ECONOMIC SURVEY Moldova in Transition No. 8 (July 2001)

Press review published in "The Connection" - supplement to the "Chisinau Observer" Weekly, issue #24 as of 9 August 2001

The Center for Strategic Studies and Reforms has just announced its production of an economic survey of Moldova as a society in transition The survey deals with eco-nomic growth in difficult circumstances, specifically in the midst of political turbulence. The research comes from studies carried out by the Center in collaboration with a team of cooperating experts.

The focus of the survey is, understandably, the first six months of 2001. Items such as macro- and micro- economic trends, tax evasion, privatized agriculture, and state regulation versus market romanticism, give the survey an interesting bent. The report comprises an impressive amount of information, drawn together in a way that is both fascinating and revealing.

Of specific interest is the article on the impact of foreign trade in Moldova. Economic gains and losses from international trade are registered based on the difference between exports and imports. For a small open economy, such as Moldova's, this factor is of utmost importance. Also important is the windfall profit, or the volume of financial resources received by Moldovan residents from abroad. This occurs when value is added to exported products, and that added value is finally redistributed in the national economy. A positive windfall profit indicates that international prices on Moldovan goods have increased, not dependent on efforts within Moldova. A negative windfall profit shows that Moldovan trade agents have lost money between export tariffs, subsidies, and product values.

The survey reports that windfall profit caused an astonishing 37.2% increase in the GDP in the last decade. Our recent inclusion in the World Trade Organization will surely attract more foreign investments, thus boosting the economy even more. The survey also indicates that joining the European Union as an Associate Member would significantly advance our economy.

By Kathy Stanton

ECONOMIC SURVEY Moldova in Transition No. 8 (July 2001)

Preface

In the new history of the Republic of Moldova each year brings new features. The current year – 2001 – is not an exception. The fist half of this year is distinguished by outstanding contrasts. Traditionally, in Moldova politics badly impacts the economy. Suffice is to remind the years of 1995/1996, when the discrepancies between the political elite became a barrier to resuming the economic growth after a successful stage of macro-stability; or, the late 1999, when the turbulence in the parliament led to a sharp crisis in the cabinet of ministers and breach of relations with IMF and WB.

The contrast of the first half of 2001 consists in the fact, that the political and economic vectors, apparently were in headed in opposite directions. But this factor did not affect the economy.

On one hand, there was a political turbulence: anticipated parliament elections (Feb. 2001), formation of the new cabinet of ministers (Apr. 2001), difficulties of the incipient stage of both legislative and executive powers’ activity.

The emergence in power of left forces (Party of Moldovan Communists) stirred the hope of the population in returning to the “bright past” and changes to better.

On the other hand, despite political uncertainty and concerns of the entrepreneurial population, the economic evolvement occurred generally successfully. This creates prerequisites to the fact, that for the first time after 1989 in the Republic of Moldova for two years in a row an economic growth was observed: the GDP growth in 2000 accounted for 1.9% and in 2001 (estimate) – about 5-7%.

The reasons of the above are, seemingly, not only the exclusively favorable weather conditions of this year for agriculture (last year there was drought), but also overall accumulation of positive environmental changes of market orientation both within the country, and in foreign relations.

In terms of foreign relations, particularly, Moldova joined in the WTO and Stability Pact for South-Eastern Europe (May-Jul. 2001).

Over and above, the economic development of Moldova is burdened now by the high level of external debt (120% of GDP), Gross share of payments for debt service are due in 2001 and 2002. Most probably the default will be avoided (the probability of default of the next two years is not greater than 50%), however, it is necessary to make considerable efforts both in terms of enhancing the reforms efficiency and negotiations with IMF about continuing cooperation with Paris Club on restructuring the external debt.

This Survey comprises studies carried out by CISR and cooperating experts. The opinions and conclusions presented in this survey entirely belong to their authors and do not necessarily express the viewpoint of any organization or governmental structure.

The authors of the chapters are: Anatol Gudîm (1), Octavian Şcerbaţchi (2), Artur Radziwill - CASE, Poland, Liliana Tolocico, Rudolf Zwiener - GTZ, Germany (3), Oleg Petruşin (4), Lilia Caraşciuc (5), Anatol Gudîm, Valentin Ţurcan (6), Andrei Munteanu (7), and Igor Boţan (8).

We invite you to collaboration.

Anatol Gudîm
Executive Director