Activity of the Government on August 18 – September 7, 2003

Objectives

The newly appointed Minister of Economy Marian Lupu has published the objectives of his activity, which are directly derived from the policy of President Voronin and his team. Thus, among the first actions to be taken by the minister will be the organisational restructuring of the Ministry of Economy by the principle of functionality, the direct involvement of the ministry in the budget exercise for 2004, including in the elaboration of the economic policy on spending, and the recovery of the dialogue with the international financial organisation including with a view to get their support for the restructuring of Moldova’s foreign debt. In addition, the ministry will determine the “rules of the game” for the activity of all economic fields to encourage a favourable business environment and attract local and foreign investments.

The 2004 budget

According to the schedule, on 25 August, the Ministry of Finances submitted to the Government the draft of the state budget for 2004. The budget for the next year is to have no deficit, and the revenues and, respectively, the spending will amount to 5 billion 285,8 million lei. The largest part of revenues will originate in excises, while the largest part of spending will be consumed for social programmes. Independent analysts have indicated a number of shortages in the draft, including with regard to the foreign debt service. The draft does provide for sources of serving according to the schedule the debt to international creditors, but not to the bilateral ones. Thus, it seems that the Government is assuming the risk of incapacity of payments given that the foreign funding to Moldova has been stopped, the revenues from privatisation will be low and the only source of funding remains to be the National Bank of Moldova. A more detailed discussion of the draft is included in the analytical part of this e-journal.

Foreign funding

The Minister of Finances Zinaida Grecianii has expressed confidence that the state budget for 2003 will be fully executed, even though the foreign funding to Moldova has been suspended. Minister Grecianii said the Moldovan Government counts on a number of non-reimbursable grants that it will try to obtain with the help of the IMF from foreign donors and countries such as the EU or the Dutch of Swedish governments.

Meanwhile, the Moldovan press has published some allegations whereby the IMF and the World Bank would not resume funding to Moldova until early 2005, when the ordinary parliamentary elections are scheduled, the main reason for having stopped financing Moldova being the inconsistency of policies of the current ruling party.

Such a decision, if it proves true, would not be unjustified, if one takes a closer look at the shifting position of the Moldovan Government with regard to the conditions put forward by the international funders. Thus, while the privatisation of winemaking factories, including the Cricova factory, has been one such condition, President Voronin has recently promulgated a law transforming the Cricova factory into state cultural patrimony and as such it is no longer liable for privatisation.

As incoherent has been the position of the Moldovan Government on the issue of resuming the inspection of Moldovan goods destined for exports before expedition, which has been another condition set by the IMF for granting credits to Moldova. We have reported earlier that in July 2003 the Parliament adopted in great rush the Law on Inspection before Expedition and the Government passed a corresponding decision. The inspection was to be resumed by the Swiss Company Societe Generale de Surveillance (SGS), with which the Government had signed a contract on the provision of such services during 2002–2004. The inspection was suspended in September 2002 after the Constitutional Court had ruled unconstitutional two Government decisions on inspection. After the Government has failed to obtain the funding from the IMF, however, it seems that it is not very keen to execute its own decision: to date the Government has not fixed a date for the resumption of inspection services and has not published the regulation on carrying out the inspection. Not even the visit to Chisinau of the Deputy Chairman of the SGS Victor Zemlicka and the talks that he had with the Moldovan authorities have determined the Government to adopt a clear-cut position on the issue.

Analysts have commented that the Government actions in the SGS case are yet another proof of the lack of vision and the double standards with which the Moldovan authorities operate in their relations with foreign funding organisations. The confusing signals that these are getting from Chisinau will only make the talks on the resumption of funding to be held this autumn more difficult and lengthier.

Strategy for Economic Growth and Poverty Reduction

The deadline set by the Government for 25 August for developing the improved variant of the draft Strategy for Economic Growth and Poverty Reduction was not met and the draft is still under development. According to the Deputy Minister of Economy, Veaceslav Afanasiev, who has been tasked with the development of the draft, the improved version will have a qualitatively new structure as compared to the previous draft, which was rejected by the World Bank in April because it lacked vision, did not set priorities in accordance with the mid-term expenditures and was not drafted in a participatory way. The new draft will eliminate those shortages and will set properly the priorities, include a comprehensive analysis of the level and profile of poverty in Moldova and bring the expenditures in line with the sources allotted for funding the project. In addition, the final draft will be subject to public debates in October and the Government will hold consultations with the civil society on it.

The Strategy is to become a framework paper based on which the foreign creditors will develop their strategies of assistance to Moldova over the next years. The Government expects to get at least US$200 million to implement the Strategy.

Debts

According to data released by the Department of Statistics, in 2000–2002, the internal state debt rose by 47.7%, and reached 2821,4 million lei. The debt has formed primarily as a result of contracting credits from the National Bank of Moldova and is expected to rise given that the Government will have to contract more credits from the National Bank since the foreign funding to Moldova has been stopped.

At the same time, the monthly report of the Department of Statistics has shown that the salary arrears are also on rise for the third moth consecutively, and reached 176.5 million lei by 1 august, which is 23.9 million lei more as compared to the previous month.

As alarming is the amount of Moldova’s debts to the Russian Federation for natural gas, which, together with the penalties and fines for late payments, is currently estimated at around US$1 billion.

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