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Activity of public institutions

Parliament
Government
Presidency

Indebtedness threatens the stability of domestic economy by Iurie Gotisan
Astana Summit: an evidence to the CIS crisis by Igor Botan

I. Activity of public institutions

1. Parliament

1.1. A new legislative session

On September 23, the fall-winter session of the Parliament started. In her inauguration speech the Speaker made several key points, namely "continuing economic and social reforms", "pursuing European integration, not to the detriment of cooperation with CIS", etc. Speaker also called deputies to work constructively, to honour their obligations in front of their people, not to "get involved in the electoral campaign yet", and not seek to gain political dividends in the last days of their mandate.

However, the first session of the legislature dispelled any hopes that the conflicts within the Parliament would be settled. It took two hours to decide on the Parliament agenda for the first two weeks of its activity. Opposition started the debates by suggesting special parliamentary committees to be formed to examine the conflict around Teleradio-Moldova and Moldovan Latin script schools in Transdnistria.

Still, practically all the deputies agreed to address the issue of schools in Transdnistrian region by issuing a joint declaration. It reads that Parliament of the Republic of Moldova is deeply concerned about Tiraspol's actions thwarting educational process in the schools studying according to Republic of Moldova curricula. Parliament called Council of Europe, Parliaments of the EU and CIS countries and international organisations to take a stance in view of settling the problem. Moreover, Parliament addressed Parliaments of guarantor countries - Russian Federation and Ukraine - to actively take part in the settlement of that problem.

1.2. Legal acts

Law on the Modification of Fiscal Code provides that assets included in the privatisation program, where the state holds more than one quarter of the registered capital shall be sold by the Privatization Department, as is the procedure for the privatization of public patrimony. Currently, the law provides that Privatization Department only deals with the sale of assets arrested from the enterprises included in the privatization program.

Law on Modification of the Code on Civil Procedure was amended so that during the hearing of a cause the presiding chair would be allowed to limit the time allotted to the parties, if the latter digress from the subject and their arguments are not relevant to the recourse.

Parliament also passed the Law on Interpreting Code on Penal Procedure. It was important to pass the law as a number of cases were registered when the Code was not duly enforced. The law includes several provision explaining the provisions of the Code.

Parliament passed the Law on Ratification of the Free Trade Agreement between Republic of Moldova and Bulgaria. The document ratified on the eve of official visit of Bulgarian President to Moldova, stems from WTO requirements. The goal of the Agreement is to: promote bilateral trade and boost economic relations; ensure level playing field for the trade between the two countries; abolish tariff and other barriers; set the framework for bilateral cooperation in various fields. With this, Moldova has concluded ratifying Free Trade Agreements with the countries members of the Stability Pact for South-Eastern Europe.

(For further details on Parliament activity see http://www.e-democracy.md/en/comments/legislative/)

2. Government

2.1. Reshuffles

During the period covered Mihail Stirban was ousted from his position as Deputy Director of the Department of Constructions and Territory Planning as was Gheorghe Stratan from his position as Counsellor to Senior Deputy Prime Minister.

2.2. Decisions

• To enforce provisions of Article 163 (2) of the Code on Science and Innovation no. 259-XV of 15 July 2004, Government decreed on establishing State Intellectual Property Agency by merging State Agency for Protection of Industrial Property and State Copyright Agency.

• On September 17, Government decided on establishing a committee entrusted to oversee and monitor the census due in October. The committee shall also oversee the enforcement of the Memorandums of Understanding signed with SIDA, DFID and Council of Europe that provided financial support for the census.

• In the eyes of many observers there is a direct link between statements made by the Russian and Ukrainian Presidents at the Astana CIS Summit condemning economic restrictions imposed by Chisinau on Tiraspol and adoption of a draft amendment to Article 121 Title IV of the Fiscal Code. Under the said amendment alcohol beverages imported from non-WTO countries shall be subject to excises. Other experts say WTO has long insisted on such an amendment and it has nothing to do with the Summit.

  An excise worth 10 Lei per litre shall be applied to imported beer, champagne, as well as other grape beverages, while a 12.5 Lei excise shall be applied for imported vermouth and other aromatic beverages. Currently, 1 Lei excise is applied on imported beer, as for other drinks it is 10% of the cost, however no less than 1.50 for vermouth or 2.50 Lei per litre. An excise of 30 Lei per litre shall be applied for ethylic alcohol.

  If approved by the Parliament, a price hike on alcoholic beverages imported from other than WTO countries is to be expected, while their market share would drop.

• Most importantly, Government endorsed the Law on State Budget for 2005. It envisages a 6% GDP growth up to 36.7 billion Lei, 8.9% inflation rate and 12.7 Lei per 1 USD exchange rate.

  Budget revenues are estimated at 7,473 million Lei (836.8 million Lei or 12.6% over indicators forecasted for 2004). Budget expenses for 2005 are estimated at 7,724 million Lei (704.5 million Lei or 10% over the indicators approved in 2004), with a 251 million Lei deficit, out of which 100 million are to be covered from the sale of T-bills.

  An amount of 1 billion 35 million Lei is to be allocated for healthcare, 224.3 million more than in 2004. Education shall receive 428 million (as compared to 386 m in 2004), law enforcement - 450.7 m Lei, National Army - 115.7 m Lei (as compared to 112.6 m in 2004), justice - 95 m Lei (82 m in 2004), and diplomatic missions - 110.4 m Lei (as compared to 107.5 m in 2004).

  Draft budget for 2005 includes some innovations, the most important being new taxes; a 336 m Lei reserve fund for the gradual enforcement of the Law on calculating salaries and indemnities to public officers; a 65 m Lei fund for wine yards, etc.

  Yet another Government motion endorsed the draft social insurance budget for 2005. It provides for revenues worth 3 billion 485.9 m Lei, i.e. 710 m Lei more than in 2004. Under the draft, farmers and those working their own plots, would have to pay a fixed social contribution worth 744 Lei. Experts say it would have been fair to calculate them similarly to this year based on the land fertility.

  The document also addresses the interests of Moldovan citizens working abroad, who may pay 1,374 Lei to be entitled to state pension. Migrant workers would be allowed to pay the social contribution for the past years, but for no more than 5 years.

  In the next year, employers should pay 27% of the salary, while employees 2% of the net salary to the social insurance fund.

3. Presidency

3.1. Decrees

President Vladimir Voronin ousted Alexandr Petkov from his position as Councillor to the President of the Republic of Moldova on foreign affairs, also he ousted Eugeniu Clim as Chairman of the Central Electoral Commission. The decrees read that both officials were ousted at their own initiative, the latter due to poor health condition.

II. Economic polies

1. Prices on gas might go down

Moldova and Russian Federation proceeded to renegotiate Protocol on Amending the Agreement on VAT on gas and oil products. During their informal meeting at the Astana Summit Prime-Minister Tarlev and his Russian counterpart Mikhail Fradkov, decided to revise Agreement on general principles of indirect taxation in the near future. Under that document, VAT is applied according to destination principle to all goods, except for natural gas and oil products. Russian side agreed with Moldova's initiative to abolish the 18% VAT tax on natural gas and petrol products.

A worthwhile decision and if the Agreement is amended, the prices on natural gas might go down. Moreover, Chisinau's initiative comes at the time Fiscal Code of the Russian Federation is being amended, namely exported goods shall be subject to 0% VAT.

Another factor greatly influencing whether the prices would go down or not is the progress of negotiations between Moldovagaz and Russian Gazprom, who has recently insisted on raising the price for the natural gas supplied to the Republic of Moldova.

2. Wage arrears surging

Recently a working group has been established at the initiative of the Prime Minister including representatives of various Ministries and Departments. The WG is entrusted oversee wage payment and wage arrears, after Statistics and Sociology Department reported wage arrears. Officials in the Ministry of Finance reported that commencing March 2002 there were no arrears on pensions and wages for state employees, historic debts were settled while wages were paid monthly in cash.

According to Prime-Minister the WG should undertake "extraordinary and urgent measures" to liquidate wage arrears, in case such cases are found. WG would oversee wage payments by employers and would mobilize all enterprises, relevant institutions and trade unions to pay wages on time in line with the law.

According to Statistics and Sociology Department total wage arrears per economy amounted 187 million Lei as of August 1. The highest wage arrears are in agriculture with 95.16 million Lei; in education wage arrears surged by 1.5 million Lei. Average salary per economy equalled 1,150 Lei (95 USD). Employers of banking sector and financial institutions had the highest salaries in August, an average of 3,583 Lei. Average salary in education and in healthcare were 716 Lei and 863 Lei respectively. In August consumer basket reached 1,386 Lei (116,13 USD).

3. Foreign debt

Republic of Moldova's gross foreign debt amounted to 1 billion 896.32 million USD as of July 30, 2004 according to the findings of a National Bank report on the evolution of foreign debt. Government debt accounts for 36.2% of the total debt, National Bank - 7%, commercial banks - 2.4% and other sectors - 54.4%. The report also estimates the debt on imported energetic resources worth 295.26 million USD. Guaranteed public debt, which also includes Government and National Bank debts plus private debt guaranteed by the Government, is worth 874.62 million USD. Loans and interest rate arrears account for 71.4% of the total debt.

Post-war history is full of examples when countries lacking financial resources chose foreign debt as a temporary measure to recover and boost domestic economy. This is not the case of Moldova. Its foreign debt of 1.9 billion USD represents 84% of the GDP for 2003, well above the average for subdeveloped countries boasting just 35%. Draft budget for 2005 endorsed by the Government last week allocates 31.2 million USD to servicing foreign debt; while for servicing foreign debt guaranteed by the Government a total of 28.8 million USD; for interest rate payments - 2.4 million USD. In the last years, technically Moldova was insolvent, fact that it acknowledged every time it postponed disbursing debt until the settling day, or when it requested another debt restructuring.

4. Good agricultural year does not slow down inflation

Record high grain harvest (830 thousand tones), coupled with swelling consumption, would help Republic of Moldova speed up economic growth. Authorities forecast a 7% GDP growth, well over the 6% this year, even over the 6.5% forecasted earlier. A good agricultural year would definitely have a positive impact, however less so on inflation rate.

Despite record high harvest, prices on agricultural and food products did not go down. An overall 0.2% price hike in the industry has been registered, the highest hike was registered on meat (3.4% on pork, 1.8% on beef, 1.3% on meat products). Accordingly, inflation rate dropped slightly to 0.5% in August, from the record high 1.3% in July, still it was 0.2% higher than same time last year. Annualized inflation rate was also propelled further upwards to 12.4% in August.

Besides price hike on agricultural and food products, inflation was further sent up by the rising price of imported oil products. Fuel price has raised by 12%. Drivers were the first ones to be hit by the price hike and to adjust fuel consumption to the money in their pockets. As the price of transportation would grow, so would the goods as all of them have transportation costs included in the price. On average, transportation cots would raise by 2 - 5%, while prices of goods would raise accordingly.

Certainly, manufacturers and retailers would venture to raise prices even higher, however they stand little chance of success. Market is settled and does not accept 30% price hikes on the grounds costs are high. Albeit elections are coming, governors would be forced to raise the price on public transportation. Sooner or later they would have to adjust the price to the growing fuel price. So far, the latter affected businesses that struggle to lower the costs or cover them by raising the product price.

In the first half of the year prices rose amid a 9% consumption growth, all of which has sent GDP 6.1% up in the first six months of the year. Sales rose by 14.1%. Unfortunately this growth comes mainly from the sale of imported goods. Imports surged exceeding by far exports with a 380 million USD trade balance deficit.

III. Transdnistrian Conflict

One month after the beginning of the academic year, the lyceum "Lucian Blaga" from Tiraspol and the Romanian lyceum from Ribnita remain closed and the parents of almost 1200 pupils of these two schools are being subjected to continuous harassment by the Transnistrian break-away authorities, ranging from threats of criminal prosecution and deprivation of parental rights to administrative fines for failure to transfer their children to other schools.

The EU, OSCE, COE and the mediator states have renewed their calls upon the Transnistrian authorities to reopen the two schools, while the Moldovan Parliament has finally adopted a statement condemning the actions of the Transnistrian authorities against the Romanian schools and have decided to send a delegations of deputies to Moscow at the end of September to discuss the schools issue with their Russian colleagues. Meanwhile, the Moldovan Ministry of Education has adopted a plan of measured in support of the eight Moldovan Latin script schools from the Transnistrian region. These include upgrading the material and technical situation of the schools, provision to the schools of teaching and didactic literature, provision of financial aid for the renovation of school premises, and free meals to pupils of grades 1 to 4. At the end of September, a delegation of Moldovan parliamentarians is to visit Moscow to discuss the schools issue with their Russian counterparts.

As the situation on the ground has seen few developments over the past two weeks, the Transnistrian issue has featured in a number of high-level statements made in Moldova and abroad. At a press-conference held on 16 September within the CIS Summit in Kazakhstan, the Russian President Vladimir Putin said that although Russia would not oppose the enlargement of the current negotiations format, this would be a useless move that might turn the negotiations into some "talking shop". Ukrainian President Leonid Kuchma shared his Russian counterpart's view on changing the negations format, and deplored the failure of the Moldovan Government to sign the Kozak Memorandum, which, to Kuchma, was a real opportunity for the two sides to end the crisis situation. Moreover, Kuchma said that the conflict could not be solved through economic sanctions or military means and that Ukraine did not support the economic blockade instituted by the Moldovan authorities against Transnistria.

In the meantime, the Moldovan President Voronin, who did not attend the CIS Summit in Astana on grounds that the Summit did not discuss issues important enough, has called repeatedly on the international community to get involved in solving the Transnistrian conundrum. He has advocated for the institution of an international monitoring mission along the Transnistrian segment of the Moldovan-Ukrainian border and for the replacement of current peacekeepers, who are "siding with the Transnistrian regime", with international blue helmets.

The Transnistrian issue has been one of the main themes of the one-day visit to Moldova of the NATO Secretary General Jaap de Hoop Scheffer on 23 September. After meetings with President Voronin, Foreign Minister Stratan and Defence Minister Gaiciuk, de Hoop Scheffer held a press conference, to which he told that the international community should get involved in the Transnistrian conflict resolution. Although NATO does not have a direct role in the Transnistrian crisis, it is committed to finding a fair and final resolution of the conflict. He reiterated NATO's traditional position that Russia should observe its 1999 Istanbul commitments and withdraw its troops and weapons from Moldova accordingly, and committed to assist Moldova in its efforts to determine Russia to evacuate its military and arms from the Moldovan soil.

President Voronin's failure to attend the Astana CIS Summit has been interpreted by many observers as a demonstration of Voronin's break up with the East and reorientation to the West in his efforts at resolving the Transnistrian conflict. This move has been welcomed by a large part of the Moldovan political opposition and is well received by such important western figures as the NATO Secretary General. At the same time, President Voronin denies any possibility of negotiating with the Transnistrians and has accused on a number of occasions the two mediator states - Russia and Ukraine - of supporting the Transnistrian regime. His statements in this sense seem to be inspired from the commentaries of the analyst from The Wall Street Journal, Vladimir Socor, a renowned critic of Russia and proponent of the internationalisation of the conflict resolution efforts, whose commentaries are regularly published by the Moldovan Governmental newspaper "Moldova Suverana". Thus by making the stake only on the western vector and at the same time antagonizing the main players, it seems that the Moldovan authorities are running out of opportunities to solve a multidimensional crisis with important regional ramifications as is the Transnistrian issue.

IV. Foreign affairs

1. CIS Summit

On September 15-16, CIS Summit was held in Astana. Moldovan delegation was headed by Prime-Minister Tarlev, while President Voronin's refusal to attend the event rose some eyebrows in the society. President Voronin and Turkmen President were the ones who did not show up at the reunion. As it was to be expected, Prime-Minister Tarlev criticized the state of affairs in CIS which "failed to become an efficient mechanism ensuring mutually advantageous partnership and bringing nations and countries together". In this respect, Tarlev stated "so far CIS agreements on free trade are not fully enforced, as is the agreement on adjusting economic law and coordination in economic spheres" and pointed to the fact that the potential of CIS countries in this respect was not fully exploited. Consequently, Moldovan Prime-Minister complained about numerous tariff and non-tariff barriers in bilateral trade, failure to honour economic obligations and lack of efficient system of payments within CIS.

Prime-Minister Tarlev recommended speeding up enforcement of documents already signed and joining efforts to abolish bureaucratic and trade barriers. According to Tarlev this might be done by adopting WTO standards in CIS.

General impression of the Astana Summit is that CIS has turned into a political debate club, useful solely for the sake of debate, but completely useless when it comes to economy and trade. For that particular reason, Moldova should turn towards EU, which is more efficient in economic and trade terms. At the same time, Moldova may preserve its Eastern markets by means of bilateral relations, without being part of CIS.

As was the case of informal CIS Summit held in Moscow in July 2004, a Declaration to OSCE was adopted. It reiterates the need for all OSCE member states to ratify Agreement on Adaptation of the Treaty on Conventional Armed Forces in Europe, for OSCE to get involved in fighting terrorism, and recommends OSCE to "constructively" take part in the settlement of the regional conflicts within the existing negotiation format and mechanisms. Although President Voronin mentioned on numerous occasions that the existing negotiation format on Transdnistrian conflict should be revised, Moldova subscribed to the Declaration.

2. GUUAM

Shortly after Moldovan Government endorsed the draft law on ratifying Agreement on Free Economic Zones in GUUAM countries, on September 23 a delegation of Moldovan Parliament headed by Deputy Speaker Mihail Camerzan attended the founding session of the GUUAM Parliamentary Assembly. The documents and regulation were signed by Azerbaijan, Georgia, Moldova and Ukraine.

Founding documents provide that Parliamentary Assembly would contribute to perfecting legal framework regulating trade, culture, and political sphere; to enforcing the decisions of the head of states members of GUUAM; to consolidating and developing democratic institutions in the region. The same documents provide that Assembly shall convene once a year and that a Bureau shall be established consisting of three specialised committees, i.e. political-legal, trade, and cultural-humanitarian.

V. Studies, analyses, comments

Indebtedness threatens the stability of domestic economy
Iurie Gotisan, 29 September 2004

Arrears increasingly impinge on economic system which in the end may destabilize still fragile economy. Arrears account for 30% of the GDP, and this despite its growth in the recent years and write-off of "historic" debts especially to state-owned enterprises via Prime-Minister decrees

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Astana Summit: an evidence to the CIS crisis
Igor Botan, 29 September 2004

President Voronin's refusal to attend CIS Summit in Astana and use that opportunity to talk to Presidents Putin and Kucima on ways of settling Transdnistrian conflict indicates that the potential for negotiations on Transdnistria with the participation of Russia and Ukraine has been fully exhausted

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