Update No: 260 - (29/08/02)

The Moldovans are in a desperate situation. They now have the poorest country in Europe, poorer even than Albania. Moldova's economy has crashed to one third of its size in 1991, accentuated by the de facto secession of Trans-Dnestr, itself responsible for one third of GDP at that time.

Desperate measures
People are doing anything to make money. Some are selling their body organs, others are engaging in abducting young girls and selling them to the sex industry in Western Europe. Yet others are sticking to more conventional forms of crime, stealing cars and the like.

New communist government
The country is rife with corruption right at the top. This explains an extraordinary event that occurred last year. Moldova is the one country in Europe that has elected back the communists - and the rich irony is that the US and the EU are rather glad!
The West was becoming very fed up with the deeply corrupt ways of the old regime before March 2001. The communists at least have a theoretical ideal of public morality. Whether they live up to it or not is another matter. But at least they have it. 
The Moldovans have bucked the trend. Everywhere across Europe there has been a right-wing advance, notable now in France, while Socialists, as in Hungary, or New Labourites as in UK, emulate right-wing ideas. But the Moldovans, frustrated by years of right-wing politicians themselves a reaction but who failed to deliver, voted back the communists last year.
They have now been in power for over a year and are even more popular than on election day, when the Communist Party won just over 50% of the seats, voting in a new president, Vladimir Voronin, as is the custom in Moldova. He has been largely a success explaining his 73% approval rating in the polls.

The Putin of Moldova?
Voronin has a harder job on his hands than any other leader in the former Soviet Union. The economy has crashed to one third of its size at independence in 1991. The collapse was further accentuated by the de facto defection of Trans-Dnestr, itself with one third of the national economy, the base of much of the nation's industry
Some Moldovans, ethnic Romanians, yearn for a re-union with Romania, which in pre-war days possessed Bessarabia until it was rudely snatched by Stalin in 1940 (on an agreement with Hitler in the Nazi-Soviet Pact). Many took to the streets to demonstrate against the turn towards Russia and the Russian language which the Communists initiated earlier this year. The struggling Romanians however, have enough on their plate without salvaging the basket-case of Moldova. So do the Russians. The idea of it joining the Russia-Belarus Union is still a pipedream, as indeed is that Union itself.

Economy stumbles
The economy is fitfully growing, GDP rising by 2.1% in 2000, by 4.5% in 2001 and prospectively by 3.5% in 2002. Foreign direct investment is derisory, US$100m in 2000, US$60m in 2001 and provisionally US$235m in 2002, something of an improvement. Moldova is cooperating with the international financial institutions, which it will need to do if more FDI is to be forthcoming, establishing clearer laws for business, a more open judiciary and a level playing field for all. Much remains to be done. 

Slovenes and the WB to help
Not everyone is avoiding business involvement with Moldova, President Milan Kucan of Slovenia, with a large business delegation, visited Moldova recently and committed themselves to a long-term engagement at a conference. Moldova's fine wines, brandies and tobacco, signs of the good life, are appreciated in Slovenia.
The World Bank is also in cooperation, sending its Moldovan country economist, Lawrence Bouton, to head a delegation to Chisinau. Structural adjustment Credit should flow, the third tranche in a row.
Specific project aid and credit is exactly what the country needs, by-passing the bureaucracy in the capital as much as possible. Agriculture is in need of rehabilitation in a country that has some of the 'black earth' land that made Ukraine and Southern Russian the granary of Europe before 1914.

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AGRICULTURE

Moldova could return its farms to Soviet style

American farmers working in Europe's poorest country worry that the communist government there will reverse US-backed reforms that have boosted agricultural output for the first time in a decade, the Wall Street Journal Europe reported on 29th July.
The Americans, working for a US-funded aid programme, pioneered the dismantling of Moldova's bankrupt Soviet-era collective farms in the 1990s and arranged loans and training for 500,000 new landowners. Last year, production was up 4% and food exports to Russia and Belarus doubled.
Pamela Hyde Smith, US ambassador to Moldova, says helping create a farm economy is "the best thing we've done" in the nation of 4.3 million people. "Private land ownership is going to be the bedrock" of Moldova's emergence as a stable economy in a strategically important part of the Soviet Union, she says.
But the communist majority elected to parliament last year wants to revive the Soviet-style arm. "I am absolutely convinced that the future of the Moldovan agricultural sector is in collective farms with high labour efficiency," Agriculture Minister, Dmitrii Dodoroglu, recently told a Bucharest newspaper.
The government of President Vladimir Voronin believes large, centrally controlled farms will give impoverished Moldova, sandwiched between Ukraine and Romania, more power to compete in the world market. A law passed this year, established guidelines for creating so-called production cooperatives to be run by regional officials.
Moldova, once known for its vineyards, orchards, walnuts and honey, became an independent state in 1991. Civil war split the country the next year, and the breakaway Trans-Dnestre region received most of the heavy industry. Today, international aid organisations say, half the population lives below the poverty line. Many survive on what they can grow, and those with jobs earn about US$1 a day. Diplomats in the capital say the economy is fuelled by the smuggling of cognac, wine and cigarettes and weapons.
The US farm experts arrived in the mid-1990s and by 2002 more than 98% of arable land was in private hands. "Everyone assumed peasants are not capable of acting in their own best interests. We proved them wrong," says Vincent Morabito, a former Nebraska ranger who is the programme's executive director.
With a US$5m annual budget funded by the US Agency for International Development and the non-profit Soros Foundation, the Americans set up rural savings-and-loans associations, helped establish cooperatives so farmers could share equipment, and organised lessons in crop rotation and soil management.
Grigore Sandulescu, who runs a 1,080-hectare farm north of Chisinau that produces grain, sunflowers, tobacco, vegetables and fruits, says his 180 employees earned more last year than the national average. Many of the workers are themselves landowners who lease their property to Mr Sandulescu, a twist on the collective-farm idea that he says works. "Our success depends on us," he says.
The farm's fruit and vegetables are sold to local processors, and its grain to an elevator operated by Kelly Grains, a Kansas-based dealer that sells it in Moldova and neighbouring countries.
Mr Sandulescu is unhappy about the law passed by Parliament in April, which limits the leasing of farm land and entitles the state to buy land not in production. The law also instructs the agriculture ministry to work on a plan to set up production cooperatives. Under pressure from the International Monetary Fund, the World Bank and the US, lawmakers killed a provision mandating that farmers who decided to join a production cooperative would never be able to quit. The Americans are lobbying the agriculture ministry to reconsider the entire production-cooperative idea.

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AVIATION

Cypriot-Moldavian aviation agreement

Cyprus and Moldova signed an aviation agreement to enhance cooperation between the two countries in air transport in mid-July, CNA reported.
According to an official press release, the agreement provides the framework for further cooperation between Cyprus and Moldova in the field of air transport and opens new perspectives for closer cooperation between the two countries. The agreement was signed in Moldova by Minister of Communications and Works, Averof Neophytou, on behalf of Cyprus. 

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FOREIGN LOANS

IMF to resume lending

The board of directors at the International Monetary Fund decided on July 15th to resume lending to Moldova, which it suspended at the beginning of 2001.
Interfax News Agency quoted a source at the IMF's office in Chisinau as saying the decision to resume the poverty reduction and growth facility (PRGF) was made because the Moldavian government has fulfilled a number of conditions. These include the approval of a new Civil Code and the announcement of an international tender for a 51 per cent stake in national telecommunications operator, Moldtelecom. The next loan tranche of US$12m-24m, is to be disbursed soon.

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PRIVATISATION

State budget gets 50m lei from privatisation

Compared to the first half of 2001, this year the volume of budgetary revenue has gone up by 11.2 per cent (144.2m lei) Infotag News Agency quoted the Moldavian Prime Minister, Vasily Tarlev, as telling a government meeting.
Minister of Finance, Zinaida Greciany indicated that so far the budgetary revenue has come to 90.5 per cent of the planned level, whereas a year ago the figure was even lower - 88 per cent. By early July, the revenue of the consolidated budget reached 94.5 per cent (of the planned level); the local budgets - 103.6 per cent. The lion share of the budgetary revue was attained by the Customs Department - 986.4m, followed by the Chief Tax Inspection, whose contribution came to 413m lei (44m below that expected).
During the meeting, Tarlev expressed concern over the facts of contraband and tax evasion and demanded the appropriate controlling authorities take necessary steps towards it prevention. He also requested that the finance minister and the directors of tax and customs departments submit reports on measures to increase the state budget revenue. In the first half of 2002, proceeds from privatisation to the budget came to 50m lei. 
The news agency quoted the Director of the privatisation department, Stefan Grebencea,as saying in an interview that the majority of this revenue comes from property sales done through investment tenders in the previous years. According to the current legislation, the buyers are allowed to pay in instalments. For this year's privatisation, the state budget received only US$950,00 paid by the Russian company, Salu, for a controlling interest in JSC Topaz. Grebencea said the lack of dynamism in tender privatisation relates to the inability of the ministries responsible for producing relevant documentation to keep up with the pace. In accordance with the current legislation, the documentation for privatisation should be submitted to the department no later than 30 days before the commencement of sales.

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