CASE Study, No. 220

Is Moldova Ready to Grow? Assessment of Post-crisis Policies (1999-2000)

Larisa Lubarova, Oleg Petrushin, Artur Radziwill   
Warsaw, 2000



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Introduction: Economic crisis in Moldova

1. Struggle for short-term stability 1999-2000

1.1. Achieving external sustainability
1.2. Debt trap and fiscal consolidation
1.3. Disinflation and exchange rate stabilisation
1.4. Summary

2. Strategy for growth and long run stability

2.1. Major impediments to growth
2.2. Stimulation of supply response to market demand
2.3. Building general confidence

3. Real sector reforms in 1999-2000

3.1. Land reform
3.2. Privatisation
3.3. Bankruptcy and restructuring
3.4. Development of short and medium enterprises
3.5. Rule of law and business environment
3.6. Fiscal consolidation

4. Conclusions



The efforts to stabilize the Moldovan economy after the crisis of 1998 have been
largely successful. The country avoided international default as current account position
radically improved, cooperation with international financial institutions was re-established
and a significant primary fiscal surplus was achieved. As a result, the exchange rate was
stabilised and inflation substantially reduced. Moreover, several important structural reforms
were implemented and privatisation of key-industries pursued with much more
determination than previously. However, only economic growth would bring real solutions to
the persistent problems of external and internal imbalances of the Moldovan economy and
would allow the country to face its heavy debt burden in the future. Unfortunately, prospects
for sustainable growth remain weak, as the most important issues that constrain private
entrepreneurship and investments have not been effectively tackled. These issues include:
lack of territorial integrity, ineffective legal system, widespread corruption and rent seeking.
It is unlikely that these problems can be solved until the Moldovan parliament assumes full
ownership of reform process.