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Activity of Public Institutions

Government
Presidency

New municipal elections by Igor Botan
GDP is on the rise despite unfavorable circumstances by Iurie Gotisan

Activity of Public Institutions

Government

1.1. Appointments

During its September 14 session Government appointed MP Mihail Camerzan as Republic of Moldova Ambassador to Portugal. The diplomatic mission was opened in early 2005 and the position so far was vacant.

Currently, Mihail Camerzan is a deputy in Parliament on the Communist Party list. Over 2001-2005 he hold the position of Deputy Speaker. Coming to Parliament on the Braghis Alliance list he left the faction once appointed as Deputy Speaker. Over 1998-2001 Camerzan was the Secretary of the Parliament Permanent Bureau being in the "For a Democratic and Prosperous Moldova" faction headed by Dumitru Diacov.

Noteworthy, 9 Communist deputies resigned since March after being promoted to various positions in the central government. Recently Government proposed appointing another former Communist deputy Ion Filimon as Republic of Moldova Ambassador to Belarus. Ion Filimon is the 87 on the Communist candidate list.

In 2001 Parliament passed the Law on Diplomatic Service providing certain conditions for candidates to diplomatic service, such as: previous experience in diplomatic service, serving in the relevant ministry or other institutions specialized in international affairs, fluency in at least one foreign language.

1.2. Sessions. Resolutions

Computers for schools

During a working session convened by Prime-Minister with the participation of education officials it was found that the enforcement of the "Salt" (Leap) plan is delayed. Only 85% of the schools have computers, it is planned that by the end of September each Moldovan school would have at least one computer. There are no figures on the average number of computers in each school, or their access to Internet.

"Salt" program was initiated back in 2004 by the President in view of providing each Moldovan school with computers having access to internet. According to the Ministry of Education, there are no computers in over 250 schools, while only 54% of the schools have computer classrooms (on average 50 children per computer), the great majority of which being opened back in 1997-1998.

In late 2004 Government approved a Resolution (No 1424-22.12.2004) on enforcing "Salt" program obliging Ministry of Transportation and Communications to provide free access to internet to schools by September 1, 2005. The same resolution obliged the Ministry of Education and Ministry of Finance to find the resources necessary for purchasing 6,000 computers for schools.

Government also entrusted local councils to purchase the equipment for networks rayon of the and municipal education departments, as well as allot funds for intern connection and provide Internet services to schools. Experts say it was because of this delegation of responsibilities that the plan's enforcement was delayed as the local budgets were already approved.

Currently there are over 1,600 education institutions in the Republic of Moldova (schools, gymnasiums, lyceums and colleges). A school in rural area would need at least 10-12 computers, with an average 8,000 MDL per computer (636 USD). Albeit the "Salt" program is about to be complete in several months, there are no data on the number of computers purchased from state funds, their price, nor whether the copyright law was observed.

1.3. Resolutions

Exemptions from taxes in agriculture

On its September 14 session Government approved a string of amendments canceling some agricultural taxes. As of 2006, agricultural farms would only pay land tax (worth 1.5 MDL (0.12 USD) for hectare) and social security tax. Legal entities and farms would be exempted from a number of taxes, namely: income tax; real estate tax; territory planning tax, water and road fund. It is estimated that the amendments would deprive local budgets of 35 million MDL(2.8 billion USD) yearly.

Under a special law approved by the Parliament, over 2004-2005 a pilot project was implemented in Taraclia whereby a single agricultural tax was approved, however its results haven't been made public yet. There are evidences that the project failed, while via its new initiative the Government attempts to diminish the negative effects of VAT, which is to be applied commencing 2006.

Noteworthy, this issue might trigger some controversial debates in Parliament, as many deputies claimed the move would give rise to embezzlement, but also protests from local government deprived from its sources of revenues.

Approval of 2006 budget

Government approved draft state budget and draft social security budget for the next year, draft law on obligatory medication insurance for 2006, as well as mid-term expenses forecast (2006-2008).

The Government prepared a few surprises for tax-payers, namely:

1. Raised VAT: - A 20% VAT shall be applied for fito-technical, zoo-technical and horticular goods; cancelled VAT exemptions on import of pesticides and machinery; 8% VAT shall be applied on import and delivery of medicines;
2. Introduced new taxes: private tax (1% on privatizing units in state property); 0.8% tax to commercial banks when paying taxes to the state.
3. Preserved the highest 20% quota on income tax paid by natural entities on amounts exceeding 21,000 MDL (167 USD) yearly/ 1,750 MDL (139 USD) monthly.
4. Raising to 3% the social security tax paid by the employee.
5. Raising by 151 MDL (12 USD) the obligatory medical insurance, worth 816 MDL (65 USD).

The draft budget also allots 170 million MDL (13.52 million USD) for the "Moldovan Village" National Program. According to initial estimates the program was to cost over 45 billion MDL (39.8 million USD) in 2005-2015, out of which 7 billion MDL (356.7 million USD) were to be spent over 2005-2006. Annually around 160 million MDL (12.7 million USD) are needed for renovating water supply and sewage networks, for extending gas networks - 200 million MDL (15.9 billion USD), and for environment - about 500 million MDL (39.8 million USD).

When the draft budget was presented, Prime-Minister insisted on "consulting public opinion". All our attempts to send our propositions to Government and Ministry of Finance from their official web page www.moldova.md (where the document was posted for public debates) failed. On top of that, trade unions and employers' union submitted a package of recommendations, while Government again failed to take many of them into consideration (especially as regards salary raise, investments, and support of agriculture, etc).

Presidency

• Foreign affairs were high on President's agenda after he returned from vacation, firstly he attended 60th UN General Assembly in New York. Moldovan President had a number of bilateral meetings while in US, namely with Havier Solana, Council of Europe Secretary General; Nick Burns, Secretary on political affairs of the US State Department; Steven Mann, State Department negotiator on Eurasia conflicts; Traian Basescu, Romanian President as well as representatives of other international organisations (UNICEF, UNDP, etc). At issue during the meetings were regional security, international assistance in securing Moldovan-Ukrainian border, Transnistrian conflict resolution.

  Official press remained tight-lipped on whether international moguls proposed concreted assistance and guarantees mechanisms to support Chisinau in settling Transdnistrian conflict. Nor did it release any information on whether President Voronin met President Putin, and if so, did Transnistria came up during discussions.

  During the 60th UN General Assembly session President Voronin signed a number of international treaties: Optional Protocol to International Pact on Civil and Political Rights adopted on December 16, 1996 in New York; Optional Protocol to Convention against Torture and other Inhuman Treatment adopted on December 18, 2002 in New York; International Convention on Suppressing Nuclear Terrorism, adopted on April 13, 2005 in New York.

• Back from in USA, on September 21 President Voronin paid a brief visit to Ukraine. The Two Presidents talked resuming negotiations on Transnistrian conflict resolution within a new format by involving EU and US.

  President Voronin and Yushenko signed a joint address to OSCE on preparations for democratic elections in Transnistria. An OSCE evaluation mission is to be invited to present recommendations to the future international election commission in view of preparing and hosting democratic elections to Supreme Council of Transnistria.

  The Two Presidents also talked cooperation with EU in monitoring Moldovan-Ukrainian border as of December 1, 2005.

  Voronin and Yushenko asked Moldovan and Ukrainian customs to coordinate the procedures for declaring the goods crossing Transnistrian portion of the Moldovan-Ukrainian border in line with the laws of the two countries. Noteworthy, previous attempts by Moldovan authorities to win full support of their Ukrainian counterparts on this issue have failed.

• On September 25 Vladimir Voronin met in Iasi his Romanian counterpart, Traian Basescu. High on the agenda were bilateral relations, regional and international cooperation. Transnistrian conflict resolution was yet another central issue on the agenda. Traian Basescu pledged Romania's full support in Republic of Moldova reintegration.

  Economy took centre stage in the relations between the two countries as the Two Presidents reviewed prospects of joint energy programs to be funded by European community.

  Finally, Voronin and Basescu talked cooperation between the two countries in view of EU integration. Romanian President offered his country's assistance to Republic of Moldova in implementing acquis comunitar and EU-Republic of Moldova Action Plan.

  On the eve of the meeting, Romanian border control denied access of several buses with Moldovan citizens to Romania on the grounds they did not have enough money on them. It is not clear whether the issue was discussed by the Two Presidents.

Economic Policies

1. Financial-bank system

International reserves are on a continued rise...

The international reserves of the National Bank of Moldova (BNM) accounted for 585.6 million USD on September 10, by 115.3 million USD more than on January 1. Statistics confirm one more time that the international reserves of BNM could exceed 600 million USD by late 2005, a figure forecasted by BNM officials early this year.

The international reserves are mainly completed from purchases of currency on domestic market within monetary mass sterilization operations carried out by BNM, besides sources raised from their placement in different financial tools which ensure an interest rate. Besides securities valued at 177.2 million USD, most of international reserves are stored as forward reserves and placements (408.2 million USD).

...crediting of economy is also on the rise

In addition, the share of released credits rose by 4.3 percent in the first and second trimesters of 2005, up to 7.5 billion MDL (596.6 million USD), according to BNM statistics. About 50 percent of contracted credits went to industry and commerce, while agricultural enterprises got 24.7 percent of loans. The share of small credits rose by about 24 percent in the first half of this year, and turned over 1.4 billion MDL (112 million USD). As much as 25.6 percent of these credits went to business development, while consumption credits grew by about 17 percent.

Remittances of workers from abroad likely to exceed on billion USD

At the same time, Moldovans working abroad transferred 280.4 million USD home in the first half of this year via commercial banks. More than 192 million USD out of this amount was transferred via rapid transfer systems. Remittances accounted for 119.8 million USD in the 1st quarter of 2005, and they amounted to 160.6 million USD in the 2nd quarter of this year.

The largest remittances in the 1st quarter were registered in April - 57.44 million USD, while the smallest remittances were recorded in January - 31.57 million USD. Independent experts say that the equivalent of one billion USD is transferred to Moldova a year on different ways, including the bank system.

On the other hand, data of the World Bank for 2004 show that the largest remittances of emigrant workers via bank system are typical to India -10 billion USD, followed by Mexico 9.9 billion USD, the Philippines 6.4 billion USD, Marocco 3.3 billion USD, Egypt 2.9 billion USD, Turkey 2.8 billion USD, Lebanon 2.3 billion USD, Bangladesh 2.1 billion USD, Jordan and Dominican Republic by 2 billion USD each.

Garantinvest awards first financial guarantee

The interbank society Garantinvest has introduced a new financial service - guaranteeing of credits, and awarded the first financial guarantee to an entrepreneur from Leova for a 100,000-MDL credit. The entrepreneur intends to use this money for purchasing building materials and equipment in order to construct a depot.

The Rural Financing Corporation, ProRuralInvest Association, and seven commercial banks including Moldova-Agroindbank, Savings Bank, Victoriabank, Eximbank, Mobiasbanca, Energnank, and Banca Sociala founded Garantinvest last February. Garantinvest holds a social capital of about 4.5 million MDL (356,000 USD) and guarantees investments from portfolio.

2. Foreign trade

Sugar exports have increased

The sugar sales rose by about 17 percent in the first eight months of this year due to rise of exports, up to 67,000 tons. Moldova exported 12,500 tons of sugar during the said period, compared with 5,200 tons in January-August 2004. In particular, the exports rose after Chisinau and Moscow eliminated obstacles on way of sugar trade. At the same time, Moldova exported 2,600 tons of sugar to Romania.

Overall, 54,300 tons of sugar were sold on domestic market, compared with 51,900 tons in January-August 2004. Sudzucker-Moldova sold 33,400 tons of sugar, while Marr Sugar Moldova traded 20,900 tons.

3. Moldova in the world

Moldova is ranked in the middle of rating regarding business favouring index...

Moldova is ranked the 83rd place among 155 states in a standing based on business favouring index for 2004, drafted on basis of the World Bank's report "Doing business in 2004". The relatively low index places Moldova on the 83rd spot in the CIS, after Armenia and Russia, which rank the 46th and, respectively, the 79th places. Moldova is followed by Kyrgyzstan as regards the freedom of entrepreneurial activity, and the latter ranks the 84th place, while Kazakhstan is ranked the 86th spot, Azerbaijan the 98th, Georgia the 100th, Belarus the 106th, Ukraine the 124th, and Uzbekistan the 138th. New Zealand, Singapore, the United States, Canada, Norway, Australia, Hong Kong, the United Kingdom, Japan, Ireland, and Iceland lead the rating.

...but complicated regulations in real sector direct to a higher unemployment rate

The performance in business sector is in a deep connection with the number of jobs. Thus, New Zealand, world leader regarding business success, registers a 4.7 percent unemployment rate, while Greece is ranked the 80th with 11 percent of its active population is jobless. Business remains in shadow because of legislative and administrative obstacles, and this reduces the job opportunities and obstructs the access to social protection. Youth and women are the worst affected categories, if taking into account the fact that ¾ of illegal workers in the world are women.

Also, Doing Business report does not take into account the macroeconomic policy, quality of infrastructure, stability of profit, perception of investors, and crime rate. The new study of the World Bank has examined new indicators such as licence awarding, foreign trade and taxation besides the seven indicators concerning change of business climate, starting a business, employment and lay-offs, implementation of contracts, registration of goods, contracting of credit, protection of investors, and closure of business.

Transdnistrian Conflict

On 22 September the electoral campaign for the elections to the Supreme Soviet (the de facto local legislative body) determined for 11 December 2005 started in the break away region of Transnistria. The 43 deputies will be elected for five years according to the principles of a majoritarian electoral system within single mandate electoral constituencies, half of which will be organised in Tiraspol and Tighina (Bender) towns. 418,468 voters are expected to participate in the poll; the number of voters has been calculated according to the results of the population census conducted by the Transnistrian authorities in October 2004, and which have showed that at present the region is populated by approximately 555,000 inhabitants (see http://www.olvia.idknet.com/ol37-09-05.htm for more results). For the holding of elections, 1.2 million Transnistrian rubles or around 150,000 USD have been allocated from the local budget.

The elections will take place on the basis of the Transnistrian "constitution" and electoral laws - the latter have been recently reviewed by a panel of the Russian State Duma, which found them in full compliance with existing international standards in the field. In the near future, the Central Electoral Commission of Transnistria will send letters of invitation to several states and international organisations to observe the elections, including to the central electoral bodies of the CIS states and the states of the so-called "CIS-2", the organisation of non-recognised states from the CIS.

Both the Moldovan authorities and the OSCE said they will not recognise the results of the 11 December elections.

The organisation of free and fair elections in Transnistria was one of the key subjects discussed by President Vladimir Voronin during his meeting with his Ukrainian counterpart Victor Yushcenko on 21 September in Kiev. As a result of the meeting, the two Presidents signed a joint letter to the OSCE in which they have called upon the OSCE to take the necessary steps to set up an International Electoral Commission to organise the elections to the Transnistrian legislative in compliance with the OSCE standards. During a press conference organised on 22 September in Chisinau, the Head of the OSCE Mission to Moldova, William Hill, said that a first step towards meeting the two presidents' request would be to conduct an objective assessment of the situation in the region, and that the OSCE is already looking into this. According to a technical document drafted at the Mission, the OSCE would need around eight months to organise democratic elections in Transnistria. The OSCE however will start dealing with this only after a political decision on the matter is reached.

During the same press conference, Hill outlined the key points on the agenda of the meeting of the participants in the Transnistrian negotiations process that is to take place on 26-27 September in Odessa. Thus, in Odessa, representatives of the Republic of Moldova, Transnistria and the mediators on behalf of the OSCE, the Russian Federation and Ukraine will discuss about the resumption of the negotiations process, the holding of democratic elections in Transnistria, problems related to the democratisation of the region, the monitoring of enterprises from the Transnistrian industrial-military complex and of the Moldovan-Ukrainian border. Also, the meeting will examine the proposal to extend the negotiations format by inviting the EU and US to join it as observers. According to Hill, the agenda of the meeting was accepted both by Chisinau and Tiraspol, but "judging from consultations, the parties view each of these problems in their own way".

We would like to remind our readers that the negotiations process has been stopped since Moldova suspended its participation in it in August 2004 in sigh of protest against the policy of the Transnistrian authorities on the Moldovan Latin script schools from the region. The Moldovan side has also stopped for several months now its participation in the work of the Joint Control Commission, the body created through the 1992 ceasefire agreement to monitor the situation in the security zone, in response to the illegal instalment of Transnistrian customs and check points in the security zone.

In a different development, the EU decided to deploy by 1 December at the latest a border mission on the Moldovan-Ukrainian border, which will consist of 50 representatives of border and customs services. The mission will be led by the EU Special Representative for Moldova, Adriaan Jacobovits de Szeged, and will last for two years. At the beginning of October, Moldova and Ukraine will sign a Memorandum on the Activity of the European Commission Facilitation Mission at the Moldovan-Ukrainian border, following which the EU Council will adopt the plan of activity of the mission and its funding arrangements, the cost of the mission being evaluated at 3 million US USD.

Foreign Affairs

Enforcement of the EU-Republic of Moldova Action Plan

Moldova presented in Brussels the first quarterly report on the enforcement of the Action Plan EU-Republic of Moldova. According to Deputy Prime-Minister of Foreign Affairs, Valeriu Ostalep, European officials praised the report. It features the plan enforcement, measures undertaken by the Republic of Moldova in reforming the judiciary and electoral systems, adjusting national legislation to the European one, as well as in energy, transportation, and trade. From the part of EU the following steps might be mentioned, opening a permanent EU Mission to Chisinau scheduled for October, allocating funds for enforcement of the Action Plan in 2006. Ostalep indicated that there Moldova stands good chances to obtain a more advanced status in relations with EU and become associated member by 2007.

To make some progress as regards free circulation of citizens and simplify visa regime, European officials asked their Moldovan counterparts to perfect the laws and procedures on migration and border control. Noteworthy, the Report on the enforcement of the EU-Republic of Moldova Action Plan wasn't made public, nor were inter-ministerial and departmental programs on enforcement of individual plans.

GUAM perspectives

President Voronin declared that the future of GUAM depends on whether some concrete problems would be solved, namely transportation of oil and gas from Caspian sea to Europe. Voronin believes that only if oil and gas bypassed Russia, GUAM wouldn't morph into an apathy structure, like CIS.

Noteworthy, initially Moldova was quite reserved towards the international structure established on the post-soviet arena, joining Russia in criticizing GUUAM for serving US interests in the region. However, when relations with Russia cooled down, Moldova changed the vector of its foreign policy, fully endorsing GUUAM, especially in the hope to reap some economic benefits.

Wine export to Russia unclear

On the eve of Odessa negotiations on Transnistria, Russian media reports on restrictions to be set on the imports of alcohol from Moldova - thus reviving the talks on trade war between Russia and Moldova. Reportedly, Russian federal customs service stopped issuing excises to the importers of alcohol from Moldova, thereby blocking the imports, which might affect wineries of Moldova.

On September 16, "Moldova-Vin" State Agency, Union of Wine Exporters of Moldova and National Association of Participants to Russia Alcohol Market signed a Cooperative Agreement on promoting Moldovan alcohol on the Russian market. The agreement provides for some favourable conditions for the sale of Moldovan wines and cognac on the Russian market, provided they are of high qualify and certified accordingly.

Republic of Moldova exports up to 85% of its wine to Russia, holding a 60% share market. Noteworthy, Russian businesses are the main investors in Moldovan wine industry owning the biggest companies.

In February 2005, Russian Federation State Duma asked Russian Government to examine the possibility of limiting or stopping the import of Moldovan wine, citing among others the poor quality of the wine.

Recently Ministry of Agriculture and Food Industry announced that it would be possible to resume the export of fruits and vegetables to Russia in October, after an almost six months ban. Exports would resume only after Russian experts inspect in Chisinau all goods that are to be shipped to Russia.

Studies, Analyses, Comments

New municipal elections
Igor Botan, 26 September 2005

Albeit CEC resolution on setting the date of new elections follows precisely the law, still it gives the impression that it is not timely

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GDP is on the rise despite unfavorable circumstances
Iurie Gotisan, 26 September 2005

Despite some negative circumstances, GDP is on the rise

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