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Democracy and governing in Moldova
e-journal, III year, no. 56, August 1-31, 2005
Activity of Public Institutions
Studies, Analyses, Comments
Activity of Public Institutions
On August 18, at the initiative of the Ministry of Foreign Affairs and European Integration Government appointed Ion Filimon, former Communist MP, as the Republic of Moldova Ambassador to Belarus. The President is to issue a decree in this respect.
- On August 1 Government passed amendments to the Regulation of the National Committee on Fighting Trafficking in Human Beings. The Committee is to coordinate human trafficking prevention and fighting activities. It includes representatives of Ministries and public institutions and is also opened to non-governmental organizations working in the field.
- The same day Government decided to establish a Commission to coordinate inter-ministerial activities in view of European integration. Ministry of Foreign Affairs and European Integration was designated to coordinate and monitor the enforcement of the Action Plan EU-Republic of Moldova. Ministries and public institutions were obliged to enforce in due time actions in view of RM accession to EU.
- Albeit the Government had been sworn in on April 19, 2005 when the Parliament voted it together with its governing program, Government Action Plan was only approved on August 1, 2005. Action Plan for years 2005 - 2009 entitled "Country Modernization - People's Well-being" seeks to ensure: a stable economic growth; solve social problems; bring RM into the European and international economic structures, etc. Following a model developed by the Ministry of Trade and Economy, Government obliged all the central public institutions to draft within a month their own action plans. Furthermore, Government obliged Ministries and other central government institutions to quarterly report on the steps taken to enforce the EU-RM Action Plan. Ministry of Trade and Economy was obliged to develop a single monitoring and evaluation system for programs of strategic importance, namely: Poverty Reduction and Economic Growth Strategy; EU-RM Action Plan; Millennium Development Goals; "Moldovan Village" National Program.
- On August 2, via its Resolution no. 814 Government confirmed the main guarantees to residents of Transdniestria. The Resolution enforces the Law no. 173-XVI of July 2005 on Basic Provisions on the Special Legal Status of the Residents to the Left of Dniester (Transdniestria). The goal of Republic of Moldova's reintegration via humanitarian, socio-economic and legal assistance to Transdniestrian residents is to be achieved by guaranteeing the right on property to both legal and natural entities of Transdniestria: once the conflict is settled issuing certificates confirming those assets; preserving the same social security Transdniestrians' enjoy at the moment and further sdeveloping it; keeping and re-hiring the employees of the law enforcement forces after the conflict is resolved and dissolving illegal forces.
The same day Government passed another resolution, thereby ruling that once the Decision of the Ukrainian Government no. 165-p of May 26, 2005 enters in force, Registration Chamber of the Ministry of Information Development would keep a record of Transdnistrian exporting and importing businesses, attributing them a provisionary code and including them in the State Registry.
- On August 8 Government completed the list of loans and grants issued with a state guarantee, from the loans issued by the international monetary institutions for projects, as well as from grants provided by international monetary institutions to state-funded institutions - from which VAT and customs fee exempted goods and services shall be imported or purchased. The list was completed with SIDA grants on implementing and monitoring projects in agriculture, Management of public finances implemented by the Ministry of Finance as well as NATO grant to the Defense Ministry.
- On August 10 the Regulation of the Government Apparatus was approved. The move is in line with the much-awaited modernization of central administration announced three years ago. Similar move was taken as regards State Chancellery that used to perform similar functions.
- Government had to revisit the much disputed issue on Chisinau heating stations "CET-1" and "CET-2". On August 15 Government approved Ministry of Industry and Infrastructure proposal to repeatedly restructure CET-1 and CET-2 in line with the Law of Insolvency. Government recommended Creditors' Council to conclude with CET-1 and CET-2 Memoranda for the restructuring period.
- On August 19 Government obliged Ministry of Trade and Industry to develop within two months Instructions on calculating poverty line, in consultation with the National Statistics Bureau and UNDP-UNICEF Program "Support for developing, monitoring, and evaluating RM strategic policies".
- On August 23 Government cancelled its own decision on banning the import and sale of second hand goods. The move comes in response to severe criticism and protests by second hand retailers. Initially, the import of second hand goods was to cease as of September 1, while its sale as of February 28.
Small Business Association criticized the decision arguing that: a) the move would leave more than 15,000 retailers out of jobs; b) according to some estimates 80% of the RM population buy second hand goods, if the Government decision was to be enforced they would be left with no opportunity to buy affordable clothes; c) last year alone second hand goods worth 24 million Lei were sold in Moldova, with 8 million Lei going to the state budget; d) authorities ignore the interests of the people, rather they seek to "hold the monopoly on the market"; e) Government initiative might spur shadow business, having all the negative consequences.
In their turn, authorities argue that: a) second hand goods are mainly sold by natural entities, which runs counter to the legislation; b) the imports of second hand goods imported by natural entities exceed three times the reported sales; c) if the trend continues, Republic of Moldova would never get a chance to revive its light industry and turn to civilized commerce; d) Healthcare Ministry officials reported that the number of skin diseases raised 1.6 times since the second hand goods have been sold on the Moldovan market.
Nevertheless, Government cancelled its decision, while Prime Minister Vasile Tarlev promised to found those guilty responsible for that decision, albeit he himself signed it. The thing is that this issue might prove to have in the future a major electoral impact.
- During the reported period the following Advisory Councils have been established: of the Ministry of Transportation; Ministry of Information Development; Customs Service; Ministry of Foreign Affairs and European Integration; Ministry of Finance; Ministry of Healthcare and Social Security; Ministry of Trade and Industry.
On August 5 President Voronin signed the Decree No. 196-IV on Establishing a national Commission Entrusted to Draft and Implement the Individual Action Plan RM - NATO. The Decree also appointed members of the Commission. Under the Decree the Commission is entrusted to: a) develop by March 1, 2006 the Individual Action Plan RM - NATO and submit it for the examination of the Supreme Security Council; b) ensure the implementation of RM - NATO Action Plan; c) brief Supreme Security Council on the Action Plan implementation.
The Decree is a follow up to the President's initiative of June 7, 2005 to sign an Individual Action Plan RM - NATO. During his meeting in Brussels with NATO Secretary General, Jaap de Hoop Scheffer, President Voronin stated "Republic of Moldova wishes to fully exploit the partnership opportunities provided by the Partnership for Peace and boost relations with NATO. We believe it is paramount to develop in this context the goals of National Army reform and actions aimed to improve our army capacity to operate along NATO forces. Moldovan authorities believe the time has come when in order to enhance the political dialogue and cooperation, an Individual Action Plan RM - NATO is to be developed".
President Voronin convened a meeting to talk Republic of Moldova representative at the European Court for Human Rights. The move came as a follow up to the January 29, 2005 reunion of the judges. At the meeting President Voronin pointed the following: a) the current situation when more and more citizens of the country are dissatisfied with how the justice is done and appeal to ECHR is unacceptable; b) ECHR already passed 17 judgments condemning RM, while other 217 cases have been accepted by the Court; c) it is paramount to urgently amend the Constitution and "enforce national mechanism of human rights protection" by means of the Constitutional Court which is to become a kind of mini-ECHR, thereby Moldovan citizens would have to appeal ECHR in Strasbourg; d) in each of the cases ECHR issued a judgment condemning Moldova, Constitutional Court should take action against the judges whose ruling were contested by ECHR. Moreover, Prosecutor General should investigate those cases, claiming partial or complete recovery of the financial loses the country incurred as a result of the bad judgments; e) Parliament, Government and other specialized institutions should develop an action plan to implement the aforesaid propositions made by the President.
On the other hand, experts from the "Lawyers for the Human Rights" Association stated earlier during the Leadership School held by ADEPT that "that the most frequent violations of the human rights reported by citizens of the country are: a) non-execution of the court rulings; b) certain binding principles are neglected in ensuring free trials; c) the right on property is violated; d) violation of the right on freedom and security; d) also numerous are the appeals against illegal and abusive arrests, 95% of all mandates of arrest fail the scrutiny of ECHR, that is, they are illegal".
Moreover, Lawyers for the Human Rights believe that the increasing number of judgments against Moldova are the result of: a) lack of independence of the judiciary in Moldova; b) corruption in judiciary, which is brought among others by the meager salaries of the judges, lack of adequate premises to do the justice properly, etc. As for granting Constitutional Court the status of "mini-ECHR", there are different opinions in this respect. Theoretically, speaking the proposition seems quite acceptable. However, practically speaking it seems to raise numerous barriers and discourage citizens' access to ECHR. The thing is that the incumbent membership of the Constitutional Court is seen as being extremely loyal to the governors to the expense of its impartiality. An illustration in this respect was the Court refusal to examine a number of appeals citing provisions of the Code of Constitutional Law. The latest example was the appeal submitted to the Court on the constitutionality of Parliament Resolution no. 444-XV of December 24, 2004 on establishing the election date. Previous compositions of the Court did examine such appeals ruling that decisions of the Parliament, Presidency, and Government enter in force after being published in the Official Monitor. However, the incumbent Court refrained from examining the appeal citing incorrect address formula and application procedure, despite the fact that it was developed by a former judge of the Court known for his high professionalism.
On Independence Day, August 27 President Voronin delivered a speech. The gist of the speech referred to: a) Moldovan state managed to affirm itself despite domestic and foreign challenges; b) there is a consensus in the society on the future of the country, regardless of nationality or spoken language, therefore the state is no longer an abstract notion, but rather a home for a multinational people; c) independence would be fully-fledged only when democratic institutions would function, as would rule of law, market economy and European values, inadmissibility of any pressure on mass-media and civil society, opinions equally shared by power and opposition; d) European accession is a provides an unique opportunity to build the Moldovan state; e) RM reunification has become inevitable after the adoption by Moldovan parliament on July 22 of the Law on the future organization of the country.
Interestingly enough, President Voronin speech delivered this year stands out against his previous speeches delivered on Independence Day. Albeit he reiterated the main political tasks part of the "national consensus", still this time they paltry. This specifically refers to RM's strategic goal - accession to EU. He highlighted the need to comply with Copenhagen criteria and named accession the "national idea" in the RM.
This might be explained by the internal and external political context. On the one hand, the problems EU is facing diminish even further the meager chances Moldova had to join the structure. On the other hand, Russia's economic growth, boosted by rising oil prices, strengthens even further its position in the region and increases CIS dependence on it. Russia's message regarding "turning into monetary terms" the economic ties with CIS depending on their loyalty, bears considerable risks for Moldova, which has already suffered from the Russia's ban of agricultural products imports from Moldova.
By passing the "historic law" on the principles of settling Transdnistrian conflict, RM has sharply limited its berth for maneuvers in settling the conflict. In fact, the conflict resolution depends on some external factors outside RM's control, namely Ukraine and Russia.
All the aforesaid factors might raise some significant problems for the incumbent governing, strengthening the positions of the pro-Russian wing in the ruling party. As for the rest, all the President did was to review RM's achievements since he launched his project "Sovereign Moldova" on August 27, 2001, namely: 1) settling Transnistrian conflict and reintegrating the country, 2) edifying a multiethnic and multi-linguistic Moldovan nation; 3) strengthening democracy, consolidating civil society and specifically, judiciary; 4) promoting a multi-dimensional foreign policy. Indeed many of the tasks set back in 2001 have been significantly changed in 2005.
1. Prices and inflation
Inflation could grow next weeks...
Although a deflation of 0.8 percent was registered in June and 1.1 percent in July, most of analysts and economists describe the annual forecast of 8-10 percent as a joke. Firstly, because the autumn and winter mean a higher inflation. This year seems to be special because of the rise of prices of fuels and electricity, so that the inflation will grow. Also, estimates show that the price of natural gas will easily grow under influences of quotations of international market.
...because of higher prices of fuels, electricity and growth of production costs
Firstly, the tariff of heating, which will be probably adjusted (increased) because of higher prices of fuels when the thermal energy will be supplied to consumers, will produce its effects when the statistics will take into account a new value. The way the international quotation of petrol will change is another concern for inflation rate, if taking into account the fact that the gasoline and Diesel oil influence almost all prices included in this rate.
The rise of salaries of public functionaries by about 30 percent, money which will probably increase the consumption, is another potential stimulus for inflation. In addition, the production costs are on the rise, being fueled by a growth of salaries as well. The productivity is on the decline, and the economy will show signs of tiredness, if no investments go to technology. This scenario is not good at all for the National Bank of Moldova (BNM), which focuses first of all on stability of prices.
2. Financial-bank system
National Bank has reduced the basic interest rate...
BNM has reduced by 0.5 percent the basic rate for refinancing of commercial banks through two-month REPO operations for purchase of state securities, undertaken within open market operations of BNM. Under a decision of the Management Board of BNM, a 12.5-percent annual interest rate was established. The basic rate on long-term credits (for more than five years) was reduced by 0.5 percent down to 10.5 percent a year.
Perhaps, BNM modified the basic rate, following the dynamic of inflation and current conditions of the monetary market. The cumulated inflation for the first seven months is 3.6 percent, after a deflation of 0.8 percent in June and 1.1 percent in July, compared with the forecasted annual inflation rate of 8-10 percent. The reduction of basic rate and decline of inflation will attract lower interests on deposits and, respectively, bank credits. The average interest rate on bank system in July was 12.96 percent (15.7 percent in January), and the average interest rate on credits released by commercial banks was 19.32 percent (21.2 percent in January).
...commercial banks could reduce interests
Under these conditions, the placement of savings as bank deposits becomes more disadvantageous every day, at least from perspective to obtain a visible profit. Analysts forecast the continuation of the trend to reduce the bank interests for the next period. Banks could reduce their interests on deposits in lei in the near future.
This trend may continue, though reductions of interest rates will not have the sizes registered in the first half of this year1. Anyway, the interest rates cannot grow the next period, if taking into account the current juncture and the fact that all other possible points of interest of BNM regarding the evolution of economic indicators will be subordinated to inflation objective from now on.
International reserves of BNM could grow up to 600 million dollars by the end of this year
Moldova's international reserves rose up to 506.5 million dollars in late July, after a monthly rise of about five percent. BNM purchased 23.3 million dollars on the inter-bank market in July, by about 7 million dollars more than in June. International reserves could grow up to 600 million dollars by late 2005 due to a significant supply of currency on domestic market, mainly generated by remittances of Moldovans who work abroad, and if the trends remain unchanged.
International reserves accounted for 470.3 million dollars in late 2004, compared with 302.2 million dollars in late 2003 and 268.5 million dollars in late 2002. Reserves amounted to 365.7 million dollars in 1998, but they dropped about 2.5-fold after the Russian financial crisis, so that BNM needed many years to recover the position it had lost.
3. Foreign trade
In spite of interdictions of the Russian Federation...
Food products, alcohol and non-alcohol drinks and tobacco held 36 percent of the total of Moldovan goods for exportation in January-June 2005, by 13.6 percent more than in the similar period of 2004. They were valued at about 190 million dollars.
... the share of food products for exportation is on the rise
The CIS marker remains a priority for Moldova's food products and alcohol drinks in spite of interdictions of the Russian Federation and some tariff and non-tariff obstacles. Data of the National Bureau for Statistics (BNS) show that the supplies to this market in the 1st quarter of 2005 accounted for 89 percent of Moldovan exports of food products, alcohol, non-alcohol drinks and tobacco.
Exports to the European Union (E.U.) represented more than 5 percent, while supplies to Central and Eastern Europe count for 4 percent. Certain experts say that these markets are excessively protected on one hand, while Moldovan products unfit the European quality standards on the other hand.
Imports rose more rapidly than exports in the first half of this year, respectively by 27.7 percent, compared with 13.6 percent in January-June 2004. Moldova imports about 54 percent of food products, alcohol and non-alcohol drinks from the CIS, 22.7 percent from the E.U., 13.5 percent from Central and Eastern Europe, and the rest from other countries.
...but trade deficit seems to exceed 30 percent of the annual value of GDP
In this context, BNS indicates a trade deficit of about 500 million dollars for the first six months of this year, compared with 312.6 million dollars in the similar period of 2004. Thus, forecasts of analysts who indicated a negative balance of maximum 400 million dollars after six months did not meet the expectations.
Moldova's trade deficit in January-June 2005 accounted for 1.52 billion dollars (these data do not cover exportation-importation operations of enterprises and organizations based on the left bank of the Dniester river). Exports absorbed 507.1 million dollars in January-June, while imports turned over 1.65 billion dollars.
Moldova's trade deficit with commercial partners in the E.U. accounted for 191 million dollars in six months of this year, 148.1 million dollars with the CIS, 48.6 million dollars with Central and Eastern Europe. Moldova registered the largest trade deficit with Ukraine - about 190 million dollars.
Taking into account the decline of profit margin of exporters and reduction of investments in exporting branches, we consider that the trade deficit will exceed 30 percent of GDP by late 2005. We run the risk to be witnesses of run of foreign investments and depreciation of Leu. It looks like a scenario, but not an impossible one.
4. Moldova and the world
Moldova ranks the last places in the CIS regarding several economic indicators
According to data of the CIS Committee for Statistics, Moldova ranks the last places in the CIS regarding some economic indicators registered in the first half of 2005, including the development of transportation, industry or inflation rate.
Posting a 19-percent decline of cargo transportation for the first half of this year, Moldova closes the CIS top regarding this indicator. Only Kyrgyzstan and Ukraine also registered declines of cargo transportation, respectively by 3.9 percent and 1.9 percent. The rest of CIS members increased the transports, while Georgia posted the highest growth - by 9 percent.
As for industrial growth, Moldova ranks the 3rd place in the bottom of the top with a 4.6-percent rise in the 1st quarter of this year, being ranked before Kyrgyzstan -9.8 percent and Russia +4 percent. Azerbaijan reported the highest industrial rise of 20.1 percent.
Moldova ranks the 7th place among 10 members of the CIS which presented data on consumer price index in the inflation "top". Moldova registered a 4.7-percent inflation rate in the first half of this year, after Azerbaijan 4.8 percent, Ukraine 6.4 percent, and Russia 8 percent. Georgia registered the lowest inflation rate - 0.7 percent.
1 Interests decline when inflationary pressures disappear.
On 30 July the Moldovan Government adopted two decisions in emergency regime: "Regarding the confirmation of main guarantees to the population of Transnistria" and "Regarding the regulation of the movement of goods that are the object of Transnistria's external trade". Both decisions have been adopted at the initiative of President Voronin and as a follow up to the Law on the Basic Provisions regarding the Special Legal Status of Transnistria adopted by the Moldovan Parliament on 22 July 2005.
The guarantees adopted by the Cabinet refer to the property rights of physical and legal entities from Transnistria at the date of entry of the above law into force, and preservation of the current social protection system and access to other social services of all categories of population of Transnistria. In addition, the Moldovan Government guarantees the retention of jobs by all employees of the force departments of Transnistria, prosecutors' offices, courts, lawyers' offices, as well as their access to similar jobs in the rest of Moldova.
According to the second decision, the Transnistrian economic agents will have the possibility to obtain the necessary documents for export-import operations for a period of six months. They will be issued IDNO codes and will be provisionally registered in the Moldovan State Register of enterprises and organizations. The customs procedures and control on export-import of goods from and into Transnistria will be exercised by the Moldovan Customs.
The governmental decision also includes provisions regarding the restitution of import rights, issue of forms certifying the origin of goods and other aspects of external trade activity.
According to the text of the decision, the resumption of the registration of Transnistrian economic agents and the issue of documents for export-import operations has been initiated with the aim of reintegrating the country and overcoming the consequences of the conflict. It is also linked to the forthcoming deployment of an international monitoring mission at the Moldovan-Ukrainian border.
Earlier the Ukrainian Government published a series of decisions which have not entered into force yet, on the regulation of the export-import activity at the Moldovan-Ukrainian border, whereby goods from Moldova may be transported into Ukraine only on the basis of customs papers bearing Moldovan stamps, and goods coming from the Transnistrian region will only enter Ukraine through the customs check points where Moldova is present.
The two governmental decisions were launched on 29 July at the closing sitting of the spring-summer Parliamentary session by President Voronin, who noted that "the question of guarantees for the Transnistrian population and the legalization of the Transnistrian economy within the legal space of Moldova, are the most important tasks over the short term. ...We have to tell clearly and unequivocally to the Transnistrian inhabitants that the reunification of the country is an advantage for everyone, that there should not be and will not be material or social losses as a result of reintegration". The President asked the Parliament to adopt by 10 October 2005 the entire legislative basis necessary for the application of guarantees.
The two governmental decisions are part of the stated efforts of the current Moldovan leadership to grant humanitarian, political and economic assistance to the Transnistrian population. It is not clear however if Chisinau will find the financial means necessary to apply into practice the adopted guarantees, especially those related to social protection. Moreover, many questions arise in relation to guarantees on the property rights of physical and legal entities given that the Moldovan authorities have repeatedly condemned and ruled out the privatization process being currently carried out in Transnistria.
- Russian Federation stance towards Transnistrian secessionist regime and Russian troops stationed continue to trouble the relationship between RM and Russia. Moldovan Ministry of Foreign Affairs and European Integration issued a statement in response to the refusal voiced by Serghei Ivanov, Russian Ministry of Defense to withdraw troops from Moldova. The press release reads: a) "Chisinau position as regards withdrawal of Russian troops and munitions in strict compliance with Istanbul assumed obligations remains firm; b) Minister Ivanov's declarations coupled with other recent statements from Moscow officials indicate that they are not ready to align to the new strategic political realities of the modern world; c) by citing peacekeeping function and guarding the weaponry stationed on the soil of the RM, the Russian Minister shows that he is not familiar with the agreements existing between RM and Russian Federation; d) Russian Minister's statement is detrimental to preserving, consolidating and developing good relations between the two countries; e) frequent references made by the Russian officials to the position hold by secessionist leaders, who are supporting the Russian military presence on the soil of the Republic of Moldova, indicate that Russian Federation should clarify for its citizens residing in other states what does citizenship mean, as well as other related norms".
- Moldovan and Slovak Ministries of Defense signed a Cooperative Agreement. The Slovak part will provide assistance to the Republic of Moldova for: a) military reform; b) joint Moldovan-Slovak squad to provide humanitarian relief in the conflict areas.
- A delegation of the European Commission paid an official visit to Chisinau on August 24-31 to discuss the draft Memorandum on the status of the would-be European Mission to Monitor Moldovan-Ukrainian border. In an interview to Radio Free Europe, Patrick Child Head of Office, EU's Foreign Relations Commissar indicated that European experts were to work in Chisinau, Kiev and in the field at the Moldovan-Ukrainian border. As a result they were to complete the Memorandum and define the status of the Mission.
The Mission is a follow-up to the joint letter of the Moldovan and Ukrainian Presidents addressed to European Commission on June 2, 2005 asking for assistance in securing the Moldovan-Ukrainian border on the Transdnistrian portion. Under the Memorandum, the Mission is to function on a long term at the customs check points on Ukrainian side, European experts being eligible to observe the entire process starting with customs to border control.
Still, Ukrainian side does not agree to a permanent monitoring of the border, rather they plead for a temporary mission. According to Dmitriy Tkaci, chief negotiator on Ukrainian side, given the differences in Chisinau and Kiev positions European Commission should consider signing separate agreements with Moldova and Ukraine, as a three-side agreement would be very difficult to sign.
One week prior to the experts' visit to Chisinau, in an interview to Frankfurter Allgemeine Zeitung President Voronin stated that a temporary monitoring mission would lack efficiency as "it takes five minutes to smuggle, not 24 hours". Probably, this comes in response to Tiraspol leader's claims that he supposedly convinced Ukrainian President in July to cancel Ukrainian Prime-Minister Yulia Timoshenko's decision of May 26, 2005 allowing the export of Transdnistrian goods on Ukrainian soil provided they are accompanied by documents in conformity with RM law.
It seems President Voronin was satisfied with the European Commission's memorandum. Voronin expressed his gratitude to EU for this project, mentioning that: a) EU involvement in overseeing the security of the Moldovan-Ukrainian border might boost regional security; b) would help RM and Ukraine apply European standards in customs and border control; c) would contribute to European accession of RM.
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