Note 14 – December 2004
The New Neighborhood: Moldova – European Union
Enlargement of the EU, its replenishment with another 10 countries in 2004 – from the Baltic states in the North to Cyprus and Malta in the Mediterranean – created new challenges both for EU itself (EU-25 now) and its new neighbors. EU voiced its vision of the situation through the concept of “Wider Europe – Neighborhood”, which doesn’t exclude further enlargement of the EU, but gives priority to “its internal consolidation and encirclement with well-managed countries”. The new neighbors include 14 countries, most of which are in the Balkans and Mediterranean and four in the East – Ukraine, Moldova, Belarus and Russia. But only two of them – Ukraine and Moldova – aspire to join the EU.
Moldova’s European Choice
The first decade since gaining independence – the 90’s – Republic of Moldova devoted to formation of its statehood, transition to democracy and market economy, macroeconomic stabilization and overcoming separatist tendencies (Transnistria, Gagauzia), which first of all required establishing constructive relations with the UN and international financial organizations, as well as with Russia that dominated post-Soviet area.
At the same time, due to position at the junction of the Central Europe, the Balkans and the CIS and being a country with predominance of Latin ethnos, common historical and cultural roots with the countries of South-Eastern Europe, with Romania in particular, the Republic of Moldova, like the Baltic countries, was more predisposed to “return” to Europe than other post-soviet republics. And the first steps along this path were:
As we can see, Moldova’s progress towards Europe was not as dynamic and productive as that of other Central European countries. All those years EU was also sizing Moldova up without giving it hopes but not rejecting it, either. In fact, during that period the Republic of Moldova – balancing between EU and the CIS – was in a zone of geopolitical instability, following the principle “we should be everywhere where it is advantageous to us”. This position could be explained mainly by economic arguments i.e., the CIS, especially Russia, is the main Moldova’s export market, on which Moldova completely relies for energy imports. On top of that, it is Russia’s companies (energy, engineering and winemaking) that are major investors in Moldova, including Transnistria.
Finally, in 2003 Moldova’s leadership took a more explicit position on rapprochement with EU: “Republic of Moldova declared the path of European integration as the main national strategy of the state. We are aware how difficult and important this path is, but at the same time we announce that it is an internal political and economical choice of Moldova first of all”.
Advantages of Moldova’s rapprochement with EU lie in the political, economical and social areas. Politically it means stability of democracy, rise of the state and citizens security. Economically it means the elimination of “peripheral economy syndrome”, increase of country’s competitiveness and prospect of a stake in the EU’s Common Market, expanding access to the development funds, investments and new technologies. Social aspect means harmonization with European standards in education, healthcare and environmental issues, access to information and protection of human rights. And finally, the constructive settlement of Transnistria problem, the only ‘frozen conflict’ at the Eastern land border of the EU, is of considerable importance both for Moldova and the EU.
Transformation of the Economy as a Driving Force
Position of the Republic of Moldova as an EU’s neighbor will mainly depend on what social and economic bases will be created through the economic policy conducted in the country. The fact that over the transition period Moldova endured the deepest economic recess among the post-Soviet countries (2/3 of GDP), is currently a divided country (about 30% of its industrial potential is in Transnistria) and, unexpectedly for its population, has become the poorest European country makes this task more difficult.
The transformation process of Moldova’s economy can be divided into two periods: radical and gradualist. The first of them (1991-2000) prioritized liberalization of the economy, while the second one (beginning with 2001) is marked by strengthening of the state’s role in stimulation of the economic growth. Having overcome crisis and depression, the country’s economy passed the “point of no return” in 2000 and started demonstrating a moderate economic growth over the last five years (6-7% a year), which is comparable to the average GDP growth indicator over CIS, but smaller than in the neighboring Romania and Ukraine (2004).
Now, there are enough signs that Moldova’s economy has mainly adapted to the market conditions: major part of GDP (more than 70%), industrial and agricultural output, constructions, as well as services (including transport and telecommunications) are being provided by private sector; unemployment rate (under the ILO methodology) became steady at 6-7%; household incomes and consumption grow. Share of the population with incomes less than 2.15 USD per day decreased by 1/3 (about 40% in 2004). It is important, that these changes have also had positive influence on dynamics of the Human Development Index used by the UN. So, if in 1990 the HDI for Moldova was 0.736 and it worsened down to 0.673 in 2000 there was registered an increase in HDI to 0.700 during the last years. The positive dynamics for Gini coefficient and social inequality decrease is outlined too.
At the same time, the range of problems requiring solution became more manifest: improving quality of economic growth, provision of comfortable environment for entrepreneurship and investments, elimination of mass labor migration, pro-poor targeting of social assistance, raising the quality of governance and counteracting the “takeover” of the state by business groups feeding corruption in the administrative system. These unsolved problems and slow course of structural reforms restrains modernization of the economy and promotion of its competitiveness and achievement of sustainable socio-economic development.
Realities of 2004
On the whole, 2004 was successful for Moldova’s economy, if judging by such indicators as:
The majority of these tendencies were of the positive orientation over the whole last five years. And it favored the growth of social optimism. At the same time, there is a changeable balance of positive and negative circumstances in the Moldovan economy (see Graph 1), which has showed through the realities of 2004 well:
Problem of the quality and sustainability of economic growth became the central topic of political discussions in 2004. The President has also contributed to this by setting a task for the Parliament and the Government to “proceed to reforms of the new type”. In harmony with this, “sustainable and socially-oriented development” has been established as the main reference point of the Economic Growth and Poverty Reduction Strategy (2004-2006). It was acknowledged that “the quality of economic growth in Moldova is affected by unbalanced structure of the economy, by mono-structural export, and by low investment in fixed capital. Such a growth paradigm does not provide a basis for the sustainable growth needed to reduce poverty… To change the paradigm and quality will require mobilization of new resources and factors of growth…”
EU – Moldova Action Plan
Republic of Moldova has become the first country, with the Government of which the European Commission coordinated the Action Plan (February 2005), thereby suggesting Moldova to demonstrate specific progress in Europeanization of the country, in mobilization of new sources and factors of growth within 5 principle components of the plan:
The key element of the EU-Moldova Action Plan is the economic component. What is important, the term of its implementation coincides with the medium-term Economic Growth and Poverty Reduction Strategy, which the Government of the Republic of Moldova agreed with the IMF, World Bank and donor organizations. This increases even more the responsibility of the Government, which has outlined the following progress steps for itself:
Having accepted a decade as a term for approaching the EU, Moldova’s Government sees the following obstacles on this path: imperfect national legislation as compared with the communitarian legislation, absence of appropriate institutions and personnel, slow advancement of the second wave of reforms, and unsettled Transnistrian conflict, as well as “uncertain position of the EU as concerns Moldova’s status as an adherence candidate”. And it is true. Moldova’s European choice has to have a historical perspective.The concept of the “Wider Europe – New Neighborhood” and the EU-RM Action Plan make relations between Moldova and the EU become better-defined. Moldova is to demonstrate that it’s capable of cooperating with the EU and can perform concrete progress in governance and reforms. And Moldova needs support along this way. If the Action Plan for 2005-2007 is implemented successfully the country may benefit from the prospects of closer economic integration, including movement of capital and technology, preferential trade relations, legitimate migration, etc. But a key question is that of finality. Moldova needs hope as a source of strength, it should be recognized as a European country and its European aspirations should be welcomed.
 “Wider Europe – Neighborhood: A New Framework for Relations with our Eastern and Southern Neighbors”, COM (2003), Brussels, 11.03.2003
 “The Path of European Integration as the Main Strategy of the State”, Speech of the President V. Voronin at the 58th session of the General Assembly of UN, N.Y., 23 September 2003
 Economic Growth and Poverty Reduction Strategy (2004-2006), Government of the RM, May 2004, Monitorul Oficial al RM, #5-12, 2005
 Millennium Development Goals of
the Republic of Moldova, Government of the RM, Chisinau, September 2004