index.1.jpg (3032 bytes) Note 1 – January/February 2003

Economy overview at the beginning of the year
by Anatol Gudim

The new year of 2003 has begun with the Government sizing up of the previous year. Positive estimates prevail. It is the third year in a row when the Republic of Moldova registers GDP growth (7.2% in 2002 and altogether during the “triennial period of growth” of 2000-2002 – 16.4%); industry and agriculture growth was correspondingly 10.6% and 3.0%. Nevertheless, share of services within the GDP structure is much larger than share of the production sphere; while 70% of budget incomes were provided by the customs. The Government lays a particular emphasis on social character of its actions: average monthly wage increased by 32.3% and reached 666,4 MDL and average pension – 168 MDL. For all that minimal basket of goods in December 2002 was officially estimated as 1177 MDL. The National bank has played its traditional role as the key structure that stabilizes macroeconomic situation through providing for stability of the Moldovan lei (13,5 MDL for 1 USD in 2002 as compared to 12,9 MDL in 2001) and inflation of only 4.4%. Monetary reserves of the National bank have been raised up to 264 mil USD through purchase of currency transferred into the country by the Moldovan citizens working abroad inclusively (more than 200 mil USD in 2002).

But some facts can put one on guard: internal and external state debt has increased; export was 1,6 times smaller than import; investments – a precondition for the future – grew only by 4.0%, which is less than GDP growth; the state did not obtain from privatization even a tenth part of what was planned during the budget approval; business environment still remains unfavorable. 

Majority of the population, according to opinion polls, evaluated positively tendencies of the country’s socio-economic development and actions of the Government. These actions, however, in spite of their abundance (circa 30 strategies, programmes and concepts) were focused mainly on solution of current issues. This was also reflected by a record number (about 1800!) of Government decisions on different issues of public management made in 2002. 

But there is an overall impression that the present Government (even after almost two years of its activity) has not succeeded yet in determining the degree of “state regulation” (leitmotif of its starting Programme, April 2001) and “freedom of market mechanisms action”, especially in the sphere of entrepreneurship, which is the market economy driving force, while private sector provides for almost 85% of GDP. Lack of clarity and contradictoriness of the Government economic policy are main causes of its long-drawn “haggle” with the IMF and the World Bank regarding further loans. Thus, the second SAC-III transfer instead of November-December 2002 will be rendered to Moldova in April at best. 

On the whole, regular activity of the Parliament and the Government, macroeconomic tendencies and current events of January-February of 2003 still follow trajectory of the last year. Among laws that joined into force since the beginning of the year are: on migration, on additional social protection of pensioners, on public communal services, on petitions, on copyright. There were introduced amendments into the laws on education, on state regulation of external trade, on procurement of goods, work and services for state necessities, on sanitary-and-epidemiologic protection of the population, on payment for pollution of the environment. 

The Government issued during January-February almost 200 decisions, including decisions on approval of the Unified programme for compulsory medical insurance (which is being introduced since July 1, 2003) and of the Concept of corporate management of enterprises. It seems that the Government responding to the directive expressed in the Parliament by the President V. Voronin on “modernization of state management, liberalization of the economy and activization of civil society resources” (according to the monitoring of 9365 documents registered by the State Chancellery) issued decision on results of execution of normative acts, decrees and commissions of the President of the Republic of Moldova in 2002 by central public management bodies (#126, 10.02.2003), which points to “indifference and irresponsibility of persons bound to execute them” and that “leadership of central public management bodies became less exigent towards responsible officials”, etc. 

Events in the real economy and social development meanwhile took their normal course. The Department of Statistics registered in January, 2003, that industrial production grew by 13% and inflation index – by 1.9%. State budget as regards incomes was executed by 125%. It is important that an international agency – Fitch Ratings – raised Moldova's long-term external obligations rating from “DD” (risk of default) up to “B-”, i.e. up to the indicator that now is attributed to Uruguay, Lebanon and Gambia (Moldova had such rating in 1999 after the Russian/regional financial crisis). 

Year of 2003, unlike other previous years, began in expectation of positive changes in solution of the “Transnistrian problem” and, hence, in rapprochement of economies of Moldova and Transnistria. The causes were both the idea of federalization of a “common state” proposed in Kiev by the OSCE and guarantor-countries, decision of the OSCE summit in Porto on removal out of the region of the Russian military equipment till the end of 2003, as well as new tendencies in Transnitria’s economy – beginning of a monetary privatization of enterprises, referendum on private property for land, changes in social policy, etc. And, finally, on February 10, 2003, there was published declaration of the President V. Voronin on a new initiative – plan of a definitive settlement of the Transnistrian problem to the extent that a new Constitution of the country will be elaborated and passed jointly, given the lack of which “Moldova’s people cannot improve radically its life and restore its economy and social sphere”. 

“Socially oriented market economy” as a model for construction in Moldova was designed by the present Constitution, active since July 29, 1994. The Government, according to this guideline and in collaboration with the IMF and World Bank, at present finishes (deadline – March 2003) elaboration of the Strategy of economic growth and poverty reduction (PRSP). Such strategies are being realized in more than 40 poorest countries of the world; they serve as a road-map for those countries in realization of economic policy, while for international organizations they serve as a framework document for monitoring of situation in a given country. 

Therefore quality of the PRSP-Moldova will be evidence of the present Government professionalism, of its preferences regarding not only state dirigisme and intentions to liberalize economy, but its openness to collaboration with official structures, with the opposition and civil society as well. 

Prognosis of the Government for 2003 is quite optimistic: GDP growth – 6%, average wage growth – 20%, inflation – 6.0%, national currency exchange rate – 14,6 MDL for 1 USD, state budget deficit – 0.8% of GDP. International organizations are more discrete: they expect 4.0% GDP growth, further increase of external and internal debt and worsening of trade balance, assuming that sustainable economic growth can be achieved only through speeding up structural reforms and business barriers. Another emerging problem is “improvement of the country’s administrative-territorial system”. One can foresee that return from 10 to 33 smaller territorial units will not only cost more as regards management expenditures, but will also make work of the Government more difficult as regards both interaction with the new local administration and execution of the budget, relations with business environment, quality of statistics, etc. 

Under all these circumstances quality of governance will continue to be in 2003 the main concern for authorities, business and population. According to estimate of the President V. Voronin “the present structure of the executive power does not comply with objective programme tasks of the state” (session of the Parliament, 30.12.2002); “we need a well coordinated government team, experienced and vigorous” (session of the Government, 17.02.2003). Indeed, if one takes a look at causes of slow and inconsequent reformation of the economy and periodic attempts to return to methods of administration, then they can be explained in many respects by unreformed state management machinery. It is worth paying attention to both excessive number of ministries, departments and agencies at the higher (central) level – more than 50 – and lack of a strong center of elaboration and coordination of economic policy. The Government does not act as a single team, but rather as a conglomeration of representatives of different group interests. This situation hampers quite effectively all attempts to liberalize Moldovan economy. 

It is recognized that formation of a new government is the best time for realization of deep changes in structure and functions of state machinery. If this takes place in 2003, then it is expedient to take into account experience of other European countries, including: distinct division of political posts in the Government (prime-minister, ministers and their deputies, councilors) from apolitical state service (all other posts); competitive selection of candidates for state posts; creation of necessary conditions (labor remuneration, education and skills improvement system) for the sake of stability of employment in the state service; ethical conduct code for officials. 

Instead of passing new normative acts, majority of these measures requires changing of those acts that already exist or can be realized within the framework of present authorities of the executive power.