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Transition: retrospectives and perspectives

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Chapter I. Socio-Economic Policies

The Industrial Policy
Leonora Cebanas

In the context of the overall economic crisis experienced by transition countries in the immediate post 1991 period Moldova's industrial sector was exposed to serious risks of both internal and external character, such as the collapse of traditional technological and production relations in the area of the former USSR, a dramatic increase in the prices on energy resources and raw materials, the migration of well trained personnel, the decline of the scientific-experimental sphere, but also the general state of structural deficiency experienced by the Moldovan economy.

Specific of Moldova has been the protracted fall in industrial production since 1990 onwards, which, in structural terms, by 1999 resulted in a significant decline in the industrial share of the Moldovan economy, with industry accounting for only 16 percent of GDP in 1999. The author notes that enterprises working with local raw materials, such as the agricultural industry, constructions or glass industry, adopted quicker to market economy; whereas enterprises working with imported raw materials, such as chemical industry, machine construction industry or radio-electronic industry, either turned insolvable or went bankrupt.

The reform of the industrial sector has been one of the structural reforms Moldova started following the relative macroeconomic stabilization achieved in the mid-1990s. The state's new industrial policy was developed in the 1995 Government approved Medium-Term Conception of the Industrial Policy of the Republic of Moldova for 1996-2000. The Conception presented the medium-term objectives of the industrial reform, but also the measures necessary for the development of the Moldovan industry in conditions of market economy. The implementation of the Conception stopped the industrial decline by 1997, and yielded economic growth in the industrial complex in 2000 and 2001. Thus, a significant number of legislative acts were adopted most of which dealt with the privatization and restructuring of industrial enterprises. Two agencies took lead in this process, the Ministry of Finance's Creditors Council and the independent Agency for Restructuring Enterprises and Assistance.

Along the industrial reform, a number of wider reinforcing measures were taken, such as the amelioration of the economic climate for the activity of restructured enterprises, the creation of free economic areas, the privatization through investment contests, the creation of industrial parks etc.

The industrial reform has yielded both positive and negative results. The partial denationalization of the industrial sector was completed but the voucher privatization applied failed to result into a competitive and efficient system. The legal framework has been developed but it is incoherent. Overall, the economy is still affected by a dramatic gap between offer, demand and the citizens' purchase power.

The industrial sector is still defective both due to the discouraging effects of the Soviet legacy, and the transition hardships, such as general economic and political instability, failed experimenting, the lack of experience in handling the process, but also the slow economic development generally and a number of multi-sector unbalances.

However, the years 2000-2002 witnessed a gradual socio-economic re-launch, and the 6.1 percent increase in the GDP in 2001 was primarily determined by the increase in the industrial production, at 7.7 percent in 2000 and 13.7 percent in 2001. Thus, the main characteristic of the economic development in 2001-2002 has been the emergence of the necessary premises for a sustainable economic development

The strategic objective of the industrial policy over the next decade is to establish a competitive, multi-branch industrial complex. Over the short term, the critical situation in certain industrial branches such as energy or machine construction is to be overcome, the share of industrial production in the GDP is to be increased and the public and private demand for industrial goods and services should be met. Industries working with local resources and with high export potential should be developed in order of priority.

To achieve these objectives, it is necessary to further refine legislation, conclude the property reform, the privatization process, and the post privatization restructuring, stimulate small- and medium-sized enterprises, optimize the economic climate, attract investments, increase exports and establish an industrial infrastructure adequate for the market economy.

The author concludes that in order for the industrial enterprises to overcome the current crisis and become key market economy actors, a favorable framework for raising incomes needs to be created and policies to encourage competitiveness and efficiency need to be developed. Quality and productivity are the two imperatives the Moldovan industry needs to fulfill to be able to compete on global markets, and the state is to assume a key role in securing the necessary internal conditions to that end.

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