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Activity of public institutions

Government
Presidency

Positive economic signals between Chisinau and Bucharestby Iurie Gotisan

Activity of public institutions

Government

1.1. Decisions

• On January 26, Government approved National Programme "Moldovan village", frame-document outlining the development of rural localities in the next 10 years. The Document was launched on January 22 during a Republican Forum with the President, Prime Minister Speaker of the Parliament and another 1,500 public officers in attendance. President came up with the initiative on November 10, 2004, which is very much in line with 2005 being decreed the year of local communities. According to official sources, the document was also in line with the Poverty Reduction Strategy's priorities and principles of sustainable development outlined in the Millennium Development goals. The budget allotted to the programme amounts to 45 billion Lei (3.6 billion USD), i.e. equal to 7 annual budgets of the Republic of Moldova. According to preliminary estimates it would take 160 million Lei (12 million USD) for the construction, modernisation and repairs of the water supply and sewage systems, 200-220 million Lei for the natural gas distribution networks, and 500 for environment protection.

  Given the high cost of the program, economic growth registered in Moldova lately, but also mid-term and long-term economic forecasts, one may say that National Programme "Moldovan Village" would not be implemented unless there is a financial support from outside. As Republic of Moldova's ability to attract foreign investments is quite limited at the moment, many economy watchers believe that the programme was rather inspired by electoral rather than other reasons.

• During the same session Government decided to indemnify deposits in Banca de Economii made by persons born prior to 1936. Indexation shall be done under the Law on Indexation of Bank Deposits providing that 1 ruble shall be equalled to 1 Leu for the first thousand rubles, while for the rest 2.5 rubles - 1 Leu.

• In addition Government approved the Regulation on the terms of setting, calculating and paying indemnities for temporary work disability and other social payments. Under the regulation, beneficiaries of the public social insurance system and unemployed while receiving unemployment aid are entitled to indemnities for temporary work disability. Beneficiaries of the public social insurance system are entitled to work disability indemnities in case of general illness or accidents not related to work, disease prevention, for recovering work abilities, pregnancy and caring for the sick child. Unemployed persons are entitled to indemnity only in case of general illness or disease prevention.

• Finally, Government ruled on establishing Joint Cooperation Committee and Joint Administration Committee within the Neighbourhood Programme "Republic of Moldova - Romania" for 2004-2006, in view of consolidating the national institutional capacity to engage in cross-border cooperation.

Presidency

2.1. Meeting with diplomatic corps accredited to the Republic of Moldova

On January 21 Vladimir Voronin met with representatives of diplomatic missions accredited to Chisinau. On this occasion President reiterated accession to EU as on the top priorities of the country foreign policy, which according to him was the road "toward a sovereign and united, democratic and prosperous Moldova".

In this respect, Mr. Voronin requested the assistance of the countries represented by the foreign diplomats in implementing Republic of Moldova - EU Action Plan, which was recently approved by the European Commission and Council for General Affairs and Foreign Relations of the EU Council. President Voronin informed the diplomats that Moldova had already started developing a National Program on Implementing Republic of Moldova - EU Action Plan, as well as enforcing the Joint EU - Council of Europe Program on adjusting the legal framework.

The President also referred to the parliamentary elections due on March 6 which would be held "in accordance with European standards, be fair and transparent and be based on the free choice.¹" That was in line with the Presidential initiative launched on July 5, 2004 "Guarantees of democratic processes and freedom of mass media". However, being now halfway through the campaign one may not say that the standards are fully observed, fact also confirmed by the two reports on monitoring electoral campaign produced by a group of NGOs members of the "Coalition 2005".

Referring to regional cooperation, President Voronin mentioned that together with cooperation in EU accession they were seen as "in line with improving and modernising our partnership relations with Russian Federation and CIS".

Vladimir Voronin announced that Republic of Moldova would open six new missions this year in Sweden, Serbia and Montenegro, Czech Republic, Lithuania, Latvia and Estonia.

In the end, the President outlined the "major priorities of the Republic of Moldova foreign policy", namely:

• "Republic of Moldova accession to EU;

• Settling Transdniestiran conflict and reintegrating the country;

• Consolidating Moldova's position on regional, European and international markets;

• Consolidating and developing regional dimension of the foreign policy;

• Making the activity in international organisations more efficient, especially in EU, OSCE, UN, Stability Pact for Southeastern Europe, GUUAM, CSI;

• Bolstering bilateral ties".

None of the aforesaid explicitly refers to our relations with US, our neighbours for that matter, Ukraine and Romania. Albeit, the very same day a breakthrough in our relations with Romania happened, while Romanian President Basescu paid an official visit to Chisinau.

Economic policies

1. Prices

The price on the export of sunflower, established within the latest tender organized by the Moldovan Universal Commodity Exchange, reached USD 560 per ton, being the highest in the past years. Agricultural experts have estimated that the rise in the price is a world tendency determined by the fall in the production and supply of sunflower on the European market. On the other hand, officials of the Ministry of Agriculture and Food Industry say that the rises in the price have taken place rather due to the decrease in the supply on the internal market.

Responsible persons from the Oleaginous Substances Production Factory "Floarea-Soarelui" from Balti, the only producer of vegetable oil in the Republic of Moldova in industrial amounts, think that the rise in the price of raw materials will not cause an increase in the price of oil, at least not in the first half of 2005. According to them, the factory has already acquired the necessary amount of raw material. In the past four months, the price on the export of sunflower has increased 2.4 times. At the end of September, sunflower seeds were commercialized at USD 230 per ton.

2. Public funds

Head of the state requests doubling of budgetary income. President Voronin requested during the latest meeting of the Collegium of the Ministry of Finance that budgetary income be doubled in the next four years. From the President's address, the Ministry of Finance must take into account the fact that there are expected to be created 300 thousand new work places as well as pensions and average monthly salary to increase three times.

The line ministry is to make efforts in view of doubling the number of scholarships funded from the budget in the country's higher education institutions as well as of increasing student stipends three times. According to the head of the state, doubling of the state budget will constitute the source to allow for the achieving of these objectives.

In this connection, we must mention that 2005 budget draft law provided for a reduction in the rate of income tax for individuals and legal entities. Many economists say that the fiscal relaxation policy will lead to the extension of the tax base and an increase in the budgetary income derived from direct taxes. It is also estimated that in 2005 such income will increase to about 23 percent of the total consolidated budget income. At the same time, however, indirect taxes prevail over the direct ones in the collection of budgetary income, with a share of circa 65 percent.

3. Banking and insurance

Evolution of banking sector. The financial situation of the banking sector registered a positive trend in 2004. Tier I capital of banks has reached MDL 2,442 million (about USD 196 million), having increased by 20.34 percent as compared to the beginning of the year.

The increase in tier I capital, which at the end of the year reached the level of 18.34 percent of total assets, explains the capacity for covering eventual losses borne in view of maintaining the system's financial stability.

In 2004, total assets of commercial banks increased by 29.5 percent, up to MDL 13.3 billion, this increase having resulted from the growth of liabilities by 32.15 percent, up to MDL 10,737.5 million and, respectively, of the share capital by 19.36 percent, up to MDL 2,575.5 million.

Loans. According to the statistical data of NBM, the balance of loans granted by commercial banks to the Moldovan economy has exceeded MDL 7.39 billion (the equivalent of USD 590 millions) and registered an increase of 22 percent in comparison with the end of 2003. Loans granted in MDL increased by 23.2 percent, up to MDL 4.27 billion, whereas the balance of loans granted in foreign currency increased by 20.9 percent and reached the amount of USD 3.12 billion.

In 2002, the balance of loans granted to the economy increased by 34 percent, and in 2003 - by 44 percent. However, on the background of the increases from the past 2-3 years, it is estimated that a new increase in the future is impossible. Many experts say that the resources that ensured previous increasing trends have been exhausted, and new factors that would additionally stimulate the money inflow into banks are not prefigured.

At the same time, loan resources did not become cheaper in 2004, although the rate of inflation was at the level of 2003. The average interest rate on loans in the national currency remained last year at the level of 21 percent, and those in foreign currency - of 11.3-11.6 percent.

Deposits. At the same time, the balance of term deposits in commercial banks registered an amazing increase of 75 percent in 2004, as compared to 2003. The made public statistics of the Central Bank showed that the balance of term deposits in Moldovan Lei reached MDL 2,572.3 million, as compared to MDL 1,470 million at the end of 2003.

The factors that influenced depositors to place their savings with banks were the growth of the average salary in the economy as well as the currency transfers of Moldovan citizens working abroad. The balance of term deposits of individuals made up MDL 2,265 million at the end of December.

The total amount of deposits in MDL attracted by banks last year reached MDL 3,494 million. Although it had a slow evolution, income interest on deposits increased on the average from 14.8 percent at the beginning of the year to 15.5 percent in December 2004.

Insurance. The state inspectorate for the supervision of insurance and non-state pension funds has accepted the new tariffs on insurance policies "Green Card", which have been established in Euro, and not in USD, as has been so far. Insurance premiums and the structure of tariff fees for the insurance against car driver's civil liability have been approved by the National Agency of Civil Liability Insurers ARCA.

A significant increase in the tariffs on "Green Card" has been registered for Romania, after it was included in the European zone of tariffs of the "Green Card" system. Romania was before in the same zone with Ukraine and Belarus. The "Green Card" purchased for Romania is now available for all countries of the "Green Card" system, and its price for a 15-day term is Euro 46, as compared with the old price of USD 30.

At the same time, the "Green Card" for Ukraine and Belarus, for a 15-day term is Euro 4, for one month - Euro 7, 12 months - Euro 55. Insurance experts do not exclude that, in the first half of this year, the tariffs on "Green Card" for Ukraine and Belarus could also be revised, which is dictated by the markets of these countries. At present, the right to issue "Green Cards" is held by five Moldovan insurance companies - "Carat", QBE "Asito", "Moldova-Astrovaz", "Moldasig" and "Edict" from Tiraspol.

4. Trade

Trade deficit in Government's view. The Government has approved an action plan that would lead to a decrease in the trade balance and an improvement of the situation in the external trade area. The document obliges the Department of Trade and that of Standardization and Metrology, along with the Ministries of Health, Agriculture and Food Industry to undertake measures in view of reducing the import of food products and industrial items on which the labeling information in Romanian is missing and which do not correspond with the hygienic-sanitary standards.

At the same time, the Executive obliged the line structures to intensify the control over goods that are imported in a preferential regime. In the first quarter of this year, the Customs Department will have to, according to the respective plan, simplify the export procedures and minimize the document package necessary to make exports. In the same period, the ministries from the economic bloc were obliged to develop a national program for the substitution of imports with items of local production, as well as a program for the promotion of ecological products.

According to 2004 preliminary statistical data, exports increased by 25.3 percent, amounting to USD 990 million, and imports increased by 29.4 percent, amounting to USD 1.815 billion, the trade balance deficit constituting USD 825 million.

Monitoring of external trade. Chisinau will negotiate with the Ukrainian Government a protocol on the application of a double control system for some products traded between the two countries. The types of goods that could be subject to the double control are to be established along the way.

Experts think that the additional control will aim at safeguarding the borders and preventing the illegal re-exportation of goods. Similar mechanisms are widely applied by the European countries in the monitoring of exports of some categories of goods.

In October 2004, the European Union and Moldova set up a system of double control for the export of Moldovan metallurgical products to EU countries. The agreement provides that, for the deliveries of metallurgical products of Moldovan origin to EU countries, exporters must obligatorily have, besides quality certificates, export authorizations issued by Moldovan customs authorities.

5. Moldova and the world

Salaries in Moldova are among the smallest in Europe. In a classification recently developed by the European Employers Federation by minimal salaries and which includes data from 26 countries, the Republic of Moldova is on the last but one place, with a salary of Euro 26 per month.

The Republic of Moldova outruns Russia, which is on the last place, with an average of Euro 19 and is positioned immediately after Ukraine (Euro 36), Bulgaria (Euro 62), Serbia (Euro 73) and Romania (80 euro). For comparison, the minimal salary for such countries as Belgium, The Netherlands and Luxembourg varies between Euro 1,300 and 1,400.

According to the official data of the World Bank, the Republic Moldova has an average yearly income of Euro 450 per capita, which represents only 10 percent of European Union's average. At the same time, the average salary in the Moldovan economy increased in real terms by 12 percent in 2004, as compared to 2003. It constituted a little over MDL 1,200, which is the equivalent of Euro 75.

Transdnistrian conflict

A new attempt to resume the negotiation process on the Transnistrian problem was made within a round of working consultations organised on the initiative of Ukrainian authorities on 25-26 January 2005 in the town of Odessa. The consultations were attended by Moldovan and Transnistrian delegations and representatives of the mediators from the OSCE, the Russian Federation and Ukraine.

According to a joint statement by the mediators, the consultations did not result in any practical decisions due to the absence of the head of the Transnistrian delegation Valeri Litkai. However, the parties discussed ways to solve some practical matters for the population from both banks of Nistru River, such as the functioning of the Moldovan Latin script schools from the Transnistrian region, ensuring the free movement of people and goods in the security zone and resuming the functioning of the bridge in the vicinity of the village Gura Bicului. The meeting also discussed the regulations on travel to Transnistria of diplomats accredited to the Republic of Moldova issued on 6 January 2005 by the Moldovan authorities. Earlier representatives of the OSCE, Ukraine and Russia called these regulations, whereby diplomats have to get special permits for entry into Transnistria, an obstacle in their activity as mediators in the Transnistrian problem.

On 27 January 2005 the Moldovan Ministry of Foreign Affairs released a communique in which the Moldovan authorities declared that the lack of results of the Odessa meeting proved once more the inefficiency of the current negotiations mechanism and emphasised the need for US and EU involvement in the Transnistrian conflict resolution process.

The Russian and Ukrainian representatives at the meeting declared that the very organisation of the consultation round after a long pause in the negotiations process may be regarded as a positive development. On the other hand, the Head of the OSCE Mission to Moldova, William Hill, declared in an interview to Radio Free Europe that it is out of question to resume the political negotiations process before the completion of the electoral campaign in Moldova, but expressed confidence that the dialogue between the two parties needs to be maintained, especially at the level of expert groups who could tackle some of the practical issues between the parties.

In the meantime, the Transnistrian leader Igor Smirnov, who was in Moscow last week, declared at a press conference held on 26 January at the Moscow-based press agency Interfax that the tensioning of relations between Chisinau and Tiraspol owes to the attempt of the Moldovan authorities to increase their rating in the wake of the March parliamentary elections. Smirnov also said that Tiraspol might end all ties with Moldova due to the latter's intention to replace the Russian peacekeepers with international ones and to change the negotiations mechanism by inviting the US, EU and Romania to join it. During the same period, leaders of other separatist entities from the CIS - South Ossethia and Abhasia - visited Moscow, but Smirnov said he „unfortunately" did not meet with them.

In another development, the Ukrainian State Customs Office has announced that it will ban transports to Transnistria of goods unaccompanied by documents of the Moldovan customs bodies. According to the Transnistrian official press agency Olvia-press, the Ukrainian authorities have already retained several lots of goods on the way to Transnistria in the Ukrainian locality of Ilyichovsk. Thus, Kiev has finally answered the demand made by the Moldovan authorities in August 2004 not to allow the transit of goods without official documents issued by Chisinau.

At the same time, the Deputy Foreign Affairs Minister of Ukraine Olexander Motac, who visited Chisinau to attend the GUUAM Summit on 28 January, declared that Ukraine is one of the states most interested in the final resolution of the Transnistrian problem, which will allow for the economic development of the entire region. Ukraine supports the current five-sided negotiations format, but at the same time pleads for the inclusion of the US and the EU in the political negotiations process, said Motac, according to Basa-press.

Motac's statements, the measures taken by the Ukrainian customs services and Kiev's initiative to hold the consultations in Odessa have revealed, according to some observers in Chisinau, Kiev's new approach to the Transnistrian problem, which is in line with the new Ukrainian leadership's European orientation. Thus, it seems that the political change in Kiev has opened up new avenues for the Transnistrian conflict resolution process. At least, it has made possible the implementation of such measures long encouraged by the European community as the introduction of joint Moldovan-Ukrainian border controls on the Transnistrian segment of the Eastern border of Moldova.

Foreign affaires

1. "Two countries - one nation"

One of the most important events that happened during the reporting period was the official visit paid by the new Romanian President Traian Basescu to Chisinau on January 21. High on the agenda were meetings with the Moldovan President, Prime-Minister, Speaker of the Parliament, leaders of the parliamentary factions, Chisinau Mayor and representatives of civil society.

During the visit, which was the first official visit paid by the newly elected Romanian President, the parties signed a Joint Declaration of the Two Presidents², which refers to the importance of capitalizing on the potential of bilateral and multilateral cooperation in view of promoting international standards and European values, consolidating European and regional security, as well as bolstering the relations between the two countries in various fields, including trade, humanitarian and cultural ones.

It is worth citing come of the statements made by Train Basescu:

• Moldova is one of the priorities in Romanian foreign policy;

• "Romania would be the strongest advocate for the Republic of Moldova's progress to the West;

• /.../ We would not allow Moldova to be blackmailed with electricity. We decided to provide electricity to Moldova and talk on the price in the summer, now we have to help Moldova and we will do so every time anyone would dare think they may push Moldova in dire straights as long as it has a friend at its borders. I would like to assure Republic of Moldova, that no matter what problems it would face, it better call Bucharest first. I assure you there wouldn't be another country that would respond faster to Moldova's needs ...;

• /.../ We expect from Moldova that elections would be free and fair, bearing a clear European message, which would be the main tool used by Romania in supporting Moldova on its way to European integration;

• /.../ Romania's accession to EU /.../ would be incomplete as long as Republic of Moldova would not be there".

Elections 2005

For more information on parliamentary elections please visit http://www.elections2005.md.

Studies, analyses, comments

Positive economic signals between Chisinau and Bucharest
by Iurie Gotisan

The recently visit at Chisinau of Romanian President Traian Basescu put an end to overshadowed relations because Moldavian government had accused Romania of "expansionism" and interference in Moldova's domestic affairs

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