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Parliament
Government
Presidency

I. Activity of public institutions

1. Parliament

These laws are the follow up of the changes made to the Constitution in late 2002 whereby the tribunals and the courts of appeal were to be re-organised within the next six months. The law provides for the tribunals of Chisinau, Balti, Bender, Cahul and Comrat to be re-organised into courts of appeal in the respective districts, and the Economic Court of Moldova to be re-organised into the Economic Court of Appeal. Similarly, the current Court of Appeal is to be abolished.

2. Government

Personnel changes

Vladimir Vintea was released on 23 April 2003 from the position of senior state advisor and Head of the Office of the Prime Minister, following his resignation request. On the same day the Cabinet decided to release from his position Ghenadie Eni, senior state advisor on fiscal policy, sustainable development and investment projects, head of the group of experts, as well as Alexandru Grecu, first deputy director of the Department for Border Guards.

Ilie Vancea, Extraordinary and Plenipotentiary Ambassador of the Republic of Moldova to Belarus, was appointed extraordinary and plenipotentiary ambassador of Moldova to Estonia, Latvia and Lithuania, and will be based in Minsk. Vasile Sturza, formerly the chair of the State Commission for the Transdnistrian Conflict, was appointed Extraordinary and Plenipotentiary Ambassador of Moldova to Bulgaria.

Decisions

On 15 April 2003, the Cabinet decided to appoint the Inter-governmental Moldovan-Romanian Commission for Economic, Commercial and Technical and Scientific Co-operation.

On 17 April 2003, the Government adopted the Regulation on the Fund in Support of Exports and approved the composition of the Administrative Board of the fund. The Regulation provides for the transfers from the state budget, donations by local and foreign natural and legal persons and sponsorships as the sources of the new fund. These financial means will be used for "projects of promoting the image of the Republic of Moldova abroad, articles on Moldova to be published in major foreign periodicals as well as televised presentations, projects on presenting the Moldovan economy as a whole or of certain of its sectors, periodical up-dating of rating agencies and investment banks, participation in world exhibitions etc.". It is to be noted that the Regulation does not specify the destination of state budget allocations when these are not used fully by the end of the Fund's financial year.

On the same day, the Government adopted the National Programme on Environmental Security and a corresponding plan of actions. According to the Government decision, the ministries, departments, central and local public authorities will draft and adopt, within three months, plans on ensuring environmental security at department and local levels, on whose progress they will be reporting regularly.

The Cabinet examined the draft of the Inter-governmental Convention on Preventing the Double Levy and Fiscal Evasion with regard to the income and property taxes, and has correspondingly initiated negotiations with Ireland, Bangladesh and Vietnam.

The Government has also adopted the Agreement between the Government of Moldova and the Government of the Russian Federation on the mutual recognition of academic degrees, signed on 3 March 2003.

To bring the current laws in line with the constitutional amendments, on 24 April 2003, the Government approved the draft law on amending and completing the Law on Citizenship of Moldova whereby the Moldovan citizens will be able to hold multiple citizenship. Also, the Government approved the draft law on guaranteeing deposits by natural persons in national and foreign currencies, whereby a fund of guaranteed deposits will be set up from the yearly fees paid by the commercial banks from their non-taxable profits.

In addition, the Government appointed on 30 April 2003 its representatives to the Council of Observers of the "Teleradio-Moldova" Company: Iurie Moraru, Head of the Press Service of the Government, and Iurie Bucinschi, Senior State Advisor on Social Development.

3. Presidency

The President Vladimir Voronin submitted on 25 April 2003 to Parliament the draft law on amending and completing the Law on Citizenship of Moldova. According to the draft, Article 24 of the current law is to be completed by two new paragraphs so that the acquisition of the citizenship of other states does not involve losing the citizenship of the Republic of Moldova. The draft also provides for the amendment of Articles 12 and 16 of the law.

The head of state met on 29 April 2003 Steven Pifer, Deputy Assistant for Europe and Eurasia of the US State Secretary. The American envoy restated Washington's support for the reform process in Moldova, as well as for Moldova's European integration and Transdnistrian conflict resolution efforts. With regard to the latter issue, the Two discussed the latest developments. Steven Pifer mentioned that the US is ready to provide the necessary assistance to uphold the stability in the Transdnistrian region in the post-conflict stage. Moldova's relations with the international financial institutions and the ongoing local election campaign in Moldova were among other topics discussed at the meeting.

II. Studies, analyses, comments

1. Moldova - future EU neighbour or member?
by Valeriu Gheorghiu

European Union (EU) relations with Moldova are as old as 10 years, yet they have evolved much slower than with other European countries. Most often, the blame is put on the Transdnistrian conflict and Russia's involvement, as well as on the fact that Moldova belongs to the former Soviet space.

However, the Transdnistrian conflict is not an insurmountable obstacle to Moldova's joining of the EU. Cyprus is experiencing a lasting territorial conflict, and not long ago another attempt by the UN Secretary General Kofi Annan has failed. Despite this, the Greek part of the isle has been invited to join the EU as a full-fledged member. Hence, the case of Cyprus offers us serious grounds in our talks with the EU.

Bosnia and Herzegovina is in fact a UN protectorate that has three governments, three armies and a Serbian secessionist republic. Nonetheless, this country has been included in the Stabilisation and Association Process, which opens the prospect of membership. Serbia and Montenegro includes the Kosovo region, which is under the UN and OSCE authority as well.

Russia's involvement may not be totally dismissed, but it can be downplayed, considering the following factors:

• The intensification of Russia's efforts to penetrate the European and world markets, including its efforts to establish a single European economic area and to join the WTO;
• The intensification of the political dialogue between the EU and Russia makes it possible for the two actors to discuss issues of mutual interest, including the resolution of the Transdnistrian conflict.

Moldova is a Member State of the Commonwealth of Independent States (CIS), but also of the Stability Pact for South East Europe, the Co-operation Initiative in the South East Europe, the US Action Plan for South East Europe, and the WTO. No other western CIS state enjoys membership of all these structures. Moreover, it is natural for the Moldovan people to be in the Latin and Francophone environment, i.e. the European one.

Similarly, as important is the reaction of our country to the recent Communication by the European Commission of 11 March 2003 on the wider Europe. In the communication, the EU proposes the following fields for co-operation:

• Extension of the internal market and of the regulating structures;
• Preferential trade relations and market opening;
• Prospects for legal migration and flow of persons;
• Closer co-operation on the prevention and fight of security risks;
• More active political involvement of the EU in conflict prevention and crisis management;
• Intensifying efforts at promoting human rights and cultural co-operation, as well as mutual understanding;
• Integration into transport, energy and telecommunication networks, as well as in the European research network;
• New tools for promoting and protecting investments;
• Support for efforts at integration into the World trade system;
• Increased assistance with better adjustment to needs;
• New sources of funding.

Certainly, as compared to the Partnership and Co-operation Agreement, Moldova's status of future EU neighbour is clearer now. The issue is that the EU has made these proposals not only to us, but also to Ukraine, Russia and Belarus. Hence the EU has not taken into account our efforts to assert ourselves as a South East European State, and has not opened the prospect of membership for us.

This external factor is extremely important. The rapprochement with the EU is a powerful catalyst and an essential contribution to the promotion of reforms. Thus, in a chain reaction, granting the Central and East European the status of EU associate members has prompted a massive inflow of investments. During the past 10 years Poland has attracted investments worth US$38 billion, the Czech Republic - US$ 28 billion, Romania - US$ 10 billion etc. Were Moldova to become an EU associate now, this would increase the investors' interests and would have a wealth of beneficial economic, social and political effects.

Therefore, Moldova should not accept only what it is being offered, but demand that the prospect of membership is opened to it. Such a position is founded on the fact that Moldova is geographically a European state and a South East European state actively involved in various regional co-operation projects. Moldova is a small state, for which the external factor plays a great role, and its adherence to the EU will not cause any major financial, political or social problems.

On the other hand, the EU may not avoid a third wave of enlargement to include Croatia, Albania, the "former Yugoslav Republic of Macedonia", Bosnia and Herzegovina and Serbia and Montenegro.

The conclusion is that Moldova should apply for associate status with the EU, and if it does not meet the necessary requirements, it could become associate member by 2007. Another possibility would be to sign a Stabilisation and Association Agreement with the EU, given that the next enlargement could take this very path. In both cases, a serious analysis of the situation and of the motivation for the chosen variant is needed. If Moldova properly applies the provisions of the Association Agreement or those of the Stabilisation and Association Agreement, it could join the EU by 2010-2014.

An extremely useful step for us at the moment would be the asymmetrical opening of the EU market for the Moldovan goods. At present, Moldova's trade with the EU accounts for a minor share of the community trade (in 2000 the volume of Moldova's commercial exchanges with the EU was 336 Euro, or 0.04% of EU's foreign trade). If the EU market opens up for all Moldovan agricultural products, even in this field Moldova would account for only 0.006%. These figures will decrease even further in May 2004 when the new EU members bring in much larger agricultural producers than the Moldovan ones.

Special attention should be paid to the fact that Moldova has been admitted to the Stability Pact for South East Europe, but not to the Stabilisation and Association Process (in fact, not even to the Co-operation Process in South East Europe), which fact considerably diminishes the value of our co-operation within the Pact. It is well known that the other states accepted to the Pact put the greatest value on the prospect of joining the EU, which is opened to them through the Stabilisation and Association Agreements to which they are party. By signing such an agreement with Moldova, the EU would not have to make any exceptions for Moldova anymore and invite it to sign an Association Agreement, and thus no hopes will be raised for Ukraine (and, eventually, Belarus, after Lukashenko leaves).

Apart from all these, the European Union may use its international standing and financial resources (which need not be too high as compared to the benefit they are likely to have) to join the OSCE's efforts at resolving the Transdnistrian conflict and post-conflict reconstruction. The EU has positive experience in this sense when in 2001 it participated together with NATO in the resolution of the Macedonian conflict.

The overall conclusion is that there are no obstacles that could make Moldova's joining of the EU impossible. It is true that our task is very difficult, and the idea of joining the EU should be underpinned by concrete statements and actions enjoying the support of the entire society and a national consensus. On the other hand, the EU should treat Moldova without discrimination, considering that Moldova is a European state, which has the right to join the European Union.

2. The floating of the Moldovan Leu - free or managed?
by Tudor Neghina

The exchange rate of the Moldovan Leu (MDL) has floated significantly. The issue of currency exchange rate may be approached in a number of ways. Most directly, the currency exchange rate affects the contents of one's pockets, which is more or less depending on the period of time when one looks at it: in December 1997 it amounts to US$215, and in April to only US$68. In both instances these amounts can be changed into a few notes of 200 Moldova Leu (MDL). This approach is the closest to us. Even when we cautiously save in US dollars or (ever more often) in Euro, usually we get our wages in MDL, and so the value of our national currency concerns us in any case.

Another approach is the one of the authorities - the macroeconomic level. Here things seem a bit paradoxical. A "weak" MDL would advantage exporters, experts would surpass imports, the commercial balance would produce a currency increment, and so the MDL would become "strong" again. On the other hand, a "strong" MDL is good for a budget burdened by foreign debt. Budget incomes are in MDL, and if this one becomes "stronger", fewer MDL would be needed to buy currency and pay off the foreign debt. A "weak" MDL advantages those who have a long-lasting position in currency (meaning currency liquidities overpass currency bonds), and the devaluation of the MDL generates profits for them.

The Central bank takes a special role in this system. This role is described in Article 4 of the Law on the National Bank of Moldova: "the main objective of the National Bank is to achieve and maintain the stability of the national currency. For this purpose, the National Bank sets and upholds the conditions in the monetary, credit and currency markets, which ensure sustained economic development, in particular of the financial and currency systems based on the laws of the market." This objective was proposed two years after the introduction of the national currency, although the behaviour of the central bank on the currency market has been through a number of radical changes since then.

The currency regime before the 1998 regional crisis could have been characterised as a regime of managed floating. The participants in the currency market can still remember the "fixing" meetings at the Currency Exchange. Back then, the National Bank had to interfere almost on a daily basis. The year 1998 was special in a number of ways. Signs of the crisis that took place in August that year could have already been felt in early 1998. Until September 1998 sales mounted to over US$ 50 million. In September-October the National Bank had to interfere with about US$ 70 million. Under these circumstances, the depreciation of the currency reserves was as important as the shrink in foreign competitiveness for deciding to let the MDL float freely depending on the demand and offer of currency in the market. As a consequence, the MDL lost half of its value in December. At the same time, the currency offer started to outnumber the demand.

Since late 1998 the National Bank has interfered with the currency market in an asymmetrical way. Namely, when there is an opportunity, the National Bank buys currency and increases its currency reserves, yet, when things turn the other way round, the bank refrains from interfering to support the MDL. Such behaviour is characteristic of the free floating currency regime, and the argument is exactly this - the lack of interference to support the national currency, and as such it offers a number of advantages. First, asymmetric interference prevents the MDL from adding on value, which fact would be completely unjustified under circumstances of a negative commercial balance. Secondly, buying currency when foreign funding is absent is practically the only source of increasing currency reserves. Thirdly, a consequent policy of refraining from supporting the MDL helps avoid the risk of speculative attacks, as when the central bank is known as being neutral, speculations are a priori destined to fail.

As long as the MDL determines independently its level in relation to other currency, we should have a closer look at the subjective and objective factors that influence evolution of its exchange rate.

The subjective factors are the currency demand or offer determined by the economic outlook. Depending on the latter, the participants in the currency market take a position in the market. In the event that the MDL is expected to devaluate - be it for seasonal reasons or certain economic indicators such as inflation or GDP - the currency position will be on rise, and currency will be bought or at least kept. When the MDL is expected to add value, everyone will tend to get rid of currency. In some way, such tactics almost always yields the expected outcome" when everyone buys currency, the demand increases (although artificially at times), the MDL loses value and the forecasts come true.

The objective factors are the ones determined by the currency flow. The import of goods and services, money transfers abroad as payments for the foreign debt, other capital transfers are all currency refluxes, which are normally balanced through a corresponding currency influx at the account of exports of goods and services, foreign investments, withdrawals from credits, as well as (importantly for Moldova!) currency transfers by the numerous Moldovan citizens working abroad. The net flow is ultimately a currency offer or demand, which forms objectively.

Another series of factors to be taken into account when analysing the currency exchange rate are the seasonal factors. Either objective or subjective, they manifest periodically, but not always regularly. For example, some of them are related to the agriculture-driven nature of the Moldovan economy. The start of the agricultural season is always associated with massive purchases of seeds, fertilisers etc. and the ensuing increase in imports prompts a higher demand for currency and so the MDL devaluates in March-April. On the other hand, the end of farming season is accompanied with an increase in exports and in currency offer, and so the MDL adds value. Another seasonal factor is related to the payments for power consumption. This is fully imported and payments for consumption increase as the weather gets colder. Thus, a slight devaluation of the MDL in November could be due to this. By December though the MDL gets back to normal due to the increase in expenses on the eve of winter holidays, which are normally incurred in MDL and sometimes involves foreign currency being exchanged into MDL.

The following can be concluded from the above:

• The passage from the regime of managed floating to the one of free floating was prompted by the need to preserve the currency reserves and the competitively of Moldovan exports on foreign markets. This has allowed not only for later "saving" the currency reserves, but also filling them up to a satisfactory level. We believe that this policy of the National Bank will continue at least as long as the level of currency reserves does not reach the critical threshold worth three of months imports.

• The so-called dolarisation persists in Moldova as a phenomenon and is a real impediment for the monetary policy. It is necessary to fight it in order to enhance the trustworthiness of the national currency. Otherwise, we would have to face the galloping inflation that we have experienced in early 1990s.

• As long as there are no real prospects of us joining the EU, I would not recommend that the MDL exchange rate be tied up to the Euro. It is to be noted that the trade with the EU is relatively small, and so there are more disadvantages than advantages to it, such as, for example, losing competitiveness on the CIS market. In the event that the prospect of membership becomes clear, things would look differently. Tying the MDL up to the Euro would then reduce the cost of transactions related to the currency exchange and eliminate the currency risks.

• The currency reflux generated by the negative trade balance is made up for by the income sent home by the Moldovans who work abroad. While this in itself results in a certain stability of the currency market, in the long term this phenomenon prompts, indirectly, the devaluation of the currency. This happens due to the fact that the money sent home from abroad produces inflation as most of it is used for current consumption. The price increase, according to the law of parity of purchase power, finally causes the national currency to devaluate. One can only hope that in the future Moldova will be less sensitive to these fluxes.

During the past few years the amplitude of the currency rate exchange floating has considerably reduced. We look at this as primarily an obvious result of the enhanced efficiency of the currency market. We believe that in future this enhancement will grow and the risks associated with the devaluation will diminish. In a certain way this phenomenon will run in parallel with the stabilisation of prices, i.e. the fall in the inflation rates in the coming years.