Note 2 – February 2003
Economy: events & commentaries
In the last couple of weeks economic issues were the major concern of the country leadership, representatives of international monetary organizations, and economic media outlets. Judging from a multiple perspective, one may conclude that there are major risks at stake as far as economy is concerned, but there are opportunities as well. Let’s closely consider them.
Two months of the year already elapsed, but it is still not clear whether the Government would secure much-awaited assistance from IMF and World Bank for its activities? The two representatives of the said institution (E. Ruggiero, C. Elbert) hosted one after another press conferences in February and both of them reconfirmed IMF and WB commitment to provide assistance to Moldova, on condition Moldovan authorities meet the requirements stipulated in the previously agreed structural reforms program and establish a favorable business environment in the country. Indeed the said requirement may not be fulfilled all at once, however donors are mainly concerned by the frequent “non-market” initiatives of the Government (like changing the laws, introducing subsidies for the agricultural sector, limiting the exports, thwarting privatization process, etc).
Much-awaited IMF mission (M. Castello-Branco) would arrive in Chisinau only on March 13. However a mission of the WB (I. Hoffman) is currently in Moldova monitoring the elaboration of the Poverty Reduction Strategy. If positive $ 142 million might flow into the country for PRSP enforcement. Meanwhile, the state budget is highly volatile, especially as the salary payments are concerned. For instance the country’s major intellectual center – Academy of Science – received its last salary in December. In an attempt to resolve the problem, Ministry of Finance allocated 18,6 million Lei ($ 1,3 million USD) incurred from the sale of T-bills to commercial banks to cover the budget deficit for January – February.
In the meantime, in February Ministry of Economy released its far-more optimistic macroeconomic forecasts for 2003: 7% GDP growth (initially forecasted 6%); 10% industrial growth; 9.6% exports growth; and 11% salary raise. Needless to say, agricultural growth has been surprisingly decreased from 5% to 2%. The decrease was probably determined by President’s negative evaluation of the “catastrophic” situation in the agriculture. Production cooperatives were recommended as a last-ditch method to recover the agriculture, by reorganizing and exempting them from taxes.
In a related note, President Voronin indicated that the greatest achievement of the last two years was the industry recovery “privatization had lead to de-industrialization, whereas we have started to industrialize the country step-by-step, enterprise by enterprise, despite the lack of investments”. Indeed, after 1995 the great majority of industry, except for machinery construction, managed to adjust to the market economy, mainly due to the foreign investments (CMC-Knauf, Ciment-Rezina, Glass Company, Ionel, Balteanca, Floarea Soarelui, etc – a total of 80 enterprises). Currently, industry and services are the ones pooling stabilization of the economy.
As energy accounts for one third of the foreign debt and for the considerable price of the production and services, the Government started a new round of negotiations with Gazprom on lowering the tariffs to $50 USD per 1000 m3 (currently $80 USD per 1000 m3). An agreement was reached that free-lance producers (ITERA from Kazakhstan) would deliver 1,300 million m3 of gas at $61.5 USD per 1000 m3. Other initiatives: Ministry of Energy suggested developing a network of mini-power stations, as well as the intention of the „Danube-Balt-Trans” Russian-Moldovan joint venture to build by April 1 a temporary wharf in Giurgiulesti, able to receive 6,000-10,000 tones of petrol per month.
As usual, Government agenda included the approval of numerous concepts and programs, such as: national policy in the field of aqua resources; renewal of heating system; road management, etc; as well as social issues, such as: obligatory medical insurance; payment of indemnities to the deposits in the Savings Bank; efficient administration of state housing, etc. Needless to say, there are some Government resolutions pointing to the poor enforcement of its decisions by state administration. An illustration of this is the failure to gather the income declarations from state officials in due term, the deadline being extended until July 1, 2003. Another example is the Decision on enforcing the Government Resolution “On fighting illegal passenger traffic no. 1054 of 08.05.2002” (February 26, 2003) reading that the decision had not been enforced, consequently a new deadline for fighting embezzlement and corruption was set.
Given President Voronin’s statement that Moldova’s economy would boom only if Transdnistria is reintegrated, a special consideration should be given to the activity of the recently established Ministry of Reintegration. The Ministry took part in the negotiations on Transdnistria under the auspices of OSCE (Tiraspol, February 27-28) and came up with several initiatives on establishing a Free Trade Zone “Nistru” with the support of Chinese investments. Meanwhile, Transdnistrian authorities set new customs tariffs on import and simplified the taxation from 10 to 1 tax for small business (commencing April 1), practice which although debated for a long time in Moldova has not been implemented yet.
Republic of Moldova has been in the spotlight of foreign media outlets as well. ”The Economist” (edited since 1843), a well known political and economic magazine, featured an article Europe’s failed state in its February 13 - 20 issue, presenting Moldova’s economic situation as quite gloomy, even recommending outside administration of its financial sector. Ministry of Finance commented on the article: “the writer’s findings are politically motivated, subjective and provocative, and were not supported by any realistic arguments”.
It is worth mentioning that since mid-1990 The Economist published at least a dozen of articles on Moldova, with one of the first ones in March 1995 presenting the country as “laboratory of right reforms”. The articles to follow were more and more gloomy: “Nowhere land”, (June 1999); “Can Moldova Get Worse?”, (July 2000); “The Land That Time Forgot”, (Sept 2000); “Cold Christmas in Moldova”, (Dec 2000); “A New Misery Curtain”, (June 2001); “The Future of Europe’s Must Dismal Country Looks Ever Bleaker”, (April 2002). Former Prime-Ministers Ion Sturza (1999) and Dumitru Braghis (2000) complained about such a bad coverage. The Economist published their comments under the Letters Column but stayed on its position. The negative outlook on Moldovan reforms has been even further enhanced by the “unreformed and unapologetic communists back to power”, but then what else might authorities expect from such a “bourgeois magazine”? Needless to say, Economist published its article on Moldova at the time another well-known magazine; BusinessWeek featured a “promotional article” about the Republic of Moldova presenting the situation in a more positive light (for further details see www.vegamedia.com).
On the other
hand, The Economist Intelligence Unit producing for more than half a
century economic analysis and forecasts on over 200 countries, provides in its
latest (35 pages) review on Moldova a more promising forecast: “real GDP growth
should remain moderately strong in 2003-2004” (for further details see