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Democracy and governing in Moldova
e-journal, II year, no. 42, 15 November - 28 November, 2004
Activity of public institutions
Studies, analyses, comments
I. Activity of public institutions
Resolution on Council of Europe expertise of draft laws triggered strident criticism and lengthy debates. The draft was developed by the Government and outlines the procedure of submitting draft laws for expertise of and enforcing Council of Europe recommendations. The need to regulate this stems from the inefficiency of the existing mechanisms, when many draft laws are passed without Council of Europe expertise, while others albeit receiving endorsement await adoption.
Under the draft, Ministry of Justice was to become the institution in charge, fact that garnered rich criticism from the opposition. They argued that a specialised institution of the executive branch would be given powers to coordinate and control the activity of the state institutions - Parliament, Government and Presidency. Deputies had many other objections as regards the draft law, but after a break they adopted a Resolution in this respect that provides for:
- drawing the list of draft laws that are to be submitted for Council of Europe expertise, at the initiative of the central institutions and in consultation with Council of Europe;
- procedure for examining recommendations made by the Council of Europe and their enforcement;
- on-going monitoring over the enforcement of the CE recommendations.
So far Council of Europe provided expertise on several much-disputed drafts, namely Law on Local Government, Law on Administrative-Territorial Division of Moldova, Law on "Teleradio-Moldova" Public Broadcaster, Penal and Civil Code.
Another important act passed by the Parliament was the Law on Raising the Minimal Quota of Payments in Cash. As it stands now, businesses may make payments in cash up to 15,000 Lei only, otherwise the Centre for Fighting Economic Crime and Corruption sets a fine equal to 10% of the amount. These sanctions do not apply if payments are made to individuals, farms, licence holders, and several other cases. The Parliament now raised the quota to 100,000 Lei. The move is supposed to eliminate one of the barriers the business is struggling with. Noteworthy, previously the Parliament refused several times to raise the amount on the grounds it would channel liquidity to shadow economy.
During the final reading of the Law on Reorganisation of the State Chancellery into Government Apparatus, Parliament excluded provisions on obligatory command of Moldovan and Russian languages by public officers, as well as prohibiting members of political organisations and public associations to serve in Government Apparatus.
(For further details on Parliament activity see http://www.e-democracy.md/en/comments/legislative/)
- On November 15 Government passed Resolution no. 1249 on starting negotiations on draft Protocol to the Agreement between the Government of the Republic of Moldova and Government of the Russian Federation on levying indirect taxes upon bilateral trade.
- On November 19 Government passed resolution no. 1281 on approving Regulation on procedure of awarding the status of war veteran and issuing war veteran card. Under the Regulation war veteran status is awarded to war combats: a) in the soviet army services during the WWII; b) in the Romanian army in the WWII; c) civil employees, employees of the soviet home affairs or security during the WWII; d) individuals who fought for territorial integrity of the Republic of Moldova; e) participants in the Afghanistan military operations, etc. Administrative-Military Department and its territorial branches are entitled to issue such documents.
- On November 16, President Voronin issued Decree no. 2096-III appointing Natalia Visanu as the Chief of Presidential Apparatus Press Service and Spokesperson of the President.
- On November 21 President Voronin flew to Israel for a three day official visit. Moldovan President met his Israeli counterpart, Moshe Katsav, Prime-Minister, Ariel Sharon and former Prime-Minister and Head of the Avoda Party, Shimon Peres. The parties talked double taxation and ways to avoid it. In addition, Transdnistrian conflict and terrorism were other issues raised during the meetings. Moldovan delegation signed Cooperative Agreements in several fields like tourism, customs, standardization and healthcare.
President Voronin visited Wailing Wall, "Yad Vashem" memorial, Holy Trinity Church, and Church of the Holy Sepulchre.
II. Economic polies
1. National Bank's foreign currency reserves
Early November National Banks' foreign currency reserves were estimated at 390.9 million USD with no significant change since last month when they hit the record high 391.6 million USD. Reserves mainly consist of liquidity and long-term deposits - 297.09 million USD, including in other central banks - 108.63 million USD and in other foreign banks - 188.46 million USD. Bank holds securities worth 93.80 million USD. It also holds special drawing rights worth 81.74 thousand USD and a reserve at IMF worth 7.47 thousand USD.
In October National Bank purchased 2.5 million USD on the inter-bank market. The growth registered in reserve assets this year outstripped forecasts made by independent experts who predicted they would reach 350 million USD. National Bank managed to reach the level of 1998, when the reserves dropped 2.5 times from 365.7 million USD to 143 million USD.
2. Future exchange rate developments
Many officials in the financial and banking sector claim the 12.7 Lei per 1 USD exchange rate that was used in drawing next year state budget, seems to be "real". This would depend on both internal and external factors that would determine Leu/ Dollar rate.
Among the foreign factors that might wield some pressure on exchange market, experts point firstly remittances from abroad that are expected to continue to grow and would likely lead to appreciation of Leu. National currency's appreciation would swell the trade balance and current account deficit. However, in a small economy open to and dependent on the foreign markets as Moldova is, it is useless to keep a fixed exchange rate. At the same time, a fixed exchange rate (that National Bank was promoting) protected domestic exchange market from various negative developments on the international financial markets. In addition, depreciation of the US Dollar against other currencies especially Euro would likely influence Leu/ Dollar ratio.
Also, analysts cite other factors that would diminish the aforesaid. Among those factors electoral campaign is cited that usually brings "calmness" to the exchange market. Having said, experts predict that in the next 3-4 months Leu/ Dollar exchange rate might fluctuate between 12.30 and 12.60 Lei per Dollar.
3. Moldovan investment position
Last week Chisinau hosted an international investment forum under the auspices of the Moldovan President. The message of the forum was "Moldova - open to international business". One hundred twenty foreign companies and 300 public officers, ambassadors and local businessmen attended the event.
At the forum President Voronin outlined the investment strategy of the Republic of Moldova that had been developed by the Government, in particular its main goal to boost economic development of the country by raising foreign direct investments. According to President Voronin, in 2005 Moldova hopes for a 10% surge in FDI.
According to latest statistics, EU accounts for 40% of the total investments in Moldova, CIS for 24%, Central and South-eastern Europe 4%, while other countries 32%. The most attractive sectors for foreign investments are energy, gas and water supply accounting for 35% of the total FDI, processing industry - 27%, wholesale and retail - 16%, transportation and communications - 12%, and constructions - 2%.
Recently United Nations Conference on Trade and Development released its World Investment Report covering 187 countries. Republic of Moldova ranks 110th on its potential to attract investments. One of the most important findings of the report is that total global FDI shot down by 50% in 2003. Last year Moldova ranked 109th out of 140 states.
Foreign direct investments (FDI) in Moldova amounted to 790 million USD at the end of 2003. In 2003 FDI dropped by 50% over 2002, i.e. 58 million USD. Republic of Moldova ranks 25th on inward FDI performance indicator, as compared to 18th last year. Nevertheless, Moldova has the best rating for this indicator among CIS countries.
Moldovan foreign debt exceeds 1.3-billion USD and reimbursing such a debt is not an easy task, especially as foreign capital flows bypass the country. Given the lack of foreign investments and worsening relations with international monetary organisations, Moldova would find it quite difficult to fund its foreign deficit in the upcoming year. For instance, average annualized FDI in Romania is 1.5-billion USD, whereas in Moldova FDI reached in the last 10 years of transition a bare 800 million USD.
Infrastructure is obsolete, laws are purely decorative, whereas FDI account for only 4% of the GDP - insignificant if compared to 30% in Poland, Czech Republic or Hungary. Undoubtedly, a small and a poor country like Moldova, having a complex, unstable and ambiguous legal framework does not seem attractive at all to foreign capital while few investors dare to invest in its economy.
Ratio of cumulative FDI inflows to GDP in Central and Eastern Europe
Investments 1991-2002 (%GDP)
Czech Republic 29.4
Republic of Moldova 2.9
Source: ECE (2002), Economic Survey of Europe, United Nations, Economic Commission for Europe, Geneva.
III. Transdnistrian Conflict
The Russian Federation will not sign the Declaration of Stability and Security for the Republic of Moldova at the OSCE Summit in Sofia in early December, the new Russian Ambassador to Moldova, Nicolai Reabov, told a press-conference on 24 November in Chisinau.
According to Moldavskie vedomosti, the Russian Federation has not rejected or ignored President Voronin's initiative regarding the signature of a Pact of Stability and Security for the Republic of Moldova1, and has proposed that such a document serves as the final accord and an integral part of the package of international agreements that are to be signed as part of the Transnistrian settlement. Thus, the signatories will not be just guarantors of the territorial integrity and neutrality of the Republic of Moldova, but also of the democratic principles of edifying a multiethnic society within a common state with Transnistria.
According to Ambassador Reabov, the Republic of Moldova has ignored Moscow's proposals, Instead, it has submitted to Russia for consideration a draft Declaration proposed by the US and supported by the EU. "Russia does not accept such a development of events. Therefore we will not examine such documents", Reabov was quoted as saying by the same source. On the other hand, asked to comment on the aforesaid statement Victor Stepaniuc said "Russian diplomat is not fully aware of the Russian Government" intentions and that "negotiations with Moscow continue including at the level of document signers". Ian Boag, Chief of the European Commission to Moldova and John F. Tefft, Deputy Assistant Secretary, Bureau of European and Eurasian Affairs of the US State Department, also confirmed that negotiations on the document are still continuing with Kremlin.
In another context, Reabov expressed his bewilderment at the fact that the Moldovan leaders have declared that the recent mediators' round of consultations in Varna has been a failure, as well as at fact that the Moldovan side refuses to return to the negotiations table. At the same time Reabov denied any disagreements between the mediators, invoking the final document signed in Varna, whereby the mediators express their support for a politically negotiated solution to the Transnistrian conflict, on the basis of mediators' proposals and previously signed agreements.
Furthermore, Reabov reaffirmed Russia's support for the Kozak Memorandum, 80% of which, he reminded, were drafted by the Moldova side; rejected the idea to replace the current peacekeeping forces, in which Russia holds the largest share, with multination ones on grounds that these forces have proven their efficiency; and said that although Russia regards Transnistria as part of Moldova, it will continue the dialogue with the de facto existing authorities and institutions in Transnistria.
Ambassador Reabov's statements have provoked a wave of reactions both on behalf of authorities and the public opinion. The Moldovan Foreign Ministry issued on 25 November a statement, in which it accused the Russian Federation of having breached the norms of diplomatic behaviour, whereas the Government newspaper Moldova suverana accused Russia of applying 'totalitarian tactics' in its bilateral and international relations. The Head of the Communist faction of deputies, Victor Stepaniuc, said in an interview with Radio Free Europe that both Russia and Ukraine, as guarantor states, are 'obliged' to sign the proposed Declaration, and that if Russia fails to do so its status of guarantor in the Transnistrian problem will lose all meaning. Vlad Cubreacov, leader of the People's Christian Democratic Party faction in Parliament, qualified Reabov's statements as "aggressive and provoking" and a proof of the formal status of Russia as guarantor in the Transnistrian problem.
Many political analysts in Chisinau have commented on the statements of the Russian diplomat in Chisinau in light of the ongoing electoral crisis in Ukraine, where Russia's overt and massive support for the pro-Russian presidential candidate has shown how far Russia would go in order to protect its hegemonic position in the so-called 'near neighbourhood', and wondered whether the same scenario will be applied in Moldova next spring.
On the other hand, observers have drawn parallels between Reabov's statements and last year's Kozak Memorandum events on the eve of the OSCE Summit in Istanbul. Thus, it seems that Russia has made a habit out of tensioning the situation around Transnistria on the eve of OSCE Summits so that, when asked about its failure to withdraw weapons and troops from Transnistria, it can invoke 'unfavourable political circumstances' that deter it from complying with its international commitments.
1 The term "Pact" was proposed by President Vladimir Voronin. Following consultations with US and EU, the term was substituted by "Declaration", change that implies certain changes in the substance of the document, which was never made public.
IV. Foreign affairs
1. EU, USA, and Romania support the Declaration on the Stability and Security for the Republic of Moldova
The period covered was very prolific with three official visits to Chisinau, namely EU Troika; John F. Tefft, Deputy Assistant Secretary, Bureau of European and Eurasian Affairs of the US State Department; and Romanian delegation headed by Anca Ilinoi, Director General for Political Affairs. What all the three delegations have in common is their support towards signing a Declaration on the Stability and Security of the Republic of Moldova at the OSCE Ministerial Council in Sofia in December this year.
Given the latest developments in Ukraine its position regarding the initiative to sign such a document remains unclear. On the contrary, Russia has made clear its position, that is totally different from that of EU, USA, and Romania. It was delivered by the Russian Ambassador to Moldova, Nikolai Reabov.
Besides Stability and Security Pact for Moldova, the Troika met President Vladimir Voronin and Moldovan Minister of Foreign Affairs, Andrei Stratan and talked Republic of Moldova - EU relationships within the framework of the neighbourhood policy and Republic of Moldova - EU Action Plan. In this respect Moldovan side reiterated its commitment to implement the Action Plan and developed a National program in this respect. Other topics considered during the meeting were relations with international financial institutions and upcoming elections. As for the latter, President Voronin stated that it was in the best interest of the authorities to conduct free and fair elections, which was a mater of "prestige". The very same issue of ensuring free and fair elections in Moldova was considered during a meeting of the Troika and John F. Tefft with civil society organisations.
2. Eighth Reunion of the Regional Table of the Stability Pact for South-Eastern Europe
On November 19 Moldovan Minister of Foreign Affairs Andrei Stratan flew to Skopje for the Eighth Regional Table of the Stability Pact for South-Eastern Europe (SPSEE).
According to the Ministry of Foreign Affairs press service, the reunion was preceded by two days of theme-focused Working Table meetings where issues of Democratisation and Human Rights (Working Table I), Economic Reconstruction, Development and Cooperation (Working Table II) and Security (Working Table III) were discussed by participating countries and organizations. During the first Working Table at issue was improved cooperation on parliamentary dimension of the SPSEE. The second table examined the draft Treaty on developing an Energy Community in South Eastern Europe legalizing engagements assumed by countries participants to "Antena I" and "Antena II", where Republic of Moldova is an observer. As for the third Working Table, Republic of Moldova expressed its interest to be granted an observer status as part of the MARRI Regional Forum and Ohrid border management process.
3. Fifth Reunion of the RM - EU Cooperation Committee
On November 23 RM-EU Cooperative Committee convened in Brussels. Moldovan delegation included Minister of Economy, Marian Lupu and Minister of Justice Victoria Iftodi. Reviewing the progress made in implementing Partnership and Cooperation Agreement Marian Lupu referred to trade, customs and border control and investment climate in the Republic of Moldova. Victoria Eftodi referred to adjusting Moldovan laws to European norms and measures envisaged in this respect in the RM-EU Action Plan. Noteworthy, EU delegation shared its own vision as regards the evaluation mechanism of the Plan implementation.
According to the latest official declarations, RM-EU Action Plan should be signed in December, although initially it should have been passed back in May 2004.
V. Studies, analyses, comments
Currency Market: New Challenges
Veaceslav Negruta, 1 December 2004
The US Dollar's spectacular fluctuations against other foreign currencies put financial markets and analysts on fire, also testing the nerves of some actors on the local market
Barometer of Public Opinion: deja vu or ... change may be?
Viorel Cibotaru, 1 December 2004
Once the results were released on November 16, 2004 media and analysts alike turned their attention to the immediate impact of the results, leaving the analysis of tendencies and changes for later. Still, it is exactly those changes that are of great interest