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Activity of Public Institutions

Parliament
Government
Presidency

Was the "national consensus" rescued? by Cristian Untila
Transnistria Economy: Regional Dimension by Galina Selari

Activity of Public Institutions

Parliament

1.1. Legislative documents

The Resolution on approval of strategic directions of science and innovation for 2006-2010 outlines the following strategic directions of scientific activity:

1. Building a state based on the rule of law and use of Moldova's cultural heritage in the context of European integration.
2. Use of human, natural and information resources for a sustained development.
3. Biomedicine, pharmaceutics, healthcare.
4. Biotechnologies, fertility and food security.
5. Nano-technologies, industrial engineering, new products and materials.
6. Efficiency and security of energy complex.

This decision abrogates another two decisions passed by the legislature on this issue: October 24, 2002 decision # 1401-XV on approval of the list of key research-development directions for 2003-2010, financed from the state budget, and the December 25, 2003 decision #566-XV on approval of strategic research-development priorities for 2004-2010.

The decision adopted at the initiative of the Academy of Sciences does not say what will happen with the ongoing programs and projects implemented under auspices of abrogated decisions, nor it explains the need to modify these directions, which had earlier been described as strategic and basic.

Law on Orasul Vinului Enterprise provides for the redistribution of state-administrated land fields and granting of about 15 hectares of land to the state-owned enterprise Orasul Vinului, created to implement a commercial investment project, aimed to promote the domestic wine growing and wine making sector. Thus, these fields will be excluded from public sector and be sold, while the enterprise will be able to use the raised resources for investment purposes. This initiative raised a rich harvest of criticism from many lawmakers, who described the creation of this commercial complex as inopportune, saying that there were lots of investment possibilities in the Chisinau municipality and other available territories in Moldova.

Law on Awarding National Cultural Heritage Status to Milestii Mici Winery decreed the patrimony of the wine plant Milestii Mici national cultural heritage of Moldova, in a move to ensure the maintenance of this business as an exclusive state-owned estate and to ban the privatization or sale of the complex. The law awards Milestii Mici the preferential right to use the geographic location "Milestii Mici" in the company name, trademarks, and other industrial property objects. Thus, the law prohibits the use of identical and similar names which contain this geographic location for commercial purposes, if this use would produce confusion or indicate a connection with the winery Milestii Mici. The same norms oblige the holders of trademarks or names of firm containing "Milestii Mici" to exclude it within five years after enactment of this law.

Noteworthy, the winery was created in 1969, being specialized in production, storage and sale of wines. It covers about 50 kilometres of galleries, located at depths of 30-80 meters, while technological tanks have a capacity of 60 million litres of wine. Also, it owns a collection of 1.5 million bottles of wine, produced from 1973 to 2004. It exports more than 90 percent of its production. It is worth mentioning that earlier the Parliament awarded a similar status to Cricova winery.

Law on Amending the 2005 State Budget redistributes more than 600 million lei levied to the budget in the first half of this year. This amount will be mainly used for the following purposes: a) to increase salaries in budgetary system. About 100 million lei will be spent for this purpose. To note that the executive had already established these rises, while the Parliament will have to approve the reallocations unless it will worsen the condition of some workers; b) increase the spending for investments and capital repairs by over 350 million lei. At least 30 percent of this amount will go to gasification; about 17 percent will be used for construction of embassies, and by 14 percent for construction of social-cultural objects, transport, road management.

(For more information on the legislative activity please see "Legal Commentaries" on ADEPT website).

Government

2.1. Reshuffles

• The Government performed some reshuffles on July 6. Thus, the executive ousted Petru Svet from the post of deputy Director-general of the Privatisation Department over reorganisation of this institution. According to the new structure of the cabinet of ministers, the Privatisation Department became part of the Economics and Trade Ministry. Also, the executive appointed Anatolie Izbinda, former deputy director of the Department for Constructions and Territorial Development, as deputy director of the Agency for Rural Development. Ion Daniliuc was appointed as deputy director of the State Agency for Protection of Intellectual Property (AGEPI).

• The Government appointed on July 13 Valeriu Ostalep as Deputy Foreign and European Integration Minister. Thus, the Foreign and European Integration Ministry will have two deputy ministers. Eugenia Chistruga was reconfirmed in the post of Deputy Foreign and European Integration Minister last May. Also on July 13, the executive reconfirmed Oleg Cara as deputy director of the National Bureau for Statistics.

2.2. Resolutions

• The Government gave green light on July 7 to a draft law which says that salaries of budgetary employees and public officials will be established on basis of a special law regulating the procedure, size and wage conditions for workers paid from the state budget till 2009. This draft law will be enforced on October 1. Under the draft, the salaries of budgetary employees will grow every year.

  Decision-making officials in the Government said that the implementation of this draft law aims to set up a single and flexible salary pay system, based on individual professional performances of employees. The enforcement of this law will require a three-fold rise of salaries of budgetary employees. In addition, the minimum salary is expected to grow from 200 Lei (13 Euros) up to 450 Lei (about 30 Euros). As for example, the minimum salary in Romania accounts for 90 Euros. Finally, at least 3.2 billion Lei (254.4 million Dollars) or the equivalent of 40 percent of budgetary incomes for 2005 will be needed for implementation of this law.

• The cabinet approved a draft decision of the parliament which calls for transmission of key public services to concession¹. It envisages six agencies in charge with: water supply; heating; sewerage and cleaning of used and pluvial water services; cleaning services; planting of trees and bushes; local public transportation and administration of public and private housing fund.

  The executive also established the mandatory clauses of a concession contract. They include among others: capital investments in development and modernization of services; assuming of spending and risks for exploitation of granted units by concessionaire; impossibility to transmit these units to a third side, etc. An important condition indicated by this draft is that units be returned after expiration of the concession contract, without any material damages and harms.

  The authorities will be able to control the economic-financial activity of the concessionaire through an independent auditing firm, without intervening in its operational activity. The term of concession will be established with the agreement of people who will lease the services, but it must be at least 25 years.

• The Government approved the action plan of the executive for the 3rd quarter of 2005. The executive will approve in the 3rd trimestre the strategy on development of agricultural production trade; single mandatory health insurance programme for 2006; medium-term programme on capital investments financed from state budget (2006-2008); will examine the draft state budget law for 2006 (on August 26); draft state insurance budget for 2006 (on September 12), etc.

3. Presidency

3.1. Constitution of the National Sustainable Development and Poverty Reduction Council

President Voronin has issued a decree on constitution of the National Sustainable Development and Poverty Reduction Council. The key mission of the council is to coordinate the implementation, monitoring, evaluation and updating of the Economic Growth and Poverty Reduction Strategy Paper (EGPRSP). The President heads this council, while Speaker Marian Lupu and Prime Minister Vasile Tarlev were appointed as deputy chairmen. The council also comprises presidential advisers Oxana Domenti, Oleg Reidman, and Nicolae Ungureanu, chief adviser for the prime minister.

According to the regulation of the council, this body is aimed to coordinate the strategic planning actions in the area of social-economic policy for a sustained development of the country and improvement of living standards of population. The council will work in compliance with EGPRSP, other normative documents and articles from its activity regulation².

Economic Policies

1. Prices

Season reductions...

The consumer price index (CPI) dropped by 0.8 percent in June compared with May 2005, mainly due to the season-related decline of prices on food. Indeed, summer months register significant declines of prices on food, and thus a deflation. The inflation in June validated our forecasts and a deflation was registered for the first time this year. The cumulated annual inflation rate was 4.7 percent in the first half of 2005.

...affected by structural factors...

The recent continued rise of fuel prices will influence most sectors of the national economy. In addition, dangers for the annual inflation target of 8-10 percent do not come only from potential rises of tariffs for public transportation, natural gas or electricity after increase of tariffs by Gazprom. Reflected in many of consumer prices, the price of fuel is also a serious threat. As a general rule, the rise of fuel prices (oil products, natural gas) will create economic and psychological premises needed for boosting prices on most food and manufactured goods very soon.

...and less so internal factors

The cabinet decision on raising VAT from 5 percent up to 20 percent for agricultural products supplied by local producers to domestic market raises doubts over level of macroeconomic indicators. The Government needs budgetary resources for sure. However, the additional incomes which will be raised from this tax will be insufficient. If it finds them from other sources than VAT, we will probably register an inflation rate lower than 10 percent in 2006. In addition, the planned reduction of income tax and corporate profit tax will also affect the potential inflation for 2006. We think that the inflation rate for 2006 will also depend on fiscal policy that the Parliament is to adopt in this period.

Indicators, Prices, 2005 January February March April May June Inflation rate, % compared with the precedent month 1,2 2,1 0,8 1,4 0,1 -0,8 Growth of prices on food, % 2,6 2,8 0,9 1,8 -0,3 -2,3 Growth of prices on manufactured goods, % 0,4 0,6 1,0 1,3 0,6 0,4 Growth of tariffs on services rendered population, % -0,7 2,4 0,2 0,8 0,1 0,8 Inflation rate, %, last 12 months 12,9 12,1 13,6 15,0 14,5 13,5 Cumulated inflation rate, % since early 2005 0,6 0,2 0,4 5,6 5,7 4,7

Sources: BNM, BNS

2. Financial-bank system

International reserves rose...

The international reserves of the National Bank of Moldova (BNM) rose by 9 million Dollars in June, up to 482.6 million Dollars. The central bank had an active enough participation in the interbank currency market in June, too, as it purchased about 16.4 million Dollars. BNM bought about 65 million Dollars on the interbank market in the first half of 2005. The continued rise of currency supply was mainly fueled by remittances of Moldovans who work abroad. Independent experts forecast that Moldovans will transfer more than 700 million Dollars through bank channels alone this year.

According to a study undertaken by the International Organization for Migration (IOM), about 600,000 Moldovans work abroad, or 40 percent of the economically active population at end-2003, and more than 70 percent of them work illegally. Most of them send money home to cover current consumption spending.

Commercial banks continued the modest reduction of interest rates, so that the volume of credits issued to population was on the rise in the past two months, especially consumer loans. We think that interests on deposits and credits will not drop anymore because of intensification of inflationary expectations.

..due to instability of exchange rate

The Leu/Dollar exchange rate did not change a lot in June-July 2005, while the average rate was 12.59 Lei per Dollar. The "advance-collapse" evolution of Euro versus Dollar was mainly influenced by external factors, so that the Leu/Euro exchange rate changed significantly and the Leu rose against Euro up to 15.3 Lei per Euro in late July.

As for the further "fate" of Leu, BNM will promote a policy aimed to make the exchange rate more flexible, in the context of maintenance of a controlled floating regime. Perhaps, the demand or supply will be influenced, but the exchange rate will be "floating". Even more, the Leu is on the rise and this would affect the exports.

3. Labour market

More than half of Moldova's population spends less than one Dollar a day...

The average salary in economy accounted for 1,219 Lei (about 97 Dollars) in January-June 2005, by 16 percent over similar period in 2004, but it dropped by 4 percent compared with May 2005, when the average salary in economy amounted to 1,270 lei. According to a newsletter entitled "Poverty in the Republic of Moldova-2004" produced by the Economics and Trade Ministry, every seventh citizen of Moldova or 14.7 percent of population lives below poverty margin, while every forth citizen or 26.5 percent of population lives below extreme poverty line. The poverty level was calculated on basis of consumption spending for a person of medium age compared with the minimum consumption basket. The monthly minimum living average was 670 Lei in 2004.

According to studies undertaken by the World Bank and UNDP, Moldovans are the poorest nation in Central and Eastern Europe, earning a minimum salary of 13 Euros or 200 Lei a month. The international standards accept a poverty level for a one-Dollar daily income, but Moldovans spend 0.8 Dollars or 10 Lei a day. As much as 25-30 percent of active people in Moldova live below poverty line. They do not eat 2,500 calories a day through the minimum consumption basket.

...while lack of education of labour force is a cause of poverty

Many local analysts fear that the low education level of human resources in Moldova is one of the causes of poverty. Agriculture and processing industry, which are exclusively based on manufacturing, continue to maintain the labour force at a low level. Perhaps these products do not have a high added-value. The big problems faced by Moldova on foreign markets have their origins here.

Indicators Housekeeping, 2005 January February March April May June Medium salary on economy, Dollars   89,1 95,6 101,4 101,6 97 Growth of retail sales of goods, %, cumulated for this year 6,1 2,8 3,0 5,5 6,4 7,3 Growth in services rendered to population, %, cumulated for this year 6,8 6,0 5,3 7,4 8,3 9,1

Source: BNS (National Bureau for Statistics)

4. Trade

Wine production accounts for 1/3 of Moldovan exports...

Moldova exported production worth 424 million Dollars in January-May 2005, 11 percent over the similar period of 2004. Imports accounted for 819 million Dollars, and rose by 31.3 percent compared with January-June 2004. The trade balance deficit for the first five months of 2005 amounted to 395 million Dollars, and grew 1.6-fold, compared with the similar period of 2004.

The wine production represents 30.4 percent of overall exports for that period or 128.8 million Dollars. Moldova exported 25.4 million deciliters of wine, which is a 15-percent rise. According to competent specialists, the growth of exports was a result of the rise of production. Moldova ranks the 11th place in the top of the biggest wine exporters in the world. Moldovan wines account for 1.2 percent of the world wine export.

5. Real sector

Industrial production posted a modest recovery...

Industrial enterprises of all forms of property made production worth about 9.3 billion Lei in current prices in January-June 2005. The industry posted a 4.6-percent growth for the first half of this year, compared with the similar period of 2004. Also, the added- value in industry grows more slowly than the production value because of the faster rise of production costs (especially of energy).

The slowdown in the growth pace in industry sector in the latest period is a result of the low capacity of the market, rise of stocks, obsolete equipment of enterprises, and low level of investments, rather than of the use up of extensive factors. Enterprises monitored by the Ministry of Industry and Infrastructure registered a 7.1 percent growth in the first half of this year, compared with the 4.6 percent rise on industry in general. The monthly growth dropped over 2-fold compared with the similar period of 2004, when a 13.1 percent rise was registered.

Transdnistrian Conflict

On 22 July, the Moldovan Parliament adopted in two readings the Law on the Basic Provisions on the Special Legal Status of the Transnistrian Region. The draft law was prepared by the Moldovan President Vladimir Voronin and was discussed by an ad-hoc parliamentary panel composed of representatives of all parliamentary factions.

According to the adopted law, the Transnistrian region is proclaimed as a territorial administrative unit within the Republic of Moldova, which will exercise its competences in accordance with the Moldovan Constitution. The Transnistrian autonomy will include those localities that will decide so through referendum. The Transnistrian autonomy will be represented by a local legislative body, the Supreme Council. The first elections to this body will be organised by the OSCE only after the withdrawal of the Russian troops and weapons, the demilitarisation and democratisation of the region.

The Law provides for the adoption of a new Law on the special legal status of Transnistria, which will delimitate the powers between the central public authorities and the Transnistrian ones, and will provide for a system of guarantees to be determined within negotiations.

President Voronin qualified the day of adoption of the Law as a "historical" date and said that from that day on Moldova "will not sit and look how Transnistria is becoming an exchange currency in someone's geo-strategic politics, but will get involved actively in the resolution of this problem", according to the Chisinau based Info-prim agency. At the same time, Voronin said that Chisinau would not negotiate with Tiraspol the status of the region, but only matters related to the demilitarisation and democratisation of the region, two key conditions for a final settlement of the conflict.

In a TV show on 23 July, William Hill, the Head of the OSCE Mission to Moldova, welcomed the adoption of the Moldovan Law and mentioned that the most important thing is that the law guarantees a special status for Transnistria within the Republic of Moldova, according to Infotag. The delegation of powers and parties' guarantees will be discussed after democratic elections are held in the region, said Hill, for whose organisation the OSCE will provide assistance. Hill said it was improbable that these elections will be held by the end of 2005 and regretted an eventual decision by the Tiraspol administration to call elections to the Supreme Soviet in December 2005. "In the event that these elections take place, they will have the same fate as the previous ones: they will not be recognised by the OSCE, the Council of Europe and the international community ", Hill was quoted by Infotag as saying.

As for the reaction of the other participants in the current five-sided negotiations mechanism, the main objection of Ukraine, Russia and the Transnistrian authorities was that the Moldovan Parliament adopted the law unilaterally, without consulting the Transnistrian side.

Dmitri Tkaci, Ambassador with Special Missions within the Ukrainian Foreign Ministry stated within an interview to Radio Free Europe on 26 July that the Republic of Moldova is a sovereign state and its Parliament can adopt the laws it considers necessary, but that Ukraine believes that some elements from the law adopted in Chisinau go over the limits of the first stage of Yushcenko's plan. These elements are part of the second stage which is to follow after the elections to the Supreme Soviet and will involve the participation of the Transnistrian side in the drafting of the special legal status of Transnistria should the elections be recognised as free and fair. Moreover, Tkaci said, the law omits a number of important provisions agreed earlier between the parties, such as the guarantees to Transnistria in the event that Moldova changes its legal status. Regardless of these shortages, Ambassador Tkaci said, the Law is a good starting document for further discussions and the important thing is that the law delimitates Transnistria as a region with its own legislative body and it creates the necessary premises for conducting democratic elections for it. According to Tkaci, in Odessa in the near future will be organised a new round of consultations at which the problematic elements of the law will be discussed as well as such issues as the deployment of an EU border monitoring mission and the organisation of an international inspection of the Transnistrian military-industrial complex. It is worth noting that during his visit to Kiev on 19 July, the EU High Representative for CFSP Javier Solana handed in to President Yushcenko a letter from him and the EC President Jose Manuel Barroso in which the EU pledges support for the monitoring of the Ukrainian-Moldovan border, in reply to a joint letter from Presidents Yushcenko and Voronin.

The Russian Federation has not published an official reaction to the Moldovan Law yet, but in a Radio Free Europe interview with Ambassador Nesteruskin, Russia's Special Representative to the negotiations, the latter implied that such important laws may not be adopted unilaterally. Earlier, the Russian Foreign Ministry published a communique in which it rejected the blueprint of the law being drafted in Chisinau at the time without the participation of the Transnistrian side.

On the other hand, according to Russian news agencies, quoted by Radio Free Europe, the Transnistrian leader Igor Smirnov said that by adopting the 22 July Law, Moldova "buried" for good the Yushcenko plan, and that he will negotiated with the Moldovan authorities only within the limits of the mandate he has from the Supreme Soviet, which only involves negotiations over the creation of a confederation with Moldova. It is worth noting that on 14 July Igor Smirnov, accompanied by a numerous delegation of Transnistrian administration representatives, made a visit to Kiev, at the invitation of the Ukrainian President Victor Yushcenko. According to the official Transnistrian news agency Olvia-press, as a result of this visit Igor Smirnov reaffirmed his support for the Ukrainian initiative and agreed to a series of measures to "normalise the Moldovan-Transnistrian relations". These included the resumption of the negotiations process and the invitation of the US and EU representatives to joint it as observers, the consolidation of the Ukrainian peace keeping mission, the deployment of an international border monitoring mission under the EU aegis, etc. Notably, Smirnov's visit to Kiev passed almost unnoticed in the Moldovan press and only many days later President Voronin declared that the visit was coordinated by the Moldovan and Ukrainian authorities and its purpose was to get the Transnistrian side to accept the Ukrainian settlement plan.

Foreign Affairs

1. EU Troika visited Republic of Moldova

EU delegation including Adriaan Jacobovits de Szeged, EU Special Envoy for Moldova; Andrew Key, representative of UK presiding EU, Director of the Northern and Eastern Europe Department of the UK Foreign Office; Hilde Hardeman, Interim Director of the Department for Ukraine, Moldova and Belarus of the European Commission; and Josef Litschauer, Regional Director of the Austrian Ministry of Foreign Affairs.

High on the agenda during Troika's meeting with President Voronin were: enforcement of the EU-Moldova Action Plan, especially reforms in justice and economy; settlement of the Transdnistrian conflict; joint letter signed by Presidents Vladimir Voronin and Victor Yushenko on international monitoring of the Transdniestrian - Ukrainian border; withdrawal of Russian weaponry and troops from the RM soil, etc.

At issue during the meeting with Parliament leadership were the legislative program to be adopted by the legislators in view of enforcing RM-EU Action Plan, EU technical assistance via TACIS program, and other projects.

Studies, Analyses, Comments

Was the "national consensus" rescued?
Cristian Untila, 29 July 2005

A very strange thing could be outlined during latest debates within sittings of the Parliament, broadcasted live on television and radio - the representatives of the Our Moldova Alliance faction excel in criticism against actions and drafts of the Government

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Transnistria Economy: Regional Dimension
Galina Selari, 29 July 2005

The new challenges, events and decisions of the last years (2000-2005) that brought about worsening economic relations between Moldova and Transnistria (so-called "economic blockade", boosting privatization process and its legitimacy, autonomy of the region's infrastructure), highlight the economic component of the "Transdnistrian issue"

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