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Economy overview
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Republic of Moldova has registered a steady GDP growth in the last three years (7.2% in 2002, and a total of 16.4% throughout 2000–2002); an industrial growth of 10.6%, and a 3% growth in agriculture in the last year.
There are encouraging forecasts for 2003 as well. Nevertheless, services rather than production account for the great part of GDP, whereas 70% of the revenues to the state budget have been provided by the Customs Department. A top priority for the Government continued to be social issues: the average salary per economy has raised by 32.3% and amounts 666.4 MDL, whereas the average pension amounts 168 MDL. Needless to say, in December 2002 the consumption basket has been officially estimated at 1,177 MDL.
Traditionally, National Bank of Moldova assumed the role as an oversight and stabilization body for the macro-economic tendencies and ensured a relative stability of the Moldovan Lei (13.5 MDL for 1 USD in 2002, as compared to 12.9 in 2001) and a 4.4% inflation rate. By the end of 2002 Moldova’s foreign reserves amounted to $ 264 million, this also accounts for the remittances flowed into the monetary system from the Moldovan citizens working abroad (around $ 200 million in 2002).
A concern remains the increasing domestic and foreign debt burden; imports exceeding by 1.6 the exports; the increase of the foreign direct investment by only 4% (investment growth rate smaller than the GDP growth); privatization revenues ten times less than those forecasted in the state budget; and last but not least adverse business environment as was the case in the previous years.
According to opinion polls the great majority of the population positively evaluates the socio-economic development of the country and Government initiatives. The latter, despite the quite impressive amount of approved strategies, programs and concepts (around 30), dealt mainly with ongoing problems, rather than addressing long-term and strategic issues. An illustration of this is the record number, i.e. 1,800, of Government resolutions passed in 2002 in the field of local government.
The general impression is that in the last two years the incumbent Government haven’t decided yet to what extent to apply “state regulation” in economy (as was announced in its 2001 Program) and to what extent to rely on “market forces”, especially as far as the entrepreneurship is concerned. This is the more important as the private sector runs at about 85% of the GDP.
Uncertainty and inconsistency in the Government policies are the main causes of the tarnished relations with IMF and World and delay in releasing further credit disbursements. The second disbursement of the SAC-III credit shall be released no earlier than April although initially scheduled for November — December 2002.
In January and February this year the Government already approved 200 resolutions, the most important of which refer to the Program for binding medical insurance (to be enforced commencing July 1, 2003) and the Concept of corporate business administration. The latter was probably developed in response to President Voronin’s appeal to the legislators at the end of last year session, reading that “it is necessary to modernize state administration, liberalize economy and boost civil society”. The President reached that conclusion after reviewing 9,365 documents registered with the State Chancellery. Consequently, the Government had to pass another Resolution, this time on the Enforcement of Presidential decrees and orders by the state public administration in 2002 (no. 126 din 10.02.2003), pointing to the “indifference and irresponsibility of the of the bodies entitled to enforce them”, and to “the less demanding attitude of the central public administration towards the relevant bodies”, etc.
Meanwhile, statistics repots positive results in the first two months of the year. Economy and social sphere followed a normal path of development. In January 2003, Statistics and Sociology Department registered a 13% industrial growth and a 1.9% inflation rate. The revenues forecast in the State Budget have been achieved at 125%. Noteworthy, Fitch Ratings Agency has recently raised the rating of the Republic of Moldova from “DD” to “B-” to the same level as in Uruguay, Libya and Gambia and the rating Moldova had in 1999 prior to the regional financial crisis.
Constitution provides that “The economy of the Republic of Moldova is a socially oriented market economy, based on private and public property engaged in a free competition”. In line with those provisions, the Government together with IMF and World Bank is finalizing the Poverty Reduction Strategy (deadline — March 2003). Similar strategies have been developed in more than 40 poor countries. They serve as a guideline in implementing economic policies for the relevant Governments, and a framework for monitoring the country for international organizations.
The quality of the PRSP document would be indicative of the incumbent Government professionalism, its priorities, and transparency in relations with other state institutions, opposition and civil society.
Government forecasts for 2003 are rather optimistic: 6% GDP growth, 20% monthly salary raise, 6% inflation, an exchange rate of 14,6 MDL for 1 USD, and 0.8% GDP budget deficit. However, international monetary organizations are more pessimistic in their forecasts: 4% GDP growth, increased domestic and foreign debt burden; negative trade balance. They point that a stable economic growth may not be achieved unless economic reforms are completed and impediments for small business eliminated.
Needless to say, the new administrative-territorial division replacing the current 12 counties with 33 rayons would definitely generate new problems. The new administrative-territorial division would not only be resource consuming but also cumbersome for Government relations with local government and small business, budget enforcement, and statistics.
Having said that, the most important problem for the Republic of Moldova remains to be the quality of the governing. According to President Voronin “the current structure of the Executive does not meet the goals and objectives of the state” (Government session of 17.02.2003). Indeed, at a close look at the causes of disruptions in economic reforms and at the periodic attempts to resume the old administration practices, one may find out that to a certain degree, the unreformed state administration machine is to be blamed. Another striking factor is the exaggerated dispersion of the Ministerial structures, departments and national agencies (around 50), as well as the absence of a center to coordinate and elaborate economic policies. The Government functions like a conglomerate of exponents of different interests, rather than a single team. Apparently these are the factors undermining President’s intentions to liberalize the economy.
Experts believe there is no better time to dramatically change the structure and functions of the state apparatus then upon the formation of a new Government. If President’s initiative is to be accomplished by the end of 2003 then it is worth referring to the experience of the European countries, namely a clear-cut distinction should be made between Government political functions (Prime Minister, Ministers and their Deputies, Councilors) and state service (the rest of the functions). In particular, candidates to the state service should be selected based on an interview; good working conditions (proper salary, training and motivation) should be provided in order to reduce personnel turnout; an Ethical Code of Conduct for the state officials should be adopted. The implementation of the aforesaid measures wouldn’t require the adoption of new laws, but rather the modification of the existing ones, which falls within the competence of the Executive power.