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.

MOLDOVA: Wine-makers hope to preserve county's wine industry despite deep economic crisis

MOLDOVA: Wine-makers hope to preserve county's wine industry despite deep economic crisis

The Moldovan wine-making industry dates back to the country's ancient Greek and Roman colonisers.
The grape-growing and winemaking in the area has had periods of growth and decline but has survived through all the changing social and economic conditions of Europe's poorest country. The times of decline, such as those under 300 years of Ottoman rule and during two World Wars, have been followed by good times such as the beginning of the 19th century and during the Soviet years in the 1950's.
The recent years have been turbulent for Moldova's wine-makers. The industry is reeling from three successive blows - a 2006 Russian embargo on Moldovan imports, now lifted, the fall of the US dollar and now the world financial crisis.
"The wine-producing industry we had before - I think it is already dead. I cannot speak for everyone, but I think it is probably dead. We are not competitive. We cannot keep our heads above water at the moment. We all have loans to pay off and we cannot make a return on the money we've invested," said Nelly Sonic, vice-president of the "Lion-Gri" winery, one of the country's top three producers.
Like many businesses in Moldova, a crescent of land wedged between Ukraine and Romania, ''Lion-Gri'' has become saddled with debts as it tries to keep alive a business with costly inputs - labour to tend the vines and oversee production, herbicides and a bottling plant.
But despite all the problems, Nelly Sonic still thinks there is a future as a Moldovan wine-maker.
"We do not want to stop producing wine. Moldova is a country of wine producers. However difficult it may be, we will work until the end to remain a wine-producing country," Sonic said.
The Moldovan wine industry has never recovered from the blow it was dealt in 2006 when a diplomatic conflict with Russia resulted in a ban on Moldovan wine imports.
If prior to the ban Moldova sold to Russia 180 million euros worth of wine per year, today the amount is less than 57 million euros. Sales to Europe and other countries cannot make up for this loss. Moldovan wines are not very well-known in the West and face tough competition from established local producers.
"Our wine producers, for the most part, are of the old Soviet type, making not very high quality wines," said Veaceslav Ionitsa, programme director of the economic policy centre at the Institute for Development and Social initiatives.
"They have been oriented towards the Russian market and totally unable to enter other markets. At the moment I would say that our wine-making industry is in a coma. Out of 160 wine factories only 20 sell their products in the west and are built with the participation of western money. And they are doing fine now, as they did before the crisis. But most of the wine-makers are in a very bad situation and they are pulling down other industries like grape producers and bottle producers with them," he added.
Like other ex-Soviet republics, Moldova is reeling from the financial crisis, with the added difficulty that remittances from hundreds of thousands of its nationals working abroad - critical to the 4.3 billion euro economy - are down by a third. Political instability has further complicated the mix.
But despite all the problems, local wine-makers hope that this period of decline will end and Moldova, with its warm, sunny climate and rich wine-making traditions, will produce wine which will find its way into the world's markets and contribute to the country's future prosperity.

United Kingdom upbeat on Moldova's future in EU

Agentia Informationala de Stat "Moldpres"

Chisinau, 2 March /MOLDPRES/ - The United Kingdom will be a friend of Moldova within the European Union. This message was conveyed to the Moldovan authorities by a representative of the British Foreign and Commonwealth Office, head of the Diplomatic Service Peter Rickets at a meeting with Deputy Prime Minister, Foreign and European Integration Minister Iurie Leanca. The Moldovan official was on a visit to London on 26 February - 1 March, the Foreign and European Integration Ministry's (MAIEIE) media and public relations directorate has said.

This support stems from the United Kingdom's consistent position in favour of the extension process and has been recently proved through full support provided within the EU for the launch of talks on a Moldova-EU association agreement.

The discussions at the British Foreign Office confirmed the British government's willingness to give the necessary assistance, especially methodological examination and advice in the most important for Moldova sectors, such as economy and finance, security and defence, justice and domestic affairs. In particular, the United Kingdom showed willingness to consider a possibility of assisting the training of Moldovan experts for negotiations on the future agreement on deep and comprehensive free trade.

The British government reiterated its support for the structural reforms launched by the Moldovan government, including through its participation in the international effort of giving financial assistance. The government also welcomed the initiative to organize a conference of donors in Brussels on 24 March 2010.

During meetings held on the occasion of the visit to London by the Moldovan official, representatives of the British parliament discussed the importance to consistently and coherently promote domestic reforms, which represent a solid basis for the advancement of dialogue with the European Union. Encouraging messages were launched within a meeting with the head of the parliamentary commission for EU, Lord Roper. The British MP said that Moldova's future is in the EU, and on this ground, Moldova should be treated differently from other participants in the Eastern Partnership, on the basis of the progress made on the path of reforms. The Moldovan foreign minister stressed the importance that the EU creatively approach Moldova's performance, especially while developing the Moldova-EU dialogue on the liberalization of the visa regime in the long run.

Iurie Leanca thanked the parliamentary friendship group for Moldova led by Lord Dubs for its substantial contribution to maintaining Moldova on the agenda of the British parliament and government. In this respect, he referred to the parliamentary motion "Moldova's Future", launched following an initiative by the members of this group.

The issue of facilitating the visa regime between Moldova and the United Kingdom was the main subject discussed with British Minister of State for Borders and Immigration Plil Woolas. The issue was approached in the context that cooperation in this sector represents a Moldovan-British bilateral exercise, as the United Kingdom is not party to the Schengen Agreement. The two officials shared the opinion that possibilities of giving up the compulsoriness of visas for the holders of Moldovan diplomatic passports should be considered.

On visit to London, Minister Iurie Leanca met representatives of the Moldovan community in the United Kingdom, in the context of a wider governmental strategy to establish a direct dialogue between the central authorities and the compatriots from abroad. Leanca presented the government's objectives and the actions undertaken to support the Moldovan communities from abroad. The sides discussed the social and education problems faced by Moldovan citizens. Representatives of the diaspora asked the Moldovan central authorities to consolidate the communication strategies with the Moldovan nationals from the United Kingdom, and especially Ireland, where it is highly necessary to enhance the interaction between the authorities and the diaspora, given the lack of a permanent diplomatic representation, including by appointing an honorary consul of Moldova in Ireland as soon as possible. The minister gave assurances that the proposals would be examined attentively, adding that the national authorities would undertake the necessary measures to fulfill them.

Discussions with representatives of the National School of Government focused on prospects of cooperation to consolidate the institutional abilities of the central public administration.

The Moldovan foreign minister made a presentation at the Royal Institute of International Affairs on the subject "Moldova's Integration into Europe and Black Sea Region" and gave interviews to British journalists.

The question of Moldova’s full integration in the European Union is not if but when, Kalman Mizsei

Moldova's news - The question of Moldova’s full integration in the European Union is not if but when, Kalman Mizsei

“Many EU officials and politicians have said, and I can repeat, that the question of Moldova’s full integration in the European Union is not if but when”, EU Special Representative for Moldova Kalman Mizsei has told the agency Info-Prim Neo in an interview.

When asked about Moldova's progress towards European integration during three years of his current term in office, Kalman Mizsei remarked the dynamic development of the relationship between the EU and the Republic of Moldova. “Of course many people have contributed to this both in the EU and in Moldova but undoubtedly with the EUSR the interests and perspectives of Moldova, as a direct neighbor of the EU, have received a strong advocate in Brussels”, Mr Mizsei says. “We have seen the adoption of the visa facilitation agreement and the setting up of a joint visa application center, granting of autonomous trade preferences to Moldova, start of negotiations of EU-Moldova Association Agreement, the deployment of EUBAM on Moldova-Ukrainian border, and considerable increase of financial assistance to Moldova. I can safely say that the understanding of the Republic of Moldova in Brussels now is noticeably stronger now than it was 3 years ago when I started my current mission”.

Ambassador Mizsei avoided saying whether there was any difference between the European integration approaches of the present and the previous government of Moldova. “it is not my task to write comparative analysis about this. We worked with both governments intensively to accelerate what some analysts call the Europeanization of Moldova. I take heart from the fact that when member state delegations come to Moldova they often tell me how impressed they are with the European aura of the country – this is the achievements of both, past and present government as well as civil society that in Moldova is particularly vigorous.”.

Kalman Mizsei also answered indirectly to the question about the alleged insincerity of the previous government in matters of European integration.

“I do not want to get involved into issues of domestic political competition – it is good though that all parties want to demonstrate their commitment to the European integration. It means they follow the expectations of their electorate. Moldovans overwhelmingly opt for a European integration path. We had some discussions last year and the year before with the authorities about the Eastern Partnership and not everyone at that time was on board. You also know that we urged the authorities to improve adherence to European norms in the areas of judicial independence, behaviour of police, and other areas of human rights. We continue this and soon a so called Human rights dialogue will start that hopefully will make positive changes in this respect irreversible – leaving behind the long accumulating historical heritage of neglect for human rights. On the other hand, we do not forget that many essential results of European integration happened in the last 3-4 years. We concentrate on the country with its whole political class and particularly with its whole community, people”, stated Kalman Mizsei in his interview with Info-Prim Neo.

Kalman Mizsei was appointed EU Special Representative for Moldova on March 1, 2007 for a three-year term. Recently, the Council of the EU prolonged his term in office until August 31, 2010.

Let us help plucky Moldova | The Spectator

Let us help plucky Moldova | The Spectator

Now that the post-Cold War era has ended it is hard to find small, inspirational states who seek to cement a new-found independence and yearn for what the West has to offer. Georgia looked like such a state until Russian aggression and Tblisi's behaviour put an end to the country's westward journey. Ukraine is too big, and too bolshy to count. Belarus is happy in Moscow's embrace.

But one country still fits the bill - Moldova. Sandwiched between Ukraine and Romania, Europe’s absolute poorest country is undergoing a new political spring after the recent elections. A new, Western-minded, youthful coalition government has replaced the old-style communists. It faces enormous challenges, not least from a well-entrenched, Russian-backed secessionist province, and a forthcoming constitutional crisis.

But its ministers are approaching their task with a vigoUr and useful naiveté that all reformers need and which has long since been lost elsewhere on the EU's Eastern borders. They want to be part of Europe, and they want to build their state. Having inherited a 16.5 GDP deficit, the government has managed to push it down to 7.8 (HM Treasury, take note please). Crucially, they seem to have learnt from Georgia's mistakes. They are not trying to militarise their internal conflicts. Nor are they looking to antagonise Russia or join NATO.

But they are looking for the EU’s help. So far, the Chisinau government has received a trickle of support rather than flow needed. To that end, they are compelled to turn to China for loans.

Europe should, however, look to do more and quickly. Governments that want to join the West are today few and far between. Most, like Ukraine, are torn, or, like Belarus, uninterested. The Moldovans are different – and willing to reform. They should be helped.

The new government may not last. Late last year, the Moldovan parliament failed to elect a president, with the coalition’s candidate blocked by the Communist Party. Normally, that would trigger the holding of early elections later this year. If elections are held, the coalition will need some record of performance to ensure that they repeat their success. Letting the Communists back in would be a step backwards worse than Viktor Yushchenko’s election in Ukraine.

So European governments should lend assistance. They should offer the prospect of visa-free travel, at least to students and young people, into the EU. Later this year, Albania is likely to be given visa-free travel into the EU. Every day, Albanians are deported from Britain for violating their terms of stay. The Home Office reports nothing comparable with Moldovans staying in the UK. They come, keep to the rules and go back when their visas expire. Then EU governments should examine ways to help get Russian “peacekeepers” out of break-away Transnistria, perhaps to be replaced by a hybrid EU-Russian civilian mission.

Western-oriented Moldova deserves Europe’s help. It may not be the biggest foreign policy issue. But it’s a good one.


Filed under: Europe (124 more articles) , Foreign Policy (82 more articles) , Georgia (3 more articles) , International politics (118 more articles) , Moldova (1 more articles) , NATO (26 more articles) , Russia (32 more articles) , UK politics (1125 more articles) , Ukraine (1 more articles)

Moldova's new government gets good marks for anti-crisis reforms - BUSINESS NEW EUROPE

Moldova's new government gets good marks for anti-crisis reforms - BUSINESS NEW EUROPE

Moldova's new government gets good marks for anti-crisis reforms

Graham Stack in Kyiv
February 22, 2010


Moldova has had a good crisis politically, but there is still turbulence ahead in 2010.

The crisis may have come at the right time for Moldova. It helped unseat a stagnating Communist Party administration led by the then-president Vladimir Voronin and gave the incoming government of Prime Minister Vlad Filat a mandate for reforms urgently needed for long-term development. Now, the small republic has signed off on a $574m International Monetary Fund (IMF) package that should shore up its economy in 2010.

Like the rest of the countries in the region, Moldova grew and grew through most of the noughties – mostly due to booming consumption, though not fuelled by cheap credit as much as by employment abroad. From 2000-2008, growth averaged 6%, poverty fell impressively and remittances from Moldovans working abroad hit 30% of GDP in 2008.

After a brief reform bout at the start of the decade, this easy growth led to a slackening of the reform drive and the economy remained overregulated, hampered in particular by price distortions, and unable to create new jobs. The crisis exposed the country's vulnerability, with remittances falling by 40% in 2009. As a result, GDP collapsed by 8.5% in 2009 and household consumption by around 12%. Meanwhile, a bitter election campaign resulting in a hung parliament after disputed elections in April, then rerun in July, meant meaningful steps to counter the global economic crisis were delayed in favour of populist spending by the then governing Communist Party.

This meant that when the new government under PM Filat finally took office in September, the budget deficit was set to hit 16% of GDP. But the Communists were replaced by the right people at the right time – Filat headed a liberal reforming coalition called Alliance for European Integration, favoured by the urban population, and who had a mandate to push on with market changes. "The government has pursued the right policies," says Valeriu Prohnitchi, director of Chisinau's Expert Group. "They have done what could be done rapidly, dismantling trade barriers, liberalizing markets such as the meat market by removing price controls. They froze salary increases for state employees, which was a difficult, but correct, choice. They raised public services prices to reach cost-recovery level, and the National Bank has switched to inflation targeting."

As result of these measures, the government managed to cut the budget deficit for 2009 to 7.8%, and this is due to fall to 7% in 2010. Moreover, there have been important institutional reforms that should bring lasting improvements. For instance, authority for setting energy prices has been passed to an independent regulatory agency.

All this has ticked the right boxes with international financial organisations. "In my view, the government has reacted quickly to respond to the crisis. The results have been impressive but, of course, there is still much to be done," Melanie Marlett, the World Bank's country manager for Moldova, says on her website.

Moldova has also made some important gains in terms of European and international integration. On January 12, the government initiated negotiations with the EU on a new Cooperation Agreement. On January 22, Filat signed the $262m Millennnium Challenge Corporation Compact with US Secretary of State Hillary Clinton. And on January 29, the IMF board approved a $574m program of support. "The IMF aid is crucial, because without it Moldova would have defaulted. It also gave a positive signal to other investors," says Prohnitchi.

Bumps in the road

The outlook for 2010 is still cloudy. Besides remittances from abroad, Moldova's economy has traditionally been dependent on wine exports to Russia. These were cut off in 2006 for political reasons, and though the informal embargo was lifted in 2008, much will depend on how quickly exports recover this year. "Wine exports will also be critical, but there is now a lot of bureaucracy in place, and the new customs union (between Russia, Belarus and Kazakhstan) interrupted wine exports at the start of this year," says Prohnitchi. "But some of our wine producers are diversifying to western markets."

The outlook for remittances is also unclear. Migrants have not, as was feared, come flooding back. Instead, they cut the amount of money they sent home. Recovery in the host European countries would allow remittances to bounce back up, though Moldovan migrants are concentrated in the South European economies of the so-called PIGS – Portugal, Italy, Greece and Spain - as well as in Russia. The PIGS are currently under pressure from spiralling budget deficits and debt burdens.

Another cloud on the horizon, says Anatol Gremalschi of the Moldovan think-tank Institute for Public Policy, are rising prices for Russian gas, which are scheduled to reach European levels by 2011.

Prohnitchi concludes that while there are some signs of the economy bottoming out, the long-term picture is unclear. "There are many risks depending on foreign markets. If the crisis worsens or stays the same there, Moldova will suffer. Our prognosis for 2010 is 1.5% growth, although the [European Bank of Reconstruction and Development] has forecast 4%," he says.

Furthermore, while the government has done good work, political instability may undermine progress in 2010, according to Gremalschi. Moldova remains locked in a constitutional crisis without an elected president since July. Moldova's unique constitution sees the president elected by a three-fifths majority of the unicameral parliament. But the governing liberal coalition falls one MP short of the 61 votes needed, and the now-oppositional Communists have refused to compromise on a candidate. Moldova thus has only an acting president, Mihai Ghimpu, whose day job is speaker of parliament. Various projects have been mooted to change the constitution, but none seem viable. "This means that we are condemned to have parliamentary elections again in 2010," says Gremalschi, "but no one knows when."

The risk for the current government is that a backlash against unpopular, but necessary, budget reductions and price liberalization, could cause them to lose votes at the parliamentary elections later this year. "People see the new alliance, and see the new prices," sighs Gremalschi. "It's a natural reaction."