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ECONOMIC SURVEY Moldova in Transition No. 5 (February 2000)

PREFACE (A. Gudim)

Moldova keeps scoring instability records – three governments succeeded each other during last year. The social and economic results of the year are again disappointing: fall of GDP, the highest inflation rate in last the five years period, rise of internal and external debt stock. Not less than a half of the economy is in the “shade” – financial flows and employment. As a result of state’s inefficiency in pursuing reforms – the living standards are continuously deteriorating, income is falling, access to education and medicine is limited, the society is polarizing into “new rich” and the absolute majority of the “new poor”. First reduction in country’s population, caused by natural cases and emigration was registered.

Moldova’s profile in the transition decade of the 90s, which includes political evolution, human development and economic results, was examined in the previous edition of Economic Survey 4, December 1999.  That study contains an analysis of the pace of reforms, inconsequence and faults of the governments in implementing them. It was mentioned as well, that our partners and consultants from the international organizations should be partially accountable for the failed reforms.

Nevertheless, we should realize the main issues. And for the future we should draw the following five conclusions:

¨      There should be a wide social consensus in the society regarding the essence and mutual links between the diverse components of the reform. Political stability and new economic order are viable only provided they are backed by population;

¨      The country needs strong and efficient governance, capable to enforce the laws and maintain the institutions, norms and practices of vital importance for a veritable market-oriented economy and for sustainable human development. State weakness gives room for laws and legal acts violations, particularly in terms of tax evasion. Weak governments are corrupted;

¨      Only by focusing on the real sector of the national economy it will be possible a breakthrough from the closed circle of depression. Therefore, it is necessary to create a system of incentives for economic actors, advantageous both for agents and for the state; to improve corporate management of privatized enterprises, to ensure the rights of investors and the transparency of privatization tenders; to support the small and medium enterprises sector, which contributes to the creation of the middle class – allies of reforms.  Elimination of the gap between banking and production sectors, eradication of lobbyism and group interests in the import-export sphere, netting operations and privatization, of pressing aimed at increased budget spending, should also be subordinated to that purpose.

¨      Social responsibilities of the state did not diminish once with transition from a centrally planned to a market economy. Only the management methods should be modified of processes in the social sphere. The first priority for Moldova is eradication of poverty, social safety nets, health protection and education reform, labor market development. Major difficulty of the social sector reform is the fact, that new systems should be both socially disinterested and economically fair.

¨      Success of transition is directly linked to the fact, how fertile was the blend between the political and economical components of transition. Positive and negative experience of Moldova in the 90s, as well as the realities of 1999, shows in most convincing way a link between the uneven pace of reforms and political instability. Political risks and disordered actions of the state are opponents to reforms.

D. Braghis Government inherited a difficult legacy. His success will heavily depend on the support of the President, Parliament and international financial organizations. It is quite important to regain people’s trust in state’s power, to abandon political intrigues, cease manifestations of group interests, both political, “god-fathering” and quasi-criminal ones.  Population should be better informed on the process of elaboration and essence of adopted decisions. It is vital to ensure transparency of the governance in the state.

 Proceeding from the mentioned above, the Center for Strategic Studies and Reforms invited to an open discussion, with reference to economic policies for 2000, three interested parties – Government, IMF and WB representatives, as well as “independent economists”, currently uninvolved in state structures.

 Each of those parties while discussing pursued their interests. The new Government, according to the program of governance, approved by the Parliament a month earlier, finalizing the work on the draft Budget Law for 2000, is searching for new ways of reanimating the real sector of the economy and of efficient privatization, continuation of agricultural, energy, social, and territorial administration reforms. Compared to previous governments, this is the first time when the new Government is drafting the Budget Law, based on the assumption of preponderantly internal sources, because external financing is questionable. Hence, a special emphasis should be put on enhancing efficiency of the real sector, including shadow economy, improving fiscal administration, boosting privatization proceeds, revival of state control over the means channeled towards corruption and organized crime. The major concern for the new Government is energy sector, fiscal and custom systems, alcohol, tobacco, pharmaceutical products and netting operations.

 International financial institutions, especially IMF and WB, took a “time out”, waiting for a clear certainty in the behavior of the Parliament and of the Government. That is why they have their own views on the current situation in the country and possible ways of improvement.

 Independent economists, whose majority have been members of the previous cabinets, participated in the promotion of reforms, but partially generated some of the current problems. At the moment, they activate in different structures of the national economy and, based on their experience, could help the actual Government to solve the difficult problems of 2000.