Economic Policies on November 1–15, 2009

Prices and inflation

Deflation likely to be recorded for all 2009…

NBS data reveal that the Consumer Price Index in October 2009 was 101.5 percent, compared with September 2009 and 98.4 percent compared with October 2009 (for information, CPI in October 2008 was 100.8 percent, compared with September 2008 and 109.8 percent compared with October 2007). Prices have decreased by 1.4 percent this year. The rise in average consumer prices by 1.5 percent was linked to the increase in prices of food products by 3 percent, manufactured goods by 0.7 percent, and tariffs for public services by 0.8 percent.

Tariffs for the following public services have been increased in the period concerned: drinking water supply and sewerage services by 6.3 percent, urban motor and electric passenger transportation by 17.2 percent, postal services for population by 17.7 percent etc. Tariffs for natural gas supply services for population increased by 3.6 percent, and others, which completed the prices rises mentioned above. Therefore, tariffs for communal household services have decreased by 0.3 percent.

Banking system

Central bank intervenes on monetary market…

The National Bank has decided to get involved into operations of introducing monetary liquidities by carrying out deals on open market with the purpose to encourage the crediting of domestic economy by banks. Liquidities will be released to banks via REPO state securities purchase operations for the basic NBM rate of 5 percent a year. These deals will be carried out permanently through auctions to be held weekly in accordance with a schedule. The auctions welcome all commercial banks which meet the requirements set by the National Bank of Moldova under the regulation concerning the NBM deals with state securities on open market. The schedule of monetary policy deals for November 2009 — December 2010 is available on the NBM website. If needed be, it will be completed with other kinds of open market deals, depending on evolutions of monetary and macroeconomic indicators. Liquidity supplies are expected to encourage commercial banks to fund the domestic economy for lower rates, determined by less expensive crediting resources from National Bank.

Foreign trade

So far, European Union absorbs 53 percent of Moldovan exports…

After Romania was the No.1 market for Moldovan products for almost two years, the standing was overturned some months ago, with Russia becoming leader in terms of Moldovan exports, and Romania ranking the 2nd place. This trend is not a reorientation of the general structure of Moldovan exports. So far, the European Union is the largest market for products made in Moldova, absorbing more than 53 percent of overall Moldovan exports in the first nine months of this year. However, statistics reveal that supplies both to the West and the East have decreased by 23 percent and 28 percent respectively.

Explanation of these evolutions or involutions…

One may say that this change in the rating would be based on premises related to the economic crisis and this would be banal, though the crisis could have also influenced the standing, but at a very little extent. The loss of weight on Romanian market is the price Moldova pays for the visa requirements which were in force for Romanian citizens until recently, and this fact hit seriously the trade exchanges between the two countries. Supplies of Moldovan goods to Romania have dropped by more than 30 percent in nine months and the share in the overall exports decreased from about 22 percent down to 20 percent. Thus, the loss in quantity cannot be estimated yet, but it is clear in percent.

Moscow likely to resume embargoes…

However, the lead of the Russian Federation is not so consistent and the turnout could change at any moment. If comparing the value of Moldovan exports to Russia (188 million dollars) and Romania (about 179 million dollars), the difference is not too important, of 9 million dollars. Eventual embargoes that Russia could introduce either to protect its market or producers, or for political reasons, could change the direction of Moldovan exports at any moment. Anyway, the Russian market will keep being important, as Moldovan products went to the East, particularly to Russia for a long period both in term of structure and quantity. Perhaps, Russian consumers were used to more products made in Moldova. But, as trend, Moldovan exports are surely oriented to the West since 2006–2007 and this is a positive factor because it reduces the risk of economic dependence in crisis times in particular.

Agriculture

Agriculture keeps enjoying subsidies…

The Ministry of Finance has recommended the Government to operate a budgetary rectification and increase by 210 million lei the fund for subsidizing farmers, up to more than half a billion lei. The funds will be used to redeem the Value-Added Tax. Under amendments to the state budget law for 2009, the subsidizing fund for agricultural producers will account for about 564 million lei after the rise.

On the other hand, the fund for sustaining vineyards will be reduced from 87 million lei down to 50.5 million lei. The subsidizing fund for 2010 will account for 313.5 million lei, like in 2009. Three priority areas were chosen for subsidizing: enhancing the value-added product in vegetal sector by growing fruit trees and vineyards, especially with irrigation systems; stimulating the fruit growing sector on protected field with irrigation systems; providing farmers with agricultural and irrigation equipment.

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