Democracy and governing in Moldova
e-journal, II year, no. 43, November 29 - December 12, 2004
Activity of public institutions
Studies, analyses, comments
I. Activity of public institutions
The Law on Obligatory Medical Insurance Fund for 2005 establishes revenues and expenditures for the obligatory medical insurance fund for 2005 worth 1.32 billion Lei. The transfers from national budget will make up 840 million lei. The number of persons insured from the budget is about 1.26 million. The obligatory medical insurance was established at approximately 670 lei.
The obligatory medical insurance calculated as a percentage of contribution from salaries and other rewards for the relevant categories of payers were established at 4 percent (2 percent for the employer and 2 percent for the employee). In 2005, the fine for delay in due payment of obligatory medical insurance contributions will make up 0.1 percent of the amount for every day of delay. This amount will be transferred to the accounts of the National Company of Medical Insurance.
The Law on the Modification of Legislation on Fighting Terrorism introduced several new regulations in the Law on Fighting Terrorism, according to which:
- If necessary, Moldova may request from other states the necessary assistance, as well as participate in the release of hostages based on international treaties signed by Moldova.
- The following authorities responsible for fighting terrorism were appointed:
- The Government shall be the main authority responsible for the organization of activities in fighting terrorism and assuring the necessary forces, means and resources;
- The Supreme Security Council of Moldova shall provide the coordination of the activities of the authorities involved in fighting terrorism;
- The Information and Security Service shall be the national authority involved directly in fighting terrorism;
- The General Prosecution Office, Ministry of Internal Affairs, Ministry of Defence, Border Troops Department, Department for Emergencies, State Security and Protection Service, Customs Department, Information Technologies Department, Department of Penitentiary Institutions of the Ministry of Justice will take part in fighting terrorism.
- The Law stipulates the creation of the Anti-terror Center of the Information and Security Service which will be authorized to conduct, coordinate and implement counter-terrorism activities.
Another important document passed by the Parliament was the Law on Transmitting the Shares and Unclaimed Participation Quotas Pursuant to the Law on Restructuring of Agricultural Enterprises Subject to Privatization. The Law on Restructuring of Agricultural Enterprises subject to Privatization was enforced only partly: a part of the shares remained unclaimed within the period established by the legislation and was transferred to the local public administration without establishing the ownership over this property. The Law recently passed by the Parliament provides that the shares and/or participation quotas of the liquidated agricultural enterprises, transferred into the administration of local government and unclaimed by the participants in privatization process within the established timeframe are given to the participants in the privatization in accordance with the decisions of the privatization committee, adopted upon liquidation of the agricultural enterprise.
In addition, the Law provides that the Department of Privatization shall sell the shares of liquidated agricultural enterprises transferred into the state ownership or into the property of territorial-administrative units, with their consent and in accordance with the procedures established by law.
The Law on Canceling Penalties and Fines cancels 50% of the penalties and 50% of the fines for the tax-payer who shall not have arrears as of December 31, 2004 both to the State Tax Service and the Customs Department.
The declared goal of the Law is to stimulate the taxpayers to disburse the payments into the consolidated budget, canceling in exchange their delay penalties and all kinds of fines for taxes, established by the law and reflected in the record-keeping systems of the State Tax Service and Customs Department.
As of September 1, 2004, the arrears to the consolidated budget summed up approximately 3 billion Lei out of which more than half represented delay penalties and fines. It was estimated that in this case, the state would have more to gain than if it were to await the payment of debts together with the fines and delay penalties.
Most importantly Parliament adopted the Law on Adopting Economic Growth and Poverty Reduction Strategy (EGPRS). The strategy is a very complex document and includes development strategies in various sectors on mid-term (2005-2007) and long term. The key objectives of the document are:
- sustainable and socially-oriented development of the country;
- country reintegration;
- European integration.
To fulfil the aforesaid objectives the mid-term social-economic policy should be targeted at:
- economic growth;
- poverty and injustice eradication, wider participation of the poor to the economic development;
- human resource development.
The most important sectors that would help attain EGPRS' mid-term objectives are: private sector, local government, social welfare, healthcare and education, infrastructure, regional development and environment.
EGPRS would be partly funded from the public money and partly from the grants and technical assistance provided by foreign donors.
Under the law, within a month of its enforcement Government shall adjust its social and economic development programs and action plans to the objectives and priorities outlined in EGPRS. Moreover, Government would yearly report to Parliament on the EGPRS' implementation.
Law on Revising State Budget for 2004 increases budgetary allocations to the "Moldsilva" State Forestry Agency by 4.5 million Lei. Those funds will be allocated for regenerating and enlarging forestry fund.
The Law on Special Courier Service outlines the legal framework, principles, responsibilities, obligations and rights of the special state couriers and control over their activity. The service is part of the state security service and is an independent special destination body of the executive branch entrusted to rapidly store, send and distribute state official correspondence.
(For further details on Parliament activity see http://www.e-democracy.md/en/comments/legislative/)
On December 8, the former Director of the State Chancellery, Pantelei Tiltu was appointed as Chief of Government Apparatus. Noteworthy, at the initiative of the President, Parliament has recently reorganized State Chancellery into Government Apparatus.
II. Economic polies
"Stability" on the domestic currency market
Domestic currency market had a "stable evolution" in November with Leu registering a slight depreciation 0.17% against USD, according to National Bank of Moldova (NBM). Exchange rate ranged between 12.4625 and 12.4841 Lei for 1 USD. A NBM press release reads that same time last years, except for 2003, national currency used to slightly depreciate. However, in November 2003 Leu gained almost 1% from 13.4257 to 13.2910 Lei for 1 USD.
Surging energy consumption last month had influenced the rate of Moldovan Lei against USD. At the same time, growing demand on foreign currency on the domestic market was watered down by surged inflow of foreign currency, i.e. remittances of Moldovans working abroad. Amidst growing inflow of foreign currency from abroad, National Bank continued its interventions on the currency market so as to prevent excessive fluctuations of the exchange rate. Therefore in November 2004 the Bank purchased 22.9 million USD.
Lei against USD exchange rate is influenced directly by the amount of transactions on internal market. As for the Lei against Euro exchange rate it is calculated based on the cross-rate against USD on the internal exchange market. Thus, the depreciation of the national currency against Euro in November 2004 from 15.8965 Lei/1 Euro to 16.5471 Lei /1 Euro (i.e. 4.09 %) was determined by the Euro appreciation against USD on the international market.
Experts say the lower USD/Lei exchange rate is, the more expensive Moldovan exports are, while foreign customers back off from "made in Moldova" goods turning their eyes to cheaper goods. Leu appreciation has turned into a nightmare for exporters. If it continues it would diminish exports and boost imports, or net exports and raise exchange rate.
The impact would be even bigger if Leu appreciation would be sustainable. However, it doesn't mean that ordinary people would enjoy cheaper imports. Albeit Leu is appreciating, prices on imported goods do not go down. On the contrary, there are inflation outbursts on the real estate market. Prices on real estate (both in Euro and USD) surged by 25% in the last year.
Who has to gain from a stronger Leu:
- Imports are getting cheaper: either importers' profit margins are fatter, or prices on imported goods go down;
- Moldovans pay less (equivalent in Lei) interest rates on credits in foreign currency;
- Moldova - having done a facelift in the international statistic reports - looks more appealing to donors.
Who has to loose from a weaker Leu:
- Exporters who have to sell their products more expensive;
- Moldovans having deposits in foreign currency;
- There is a risk of financial crisis: if Leu rapidly gains grounds.
National Banks' foreign currency reserves over 400 million USD
At the end of November National Bank's foreign currency reserves amounted to 405.9 million USD hitting a record high since the Leu was put into circulation on November 29, 1993. As of December 31, 2003 foreign currency reserves were estimated at 302.2 million USD.
Amidst surging supply of foreign currency on the domestic market fuelled by the remittances of Moldovans working abroad, National Bank purchased 240 million USD. At the same time it reimbursed credits received from IMF, while in May it granted a loan to Moldovan Government worth 50 million USD.
NBM managed to refill its foreign currency reserves to the level before 1998 financial crisis that hit hard the entire region, including Republic of Moldova where it depleted foreign currency coffers by 2.5 times to a record low 143 million USD. Economy watchers say NBM is probably trying to secure a normal stock of foreign currency that would supposedly give Moldova more credibility on the international capital markets as well as in the eyes of foreign donors.
Inflation outstrips forecasts for the year
According to the latest monthly report issued by the Statistics and Sociology Department, as of November inflation rate in Moldova was 1.8%. The cumulative rate for the 11 months of the year was 10.7% and this despite the 9% inflation rate provided for in the Law on State Budget for 2004.
In November consumer price index (CPI) on food products surged by 2.4% over last months, on non-food products by an average 1.3%, and on tariffs and services by 1.1%. The most spectacular price hike was registered on eggs 23.7%, vegetables 13%, and diary products 6.4% over October. As for non-food products, fuel price surged by 2.4% and oil products by 2.7%. Tariffs on transportation also climbed by 14.9% and this after a 17.3% growth in October.
The 9% inflation target would not be reached unless "official figures are rigged". Officials stay calm and see no harm in gradual price hike on all kinds of products. Surging prices on food was the main factor that propelled CPI further upwards. Experts do not exclude an eventual price hike in 2005 that might be also fuelled by reduced tax burden both for legal and natural entities.
As a rule, governments tend to raise their rating on the eve of elections (given that Moldova de facto entered an election campaign) by lowering taxes and raising spending on social security, thereby boosting domestic consumption that in turn swells public debt and budget deficit.
III. Transdnistrian Conflict
The 12th OSCE Ministerial Summit, which took place on 6-7 December in Sofia, failed to adopt a final statement due to the lack of consensus between the Member States on debated issues.
According to Radio Free Europe, referring to sources from the OSCE, the Russian Federation and Belarus blocked the adoption of the final statement because the draft reiterated Russia's obligation to respect the 1999 Istanbul commitments to withdraw troops and ammunition from Georgia and the Republic of Moldova, as well as due to the two states' disagreement with the provisions related to the situation in Ukraine.
The situation in Ukraine, the resolution of ‚frozen' conflicts and the ratification of the Adapted Treaty on Conventional Forces in Europe (CFE) were the key topics discussed at the meeting and that have caused a number of divergences between the Russian Federation and other Member States.
Thus, the Dutch Foreign Minister, Bernard Bot, representing the Dutch Presidency of the EU, was quoted as saying by Basa-press that the withdrawal of Russian troops and weapons from Georgia and Moldova is a key element in the process of resolution of conflicts of the two states. This position was supported by most of the speaking ministers, including the US Secretary of State Colin Powell.
Powell invoked the need for the OSCE to give a fresh push to the resolution of the conflicts that remain 'frozen' 15 years after the end of the Cold War. At the same time, Powell said that although the US will further support the ratification of the Adapted CFE Treaty, this will not happen until all the Istanbul commitments are fulfilled.
In the same context, the Moldovan Foreign Minister Andrei Stratan, was quoted by Basa-press as saying in a speech held at the Summit that 'the presence of foreign troops on Moldovan soil is illegal, because it contravenes to the Constitution of our state, the international norms and principles". Stratan added that the Russian military presence in Moldova is a factor that 'influences' the conflict resolution process, accused the Russian military forces of supporting the Transnistrian break away regime and supported the conditioning of the ratification of the CFE Treaty with the fulfilment of the Istanbul commitments.
On the other hand, Serghei Lavrov, the Russian Foreign Minister, called upon the OSCVE to give up the 'political manoeuvres around the Transnistrian problem'. Lavrov expressed support for the current negotiations format and stated that the current tension between the two sides is largely a consequence of the failed chance to settle the conflict last year (Kozak Memorandum). Furthermore, the final statement of the Russian Federation describes as illegitimate the conditioning of the ratification of the CFE Treaty with the fulfilment of the Istanbul commitments, and asserts that Russia has fulfilled all of its Istanbul commitments related to the said treaty and will continue to do so when the 'favourable conditions' are in place.
Lavrov was equally categorical with regard to the sighing of the Declaration on Stability and Security for the Republic of Moldova, whose draft was proposed for signature by President Vladimir Voronin to the US, EU, the Russian Federation, Romania and Ukraine last summer, and which has been supported by the EU, US and Romania. The Declaration was to be signed at the OSCE Summit in Sofia, but on the eve of the Summit the Russian Federation expressed its official position that it would not support the document in its current reading, which, Russia said, was prepared by the US and EU and did not take into account Russia's proposals. Reportedly, following those statements, the Moldovan authorities have made a number of attempts to secure the signature of the Declaration, including without Russia.
Lavrov confirmed the position expressed earlier by Russia, stressing that 'the latest variations on the subject of the Declaration... initiated from outside and in an incomprehensively secretive atmosphere, is an attempt to devoid of meaning the basic elements of the Transnistrian conflict resolution and exclude from the process one of the parties".
In the end, the draft Declaration was not signed in Sofia. The Head of the OSCE Mission to Moldova William Hill said that this reflected the current divergences between the OSCE Member States, but did not deny the topicality of the document. The Chisinau officials have not commented yet on any further steps on the Declaration.
IV. Foreign affairs
1. Seventh Reunion of the Parliamentary Committee on RM-EU Cooperation
On November 30, Parliamentary Committee on RM-EU Cooperation gathered in Brussels for its seventh reunion. It is a body institutionalized via Partnership and Cooperation Agreement entrusted to oversee the implementation of that document. High on the agenda of the reunion were relationships between the two parties in the context of EU new neighbourhood, technical and financial assistance programs for Moldova, settlement of the Transdnistrian conflict, economic and social issues RM is facing, democratic process and upcoming parliamentary elections in the RM.
The Committee made a number of recommendations, in particular full enforcement of the Partnership and Cooperation Agreement; improving investment climate; conducting 2005 parliamentary elections in line with European standards; speed up the opening of European Commission representation in Chisinau (recommendation made by Moldovan side at the first reunion held on October 7-8, 1998 in Strasbourg); Council of Europe to delegate a special envoy for Moldova so as to facilitate resolution of the Transdnistrian conflict and RM accession to EU.
2. Action Plan EU/Moldova
European Commission approved on December 9 the Action Plan EU/Moldova ( - 144Kb), together with other six similar documents for Palestine, Jordan, Israel, Morocco, Tunis, and Ukraine. Commissioner Benita Ferrero-Waldner stated during the press conference that these documents will be submitted for the approval of Council of Europe and other relevant Association and Cooperation Councils.
Action Plan EU-Moldova invites Moldova to enter into intensified political, security, economic and cultural relations with EU, enhanced cross-border co-operation and shared responsibility in conflict prevention and conflict resolution. One of the key objectives of this action plan will be to further support a viable solution to Transdnistrian conflict. Thus, the proposal provides for the constructive participation of Moldova in the OSCE-led negotiations process; effective co-operation between the EU and the Republic of Moldova in the Transnistrian resolution process, including deepening the political dialogue on this matter; more support from the EU to the OSCE and the mediators; stepped up co-operation with Ukraine on border issues and customs control, etc.
The level of ambition of the relationship will depend on the degree of Moldova's commitment to common values as well as its capacity to implement jointly agreed priorities. The Action Plan EU/Moldova covers a time frame of three years, and is a first step in this process. Its implementation will help fulfil the provisions in the Partnership and Cooperation Agreement and will encourage and support Moldova's objective of further integration into European economic and social structures.
The second series of partner countries into the ENP during the course of next year would include: Egypt and Lebanon, Armenia, Azerbaijan and Georgia.
V. Studies, analyses, comments
Fifth Congress of the Party of Communists
Igor Botan, 16 December 2004
The main reason for convening the fifth congress of the Party of Communist was to reshuffle governing body
Inflation rate gives headache
Iurie Gotisan, 16 December 2004
This year we would over-perform on economic growth and under-perform on inflation
The next issue of "Democracy and Governing in Moldova" will be produced in January 2005.
We would like to thank you for your interest in our publication. We wish you a Merry Christmas and a Happy New Year!