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Two Years in Government — An Economic Analysis
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On 19 April 2001, the Parliament of Moldova gave its vote of confidence to the Government Activity Programme, and the President approved its composition through his decree. The Prime Minister in his turn announced an intention to implement a plan of emergency measures “Fulger” (“Lightning”) for the first 100 days…
Two years have passed. The Cabinet, in an anticipatory effort, adopted on 3 March 2003 the Decision “On fulfilment of the Government Activity Programme «Revival of Economy — Revival of the Country», the results of the socio-economic development of the country in 2002 and of the urgent measures and tasks taken to enhance effectiveness of the public administration bodies”, which reads that “in 2001–2002 high rates of economic growth have been achieved and the living standards have increased significantly”. Further on, the paper provides data on growth of the GDP, production and services, low inflation, growth of wages and pensions. It especially mentions that the Cabinet “succeeded in avoiding a default” and expresses particular gratitude to one of agencies — Fitch Ratings — for upgrading Moldova’s rating as regards long-term financial engagements from DD (risk of default) to B- and hence slightly improving it. Yet, even the new rating is still below the one Moldova had in the complicated 1998 during the regional (Russian) financial crisis. Still further on, “at the same time, analysis of the socio-economic situation has revealed certain reserves in functioning of the central and local public administration bodies, as well as a certain delay in execution of the Government Activity Programme”. But the only thing mentioned specifically refers to the under-collection of taxes into the state budget.
The Cabinet decided: “1) to take account of the course of carrying out the Government Activity Programme … and the results achieved in 2002, 2) to approve the Action Plan for increasing the effectiveness of the activity of public administration bodies and the Action Plan on execution of the 2003 budget”. The former plan includes 55 items and is made up based on proposals of ministries and departments, whereas the latter plan includes 44 items and is the produce of the Ministry of Finance. Controls are to be undertaken on a quarterly basis, by 15th of each next month. The top priorities (term of execution was due 31 March 2003) as follows: “developing the Strategy of the Public Sector Reform” and “developing the final draft of the Strategy of Economic Growth and Poverty Reduction”. The term expired; the controls are over; the paperwork… is still being drafted.
This far from univocal Cabinet paper mirrored the style the Government works: optimism with no long-term priorities, attention to the form and quick reaction with negligence of deeper processes going on in the economic and social spheres.
Administrative and to a large extent populist Government actions have created in 2001–2002 a phantom positive result, which, on the surface, showed in form of GDP growth and higher expenditures for social needs, including those for education and social assistance. Yet, cumulatively the Moldovan economy has been showing signs of imminent danger. They become apparent both through the alarming amount of the state debt, both foreign and domestic, and through the acute shortage of investments, slow process of creating new jobs, mass labour migration of the most active part of the Moldovan able population abroad, the misbalance between the domestic demand and supply (hence the increase in imports), weakening of the role of exports as an engine of economic growth, the increasing trade balance deficit of the country. It is not only wrong to overlook the existing limitations of economic growth, but potentially dangerous for the future of the country. Of course both the Government and the people are hectic about the 16% GDP growth registered over the past three years. For the sake of the truth, one should bear in mind that value of the Moldovan GDP in 2002 amounting to 22.04 billion MDL (US$1.62 billion) is 19% or one fifth lower the GDP in 1997, while Moldovan exports in 2002 worth US$666 million were US$224 million below the values of exports in 1997. Apart from that, a closer look at the structure of the GDP and its increment reveals that the input of the production sector (industry, agriculture) is rather modest. According to the Ministry of Economics’ data, out of the 7.2% GDP growth in 2002, the growth of the added value of the industry and agriculture accounts for 1.6% and 0.9% correspondingly as compared to the 2.6% in services and 2.1% on taxes on goods and imports. As we can see, unfortunately no quality change has occurred in the Moldovan economic growth yet. On the other hand, it is impossible to change the structure of growth over two-three years as it requires structural reforms and more time.
In the meantime, the Government has not resolved on the main thing yet, namely how can the entrepreneurial and investment climate be improved? How can the inertia of the state administration be fought? What our practical steps as a future close neighbour of the enlarging European Union should be?
One has to admit frankly that in 2001–2002 due to well-known reasons (regardless of the pressure from the International Monetary Fund and the World Bank) have not prompted any constructive changes to the economic policy. Laws have been amended, initiatives to enhance the state regulation methods in the production sphere and proposals for social measures to the extent allowed by the limited resources of the state budget have been launched. However, there has been a clear slowing down of utterly important and at times politically difficult structural reforms. Improvement of the business environment failed, as well as overcoming of the distance between banks and the real sector and reducing shadow economy did. In addition, clumsy administration has worsened relations with foreign investors and international financial organisations.
Since the conventional reserves for economic growth in the country have been exhausted, as President V. Voronin also once admitted, it is not necessary to come forward just with optimistic forecasts, but rather to establish the priorities of economic policy and well co-ordinated practical measures to modernise the Moldovan economy.
To do that one needs political will, stability in the country and in the Government itself. Unfortunately, there remained in its current composition only a small part, only 7 out of 17, of those who were called to the Government two years ago. In a series of ministries and departments the leadership have changed three times over the past twenty-four months. Is the Cabinet a single team indeed?