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Activity of Public Institutions

Parliament
Presidency

Statistical trends vs. economic expectations by Iurie Gotisan

Activity of Public Institutions

Parliament

1.1. Legal acts

Law on organisation of civil (alternative) service. The civil service is a useful and voluntary state service, which is an alternative for Moldovan citizens who cannot serve in army for religious, moral, humanitarian convictions and similar reasons. The civil service is not a punishment.

Law on use of regenerating energy resources. The document included provisions from drafts on bio fuels, promotion of electricity made from regenerating energy sources.

Law on protection of industrial drawings and models. It regulates the relations developed during creation, legal protection and use of industrial drawings and models and aims to guarantee the efficient exercising of awarded rights.

Law on Border Guard Service. It establishes the legal, economic and organisational bases for activity of the Border Guard Service, a central administrative authority which implements the state policy on guard, supervision and control of state border, with the purpose to combat the transborder crime including illegal migration. The document is part of the package of the European Union – Moldova Action Plan.

Law on industrial parks. It regulates the creation and functioning of industrial parks, financing of their infrastructure. It stipulates the modalities of creation of industrial parks on basis of public assets (of state, central and local bodies) and methods of building industrial parks on public-private partnership principles.

Law on awarding of single compensations to some categories of rural residents for connection to natural gas pipes. The compensations will be worth 750–1,500 lei and aim to attract specialists in rural areas. At present, the cost of the connection is different in diverse localities, reaching 15,000 lei.

Decision approving the object of concession and mandatory clauses of the contract on concession of activities for prospecting and exploitation of petroleum and natural gas deposits. It approves the concession of activities for prospecting and exploitation of petroleum and natural gas deposits in the southern area of Moldova near the Ungheni – Basarabeasca line, with a surface of 6,300 square kilometres. If any petroleum and natural gas collections of industrial importance are discovered, the granter will be awarded the right to sign a concession contract on use of he identified petroleum and natural gas deposits. Once the decision is enforced, the Parliament will hold an international tender to attract foreign investors to carry out the geological works.

Laws on ratification of some international acts:

• The U.N. Convention Against Corruption;
• Additional Protocol to Penal Convention on Corruption;
• The Council of Europe Convention on Money Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism;
• Understanding Memorandum between Moldovan Government and U.S. European Command for the MEDCEUR – 2007 Exercise;

Draft law on modification of some legal acts (introduction of the Legal Inspection). Under the draft approved in the first reading, the inspection will advise the Superior Council of Magistracy (SCM) and will be in charge with checking the respect for discipline and ethic of judges, other aspects related to appointments and promotions of magistrates. Inspectors will be elected by SCM and the basic condition for candidates will be to have a "legal experience of at least 10 years and a good reputation."

Draft law on modification of the law on Government. According to completions approved in the first reading, a new central institution called the Agency "Apele Moldovei" (Waters of Moldova) will be created to advise the executive after the reorganisation of the state Concern "Apele Moldovei". The new agency will ensure the efficient use of waters, the food security of the country, will contribute to renovation of irrigation systems and will implement the recently adopted national strategy on drinkable water and sewerage systems. Opposition lawmakers have criticised the draft, fearing that the new agency will enlarge the bureaucratic apparatus. Experts note that reforms in central administration are sporadically implemented in continuation, without grounded analyses (action plans on implementation of the reform strategy on central public administration did not stipulate the creation of the new agency).

Draft law on basic directions of the 2008 budgetary-financial policy. It aims to reduce the income tax for individuals, in particular, 7 percent for an annual income of up to 25,200 lei and 18 percent for the revenue over this amount. Starting 2008, a zero tax will be introduced for the reinvested income and a 15 percent tax will be introduced for the distributed revenue, including for dividends.

1.2. Parliamentary control.

The Parliament has heard and made decisions on reports concerning fields under parliamentary control:

• Report on respect for human rights in Moldova in 2006 worked out by the Centre for Human Rights (it signals the persistence of the same kinds of violations and the non-execution of previous parliamentary decisions by Government, central and local authorities);
• Report on execution of the 2006 state budget;
• Report by the Chamber of Auditors concerning administration of public funds in 2006 (it signals in continuation grave breaches related to administration of funds and state property, inefficient use of state property (incomes worth only 160 million lei), groundless contracting of state loans (released by National Bank of Moldova to Government), faulty use of the reserve fund of Government, etc.);
• Report on activity of the electronic media watchdog CCA of Moldova.

The special parliamentary commission for the problem of depositors of SA Guineia and Intercapital Concern has held a new sitting and agreed on the need to organise additional talks on actions taken by competent institutions to return the money to victims.

The Ministry of Transportation and Road Management has reported on construction of the Cahul – Giurgiulesti railway. According to the report, the railroad is being built under a May 2007 governmental decision "to improve the traffic of trains and to implement the provisions of the investment agreement on the Giurgiulesti International Port." Under the draft, the cost of the construction is estimated at 837.5 million lei overall. The Ministry of Ecology and Natural Resources, the Agency of Construction and Territorial Development, the Ministry of Health gave green light to this draft in June. Although a study on feasibility and economic efficiency of this project was required, it was not tabled so far and, therefore, opposition lawmakers have warned that the efficiency of planned expenditures is doubtful.

Questions and Interpellations

Our Moldova Alliance Deputy Veaceslav Untila has asked the Board of Observers of TeleRadio-Moldova Company to report on inclusion of political debates with participation of opposition in antenna time and respect for pluralism of opinions.

Social Liberal Deputy Oleg Serebrian has asked the Ministry of Foreign Affairs and European Integration to report on opening of Romanian consulates in Balti and Cahul and the formal reasons that halt positive solutions to requests of the Romanian side.

Presidency

2.1. Decrees

The chief of state has signed decrees on awarding and regaining of Moldovan citizenship by 18 persons. At the same time, he approved the renunciation of Moldovan citizenship by 184 persons.

Vladimir Voronin has appointed former minister of local public administration Vitalie Vrabie as minister of defence. Valentin Guznac, deputy minister of local public administration, was appointed to succeed Vrabie. However, Guznac will not be deputy prime minister, as the chief of state has omitted this quality from the appointment decree.

Under a presidential decree, the director of the Bureau for Interethnic Relations, Olga Goncearova, was awarded the Civic Merit medal for a "special contribution to consolidation of interethnic relations and maintenance of historical-cultural patrimony."

2.2. Sittings. Decisions. Statements

Permanent attention toward publishing the Encyclopaedia of Moldova

The chief of state has convoked a sitting on publication of the Encyclopaedia of Moldova and discussed issues related to preparation, elaboration of the concept and an action plan for publication of the Encyclopaedia of Moldova. A partnership agreement between Government and Academy of Sciences of Moldova will regulate the actions related to publication of the Encyclopaedia.

Meeting with representatives of the Metropolitan Church of Moldova

Vladimir Voronin has met representatives of the Metropolitan Church of Chisinau and Entire Moldova at the Monastic Complex Condrita. They discussed issues related to relations between state leadership and the Orthodox Church of Moldova, exchanged opinions about ways to fortify the social cohesion in spirit of Christian Orthodox values. They also tackled problems linked to the process of continuous restoration of historical and cultural Orthodox monuments including the Condrita Monastic Complex. It is worth to note that the Metropolitan Church of Moldova has earlier sent a letter to the chief of state, asking him to promulgate the new law on religious denominations and religious freedom that the Parliament has adopted following recommendations and expertises by the Council of Europe.

Fact-collection visit to Capriana

Moldova’s president has paid a fact-collection visit to the Capriana Monastery and collected facts regarding restoration of the Monastic Complex. The chief of state was satisfied with the volume and quality of works carried out until now, with general entrepreneur assuring him that all works for restoration of the lower side of the Capriana Monastic Complex will be completed by August 28, on the holiday of this monastery. Voronin stressed the importance and significance of the event and noted that Moldovan citizens have backed the initiative to restore the Capriana Monastery, with society consolidating itself around Christian values.

Economic Policies

1. Inflation and prices

Inflation rate meets forecasts of Government and central bank …

The consumer price index (CPI) in June was similar with the CPI registered in May. At the same time, prices of food products have dropped by 1.3 percent, while prices of manufactured goods have increased by 0.7 percent. Tariffs of services provided to population have grown by 0.2 percent. Thus, the inflation rose by 3.9 percent in January-June 2007, compared with December 2006. In particular, the inflation was 10.4 percent, a level comparable with the 10-percent target of the National Bank of Moldova (NBM) and Government for 2007. However, the risks capable to halt the achievement of this target – growth of imports and consumption, unfavourable weather and volatility of Moldovan leu compared with main reference currencies – intensified in May-June. More than that, some economists doubt over truth of official figures, saying that the "official inflation rate is distorted."

2. Public finances

About 65 percent of budgetary incomes come from indirect taxes…

The basic incomes of state budget for the first half of this year accounted for 5.7 billion lei (456 million dollars), which is by 6.3 percent more than planned for the period concerned. The level and pace of execution of the budgetary plan are impressive, as they fit the general trend typical to the past two years. Fiscal incomes amounted to 2 billion lei, while revenues administrated by customs accounted for 3.7 billion lei or by 9 percent more than planned for the first half of this year. It is worth to note that about 65 percent of budgetary collections come from indirect taxes: customs duties, excises, VAT, etc. This state of things is one more proof that the economy is preponderantly consuming.

3. Foreign trade

E.U. market continues to be main destination for Moldovan products…

The European Union has become the main destination for goods and products made in Moldova in the first five months of this year, in particular, E.U. member countries attracted more than 50 percent of the total. The share of E.U. has grown while trade exchanges with CIS have dramatically declined after the Russian Federation has banned the importation of wines and food products from Moldova. Statistics signal a decline of the CIS share from 46 percent down to 37 percent. Three out of the first five countries to which Moldova exported goods in January-May are E.U. members. Romania ranks the 1st place, defeating Russia (15.3 percent) with a share of approximately 16 percent, and Italy and Germany rank the 3^rd and 5^th places.

Textiles and items consolidate their position of main exports of Moldova growing by 24 percent in five months, while deliveries of food products, drinks and tobacco declined by approximately 34 percent. Thus, about 25 percent of Moldovan exports in the first five months of this year are "due to an active improvement of some temporarily imported goods," that mean goods processed in lohn or under similar contracts. Contracts of this kind are based on cheap Moldovan labour force.

Trade deficit for first half-year will exceed 1 billion dollars…

The trade deficit for January-May 2007 reached 825 million dollars, which is by about 47 percent more than in the similar period of 2006. This level is comparable with the 2004 deficit, when the difference between exports and imports was approximately 790 million dollars. If these trends are preserved, Moldova could register a deficit of over 2 billion dollars for 2007.

Reflections regarding deficit…

In spite of statements backing exports and industries making some products capable to replace the imports, the imports continue to grow faster than deliveries of Moldovan goods to foreign markets. Officials of the Ministry of Economy and Commerce have recently said that the domestic productive sector "cannot keep the step with internal demand," and therefore, the imports are massive. But shall it really meet the internal demand? May the comparative advantage of Moldova consist of goods that it does not consume much? This may be absolutely natural since the country has a surplus of currency and must redirect it where it came from. Why not to import tomatoes from Turkey or juices from Ukraine, if they are cheaper than those made in Moldova? Why to try reviving some industries which may be extremely expensive and inefficient instead of leaving the market alone to choose the branches in which Moldova shall be specialised?

4. Relations with foreign financiers

IMF accepts to allocate new financing to Moldova…

The Board of Directors of the International Monetary Fund (IMF) has accepted to allocate a new tranche worth 33.1 million dollars to support the international reserves of Moldova. The credit is released under the Poverty Reduction and Growth Facility (PRGF). The PRGF programme was approved on May 5, 2006, while all disbursements granted to Moldova within PRGF account for about 99.2 million dollars. The main goal is to maintain the macroeconomic stability and to encourage structural reforms, in order to give an impulse to economic growth by improving the business environment. Of course, this will activate programmes with other important financiers (for example, E.U. conditions its financial assistance with a memorandum with IMF).

Transdnistrian Problem

European Parliament Resolution on Human Rights Violations in Transnistria

On 12 July 2007 the European Parliament voted unanimously a Resolution on human rights violations in Transnistria (Republic of Moldova). The Resolution takes note of the lamentable human rights situation in the Transnistrian region and "strongly deplores the lack of respect for human rights and human dignity in Transnistria, as reflected by the trial and detention of the Ilascu Group, the denial of the liberties of the population living in that area, ignoring the right to access to information and education, resulting in widespread trafficking in human beings and organised crime." The European forum condemns the repressions, harassment and intimidations against representatives of the independent media and civil society organisations by the Transnistrian separatist regime. The European Parliament reiterates the commitment of the European Union to contribute to a lasting solution of the Transnistrian conflict and calls for a greater involvement of the EU in solving this conflict in its immediate neighbourhood, including the enhancement of the EU’s status to that of a negotiating partner.

The Resolution was initiated by the MEPs on behalf of Romania’s Democratic Party together with Ovidiu Gant of the Democratic Forum of Germans from Romania, and was supported by the European People’s Party and European Democrats Group. This is the third EP resolution on Transnistria in the past two years. Although the EP as an institution has a limited role in the formulation and delivery of EU’s Common Foreign and Security Policy, its statements have placed not once important issues on the EU’s foreign policy agenda.

It is worth noting that during the same period, the EU Special Representative for Moldova, Kalman Mizsei, referring to the Transnistrian settlement process while on a visit to Bucharest told the press there was no closed dictatorship in Transnistria, nor a monolith political structure. On the contrary, the region boasts political pluralism, a political opposition, ever stronger civil society organisations out of authorities’ control, and business executives holding other than the official views.

Budgetary crisis in Transnistria

The Transnistrian region is facing an acute budgetary crisis due to the cessation of financial assistance from Russia in 2007. The region’s 2007 budget was adopted with a deficit of about 83 mln. USD, which was to be covered by financial aid from Russia. However, in 2007 Russia stopped funding the region, and several budget lines have remained uncovered, including payments for pensions, salaries and transfers to local budgets. At present for these payments the region has gathered a debt of about 33 mln. USD.

On 11 July the supreme soviet in Tiraspol authorised a 14 mln. USD loan to the regional executive for the payment of pensions. The loan will be made from a special account created last year for the payments for consumption of Russian gas.

The decision to authorise the "state" loan was criticised by some representatives of the regional legislative, who warned that the utilisation of these funds might lead to incapacity of payment for the Russian gas and an eventual cut of Russian gas supply to the region.

The head of the Transnistrian legislative, Evghenii Sevciuc, commented in the following way the decision: "Clearly, we do not look very good in Gazprom’s eyes. This decision does not fit into any economic logic, because gas payments need to be transferred to Russia. But when one deals with two bad decisions, the one in the interests of citizens needs to be taken".

As Tiraspol leaders’ demarches to the Russian authorities to resume financial assistance to the region have failed, Tiraspol will take a series of measures to cover the budget deficit from internal sources. Thus, the regional legislative is considering a package of legislative proposals envisaging a series of "unpopular" measures with a view to raise incomes to the 2008 budget. Among the proposed measures is the institution of a tax on real estate for physical entities and a 30% increase in income tax for legal entities.

These initiatives do not enjoy the support of the large enterprises from the region. According to a representative of the Ribnita Steel Factory, the enterprise whose contribution to the regional budget accounts for about 60% of budget revenues, the increase in the fiscal burden will only worsen the situation of functioning enterprises.

The tax raise will result in a certain increase in budget revenues, however it will not solve the difficult budgetary situation in the region altogether. Thus, a boarder economic stabilisation programme is being proposed, one to also include an overhaul of the current tax system.

Russian media earlier reported that Russia would stop its financial assistance to Transnistria as a result of its irritation at the "consumptionist" behaviour of Transnistrian leader Igor Smirnov, who rejects any agreement with Chisinau, even one backed by Russia, refuses to pay Transnistria gas debt to Gazprom and only continues asking for more non-reimbursable financial assistance from Moscow.

According to Transnistrian authorities, as of 1 January 2007 Transnistria’s debt for gas consumption to Russian Gazprom amounted to 1.3 billion USD, which is 2,400 USD per inhabitant.

Foreign Affairs

European integration

NEIC sitting

A new sitting of the National European Integration Commission (NEIC) took place on July 10. According to the press service of the Ministry of Foreign Affairs and European Integration (MFAEI), the results of the June 19 Luxembourg 9th sitting of the European Union – Moldova Cooperation Council were presented at the sitting; public authorities reported how the action plans on implementation of the E.U.-Moldova Action Plan (EUMAP) were implemented in May-June 2007; the participants outlined new future tasks for implementation of EUMAP.

The ministerial press service noted that the NCEI sitting has discussed "a report by the European Commission on implementation of [EUMAP] from July 2006 to April 2007". The report was not made public.

Portugal takes over the E.U. Council Presidency

MFAEI has released a communique to welcome the takeover of the E.U. Council Presidency by Portugal for July-December 2007. According to the communique, Moldova will have the following priorities in relations with E.U. throughout the Portuguese Presidency: to deepen the political dialogue with E.U., to finish the procedures aimed to obtain the Autonomous Trade Preferences (ATP), to extend the cooperation in energy sector by jointly implementing an energy strategy, to use new possibilities of cooperation with the European Investment Bank in order to develop the infrastructure, and to launch the procedures needed for Moldova’s participation in community programmes.

Portuguese Prime Minister Jose Socrates has told European parliamentarians in his speech of presentation of the programme of the Portuguese Presidency the priorities of his country for chairing the E.U. Council till December 2007. They are: (1) the reform of treaties; (2) the modernisation of "European economies and societies"; and (3) the strengthening of the E.U. role in the world. In connection with the third priority, Portugal’s agenda includes: (a) the E.U.-Brazil summit; (b) the E.U.-Africa summit, and (c) the Euro-Mediterranean conferences (on migration, energy, foreign, economic, financial and commercial affairs).^[1]

Portugal’s priorities for foreign relations of E.U. confirm the hypothesis that the geography influences the emphases laid in this field by states chairing the E.U. Council. Unlike Germany’s special concerns with "Mitteleurope", which Germany has left behind some priorities of the present when it chaired the E.U. Council, the Portuguese Presidency focuses on its strategic interests. This is why, ideas to create a longer-term E.U. Council Presidency and an office of E.U. foreign minister, in order to meet these changes of emphases, which sometimes affect the continuity of E.U. policies were intensely promoted. These ideas are part of the European Constitution, which the French and Dutch peoples turned down in 2005, and the June 21–22, 2007 European Council resumed the talks on these ideas, reaching a compromise of principle to include them in a new draft treaty aimed to reform the institutional bases of E.U. It will be negotiated after a July-scheduled Intergovernmental Conference, so that to be released as a draft next October.

CAC

Jean Asselborn, deputy prime minister and minister of foreign affairs and immigration of Luxembourg, has said while on an official visit to Moldova on July 11–12 that his country will join the Common Application Centre (CAC) starting January 1, 2008. We recall that the CAC opened in the Hungarian Embassy in Chisinau on April 25 and receives applications of Moldovan citizens for visas of Hungary, Austria, Slovenia, Latvia, Denmark and Iceland. CAC is the first centre of this kind opened by E.U.

Bilateral cooperation

Republic of Moldova – Romania

E.U. Special Representative Kalman Mizsei has restarted talks on Romanian citizenship. He told journalists in Bucharest that Romania should restrict the citizenship awarding procedure including for Moldovan applicants. Mizsei hinted that this is also the stance of Brussels, which is seriously concerned that many citizens outside of the E.U. could receive European citizenship.

This statement has raised controversies on both banks of the Proute River and there were speculations that Mizsei has rather voiced the opinion of Chisinau authorities who do not warm the high number of applications from Moldovans for Romanian citizenship.

Elsewhere, Mizsei recommended Romania not to arrogate its role of "elder brother" in relations with Moldova but to demonstrate more understanding and good faith toward this country.

Republic of Moldova – Russia

The series of mysterious meetings between President Vladimir Voronin and high-ranking officials from Moscow has continued in the period covered by this issue of the e-journal. President Voronin met again Yuri Zubakov, deputy secretary of the Russian Security Council, in early July. As expected after many precedents, the Chisinau Presidency was very laconic in reporting the problems discussed at that meeting. Under these conditions, speculations on secret negotiation of a future for Transnistria have the right to live.

We note that President Voronin had four meetings with Russian officials in June: he has met his Russian counterpart Vladimir Putin three times: on June 10 (in Sankt-Petersburg), on June 22 (in Novo-Ogarevo) and on June 30 (in Rostov-pe-Don), and he met once Yuri Zubakov, on June 15. The content of these frequent meetings is probably more complex than reported to the public.

Republic of Moldova – Croatia

Croatian President Stjepan Mesic was on a formal meeting to Moldova in early July. He has met Moldovan dignitaries, including President Voronin, Speaker Marian Lupu and Prime Minister Vasile Tarlev. Following the meeting with President Voronin, the Centre for the Struggle Against Economic Crimes and Corruption of Moldova and the Office for the Struggle Against Money Laundering of the Croatian Ministry of Finance have signed an agreement on cooperation against money laundering.

The Croatian president said that his country is ready to support Moldova to join the European Union, and noted that Croatia wants to join the CAC and to intensify its relations with Chisinau on multiple plans.

Multilateral cooperation

Republic of Moldova – Council of Europe

The European Court of Human Rights (ECHR) has sentenced Moldova in three cases in the period concerned.

The Strasbourg-based Court has indicated the violation of the right to freedom of expression in the case Flux (# 2) vs. Moldova. Moldova was told to pay 278 Euros to the applicant in pecuniary damages, 3,000 Euros in non-pecuniary damages and 1,800 Euros in representation expenses and other taxes.

The ECHR has noted in the second case, Bimer S.A. vs. Moldova, the violation of the right to protection of property. It obliged the Moldovan Government to pay 520,000 Euros to the applicant as pecuniary damages.

In the third case Paladi vs. Moldova, the ECHR has found the torture, the restriction of the rights to freedom and to appeal to the Court. It told Moldova to pay 2,080 Euros to the applicant in pecuniary damages, 15,000 Euros in non-pecuniary damages and 4,000 Euros in costs and expenses and any other taxes.

Republic of Moldova – NATO

Brussels hosted a meeting of the NATO North-Atlantic Council in "26 + Moldova" format on July 4. The meeting assessed the progresses achieved by Chisinau in implementing the Moldova-NATO Individual Partnership Action Plan, evolution of reforms in Moldova, and considered possibilities of NATO to assist the implementation of the Plan. The progress in implementing the IPAP was assessed on basis of the March 2007 report by NATO Mission.

According to MFAEI, NATO officials have encouraged Moldova to complete the creation of a political-legal basis for reformation of the security and defence sector and launched recommendations on future of the process of implementation of the Plan.

Studies, Analyses, Comments

Statistical trends vs. economic expectations
Iurie Gotisan, 17 July 2007

I have recently read several articles about data on economic growth and inflation, in particular, concerning the correctness of these figures. As a sentence cannot synthesise an economic book, I will also try to explain these indicators, especially the inflation rate

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