Economic Policies on December 16–31, 2006

Inflation and prices

Prices will reach a seasonal maximum…

The inflation rate will unlikely be lower than 1.5 percent in December 2006 and, therefore, we may expect an inflation rate of over 14 percent for this year. The growth will be particularly due to higher prices of food products, which will be produced, of course, by euphoria of winter holidays inclusively. Inflation means a devaluation of salary, pension, savings from banks and other earnings for a common citizen.

Where it is more reasonable to buy fruits and vegetables in this period?
(Medium prices established in lei)

Name	Supermarket	Central market	Wholesale market
Potatoes	8	3.5–4	3
Tomatoes	23	18–20	16–18
Cucumbers	20	14	12
Peppers	40	33	25
Garlic	25	20	16–17
Onion	9	5–6	4
Cabbage	8	3–4	2
Beet	4	3	2
Carrots	4–5	3.5	2
Vegetable marrows	30	26	23
Eggplants	34	30	25
Dates	30	22	17
Oranges	25	16	12–13
Mandarins	21	15	12
Kiwi	35	25	22–24
Bananas	22	15–16	12
Lemons	18	14	11
Pomegranates	36	25–28	22–25

Source: Our estimates

Real sector

Alarm must be beaten in industry…

The Ministry of Economy and Commerce (MEC) has made some forecasts for 2007 at the end of this year. It forecasts a 4-percent economic growth and a 10-percent inflation rate. The GDP rose by 4.6 percent in ten months of this year and MEC estimates a growth of about 4 percent for the 12 months of this year.

According to generalised results of implementation of the Government’s action programme Modernisation of Country — Welfare of People in 2006, the indicator of industrial production was 92.9 percent compared with January-November 2005 and it declined by 7.1 percent compared with the similar period of 2005. The decline of industrial production in the period concerned, compared with January-November 2005, was due to reduction of production volume by producers of wines, distilled alcohol drinks, cigarettes, glass and glass items, paper and cardboard.

Source: NBM, NBS and our estimates

Financial-banking system

Banks continue to grow constantly…

According to statistics of the National Bank of Moldova (NBM), the 1st-degree capital in the banking system rose by 22.2 percent in ten months of 2006, up to about 3.45 million lei (265.4 million dollars). At the same time, the share of foreign investments in capital of banks was 55.2 percent and rose by 4.6 percentage points compared with late 2005, after the registered capital has grown on account of investments of non-resident shareholders. At the same time, the total assets of the banking system rose by about 21.7 billion lei (1.67 million dollars) or by nearly 21 percent in January-October 2006.

Credits offered to industry and trade count for 48.9 percent of the total, followed by those for agriculture and food industry — 20.4 percent, real estate, construction and development 9.2 percent, and consumption 8.6 percent. As of November 1, 2006, 15 stock commercial banks were working in Moldova, including three branches of foreign banks. There were 956 specialised institutions of banks.

Currency reserves of NBM are evaluated at about 721 million dollars. According to the programme with IMF, currency reserves of Moldova are expected to account for 750 million dollars at the end of 2006, by 152.5 million dollars more than registered in late 2005. The central bank will probably intervene in continuation on currency market by massively purchasing currency, but these measures will perpetuate more the inflation, contrary to the priority goal of NBM — stability of prices.

Labour market

Medium salary on economy has grown…

The medium salary on economy amounted to 1,875 lei (140 dollars) in November or by 95.3 lei more than in October. The medium salary in budgetary sector amounted to 1,553 lei (119 dollars), while the average pay in real sector of economy accounted for 2,049 lei (157 dollars).

Statistics also show that teachers earned 1,231 lei (94 dollars) on average in October, doctors and social assistants were paid by 1,377 lei (105 dollars), while farmers got 1,353 lei (104 dollars) on average. Salary arrears on economy exceeded 134 million lei (10.3 million dollars) on November 1, by 21.1 million lei (1.6 million dollars) more than on July 1, 2006.

Foreign trade

Commercial relations with Romania will stagnate, at least in the first half of 2007…

Trade exchanges between Romania and Moldova will decline in the first three months of 2007 after cancellation of the free trade agreement between the two sides. At the same time, they could be influenced by incapacity of Moldovan firms to meet and respect the standards of the European Union.

On the other hand, the Chisinau authorities invest big hopes in the new free trade agreement CEFTA, which was recently signed in Bucharest. Moldovan exports to Romania were valued at 120 million dollars in January-October 2006 and grew by 32.4 percent compared with the same period of 2005, while imports rose by 34.8 percent, up to 280 million dollars.

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