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Undoubtedly, one may find Moldova's macroeconomic achievements (given the economic growth registered in the last three years) acceptable, as banking sector managed to steer away from a system crisis despite the difficulties it faced. Still, the country is not able to secure sustainable economic growth, reduce unemployment and keep inflation down. There are great many factors both at the macroeconomic level, i.e. structural deficiencies of Moldovan foreign sector of economy (exports, servicing foreign debt), as well as the microeconomic level, i.e. slow progress of enterprise restructuring, privatization, and institutional development in general; that account for such a state of affairs.

National Bank pursued a restrictive monetary policy throughout those years aimed at keeping prices stable, however that policy proved to be unfeasible, inconsistent and unable to keep inflation under control (National Bank has made its goal quite clear - to keep inflation under control, however 2003 it failed in its pursuit). Being under pressure, National Bank systematically provided credits to the "vulnerable" sectors as well as to commercial banks facing problems. Those were only some of the shortcomings of the NBM activity throughout those years. At times it directly funded public deficits albeit the move ran counter to its efforts to keep prices stable. It frequently has made wide-scale interventions on the foreign currency market (especially buying USD and Euro), which is yet another policy set to soar the monetary base and also boost inflation. For instance, 15.7% inflation rate registered in 2003 undercut NBM's great policy and has led some to the conclusion that Moldovan economy is ill fated.

At the end of May 2004 annualized inflation rate was estimated at 12% and some experts believe it is still set to soar. An eventual price hike in 2005 might be brought about by a tax cut both for legal and natural entities as scheduled by the Government for early 2005.

Usually, Governments are tempted to swell their ratings on the eve of elections by tax cuts and increase in the social sphere spending. However, such actions might boost the internal consumption, which in its turn might set the domestic debt and budget deficit to soar, onerous dilemma for the NBM. To enlarge and accrue funds to state budget revenues, at the recommendation of NBM, Government would probably raise customs taxes and tariffs for export-import operations (which account for 70% of the budget revenues). The move would probably serve a strong stimulus for importers and exporters alike to raise production price, respectively sale price, which in turn would affect inflation rate.

Therefore, NBM faces a double challenge in its monetary policy attempting to reduce inflation. Firstly, this policy mix should include a revenue policy and small budget deficits based on rigorous controls coupled with rationalization of public spending and financial discipline imposed at the company level. Huge deficits lead to high interest rates and require a more flexible monetary policy for counterbalance, however such a policy poses a number of difficulties for an open economy like Republic of Moldova is. Secondly, liquidity should be under control and strong inflationist expectations after years of "programmed inflation" should be ended. As long as there are no major changes in the monetary policy, either because of the lack of political will or lack of relevant institutions or infrastructure, it would be quite difficult to bring about a turnaround in the expectations.

2. Impact of NBM's policy on economy

Albeit a relative stability of the prices and exchange rates, there was no breakthrough in the financial or banking sector, which has led to a even higher financial dependence over foreign donors. NBM policy has had a contrary effect, i.e. holding back economic and investment activity. Because of still high interest rates, bank credits have become inaccessible for investment projects funding, while great many jobs were cut. On a short-term such a policy is acceptable, as the first risk any economy should address is that of inflation out of control. However, on the long-term, once a macroeconomic stabilization is achieved and once populations' inflationist expectations are hold back, keeping inflation down should no longer be a top goal in the macroeconomic policy, which should instead focus on economic growth and fighting unemployment.

NBM together with the Government are the key players responsible for establishing an attractive investment climate in Moldova. For instance, throughout 2003 investments in Moldova reached 58 million USD, two times less than in 2002. It represents only 13 USD per capita, not accounting for Transdnistria, whereas in Romania it amounted to 7 billion USD in 2003 that is almost 320 USD per capita. It is all-too-clear that via its policies National Bank stimulated capital outflow from Moldova. This specifically refers to the norms banning and limiting free exchange of Leu into other currencies. Secondly, interdictions were set on foreign currency in the companies' pay office and bank deposits. Thirdly, monitoring over foreign currency transactions was increased, namely foreign currency may not be hold on a current account for more than three days. And finally, a new procedure of notifying specialized bodies, prosecution in particular, on the amounts hold in the bank account.

Undoubtedly, Moldova's economy and legal framework, including the investment climate are not the most luring ones, still the aforesaid NBM's actions are greatly accountable for the capital outflow. Why is the capital outflow such a critical factor? It is because when capital outflows it brings about such phenomena as: soaring unemployment, shut down of enterprises unable to stand fierce competition due to their obsolete technologies, lack of well paid jobs, devaluation of assets on financial and monetary market, state's inability to keep up its social promises and accrue revenues to the state budget, and most importantly country morphing into an economic cemetery. The future seems quite gloomy for the young generation, i.e. no jobs, leaving the country being the only solution left. And things seem to get worse and worse as there is no quick fix at hand.

In case the aforesaid issues were to be address efficiently, then all the aspects of economic policy would have to be synchronized, coupled with a fine-tuning of the agencies responsible for its enforcement. Until now the waters have been calm with the Government refraining from any spectacular moves and National Bank having a quiet usual performance. Handing those economic deficiencies would test Government and National Bank's ability to struck mutually beneficial agreements.