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The Political Economy of Moldova

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The Political Economy of Moldova THE POLITICAL ECONOMY OF MOLDOVA Vladimir Solonari, State University of Moldova The paper was prepared for the Lucerne Conference of the CIS-7 Initiative, January 20-22, 2003 The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its Board of Executive Directors and the countries they represent. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgement on the legal status of any territory or the endorsement or acceptance of such boundaries. Table of Contents THE POLITICAL ECONOMY OF MOLDOVA…………………………………………….1 Introduction…………………………………………………………………………...……...…1 The Impact of Initial Conditions…………………………………………………………...….1 Moldovan Political Culture: Some Important Characteristics……………………….…..…4 European Factor in Moldovan Politics…………………………………………………….….6 Constitutional and Party-Political Systems and Governance in Moldova………………......8 Public Administration, Judiciary and Governance in Moldova…………………………….12 Evolution of the Economic Policies in Moldova: A short Overview……………………...…16 Transnistrian Problem and Moldovan Economy…………………………..………………...21 Conclusions and Policy Recommendations……………………………………………….......24 Bibliography……………………………………………..……………………………….….....28 Annex………………………………………..…………………………………………...….….31 The Political Economy of Moldova1* Introduction 1. Moldova is an ex-Soviet Republic of 338 thousand square kilometers and 4.4 million people that is landlocked between Ukraine and Romania. After the breakdown of the USSR, it also experienced one of the steepest economic and social declines in memory. Its GDP decreased by more than 60 per cent since 1990. In the 1980s, it had been in the range of middle-income countries. (See annexes 1 and 2). Now, it is considered the poorest nation in Europe. Given Moldova’s record in the 1990s and given the seeming intractability of its economic difficulties, the IDA’s decision to include this country in the CIS-7 group--with the view of attracting greater attention of and assistance from the international community--is highly appropriate. It might, however, also lead to the unwarranted assimilation of its problems with those of the Central Asian and Caucasian nations--nations whose problems are of a very different character. This paper will show how Moldova’s problems are related to its peculiarities, its geography and the characteristics of its ruling elite. It will briefly discuss political culture, demographic developments as well as an institutional system of the country and will lay down policy recommendations based on this analysis. The Impact of Initial Conditions 2. Moldova was one of the biggest losers after the breakdown of the USSR. Not only had it lost direct and indirect subsidies from the all-Union funds--subsidies which amounted to 25 per cent of its GDP 2 --it also experienced the worst terms of trade deterioration of all post-Soviet countries, approximately between 40-50 per cent. In 1992 alone, the cost of petrol and natural gas increased 40-fold; the cost of coal increased 100-fold. In the World Bank assessment, “the input adjustments following these price changes, particularly for fertilizers and fuel, are a key factor to explaining the subsequent output decline.”3 The shock was particularly devastating given the amount of distortions in the Moldovan economy--an economy which was geared to producing particular, mostly agricultural, products for a protected all-Union market. This market was temporarily lost following the breakdown of the centralized distribution system. It recovered only slowly and under much less favorable conditions, given the terms of trade change and increased competition from the outside. In fact, dependence on the CIS markets has proved to be exceedingly difficult to overcome: even after a decade of independence Moldova still exports and imports about fifty per cent of its goods and services to the CIS markets (see annexes 3 and 4). 3. What was even worse in the medium and long-run is that Moldova essentially lacked the experience of an independent existence. Its political and managerial elite was not educated to run 1 * The Research assistance of Carolina Revenco is gratefully acknowledged. 2 See Vandycke (2002). In the post-independence epoch, it was getting no more than 9 per cent, see ibid., figure 2. 3 See World Bank, 2002b, 24. 1 an independent state and market economy. In fact, any first-hand knowledge of the outside world was negligible. In the inter-war period, indeed, Bessarabia (the region between the Prut and Dniester Rivers where the bulk of the territory of the present-day Moldova lies) was part of the Greater Romania Kingdom. As such, the region experienced a market economy, however feeble and underdeveloped. (In fact, Bessarabia was probably the most backward and depressed province of the Kingdom.) But its educated elites emigrated en mass in 1940 to Romania when the Soviets took the province over; they did so once more in 1944 when the USSR reoccupied it in the last stages of the World War II while Jewish population suffered heavy losses at the hands of Romanian authorities. As a consequence, the elites of the independent Moldova are for the most part Soviet-educated party; they are managerial bosses for whom adjustment has been extremely difficult and who still often harbor nostalgia for the Soviet period. One can even argue that the initially widespread expectation that the new state of affairs would not last long and that the status quo ante (i.e. a kind of a refurbished Union) would be restored proved a serious factor impeding faster adjustment. This perception faded but only slowly. 4. Despite the country’s tiny size, Moldova’s society and polity are deeply divided along cultural and ethnic lines. Ethnic Moldovans comprise approximately 64.5 per cent of its population, followed by Ukrainians (13.8 per cent), Russians (13 per cent), Gagauizi (3.5 per cent), Jews (1.5 per cent) and Bulgarians (2 per cent) (1989 estimate).4 Soviet language policies led to what one may call “asymmetrical pluralism.” This was a situation in which the overwhelming majority of Moldovans possessed Russian language which functioned as de facto official language, both in the USSR as a whole and in the Moldovan republic in particular; at the same time, practically all non-Moldovans, having been educated in Russian. have as a rule only rudimentary knowledge of Moldovan (Romanian) and thus rely heavily on Russian in their everyday life. (Hence they are sometimes called Russian-speakers). Since independence, this situation has changed only slightly. The majority of ethnic Moldovans perceive this state of affairs as utterly unjust. In the late eighties to early nineties, in the period of Gorbachev liberalization, they quasi-unanimously supported a plan to make the Moldovan (Romanian) the only official language of the state. Russian-speakers, predictably enough, viewed this demand with a great deal of apprehension and resisted it by strikes and other mass actions. Ethnic relations speedily deteriorated followed by the proclaimed sessions of the eastern part of Moldova, the so called Transnistria (Pridnestrov’e in Russian)5 where Slavs predominate, and Gagauzia in the south where the respective minority lives.6 Bloody conflict ensued with hundreds of people killed. In 1995, Moldovan authorities managed to successfully solve the Gagauzi problem by granting this minority territorial autonomy.7 This success, however, eluded 4 See CIA, (2002). 5 “Transnistria” means “the territory across the Dniester River” in Romanian. This is, however, a little misleading since the territory that seceded comprises the area left of the Dnestr-River (i.e. “across” it) plus the right bank town of Bender. “Transnistrian republic” has a territory of about 4.1 thousand square kilometers and a population of approximately 750,000 inhabitants, which is ethnically mixed, with Moldovans comprising 34, Russians 28 and Ukrainians 24 per cent. These are “official” Transnistrian data available at: http://www.olvia.idknet.com/overviewru.htm. Moldovan data slightly differ; they usually give 40 per cent Moldovans, 26 per cent Ukrainians and 25 per cent Russians (see, e.g. President Mircea Snegur’s interview Sfatul _arii, 1991, November 15, quoted after Gheorghe E. Cojocaru, 158). 6 Gagauzi is a small Turkish-speaking people of the Christian Orthodox faith. 7 The territory of the Gagauzi autonomy is 1,831 square kilometers and population 172.500. the data is available at: http://www.geocities.com/e_salon/Gagauzia.htm. 2 them in respect of Transnistria. Since 1992, when the ceasefire agreement was signed, until now, the Transnistrian regime has refused all offers by Chisinau of any form of autonomy and has insisted that the relationships between the region and the rest of the country may be constructed on the inter-state basis.8 5. Civil conflict, territorial dispute, and Transnistrian secession cost Moldova dearly. Before the downfall of the Soviet Union, Transnistria was by far the most developed part of the republic. Comprising 12.4 per cent of its territory and 17 per cent of its population, it generated about 85 per cent of all electricity, produced 38 per cent of industrial and 15 per cent of the agricultural output. Established economic links were broken; even economic transactions between the enterprises on the two sides
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