev on setting up joint customs checkpoints on the Transnistrian segment of the Moldovan-Ukrainian border. In addition, the EU will provide financial assistance to the Moldovan customs services, including for training programmes and for equipment, and has shown ready to fund a computerised system of exchanging information between Moldovan and Ukrainian customs.
On the other hand, Moldovan media have reported that the EU and the US intend to sign a Declaration on the Stability and Security of the Republic of Moldova at the OSCE Ministerial Summit to be held in early December in Sofia. According to a presidential press communique, quoted by Moldavskie Vedomosti, the US Ambassador to Moldova, Heather Hodges, stated during a meeting with President Voronin on 28 October that both the US and the EU see the Declaration as a potential mechanism of consolidating security in the region. In June 2004, President Voronin proposed to the US, EU, Russian Federation, Ukraine and Romania to sign a Pact of Stability and Security for the Republic of Moldova, whereby the signatory states would agree to coordinate their actions with regard to the Republic of Moldova, including the Transnistrian conflict. According to observers, if the US and the EU sign the Declaration, Romania is very likely to sign it too, and it is only up to Russia and Ukraine to take an official stand on the document.
In the view of the special representative of the Russian Foreign Ministry, Igor Savolski, though, who visited Moldova on 25 and 26 October together with the Moscow's representative to the Transnistrian conflict resolution talks, Valeri Nesteruskin, the initiative regarding the Pact is still in the phase of consultations and is not even directly related to the Transnistrian problem. The two Russian officials, who came to Chisinau to encourage the Moldovan and Transnistrian sides to resume the talks, said instead that to Russia the strategic partnership with Moldova is "an enduring option" and that "for overcoming possible problems, coordinated actions and a permanent dialogue" are necessary, informs Basa-press. At the end of the visit, the two dignitaries said that the five-sided negotiations format is functional and there is no other format, but have not given a definite answer as to the readiness of the Moldovan Government to resume its participation in the talks in this format.
The position of the official Chisinau regarding the inefficiency of the current negotiations format and the need to change it was reiterated by the Moldovan Foreign Minister, Andrei Stratan, during a press conference on 25 October. The same position was vociferated by the Deputy Speaker of the Moldovan Parliament, Vadim Misin, who suggested at a press conference on 28 October that since the five-sided format has not led to any result, it has to be changed by 1 January 2005, according to the principles of "a single and integrated territory, a single customs, banking, monetary and defence space" and without the participation of the break away leader Igor Smirnov.
While the prospects for the resumption of talks between Chisinau and Tiraspol remain uncertain, the Supreme Soviet in Tiraspol adopted on 27 October, in the final reading, amendments to the privatisation programme of Transnistria for 2001-2004, which was completed with several dozens enterprises, including two of the largest Transnistrian enterprises - the textiles factory "Tirotex" and the Brandy making company "Kvint". The amendments were proposed by the Transnistrian "minister of education" in September, which she motivated by the "difficult political and economic situation caused by the sanctioned imposed by the Moldovan Government on Transnistria". According to the Transnistrian official news agency Olvia-press, already a number of applications for participation in the privatisation of "Tirotex" factory have been submitted to the Transnistrian "economy ministry" by several Russian and one Dutch firms. The two enterprises are to be privatised by the end of 2004, despite the Law on the Privatisation on the left bank of Nistru River and in the Tighina town adopted earlier by the Moldovan Parliament and which provides that all Transnistrian businesses will pass from 1 January 2005 into the ownership of their employees free of charge.
IV. Foreign affairs
- On October 19, Minister of Foreign Affairs Andrei Stratan flew to London for a two-day working visit. He met with Mr. Des Browne MP, Minister of State at the Home Office, Dr Denis MacShane MP, Minister for Europe, and Adam Ingram, Defence Minister.
Among the issues under discussion were a) President Vladimir Voronin's initiative on Stability and Security Plan for Moldova; b) ways of settling Transdnistrian conflict; c) enforcing Republic of Moldova - EU Action Plan; d) ways of facilitating visa regime for Moldovan citizens; e) bilateral relations and cooperation in areas of security and frontiers; f) ways to attract investments to the Republic of Moldova by means of British Office for Construction and Consultancy, etc.
The same issues were high on the agenda during Minister Stratan meetings with NATO and EU high officials in Brussels on October 21.
- On October 22, Minister Stratan joined the Reunion of Ministers of Foreign Affairs from the countries members to South East European Cooperation Process (SEECP). Stratan signed a Declaration thereby Republic of Moldova joined SEECP as an observer. SEECP represents an important instrument for promoting the interest of the Participating States regarding the accession to the European and Euro-Atlantic political and economic structures.
- Minister Stratan reviewed his official visits to London, Brussels and Bucharest during a press conference on October 25, and stated: a) in 2005 EU would open its representation in Chisinau, while Moldova would open its representation in Brussels on January 1, 2005; b) Republic of Moldova - EU Action Plan was to be signed on October 28 for it to be ratified by the new European Commission on November 22; c) EU expressed its interest to support Stability and Security Pact for the Republic of Moldova and it would coordinate its position with other countries invited to endorse the document; d) Romania would discuss Stability and Security Pact for the Republic of Moldova during Moldovan-Romanian bilateral ministerial consultations; e) Russian Federation also was favourable to the idea of signing Stability and Security Pact for the Republic of Moldova; f) NATO could not get involved in the resolution of Transdnistrian conflict but it closely watched the developments; g) the message Moldovan authorities were sending to foreign governments was that Chisinau continued to plead for settling Transdnistrian conflict via negotiations, however it was seeking an optimal solution as regards the format of negotiations.
- At the invitation of Ilham Aliev, on October 26 President Vladimir Voronin flew to Azerbaijan for a two-day officials visit. A number of official documents were signed during the visit, among them Agreement on Long-term Economic Cooperation, Agreement between the Agriculture Ministries, Plan of consultations between Ministries of Foreign Affairs, Joint Declaration of the Two Presidents on enlarging cooperation in various areas, including within regional and international structures.
The Two Presidents opted for "joining efforts in view of peaceful resolution of territorial conflicts the two countries are confronted with, in line with generally accepted norms and principles of international law".
During his visit, President Vladimir Voronin made several points: a) Republic of Moldova had no intention to leave CIS, although it regretted its low level of efficiency; b) it was necessary to adjust principles of cooperation within CIS to those within EU; d) scepticism as regards GUUAM, albeit several interesting initiatives were launched recently.
- On November 1, Albanian President Alfred Moisiu started a two-day visit to the Republic of Moldova. The aim of the visit is to "boost bilateral cooperation as regards trade and European integration. Two agreements were signed on farming and social security of the labour.
V. Studies, analyses, comments
"3D" strategy - from "extremism" to consensus?
Oazu Nantoi, 3 November 2004
A group of independent experts from Moldova developed and presented to public opinion "3D" strategy and Road Map for Moldova reintegration
What's in their for us in the draft budget for 2005?
Iurie Gotisan, 3 November 2004
Electoral promises made in the draft budget for year 2005: raising minimal wages, additional spending for budgetary institutions, indemnifying pensions, raising allocations and compensations