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Activity of Public Institutions

Parliament
Government
Presidency

Inflation: thinking aloud by Galina Shelar
Social-economic analysis on Transnistrian region by Maxim Kuzovlev
Communication from the Commission "A Strong European Neighbourhood Policy". Preliminary conclusions for Moldova by Sergiu Buscaneanu

Activity of Public Institutions

Parliament

1.1. Appointments

• Denis Vition was relieved from the office of Supreme Court of Justice judge;
• The Parliament has appointed three members of the Certification Commission: Communist Deputy Gheorghe Popa; the chairwoman of the Association of Veterans, Ala Mironic (PCRM member), and Galina Bostan, director of the Corruption Analysis and Combat Centre.

1.2. Legal acts

Law on tobacco and tobacco products. It establishes the legal, economic and social basis of organisation of growing, post-crop and industrial tobacco processing, importation, making, storing and sale of tobacco products, and regulates the related relations. Debates on this law gave birth to proposals and amendments from lawmakers of the opposition and majority. The main provisions which fuelled debates envisage the prohibition of smoking in public places, ban of tobacco advertising in mass media and cinema theatres, and mandatory warnings. Although some provisions have been improved, representatives of the NGO coalition for the promotion of tobacco control policies fear that the law will not essentially change the present situation. Objections of NGO representatives envisage the absence of clear and adequate sanctions for violation of new norms, the lack of a body in charge with controlling the respect for the law and mechanism of communication of breaches, superficial participation of the Ministry of Health in improving the draft and its further enforcement, etc.

Laws on modification and completion of legal acts (revision of legislation within the Guillotine II mechanism). Under the approved documents, the Law # 235-XVI from 20.07.2006 on basic regulatory principles of entrepreneurship has been transposed in business regulation laws. Important innovations envisaged:

• The legislation regulating the licensing of some activities have been modified (introduction of new licensing principles, clear and univocal criteria to establish the licensed activities, clear notions and new definitions; introduction of single and balanced grounds and procedures for issuance, suspension and withdrawal of licences, control on licensing requirements; free (online) public access to licensing registers).
• Introduction of sanctions for public functionaries who violate their duties regarding settlement of applications (for licences, permits, certificates, notices, authorisations, coordination, other similar administrative operations), which allow applicants to start up and/or develop a business.
• The law on normative acts of the Government and other central and local public authorities stipulates the predictable entrepreneurship regulatory principles, decision-making transparency principle and entrepreneurship regulation, principle of analysis of regulatory impact.

Law on modification of legal acts (procedure of validation of lawmaker’s mandate). Under the law, after the Parliament announces the vacancy of a lawmaker’s mandate, the Central Electoral Commission considers within ten days the alternate candidate from the list of the party, social-political organisation or electoral bloc which mandate becomes vacant and raises the candidacy to the Constitutional Commission in order to validate it. At present, the CEC examines such issues only at the request of the electoral competitor, and the law does not stipulate the ex officio appealing, a situation which has already turned into a conflict (the representative of a party which withdrew later from the electoral bloc Democratic Moldova was not validated because the Our Moldova Alliance leadership did not officially appeal to the CEC).

Law extending the mandate of local council and mayor of the Corjova village, Dubasari district. The law is adopted through waiver from the Electoral Code and local public administration law, exceptionally extending the mandate of the local council and mayor of the Corjova village, Dubasari district as long as democratic, free and fair elections accordingly to the effective Moldovan and international legislation cannot be held, but not later than the 2011 general local elections. The special waiver law was necessary because now the legislation extends the mandate of local councillor and mayor under an organic law, only in case of a war or catastrophe, and the situation in the Corjova village where separatist authorities obstruct the elections does not correspond to legal norms and does not find a general solution.

Laws on ratification of international acts:

• Optional Protocol to the (New-York, 1966) International Covenant on Civil and Political Rights. This document recognises the competence of the U.N. Human Rights Committee to receive and consider communications against the Moldovan jurisdiction from individuals who claim to be victims of violation of a right guaranteed by the International Covenant on Civil and Political Rights;
• The Additional Protocol to the Convention on Human Rights and Biomedicine, on Transplantation of Organs and Tissues of Human Origin (Strasbourg, 2002);

Law on state social insurance budget for 2008. The incomes will exceed 6.25 billion lei and expenses will be higher than 6.27 billion lei, with a reserve fund of 135 million lei. The mandatory individual state social insurance contribution for insured salary earners employed under individual labour contracts or other contracts on work and services is 5 percent of the monthly salaries and other pays, but the annual calculation basis will not exceed 3 medium monthly salaries planned on economy multiplied with 12.

Law on mandatory health insurance funds for 2008. The revenues will account for 2.6 billion lei, by 708 million lei (36.6 percent) more than in 2007. The mandatory insurance policy for payers who do not have a permanent salary will cost 1,893 lei, while those who pay the insurance premium within three months after enforcement of this law benefit of a 50-percent discount. The mandatory health insurance premium calculated in percent per salary and other earnings is 6 percent (3 percent for employer and 3 percent for employee).

Law on modification and completion of the 2007 state budget law. The amendments increase the incomes by 919.9 million lei and the expenses by 1,126,900 lei. The highest incomes are expected from income taxes (128.3 million lei), VAT (361.2 million lei), excises (37.7 million lei), taxes on foreign trade (73.1 million lei), traffic taxes (10.6 million lei), and grants (84.7 million lei). As regards expenses, the main additional allocations will cover the shortage for salaries and pensions of military – 247.7 million lei; shortage in connection with salary rise this year – 189.7 million lei; road renovation – 132.3 million lei; internal state debt service in connection with the rise of interest rate on internal loans – 69.5 million lei; completion of the statutory fund of the state railroad company CFM – 92 million lei; allocation of 64.7 million lei for agriculture to purchase seeds, diesel oil and forage from humanitarian aid granted by foreign governments and agencies after the last summer drought; opening of machine and tractor stations – 16.3 million lei; implementation of the customs system consolidation plan – 78.5 million lei; for the complex programme on use of new fields and enhancing of soil fertility – 38 million lei; reimbursement of preferential loans granted to some categories of population and payment of afferent interests – 33.5 million lei; acquisition of the headquarter of the Moldovan Embassy in Prague – 39 million; 9.7 million lei for the Teleradio-Moldova Company to pay the rent of circuits and broadcasters and other expenses; purchase of furniture and other modern equipment for health institutions of the Curative-Sanitary Association and Interior Ministry – 8.1 million lei; renovation of the TB hospital Vorniceni and recovery centre for children with a severe locomotive handicap – 41.0 million lei; enlargement of the forest fund – 20 million lei; natural gas networks – 32.3 million lei.

Decision approving the 2008 expense estimate of the Parliament. The budgetary expenses for the maintenance of the Parliament accounted for about 64 million lei in 2007 and nearly 53 million lei in 2006. The draft published on the parliamentary website was not accompanied by an argumentation note, and the website does not provide detailed information about allocations for the work of the speaker and his deputies, parliamentary factions and permanent commissions. It is worth to note that under the Law # 430-XVI from 27.12.2006, the provision requiring the verification and approval of the report on execution of the Parliament’s budget after a control by the specialised parliamentary commission was excluded from the Parliament Regulation. Experts note that this situation reduced very much the transparency of management of budgetary funds, though the Chamber of Auditors has signalled breaches related to financial and material management of the funds allocated to legislature and law courts demanded the publishing of expenses of this institution.

Decision approving the 2008 budget of the National Commission of Financial Market (NCFM). NCFM will have revenues worth 13,080,800 lei and expenses in the amount of 12,626,300 lei in 2008. It approves the size of taxes and fees collected by the commission, pay conditions for members of the Management Board and commission employees. The revenues accounted for 10 million lei in 2006 and for more than 12.5 million lei in 2007.

1.3. Parliamentary control. Statements

Hearings

Prosecutor-general has assured lawmakers that competent authorities do their best to elucidate the circumstances of the 2002 disappearance of Deputy Vlad Cubreacov. Penal investigations are being conducted but there is a shortage of evidence to draw a clear and prompt conclusion in order to confirm or deny the version based on statements by Cubreacov or two former members of the party, Ion Neagu and Sergiu Burca. The Prosecutor’s Office and the Interior Ministry need more time to elucidate the circumstances.

Questions. Interpellations

The Our Moldova Alliance (OMA) faction has asked the Chamber of Auditors to control the activity of the TeleRadio-Moldova Company and appealed to the Prosecutor-General’s Office to verify the legality of the contest held to select an auditing company in order to control the financial-economic management. The Licensing Chamber was asked to verify a report by the firm employed by TeleRadio-Moldova, audit standards and accordance of the work of the Industrial Consult Company with the licence.

Social Liberal Deputy Valentina Stratan has asked the Building and Territorial Development Agency to argue the November 16, 2007 Order # 149, which prohibited the final reception of the so-called "white version" unfinished works and facilities. She demanded the agency to explain the "white version" term and to report its economic costs; also, the agency was asked if entrepreneurs, associations in charge with protection of consumer rights have been consulted.

Christian Democratic Deputy Ion Varta has asked the Government to provide conclusive information and objectives regarding the 2007 imports and exports, to report the volumes and countries where Moldovan products are imported and exported. This interpellation aims to establish whether any qualitative changes where achieved for exports and imports and whether the governmental policies in this area are efficient or not.

Democratic Deputy Valentina Buliga has asked the Government to report the state of things at SA Farmaco, the use of 16 million lei from the state budget to sustain this enterprise, the impact on drug nomenclature and prices. Also, the lawmaker demanded information regarding Government’s plans to privatise the enterprise. She sought a report on the cost-efficiency impact of the Government Decision # 1123 from 15.10.2007 concerning supply of public health services with antibiotics made by this enterprise only.

Statements

Speaker Marian Lupu has told a meeting with the Council of Europe director-general for political affairs, Jean-Louis Laurens, that the Parliament has honoured almost all commitments towards CoE, except for two documents: the draft law on political parties and the draft Education Code. According to the speaker, the draft law on political parties will be examined in the final reading by the end of the current session, and the Parliament will consider the draft Education Code and the draft law on local public finances at the beginning of the 2008 spring session and will deliver them to the CoE after the first reading. However, independent experts note that Moldovan authorities did not honour other commitments toward CoE, in particular:

• The guaranteeing of the complete execution of the parliamentarian’s mandate without worrying to lose the mandate or immunity for political reasons;
• The adjustment of legislation and norms on status of the Chisinau municipality to the European Chart on Local Self-Administration;
• The adjustment of legislation and norms on local public funds to the European Chart on Local Self-Administration;
• The condemnation of the dismissal of the Comrat mayor by the Gagauz People’s Assembly and investigation of lots of criminal cases filed against opposition leaders at national and local levels;
• The reformation of the judiciary by revising the extended competences of the Prosecutor-General’s Office;
• The development of the multicultural and pluralist education approach, in particular, in terms of teaching languages, history and geography;
• The transformation of the TeleRadio-Moldova Company into an authentic public broadcasting service;
• The ensuring of the freedom of meetings (the adoption of the new law on this area), and others.

National Liberal Party leader Vitalia Pavlicenco has released a statement on "inadmissible conduct of Communist Voronin," accusing the chief of state of groundless assaults on Romania and threat to withdraw from the European Convention on Human Rights, and recommending again the Parliament to consider the problem of revocation of the chief of state.

Government

2.1. Appointments. Reshuffles

• Evgheni Pisov was relieved from the post of deputy minister of culture and tourism. Pisov was recently appointed to this office after the PCRM has lost the elections in the Orhei district council.
• Rodica Scutelnic was assigned senior state adviser for social affairs.

2.2. Decisions

Decision concerning the execution in 2007 of the action plan on implementation of the 2006–15 strategy on attracting investments and promoting export. Actions in this area focussed on:

• Elaboration and enforcement of the related legislation;
• Organisation of training courses on opportunities of building marketing centres;
• Revision and optimisation of the normative entrepreneurship regulation framework and massive revision of laws;
• Implementation of the "one-stop-shop" principle;
• Signing of bilateral intergovernmental agreements on mutual investment promotion and protection and avoidance of double taxation (7 agreements);
• Promotion of Moldova’s image on international markets and consolidation of cooperation with South-East Europe in the field of investment promotion and improvement of investment climate (relations with six international organisations have been established, the International Exhibition Centre Moldexpo SA has hosted 15 international exhibitions, Moldova has attended international exhibitions and forums, booklets such as Investment Guide, Moldova in Figures and Actions, leaflets for potential foreign investors have been disseminated, and the official website www.miepo.md has been updated);
• The investment inflow in national economy has increased (overall investments in fixed capital in January-September 2007 exceeded by 28.7 percent the indicator for the similar period of 2006);
• The foreign direct investment inflow in Moldovan economy turned over 200.5 million dollars in the first semester of 2007, growing 1.9-fold or by 94.7 million dollars compared with the same period of 2006. Overall foreign direct investments in economy amounted to 1,505.4 million dollars, as of July 2007;
• The foreign economic activity was featured by a high growth of export and import in January-September 2007 (the export has increased by 28.4 percent and the import by 37.3percent, compared with the same period of 2006).

Decision approving the reduction of control personnel. Although the Government had earlier decided to reduce by 10 percent the number of inspectors (GD # 1163/25.10.2007), it has recently decided to cut the State Fiscal Inspectorate personnel by 52 persons, the staff of the Fraud Investigation Directorate of the Interior Ministry by 20 persons, of the State Inspectorate of Standardisation, Metrology and Consumer Protection by 14 persons, of the State Environmental Inspectorate by 27 persons, and of the Building and Territorial Development Agency by 7 persons. It was earlier planned to reduce the number of CSECC employees, but the current decision omits this field.

Decisions approving draft laws:

• Concerning the National Development Plan for 2008–2011;
• Concerning the regime of weapons, munitions, explosive materials and substances;
• Concerning the freedom of meetings (this is a drawback of Moldova towards the Council of Europe);

Decisions on allocation of funds:

• As many as 105,000 lei are allocated from the reserve fund of the Government to the Moldovan Presidential Apparatus to pay "the elaboration and manufacturing of models of state awards and items."

2.3. Sittings. Decisions. Statements

Investments in Giurgiulesti area

Prime Minister Vasile Tarlev has convoked governmental functionaries in charge with implementing the portfolio of investment projects in the Giurgiulesti area. Minister of economy and commerce reported that the Giurgiulesti oil terminal is operational and fuels imported by ships are being sold on Moldovan market starting last weekend. At the same time, the cargo and passenger port in the southern region of Moldova is being projected. In order to ensure the access to the port, the Cahul-Giurgiulesti railway is being built. The prime minister noted that the functioning of the terminal and port will open about 3,000 new jobs.

Meeting with Foreign Investors Association

Talks between prime minister and representatives of investors have focussed on a better investment climate in Moldova, necessary measures to attract more investments in national economy. Investors said that the dialogue between central public administration and business community has advanced much in the past years, so that many problems of businesspersons have been remedied. In particular, they stressed the receptiveness of the Government toward diverse problems, including those signalled in the White Book. At the same time, investors noted that actions aimed to improve the legal-normative and fiscal framework shall continue, in order to create new stimulatory conditions for attraction of foreign capital in Moldova. In this context, they called for an urgent promotion of the salary law on real sector of economy. The premier promised that the Government will continue creating conditions for attraction of investments in key sectors of national economy and will optimise the legal investment promotion and support framework.

Last sitting of European Integration Commission

The prime minister has chaired a sitting of the European Integration Commission which made the totals of implementation of the European Union – Moldova Action Plan in 2007. Minister of foreign affairs and European integration stated that European officials have highly appreciated the actions taken by Moldovan authorities to implement the Action Plan, during the visit of Moldovan president to Brussels and at the 7^th Meeting of the Moldova-EU Cooperation Committee. Vasile Tarlev welcomed the efforts of the European Integration Commission to efficiently implement the Action Plan, stressing among progresses the takeover of four chairmanships in the key regional organisations by Moldova for the first time, in particular, in the South East European Cooperation Process, Central European Initiative, CEFTA and RACVIAC. Also, the commission welcomed the signing of the visa facilitation and readmission agreement, which will enter into force in January 2008, and the decision by EU member states to offer Moldova the asymmetrical trade regime with the EU. According to the prime minister, Moldova will be able to enjoy the four EU freedoms – free circulation of commodities, capitals, citizens and services – with joint efforts of society and state leadership. The Ministry of Foreign Affairs and European Integration jointly with other ministries was instructed to table a list of actions recommended by European experts in order to finalise the Moldova-EU Action Plan. It is worth to note that the prime minister does not insist any longer on "finalisation of all actions by November 17, 2007" and bias of independent observers and experts, after the chief of state acknowledged drawbacks and shortcomings in the implementation of the Action Plan.

Preoccupation with New Year and Christmas holidays

Under a Government decision, December 31, 2007 and January 2–4, 2008 will be days off, and December 29, 2007, January 26, 2008, February 16, 2008 and March 15, 2008 will be working days. Ministries, other central administrative authorities, heads of enterprises, institutions and organisations will ensure the efficient work of subordinated units in the recuperative days. It is for the time when the Government has assumed responsibility for such a long holiday and additional interventions were further required, in particular:

• An order on distribution of social insurance services obliges the National Social Insurance Company and the Central Treasury of the Ministry of Finance to supply Banca de Economii SA and post centres in territorial branches of Banca de Economii SA with the funds needed to pay pensions and state social allocations. The Ministry of Finance will ensure the transfer of the funds needed for these pays, while the National Bank of Moldova is recommended "to provide the cash needed by Banca de Economii SA for these pays." The State Company Posta Moldovei and Banca de Economii SA have to organise the work of subordinated territorial subdivisions in order to ensure the payment of pensions and state social allocations on time;
• Under another order, central and local public bodies will work out the agendas of functionaries for the winter holidays. Also, operative groups will be created to monitor the situation and intervene if needed be;
• According to an indication, the Ministry of Information Development will organise the work of subordinated services during holidays, so that to issue identity papers to all applicants in optimal terms.

Presidency

3.1. Sittings. Decisions. Statements

Visit to Bulgaria

Moldovan President Valdimir Voronin has had a bilateral meeting with his Bulgarian counterpart Gheorghi Pirvanov while on a working visit to Bulgaria. Pirvanov welcomed Voronin in Bulgaria, stressing the special significance of his participation in festivities dedicated to the 130^th anniversary of liberation of the Plevna city. The consistent political dialogue and excellent Moldovan-Bulgarian relations were remarked during the meeting, with the sides raising a mutual interest to intensify the bilateral cooperation in diverse areas. President Voronin noted Bulgaria’s constant support for Moldova’s European integration bids, while President Pirvanov assured that Bulgarian authorities will continue supporting Moldova in the EU integration process and in finding a lasting solution to the Transnistrian conflict. Also, the sides stressed that the commercial-economic cooperation between Moldova and Bulgaria has intensified, calling for a plenary use of the existing potential in economic relations between the two countries.

Invited by Bulgaria’s president, Voronin attended festivities dedicated to the 130^th anniversary of liberation of the city of Plevna. He addressed the participants and stressed the significance of the Plevna event, noting that the liberation march of the Russian army in Bulgaria started from Chisinau. The chief of state greeted the audience on occasion of Bulgaria’s liberation anniversary, wishing peace and prosperity to the Bulgarian nation.

Optimisation of MLPA

The Moldovan president has convoked governmental officials at a sitting on optimisation of the work of territorial administrative control directorates of the Ministry of Local Public Administration (MLPA). The sitting discussed issues aimed to optimise the work and structure of the ministry and its administrative control directorates. The chief of state stressed the need of optimising the control on legality of acts adopted by local public administration bodies and establishing more fruitful cooperation relations between administrative control directorates and local public administration bodies.

Use of ECOSOC membership

Vladimir Voronin has chaired a sitting on Moldova’s performance within the United Nations Economic and Social Council (ECOSOC) and its subsidiaries joined by our country. He stressed the importance of choosing Moldova for the first time as an ECOSOC member for 2008–2010. In this quality, Moldova will help examine and remedy within three years economic, social, cultural, humanitarian problems and issues related to human rights from the U.N. agenda, raise initiatives in this respect on the U.N. agenda. For this purpose, the president continued, an interdepartmental working group headed by minister of foreign affairs and European integration will be created to coordinate and monitor Moldovan delegations to the ECOSOC and its subsidiaries. Also, Voronin underlined the need of working out, approving and implementing an action plan with the direct participation of competent ministries, which would cover Moldova’s objectives within ECOSOC for 2008–2010.

Preparations for anniversary of Moldovan State

A sitting of the state commission for manifestations dedicated to the 650^th anniversary of the Moldovan State has raised proposals which will be included in the action plan on this holiday. The chief of state, who heads the state commission, stressed the importance of elaborating an exhaustive and ample action plan for 2008–2009: conferences, festivals, launching of albums and books; movies and documentaries; radio and TV programmes; websites dedicated to this event, etc. Vladimir Voronin underlined the importance of successfully implementing the action plan on the 650^th anniversary of the Moldovan State, starting from the need of developing the patriotic spirit and strengthening Moldova’s statehood.

Economic Policies

1. Prices and inflation

2007 inflation likely to reach 13.5–14 percent…

The Consumer Price Index or the monthly inflation rate in November was 1.3 percent. The cumulated inflation rate for 11 months was 12.1 percent. Prices of food products rose the most in November, in particular, by 1.5 percent, prices of manufactured goods increased by 1.4 percent and tariffs for public services grew by 0.8 percent. Prices of eggs have increased by more than 15 percent, of butter by approximately 5 percent, of fresh fruits by 4–5 percent and prices of grapes have advanced by 38 percent. Prices of fuels "beat" the record, as they increased by nearly 5 percent. Also, heating tariffs rose by about 6.5 percent and tariffs of drinkable water providing services increased by more than 6 percent in November.

Higher prices of certain goods, particularly of fuels, food products and public utilities were essential factors which increased the inflation in the past months. The 2007 inflation rate could be 13.5–14 percent, if prices grow in continuation in December. In addition, eventual dearer utilities will increase the inflation up to over 14 percent. The boom of the oil price on world market, dearer energy and effects of the drought will strengthen the inflation-related tensions. It will not be a drama, but it depends on evolution of prices on domestic market in 2008.

Inflation also reflects the structure of consumer basket…

A family is poor if it spends more than one third of earnings on food. Expenses for food products are very high when the consumer basket is calculated for Moldovan population. Moldovans spend about 38 percent of all earnings on food stuffs, and only 17 percent of their monthly salaries on services. The structure of these expenditures is revealed by a consumer basket calculated after a 2006 survey on households, and the inflation rate is calculated on its basis. Therefore, the structure of the consumer basket reveals that Moldovans are a poor nation.

Inflation is also present in regional context…

According to Erste Bank (Austria) analysts, the inflation suddenly grows after the disinflation process has successfully developed in Central and East Europe. This not a regional problem only, the inflation is growing at world level. The higher inflation rests with dearer food stuffs and oil, and their contribution to inflation in Central and East Europe is bigger than in West Europe. All these findings are part of an Erste Bank (Austria) research on growth of inflation in Central and East Europe.

2. Banking sector

Higher interests on deposits…

The net outputs on deposits in banks have grown concomitantly with the inflation. Deposits in lei for 6–12 months had higher outputs in October and November. The interests on deposits in lei have grown by more than 0.5 percent on average, compared with August 2007. The interests have grown while the inflation rate was higher than expected. Consumer prices rose by 6.7 percent in August-November. The inflation rate in late November was 12.1 percent. In fact, the deposits in lei could bring higher outputs to depositors due to the difference between interest on domestic market and in Eurozone, as well as due to appreciation of the domestic currency.

Savings in lei are recommended on long term…

Most analysts consider that the Moldovan leu continues to be the best currency for savings on long term due to the appreciation trend which could be maintained on one hand and due to higher interest rates on deposits in lei one the other hand. Therefore, specialists forecast an increasing leu on long term. But those who have savings in foreign currency or have to reimburse credits in foreign currency must keep some savings in foreign currency, in order to avoid risks or short and medium-term variations on currency market.

At the same time, credit-related costs advance…

But banks’ interest rates have increased both on deposits and on credits. Many domestic banks increased the effective costs of new loans in lei in October-November for the first time this year. Consumer credits are largest loans of banks and they count for more than 50 percent of all contracted credits. However, consumer credits are estimated as risky for population because Moldovans borrow much money to buy consumer goods on long term.

The trend of population to borrow from banks in order to buy consumer goods on long term could affect the property of population because the assets purchased this way (for example, household appliances or cars) depreciate faster than borrowers reimburse the debts. In addition, people borrow more currency from banks than save in banks.

The quality of the structure of credits contracted by population is lower than in the EU. The sensibility of population towards risky factors is pretty low, while high interests on credits increase the insolvency risk of people to reimburse the loans (the overall costs of crediting are the highest in Europe). High interests are also the result of a restrictive policy promoted by the National Bank. Moldova has the highest monetary policy interest in Europe and the largest minimum reserves imposed to banks, and this maintains high crediting costs.

Bank efficiency rating…

Moldova-Agroindbank (MAIB) continues to top the bank efficiency rating for nine months of this year, being rated 1.989 points (Diagram 1). Victoriabank ranks the 2^nd place, being rated 1.707 points, and it defeated Banca de Economii, which has descended to the 3^rd place, holding 1.680 points. The rating was worked out by the rating and estimation agency Estimator-VM on basis of five efficiency indicators (overall revenue, net income, ROE and ROS, and asset rotation). According to Estimator-VM, Moldova-Agroindbank has reported the best overall revenue and net income in the banking system, in particular, 648.7 million lei and 183.89 million lei. At the same time, Victoriabank reported the highest ROE (return on earning), which reached about 30 percent, while BCR Chisinau reported the highest ROS (return on sales) – 46.5 percent.

Diagram 1. Bank efficiency rating



Source: Rating and Estimation Agency Estimator-VM

3. Financial market

Domestic insurance market is underdeveloped in spite of lots of companies…

Fourteen out of 33 insurance companies which hold insurance licences have already met the new insurance law and hold a registered capital of minimum 4 million lei. Another 19 insurance companies have a registered capital below 4 million lei, of which one company has reported a registered capital of 350,000 lei. Under the new insurance law enforced in April 2007, insurance companies have to gradually increase their registered capital. Overall assets of insurance companies are estimated at about 700 million or approximately 2.5 percent of all assets of the banking sector (about 31 billion lei). In fact, their assets are lower than all assets of microfinance institutions.

At the same time, the share of insurance services in Moldova reached 1.43 percent of the GDP in 2006 and rose compared with 2005, and this indicator is estimated at approximately 2 percent for 2007. However, this indicator is lower than in underdeveloped countries, not speaking about developed countries. In particular, the share of insurance in the GDP in transition countries is around 3 percent, and this share in majority of developed states is about 6 percent of the GDP. The enforcement of the new insurance law and law on financial market will strengthen the insurance market. According to estimates including formal, approximately 22–25 out of 33 insurance companies could survive.

4. Public funds

Budgetary revenues are on the rise, but not welfare of population…

The state budget revenues turned over about 12.31 billion lei in 11 months of this year. Collections exceeded by 2.2 percent the planned indicators and by 25.5 percent the revenues collected in the period concerned. The basic revenues of the state budget accounted for 10.85 billion lei and rose by 28.4 percent compared with the similar period of last year. Revenues worth 163.7 million lei went to special funds, while public institutions funded from the state budget gathered about 1.04 billion lei in special funds.

Expenses worth 11.98 billion lei went from the state budget in January-November 2007, which is about 93 percent of the plan. In comparison with the same period of last year, they rose by 35.2 percent. The basic expenses of the state budget amounted to 10.24 billion lei, being used 97 percent only. In order to honour foreign loans contracted by Moldova, 53 million dollars (642.4 million lei) was operated in foreign payments accordingly to the schedule. About 380 million lei was spent for the internal state debt service.

5. Foreign trade

Wine exports to EU down approximately 2-fold…

The Moldovan wine exports to the EU declined nearly two-fold in January-October 2007, down to about 14 million dollars, compared with over 27 million dollars in the same period of 2006. Moldova has exported wines to 19 EU member states in the period concerned. Poland was the main importer of Moldovan wines, and it imported wines over 4 million dollars, which is by 52 percent more than in January-October 2006. Romania and the Czech Republic ranked the 2^nd and the 3^rd place regarding spirits imports, in particular, 3.05 million dollars and 1.66 million dollars (Diagram 2).

However, the wine exports to Romania have decreased 5.5-fold, while wine deliveries to the Czech Republic have grown by 58 percent. Other important wine exports went to Latvia (1.32 million dollars), Germany (1.28 million dollars), the United Kingdom (0.8 billion dollars), Estonia (0.6 million dollars). All spirits exports were valued at over 99 million dollars in ten months of this year, and they decreased by over 33 percent, compared with the same period of last year (148.7 million dollars).

Diagram 2. EU rating on Moldovan wine exports



Source: State Agency Moldova-Vin

Transdnistrian Problem

An article titled "Zubakov Plan" – a pretty real document known by Chisinau and Tiraspol diplomats was published under the aegis of the Community for Democracy and Rights of Nations, which includes Abkhazia, South Ossetia and Transnistria. This article throws light on the conflict between Transnistrian foreign minister Valery Litskai and the deputy chairman of the Russian Supreme Security Council, Yuri Zubakov. Litskai’s dissatisfaction with alleged great yielding from the so-called "Zubakov Plan" in Moldova’s favour is the origin of the conflict occurred in October. The article contains statements that raise interest, but it is not certain that they are true:

• "Secrete" negotiations between Zubakov and President Voronin are described as a continuation of the "clamping on the rake" by the Russian Federation, which trusts Voronin so far after the "Kozak Memorandum" story;
• The "Zubakov Plan" exists and it was informally delivered to Chisinau and Tiraspol in order to be studied. Chisinau is the co-author of the plan, which is nothing but a "Kozak Memorandum – 2" with a certain yielding in Moldova’s favour;
• The "Zubakov Plan" should be institutionalised at the "Five-Plus-Two" meeting in Madrid in mid-October, being a Transnistrian settlement topic;
• Chisinau has allegedly accepted to attend the Madrid meeting, supposing that Tiraspol would refuse and invoke the need of reintroducing the status quo antes March 3, 2006. Tiraspol guessed the manoeuvre of Chisinau and accepted to participate, cutting Chisinau out of all feather and forcing the Chisinau authorities to refuse a promised participation. This way, Chisinau has developed the duplicity and plan to diddle Russia in favour of "its Washington masters."

Beyond "settling accounts" with Zubakov by disclosing the hidden plans of Chisinau, the article has a pragmatic goal to get funds for Transnistria:

• In order to maintain its influence in the region, Russia must renounce the Republic of Moldova and focus on strengthening its positions in Transnsitria (of course, by sustaining the economy of the latter);
• If it wants to maintain the Republic of Moldova, too, under its influence, it should also invest funds in Moldovan political forces loyal to Russia.

This article raises interest in the light of statements by Moldovan officials who said this year that mediators and participants in the "Five-Plus-Two" process have found a solution to the conflict, envisaging probably the "Zubakov Plan". Also, the article may be regarded as a symmetrical and ironical reply to the "strategy" by the former advisor of President Voronin, Sergiu Mocanu. One thing is doubtless – the Transnistrian regime does survive thanks to Russia’s financial assistance.

On November 28, 2007, the Tiraspol Supreme Soviet passed in the first reading the 2008 budget of the region, and adopted the budgets of the pension fund, mandatory social insurance fund and employment sustenance fund in the first reading on December 5. Transnistria’s consolidated budget will account for approximately 2.80 billion Transnistrian roubles ($1 ~ 8.5 roubles) in revenues and 3.27 billion roubles in expenses. The deficit is approximately 15 percent. Seventy-five percent of expenses will cover social needs. For comparison, the 2007 consolidated budget of the secessionist region foresaw 1.23 billion roubles in revenues (by 44 percent less than in 2008), 2.03 billion in expenses, and 38 percent in deficit. Transnistria’s survival under such conditions is not an enigma, since the Russian Federation helps it. However, problems related to the improper use of funds occurred in 2007. Transnistria’s maintenance on waterline in 2008 is based on Russian infusions, too. The former advisor of President Putin, Modest Kolerov, recommends that the Russian funds be strictly controlled by the Supreme Soviet. This solution confirms a race between Transnistrian leader Igor Smirnov and Supreme Soviet chairman Evgheny Shevchyuk for the amiability of Russian authorities. Thus, there will be no problem to finance the budgetary deficit. The pension fund will gather 850.8 million Transnistrian roubles (about 100 million dollars) in 2008, by 8.7 percent more than in 2007. However, another 58 million roubles will be necessary to pay all pensions in 2008. This deficit will be partly covered by a special additional tax of 0.9 percent for companies which contribute the most to the Transnistrian budget, in particular, Sheriff and the Ribnita-based metallurgical plant. This tax is expected to reduce the deficit by about 35 percent. But following consultations with the cabinet of ministers, the secessionist authorities decided not to use the 0.9-percent additional tax to cover the deficit. Most of the pension fund – 495 million roubles – will come from single social taxes. It is worth to note that the minimum pension in Transnistria will amount to 259 Transnistrian roubles (30.5 dollars) starting January 1, 2008, which is by 31 roubles more than in 2007 (when the minimum pension rose by 22 roubles), while the single birth indemnity for the first child will account for 2,242 roubles (about 264 dollars).

The Russian co-chairman of the Joint Control Commission (JCC), Viktor Shanin, confirmed on December 14, 2007 that "Russian peacekeepers will fulfil their mission in Transnistria until the definitive settlement of the Moldovan-Transnistrian conflict." The Russian diplomat noted that there are a number of problems which maintain a tense situation in the security zone and obstruct measures recommended by Moldovan authorities:

• The initiative to replace the 15 peacekeeping units with mobile groups could elude the grounds of the peacekeeping operation and restart armed hostilities;
• The West is only interested to liquidate the Russian military presence in the region and that’s why the U.S. initiative to set up an international observance mission in Transnistria raised at the recent Madrid OSCE Summit comes to reach this goal. If so, the relations between Chisinau and Tiraspol will not interest anybody;
• The eventual international recognition of Kosovo will create a universal precedent;
• The resumption of the "Five-Plus-Two" negotiations faces difficulties because the Moldovan delegation withdrew without any explanations in March 2006 and pretends not to remember this at present;
• The recent initiatives by President Voronin are premature, since agreements on the rules of the game should be reached first and the unification of security systems should be discussed later;
• Moldova does not want to regard Transnistria on an equal footing, but it wants to impose its unilateral decisions.

The Moldovan Ministry of Reintegration delivered on December 13, 2007 the thematic list of initiatives for talks on implementation of the October initiatives by President Voronin. The thematic of talks was elaborated by expert groups and shared with participants in the "Five-Plus-Two" negotiations. The proposals envisage the economic and commercial cooperation; infrastructure development; healthcare; resolution of social problems; distribution of humanitarian aid; resolution of agriculture-related problems; cooperation in education sector; demilitarisation and security strengthening. On this occasion, the Ministry of Reintegration "has expressed optimism that the Tiraspol administration will welcome this step forward strengthening the confidence and security and will really contribute to the definitive settlement of the Transnistrian conflict in perspective."

Foreign Affairs

European integration

Visit of President Voronin to Brussels

President Vladimir Voronin paid an official visit to Brussels on December 5–6. In the city where many European and international institutions are based, Voronin has met Benita Ferrero-Waldner, European commissioner for External Relations and European Neighbourhood Policy; Peter Mandelson, European commissioner for Trade; Marian Fischer Boel, European commissioner for Agriculture and Rural Development; Andris Piebalgs, European Energy commissioner; the High Representative for the Common Foreign and Security Policy, Javier Solana, Secretary General of the EU Council; Hans-Gert Poettering, president of the European Parliament (EP), and others.

According to Moldpres news agency, the president’s visit to Brussels aimed to totalise the results of cooperation with the EU in the past years and to make clear the further cooperation possibilities with EU institutions. Although Voronin stressed that he did not come to Brussels to negotiate Moldova’s perspective to join the EU, observers said that the visit of the Moldovan president to EU institutions aimed to assure that Moldova continues to be dedicated to its European course and to persuade European officials to allow Chisinau to succeed to a new qualitative relationship with the EU.

While meeting Benita Ferrero-Waldner, the chief of state revised Moldova’s progresses in implementing the EU-Moldova Action Plan (EUMAP), but acknowledged that "there is much work to be done so far" in a number of areas. He indicated the human rights, the freedom of the media, the judiciary reform, the anti-corruption fight, the attraction of investments. Voronin told a briefing that Moldova has to adopt 11 laws in the EUMAP implementation context.

The need of reforming the areas concerned was reiterated during the meeting with Hans-Gert Poettering. This is the only way to launch talks on a new framework of relations between EU and Moldova, the EP president stressed.

At the meeting with Andris Piebalgs, the Moldovan president called for the elaboration of an energy cooperation memorandum, Moldova’s participation in the Nabucco project and the South East European Energy Community Treaty (SEEECT). Piebalgs promised that Moldova’s capacities to take over the SEEECT provisions will be evaluated and noted that the Nabucco project coordinator who was recently appointed by the European Commission could visit Moldova to discuss possibilities of participating in this project.

The Moldovan side has told Marian Fischer Boel that the draft National Sustainable Agro-Industrial Development Strategy until 2020 is being elaborated and sought assistance for the implementation of this document, readjustment of Moldovan livestock sector to community animal food security norms.

Peter Mandelson welcomed Moldova’s reforms on issuing of commodity origin certificates and control on origin of Moldovan goods. Also, he stressed the need of promoting reforms in the area of standardisation and competitiveness of products.

CAC

Once the Schengen area is enlarged, starting December 21, the visas issued by countries participating in the Common Application Centre (CAC) will be accepted in the entire Schengen area. Taking part in the CAC are Hungary, Austria, Slovenia, Latvia, Denmark and Iceland. Starting December 21, the Schengen area will cover the EU member states, except for the United Kingdom, Ireland, Cyprus, Romania and Bulgaria, plus Norway and Iceland. Switzerland and Liechtenstein are expected to join the Schengen area in 2008, Cyprus in 2009, and Bulgaria and Romania in 2011. The United Kingdom and Ireland have chosen not to sign the Schengen Agreement.

"A Strong European Neighbourhood Policy" Communication from the Commission

For more details, please read the column "Studies, analyses, commentaries" in this issue.

Bilateral cooperation

Republic of Moldova – Romania

The Moldova-Romania relations have reached a critical point in the period concerned. After the Moldovan president has bitterly criticised Romania while on visit to Brussels, Moldovan authorities declared two Romanian diplomats as persona non-grata. Laurentiu Pinte, first secretary, and Vasile Nanea, cultural advisor for the Romanian Embassy, have been obliged to leave Moldova within 24 hours. A Verbal Note by the Ministry of Foreign Affairs and European Integration (MFAEI) of Moldova which declared the two diplomats as persona non-grata justifies the gesture of Chisinau, citing Article 9 of the (1961) Vienna Convention and indicating the incompatibility of their service with their diplomatic status. According to knowledgeable sources, MFAEI took this action because the Romanian diplomats have undermined Moldova’s statehood.

Romanian Ambassador to Moldova Filip Teodorescu did not accept the MFAEI Verbal Note, protesting this way against the gesture of Chisinau.

Last time the Chisinau authorities took such a measure in March 2002 during street protests and it was also applied on a Romanian diplomat, military attache Ion Ungureanu. Replying to the gesture of Chisinau, Romanian authorities declared Iacob Popovici, advisor minister of the Moldovan Embassy in Bucharest, as a persona non-grata.

The gesture of Chisinau has vexed the public opinion from both banks of the Proute River. While the Moldovan public opinion is divided regarding the MFAEI decision, with the media close to the ruling party justifying this gesture, the Romanian public opinion described it as a diplomatic error. Romania’s president, prime minister and Foreign Ministry have univocally described the MFAEI gesture as "unfriendly", groundless and contrary to European diplomatic norms. At the same time, President Basescu and the Romanian Foreign Ministry assured that Romania will continue promoting the European destiny of Moldovan citizens in spite of existing problems in bilateral relations. Also, they decided not to reply to the MFAEI decision in a similar manner.

Republic of Moldova – Russia

MFAEI released a commentary on December 6 regarding statements delivered by Russian Foreign Minister Sergey Lavrov to the German publication Frankfurter Allgemeine Zeitung.

He said among others that Russia has honoured its 1999 Istanbul commitments regarding the Conventional Armed Forces in Europe (CFE) Treaty. In this context, the MFAEI noted that the Russian Federation has partly pulled out its conventional armed forces from Moldova until late 2001. About 20,000 tons of munitions and more than 1,000 military are in Moldova so far. The ministry added that there is also the problem of Limited Uncounted Treaty Hardware, which the Russian Federation had illegally delivered to the anti-constitutional Tiraspol regime. It includes tanks, armoured vehicles, artillery and helicopters.

Also, the MFAEI reacted to the notion "Russian peacekeepers" used by Lavrov. He noted that this notion does not adequately reflect the contents and the meaning of the 1992 ceasefire agreement, under which the sides had introduced "military contingents" in the conflict zone. Finally, the ministry regretted that Russia is trying to justify its failure to honour international commitments by launching "terminological speculations".

Republic of Moldova – NATO

President Vladimir Voronin has met NATO Secretary-General Jaap de Hoop Scheffer while on visit to Brussels. The officials discussed the Transnistrian settlement process, the work of the EU Border Assistance Mission to Moldova and Ukraine, and the recent initiatives by Moldovan president aimed to strengthen the confidence between Chisinau and Tiraspol.

In connection with these topics, the sides tackled the issue related to the national security concept of Moldova, which should be elaborated in 2006. Voronin explained that the adoption of the document is late inclusively because authorities want this document to cover the latest Transnistrian settlement initiatives as well.

Multilateral cooperation

Republic of Moldova – Council of Europe

ECHR judgment

The European Court of Human Rights (ECHR) has passed a decision on Cogut vs. Moldova case in the period concerned. The ECHR indicated the violation of rights to a fair trial and protection of property. It obliged Moldova to pay 2,500 euros to the applicant in pecuniary damage and 800 euros in non-pecuniary damage.

The Strasbourg-based Court has sentenced Moldova in 104 cases until now^[1]. Moldova was sentenced in 59 cases (56.7 percent) in 2007 only.

Republic of Moldova – U.N.

Moldova was reinstated in its elective franchise in the United Nations Industrial Development Organisation (UNIDO) in the period covered by this issue. This decision was made at the UNIDO General Conference in Vienna on December 3–7. According to the MFAEI, the restoration of the elective franchise will allow Moldova to participate in the UNIDO more actively.

Studies, Analyses, Comments

Inflation: thinking aloud
Galina Shelar, 16 December 2007

Today, due to quite understandable reasons, growth of prices for basic food products, such as milk, butter, bread represents a concern both for the government and the population. According to the official statistic data, to a large extent these are the very goods that caused increased prices in the economy as a whole

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Social-economic analysis on Transnistrian region
Maxim Kuzovlev, 16 December 2007

Transnistria is paid a very intense attention. The advancement of the European Union border to the Republic of Moldova is the first explanation in this respect

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Communication from the Commission "A Strong European Neighbourhood Policy". Preliminary conclusions for Moldova
Sergiu Buscaneanu, 16 December 2007

The European Commission released on December 5, 2007 a new communication titled "A Strong European Neighbourhood Policy". The Moldovan mass media did not cover this document much

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