Economic Policies on January 17–30, 2005

Prices

The price on the export of sunflower, established within the latest tender organized by the Moldovan Universal Commodity Exchange, reached USD 560 per ton, being the highest in the past years. Agricultural experts have estimated that the rise in the price is a world tendency determined by the fall in the production and supply of sunflower on the European market. On the other hand, officials of the Ministry of Agriculture and Food Industry say that the rises in the price have taken place rather due to the decrease in the supply on the internal market.

Responsible persons from the Oleaginous Substances Production Factory “Floarea-Soarelui” from Balti, the only producer of vegetable oil in the Republic of Moldova in industrial amounts, think that the rise in the price of raw materials will not cause an increase in the price of oil, at least not in the first half of 2005. According to them, the factory has already acquired the necessary amount of raw material. In the past four months, the price on the export of sunflower has increased 2.4 times. At the end of September, sunflower seeds were commercialized at USD 230 per ton.

Public funds

Head of the state requests doubling of budgetary income

President Voronin requested during the latest meeting of the Collegium of the Ministry of Finance that budgetary income be doubled in the next four years. From the President’s address, the Ministry of Finance must take into account the fact that there are expected to be created 300 thousand new work places as well as pensions and average monthly salary to increase three times.

The line ministry is to make efforts in view of doubling the number of scholarships funded from the budget in the country’s higher education institutions as well as of increasing student stipends three times. According to the head of the state, doubling of the state budget will constitute the source to allow for the achieving of these objectives.

In this connection, we must mention that 2005 budget draft law provided for a reduction in the rate of income tax for individuals and legal entities. Many economists say that the fiscal relaxation policy will lead to the extension of the tax base and an increase in the budgetary income derived from direct taxes. It is also estimated that in 2005 such income will increase to about 23 percent of the total consolidated budget income. At the same time, however, indirect taxes prevail over the direct ones in the collection of budgetary income, with a share of circa 65 percent.

Banking and insurance

Evolution of banking sector

The financial situation of the banking sector registered a positive trend in 2004. Tier I capital of banks has reached MDL 2,442 million (about USD 196 million), having increased by 20.34 percent as compared to the beginning of the year.

The increase in tier I capital, which at the end of the year reached the level of 18.34 percent of total assets, explains the capacity for covering eventual losses borne in view of maintaining the system’s financial stability.

In 2004, total assets of commercial banks increased by 29.5 percent, up to MDL 13.3 billion, this increase having resulted from the growth of liabilities by 32.15 percent, up to MDL 10,737.5 million and, respectively, of the share capital by 19.36 percent, up to MDL 2,575.5 million.

Loans

According to the statistical data of NBM, the balance of loans granted by commercial banks to the Moldovan economy has exceeded MDL 7.39 billion (the equivalent of USD 590 millions) and registered an increase of 22 percent in comparison with the end of 2003. Loans granted in MDL increased by 23.2 percent, up to MDL 4.27 billion, whereas the balance of loans granted in foreign currency increased by 20.9 percent and reached the amount of USD 3.12 billion.

In 2002, the balance of loans granted to the economy increased by 34 percent, and in 2003 — by 44 percent. However, on the background of the increases from the past 2–3 years, it is estimated that a new increase in the future is impossible. Many experts say that the resources that ensured previous increasing trends have been exhausted, and new factors that would additionally stimulate the money inflow into banks are not prefigured.

At the same time, loan resources did not become cheaper in 2004, although the rate of inflation was at the level of 2003. The average interest rate on loans in the national currency remained last year at the level of 21 percent, and those in foreign currency — of 11.3–11.6 percent.

Deposits

At the same time, the balance of term deposits in commercial banks registered an amazing increase of 75 percent in 2004, as compared to 2003. The made public statistics of the Central Bank showed that the balance of term deposits in Moldovan Lei reached MDL 2,572.3 million, as compared to MDL 1,470 million at the end of 2003.

The factors that influenced depositors to place their savings with banks were the growth of the average salary in the economy as well as the currency transfers of Moldovan citizens working abroad. The balance of term deposits of individuals made up MDL 2,265 million at the end of December.

The total amount of deposits in MDL attracted by banks last year reached MDL 3,494 million. Although it had a slow evolution, income interest on deposits increased on the average from 14.8 percent at the beginning of the year to 15.5 percent in December 2004.

Insurance

The state inspectorate for the supervision of insurance and non-state pension funds has accepted the new tariffs on insurance policies “Green Card”, which have been established in Euro, and not in USD, as has been so far. Insurance premiums and the structure of tariff fees for the insurance against car driver’s civil liability have been approved by the National Agency of Civil Liability Insurers ARCA.

A significant increase in the tariffs on “Green Card” has been registered for Romania, after it was included in the European zone of tariffs of the “Green Card” system. Romania was before in the same zone with Ukraine and Belarus. The “Green Card” purchased for Romania is now available for all countries of the “Green Card” system, and its price for a 15-day term is Euro 46, as compared with the old price of USD 30.

At the same time, the “Green Card” for Ukraine and Belarus, for a 15-day term is Euro 4, for one month — Euro 7, 12 months — Euro 55. Insurance experts do not exclude that, in the first half of this year, the tariffs on “Green Card” for Ukraine and Belarus could also be revised, which is dictated by the markets of these countries. At present, the right to issue “Green Cards” is held by five Moldovan insurance companies — “Carat”, QBE “Asito”, “Moldova-Astrovaz”, “Moldasig” and “Edict” from Tiraspol.

Trade

Trade deficit in Government’s view

The Government has approved an action plan that would lead to a decrease in the trade balance and an improvement of the situation in the external trade area. The document obliges the Department of Trade and that of Standardization and Metrology, along with the Ministries of Health, Agriculture and Food Industry to undertake measures in view of reducing the import of food products and industrial items on which the labeling information in Romanian is missing and which do not correspond with the hygienic-sanitary standards.

At the same time, the Executive obliged the line structures to intensify the control over goods that are imported in a preferential regime. In the first quarter of this year, the Customs Department will have to, according to the respective plan, simplify the export procedures and minimize the document package necessary to make exports. In the same period, the ministries from the economic bloc were obliged to develop a national program for the substitution of imports with items of local production, as well as a program for the promotion of ecological products.

According to 2004 preliminary statistical data, exports increased by 25.3 percent, amounting to USD 990 million, and imports increased by 29.4 percent, amounting to USD 1.815 billion, the trade balance deficit constituting USD 825 million.

Monitoring of external trade

Chisinau will negotiate with the Ukrainian Government a protocol on the application of a double control system for some products traded between the two countries. The types of goods that could be subject to the double control are to be established along the way.

Experts think that the additional control will aim at safeguarding the borders and preventing the illegal re-exportation of goods. Similar mechanisms are widely applied by the European countries in the monitoring of exports of some categories of goods.

In October 2004, the European Union and Moldova set up a system of double control for the export of Moldovan metallurgical products to EU countries. The agreement provides that, for the deliveries of metallurgical products of Moldovan origin to EU countries, exporters must obligatorily have, besides quality certificates, export authorizations issued by Moldovan customs authorities.

Moldova and the world

Salaries in Moldova are among the smallest in Europe

In a classification recently developed by the European Employers Federation by minimal salaries and which includes data from 26 countries, the Republic of Moldova is on the last but one place, with a salary of Euro 26 per month.

The Republic of Moldova outruns Russia, which is on the last place, with an average of Euro 19 and is positioned immediately after Ukraine (Euro 36), Bulgaria (Euro 62), Serbia (Euro 73) and Romania (80 euro). For comparison, the minimal salary for such countries as Belgium, The Netherlands and Luxembourg varies between Euro 1,300 and 1,400.

According to the official data of the World Bank, the Republic Moldova has an average yearly income of Euro 450 per capita, which represents only 10 percent of European Union’s average. At the same time, the average salary in the Moldovan economy increased in real terms by 12 percent in 2004, as compared to 2003. It constituted a little over MDL 1,200, which is the equivalent of Euro 75.

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