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The Economic Reforms
Valeriu Prohnitchi

The economic transition in Moldova has been a logical consequence of the economic crisis inherited from the socialist system whose parameters could no longer ensure sustainable development. Its successful completion presupposes an understanding of the causes and consequences of this crisis, the adjustment of the social body, as well as political and institutional adjustments.

To date, the reform process in Moldova has seen more rhetoric than actually applied measures. This has resulted in a massive impoverishment of the population at large, an increase in the socio-economic inequalities, the ruining of the existent economic potential, and the accumulation of a huge economic debt.

The Moldovan post 1991 economy was initially characterized by an acute economic recession ensuing from the internal and external shocks of the "divorce from the empire", but also the eruption of the secessionist conflict in Transdnistria. This was followed by a relative macroeconomic stabilization starting 1994, but one that failed to bring economic growth. Between 1997-1998 an apparent improvement occurred as a result of a number of structural reforms. Thus, despite numerous setbacks, by 1998 the property reform was completed, the national currency was in place, the banking system was restructured and enhanced, a capital market was functioning and the basis for the agricultural reform were laid. However, further stabilization into the 2000s has not resulted in an economic growth significant enough to upgrade living standards.

The core roots of the protracted economic recession reside in the Soviet economic legacy of Moldova, the low levels of urbanization, the underdevelopment of rural areas, value distortions that were operated in Moldova in late 1980s, the poor natural resources, the unfavorable geographic position, but also in serious security issues related principally to the presence of foreign troops on Moldovan soil and the secessionist conflict in Transdnistria.

The author argues that the choice of the model of economic development is more important than the system's "path dependency" for the success of the economic transition. Discussing the minimum requirements of one such model, the "Washington consensus", the author notes that Moldova has met only partially those requirements. Further, the government instability is singled out as a positive factor in economic development, in that it prevents countries from falling into "the trap of sub-reforms". The relationship between the level of democracy and the success of economic reforms is discussed in the context of Moldova as well.

Moving to a discussion of the current state of the Moldovan economy, the author states that the current positive economic trends denote a "critical mass" of structural factors that have accumulated and are to mark the conclusion of the most difficult part of the economic crisis. The merits of the recent Moldovan governments and the international financial institutions for the structural adjustments and the institutional development are noted. These positive achievements, though, risk being compromised by the multiple strategic mistakes made by the current communist government, such as their attempt at "revising the results of the privatization" that sounds more like a forced re-distribution of the private property.

Referring to the psychological dimension of reforms, the author discusses the paternalist and collectivist attitudes that prevent the emergence of so-called "market moods" and manifests in excessive bureaucratic interference with and controls of the business sector.

The Moldovan business sector is still unattractive for investments due to the lack of an adequate legal framework and institutional underdevelopment. The lack of guarantees for private property, the proliferation of the shadow economy, the huge fiscal pressures and the high prices paid for bank credits are some of the reasons why private initiative and free competition have not yielded a positive and stable economic growth yet.

With the bulk of the economic activity already concentrated in the capital and the utter economic underdevelopment of regions, the recent government initiative to reform the current territorial administrative organization of the country into smaller units will result in deeper local and regional economic insufficiency and incapacity, but also greater dependence on the central budget. Examples of sustainable local development are brought, which among other things presuppose extensive local financial autonomy. The regional model currently adopted in Moldova is thought to meet this requirement as a model of emerging regionalism.

In conditions of globalization, the distinction between internal and external policies of small states blurs, such states being heavily exposed to international trends and networks. A consideration of Moldova's economic chances in a globalized world is considered from the perspective of its internal security, geographic position, climatic conditions etc. The option of integrating into the European Union is Moldova's unique chance to boost economic and social growth and to get connected to the global economic processes. The author deplores the naivete and inconsistency of the current government which seeks parallel integration into both European and Eurasian regional economic structures.

Moldova should draw lessons from the experience of states with similar size and resources, such as Ireland and New Zealand, which achieved economic development in a short period of time through the introduction of advanced technologies, encouragement of investments, increased productivity, and economic opening. The enhancement of education, the development of rural areas, the fight of corruption and bureaucracy, a more rational management of foreign financial assistance, the encouragement of investments, the final resolution of the Transdnistrian conflict, and structural modernization are some of the measures that Moldova needs to take to secure sustained economic development.

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