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Economic Policies on April 18 – May 1, 2005
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e-journal #50 |
Prices
Inflationary tendencies registered in Moldova in the first quarter of this year (4.2 percent) could remain unchanged. In addition, many experts indicate possible administrative rises of prices, higher prices of natural gas and other energy resources.
Local press quoted officials of the National Bank of Moldova (BNM) as saying that the central bank will monitor and stick to the objective of allowing 8–10 percent maximum inflation growth set for this year. They noted that the four-percent price rise this year is explained through growth of monetary mass and influence of non-monetary factors such as big difference between growing pace of salaries and labor productivity.
The high inflation rate in the first quarter, which was not typical to similar periods the precedent years, could be reduced by a possible deflation the next period, so that to fulfill the established objective at the end of 2005. On the other hand, representatives of commercial banks and independent experts said that the state should direct a part of massive remittances from abroad to production and securities, in order to control the inflation.
To promote the domestic production, experts named among others the following solutions: exemption or reduction of duties for imports of production equipment, reduction of taxes for dividends, reduction of fiscal pressure on construction activities. Certain commercial banks have stopped the reduction of interest rates for credits and deposits after evolutions of inflation in the first quarter.
Elsewhere, the BNM considers the possibility to work out a base inflation indicator, which would serve as a ground for monetary and currency policies and macroeconomic forecasts.
It is presumed that some non-monetary and season factors will not be taken into consideration while working out this indicator, while products and goods whose prices are under major oscillations will be excluded. Similar practices of calculation of a base inflation indicator are also applied in certain western countries. The National Statistics Bureau (former Statistics and Sociology Department DSS) calculates the inflation rate at present on basis of evolution of prices of food products, manufactured goods and services.
Moldova registered a four-percent inflation rate in the first quarter, so that prices of foods rose by 6.5 percent, manufactured goods by two percent, and services by 1.9 percent. The BNM and government forecast a 8–10-percent inflation rate for this year.
Banks and insurance
The Easter holidays represented an additional pressure for the exchange rate, which was influenced by appreciation of Leu against U.S. dollar. This appreciation was probably due to rising remittances from migrant workers. They easily covered the deficit of currency on market due to imports and start of repatriation of profits by foreign companies, provoking even an appreciation of Leu.
The net supply from individuals was about 197 million dollars in January-March 2005. It rose by 65 percent compared with the similar period of 2004. In parallel, a part of savings in foreign currency is converted into Moldovan lei to live off the holidays, so that the supply of cash has been increasing. This is intensified by speculative operations, the bank explained.
The Leu could register an appreciation tendency this month, and with the “permit” of the National Bank as well. We mean the already forecasted price rise generated by potential growths of energy prices. On the other hand, a stronger Leu would keep the inflation rate in the limits of 8–10 percent forecasted by government.
To reach this goal, the BNM could influence the evolution of exchange rate, since it aims to keep the stability of prices. We have already observed the first signs, while Moldovans who come back home or send money for holidays lend a helping hand. We think that the dollar will drop below 12.6 lei by the mid-May.
The total assets of the bank system in Moldova rose by more than three percent in the first quarter up to 13.76 billion lei.
The growth of 1st-degree capital up to 18.45 percent of overall assets in late March indicates a big capacity to cover eventual losses in favor of financial stability of the system.
The 1st-degree capital rose by 3.94 percent in January-March 2005 compared with late 2004, and by 18.22 percent compared with the similar period of last year, up to 2.5 billion lei. The 1st-degree capital is created to minimize the eventual financial destabilization of banks.
The increase of deposits by 3.16 percent up to 9.8 billion lei on March 31, including the growth of deposits of individuals by 12.52 percent confirm the credibility of the bank system. Deposits of individuals rose by 57.53 percent compared with the similar period of 2004.
The share of foreign investments in social capital of banks was 51.59 percent on March 31 compared with 60.2 percent in early 2004. The share of foreign capital in banks dropped after rise of investments of local businessmen.
Labor market
The medium salary in Moldova amounted to 1,203.5 lei (some 96 dollars) in March, or by 89.3 lei more than in February. In the publicly-supported sector the salary was 944.9 lei, and in the non-budgetary sector the wage was 1.340.1 lei.
The general positive tendency is also indicated by fact that the salary rose by about 20 percent in normal terms compared with March 2004. However, the high inflation rate of over four percent in the first quarter “deleted” more than 10 percentage points from nominal rise.
The salary raise could be explained as a consequence of inflation and source of new inflationary volutes. Related trade unions could be unsatisfied after the recent growth of prices, including of fuels.
The rarity of labor force in important economic sectors (agriculture, constructions) is one of the key factors which influence the salary raise in Moldova. The big difference between medium salary paid in Moldova and countries which host Moldovan migrants generates both an emigration of labor force, and bigger earning pretensions from those who are ready to leave the country or receive money from their relatives who live abroad.
Trade
Moldova’s foreign trade turned over 9.62 billion lei (about 769 million dollars) in the first quarter of this year, that is 1.2 billion lei more compared with the same period of last year. The commercial transactions added 986 million lei to the state budget.
The imports into Moldova accounted for 6.11 billion lei in the first quarter, that is 1.5 billion more than in January-March 2004. The exports fell by 1.26 billion lei down to 3.41 billion lei in the first three months.
In 2004, the exports from Moldova dropped by 660 million lei down to 16.4 billion lei compared with the precedent year, while the imports rose by 2.5 billion lei up to almost 24.16 billion lei.
Moldovan wines accounted for 60 percent of all wines sold in the Russian Federation in the first quarter of 2004, in spite of Russian forecasts that they would decline by at least four percent.
The union of wine exporters predicts for this year a 12-percent rise of wine exports from Moldova up to about 300 million dollars from sales. Last year Moldova sold outside almost 800 million deciliters of sparkling and frothy wines, which is 42 percent more than in 2003. About 80 percent of this headed to Russia. Other markets for Moldovan wines are the CIS [most countries], certain states of the European Union, Canada, China, Israel, Australia, Japan, and the United States.
Moldova had a positive balance of the current trade account, amounting to 280 million dollars in 2004 with its key commercial partner, the Russian Federation, which is 2.7-fold more than in 2000.
The trade balance with goods and services with Russia had a surplus of 145.69 million dollars, transfers, including payments for work 103 million dollars, and current transfers 31.67 million dollars.
The positive balance with Russia is the highest one of Moldova with its commercial partners. Russia ranked the 1st place in the top of states to which Moldova exports goods and services, and held 35.83 percent of the total in 2004.
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