INTERVIEW: Moldova replaces Ukraine as darling of donors

INTERVIEW: Moldova replaces Ukraine as darling of donors - BUSINESS NEW EUROPE

Graham Stack in Chisinau
April 22, 2010


A year ago, Moldova suffered Kyrgyzstan-style public disorder following contested elections, which ended with a new pro-EU government pushing a reform agenda taking power. Lenders and investors took note, and on March 24 the Moldova Partnership Forum brought together sponsors and investors at a major donor conference in Brussels.

"The Moldova Partnership Forum held in Brussels was about two important things: trust and commitment," Melanie Marlett, World Bank country head for Moldova, tells bne. "Trust from the international community in the government's reform programme and commitment to supporting Moldova's development and modernization agenda."

As well as a total of $2.6bn pledged by institutions for critical investments in roads, access to water and sanitation, agriculture, energy, health, regional development and social protection, the March conference was also about positioning Moldova as the entirely unexpected star pupil from among the EU's "Eastern Partnership" pupils, says Marlett. The small country often cursorily referred to as "Europe's poorest country" has leapfrogged established reform favourites such as Ukraine. "Moldova's commitment to European integration and its willingness to embrace change and implement even tough reforms has put Moldova on the map in Brussels in a very positive way," Marlett enthuses.

This optimism is all the remarkable given that the crisis hit Moldova late but very hard. "Moldova's economy has been severely weakened by the global crisis," Marlett acknowledges. From 2000-2008, growth averaged 6%, led by consumption financed from remittances from Moldovan migrants. The crisis exposed the vulnerability of this growth path, with remittances falling by 29% in 2009, GDP by 6.5% and household consumption by around 12%.

But the new reformist Alliance for European Integration, taking office after nine years of Communist Party rule, quickly developed an Economic Stabilization and Recovery programme focusing on putting the country's finances in order, liberalizing markets and improving the business environment, and thus successfully garnered international financial support when in January the International Monetary Fund (IMF) agreed to lend it $574m.

Singapore on the Dniester

But this won't be sufficient on its own. "The global economic crisis has exposed the vulnerability of a remittance-based growth model. Moldova needs to start thinking about its future growth model. What are the potential sources of growth for Moldova?" asks Marlett. Here, World Bank thinking takes on board not only European, but also Asian, specifically Singapore's, experience with information and communication technologies (ICT).

IT currently constitutes 10% of Moldovan GDP, with 25,000 employed in the sector, according to statistics provided at an USAID Information and Communication Technology Summit in Chisinau on March 30. "The experience of countries like Singapore transforming the way government does business through the use of ICT is an example of how modern technology can reduce public spending, eliminate the human factor and thus minimize the risk of corruption, and deliver a better, faster and cheaper service to citizens and businesses," argues Marlett. The World Bank has consequently helped launch an ICT partnership between the two states, with Moldova signing an agreement with Singapore to draw on its experience.

A major obstacle, though, is that Moldova still has a criminally low broadband internet penetration of around 6% - not surprising considering a majority of the population is rural. "The government recently approved a decision to liberalize international broadband Internet connectivity. This will increase competition on the domestic market and lower internet costs for the end user."

In addition to the use of broadband, the World Bank is also exploring the use of mobile services - eg. m-banking, m-health, m-agriculture - as a way to reach an even wider audience, as penetration of mobile telephone use in Moldova is 70%.

These ideas have been incorporated into the government's own reform programme called "Rethink Moldova" that was endorsed at the donor conference. Among the more specific measures proposed is the restructuring and even privatization of national telecommunications provider Moldtelecom and the building of technology parks. A study by EU technical experts identified five potential locations for industrial parks, requiring estimated investment of €73m. The government is also planning investment in optical fibre infrastructure and an on‐ground digital television network.

The global media labeled last year's Chisinau protests as the "Twitter Revolution," but it was more a case of Twitter putting Moldova on the map than vice versa: protest leader Natalia Morar later acknowledged that she had only opened a Twitter account the day after the protests occurred, with "traditional" Russian social networks such as Vkontakte.ru and Odnoklassniki.ru playing the key role. But this is still a strong indication of connectedness among the younger generation, and of the potential for social change of ICT that Moldova appears to be placing much of its hopes upon.

Chisinau's charm offensive

Poor Moldova: Chisinau's charm offensive | The Economist

Europe’s poorest country looks for friends in the West

Mar 31st 2010 | From The Economist print edition

FEW people have heard of Moldova—and when they have, it is usually for the wrong reasons. A frozen conflict with Russian-backed separatists in Transdniestria has hamstrung the country since 1992. A year ago a rigged election brought riots, followed by hundreds of arrests, scores of alleged beatings and rapes, and three deaths. The outrage led to a new election and the formation of a shaky pro-Western coalition government. Its youthful ministers are in sharp contrast to the greyness of the previous regime, nominally a Communist one but in fact crony-capitalist.

The new lot have thawed relations with Romania and launched a charm offensive in the West. A donor conference recently pledged €1.9 billion ($2.6 billion), half in grants and the rest in soft loans. China has dangled a $1 billion loan for infrastructure. The IMF has approved the government’s economic policies: after an 8.5% drop in 2009, GDP is likely to grow by 1.5% this year. Yet Moldova will still be Europe’s poorest country. Hundreds of thousands of Moldovans work abroad, mostly illegally. Their remittances keep Moldova afloat.

Outsiders see more changes at the top than Moldovans themselves feel in practice. Reining in the budget deficit, over 8% of GDP in 2009, will mean rises in heating costs and cuts in a bloated public sector. Wrangles in the deadlocked parliament over the election of a new president waste time. Failure, says the constitution, would mean another general election that few want.

More important to voters is travel to the rest of Europe. This has got harder since Romania joined the European Union in 2007. The Romanians promise a special regime for Moldovans living within 30km (about 19 miles) of the border. But they also want to join the Schengen passport-free zone next year, which would create still more expense and hassle for Moldovans. The goal of visa-free travel to the EU is a long way off.

Changing Western minds means enacting reforms, not just talking about them. Officials speak excitedly of Estonia and Georgia as models. One sign of intent might be to liberalise aviation rules, allowing budget airlines to fly to Chisinau. That would be popular with passengers but bad news for the protected national airline, Air Moldova.

The biggest change has been in media freedom, tightly restricted under the previous government. Two new television stations have started broadcasting. Romanian television will return soon. But big reforms in the corrupt, Soviet-style bureaucracy must wait, as it seems must the rule of law. Investigations into official misbehaviour during last year’s riots have brought some sackings and suspensions, but no deep-seated changes—or even a truthful account of what really happened.