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Home , Avdarma, Cahul District, Comrat, Nisporeni District, Poverty in Moldova, Tiraspol

Report No.: 19846MD

MOLDOVA: ASSESSMENT Public Disclosure Authorized TECHNICAL PAPERS

October 1999

Poverty Reduction and Economic Management (ECSPE) Eastern and Central Asia Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized CURRENCY EOUIVALENTS (as of July 30, 1997)

Currency Unit = Leu (plural Lei) 1 Leu = US$0.22 US$1 = 4.60 Lei

(as of May 13, 1999)

Currency Unit = Leu (plural Lei) 1 Leu = US$ 0.09 US$1 = 10.85 Lei

WEIGHTS AND MEASURES Metric System

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

CIS - Commonwealth of Independent States ECA - Europe and Central Asia FSU - FormerSoviet Union GDP - GNP - Gross National Product IMF - in.ternationalMonetary Fund OECD - Organization For Economic Cooperation and Development PPP - Purchasing Power Parity TACIS - Technical Assistance for Commonwealth of Independent States UNDP - United Nations Development Programme

Vice President: Johannes Linn (ECAVP) Country Director: Roger Grawe (ECC07) Sector Director: Pradeep Mitra (ECSPE) Sector Manager: Hafez Ghanem (ECSPE) Task Team Leader: Arup Banerji (ECSPE) Team Members: Jeanine Braithwaite, Elena Nickulina, Doreen J. Duff (ECSPE); Nora Dudwick (ECSSD); Robert Ackland (consultant); Hermine de Soto (consultant); David L. Lindauer, (consultant) Table of Contents

Technical Paper I Poverty in : The Social Dimensions of Transition By Hermine G. De Soto and Nora Dudwick

Technical Paper II Poverty in Moldova: Pilot Results For February 1997 By Jeanine Braithwaite

Technical Paper III Poverty in the of Moldova in May and August 1997 By Robert Ackland

Technical Paper IV Labor and Poverty in the Republic of Moldova By David L. Lindauer

Technical Paper V Human Capital and Poverty in the Republic of Moldova By Robert Ackland I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ PREFACE

This is a companion volume to the Moldova Poverty Assessment (1999), and contains the technical papers that are the basis for the report. The report was written at the request of the Government of Moldova, which is its primary audience. It aims to provide a detailed analysis of the situation regarding living standards in the country, and provide a framework for policy for the Government's emerging social assistance program.

The main report concentrates on analyzing the results for the Right Bank of Moldova. These technical papers also present evidencefor .

TECHNICAL PAPER I

POVERTY IN MOLDOVA:

THE SOCIAL DIMENSIONS OF TRANSITION

June 1996 - May 1997

by

Hernine G. De Soto The World Bank

and

Nora Dudwick The World Bank

The views contained herein are those of the authors only, and do not represent the opinions of the World Bank nor of its Board of Directors, nor of any individual country member, nor federal, nor local government.

Poverty in Moldova: The Social Dimensions of Transition

TABLE OF CONTENTS

ACKNOWLEDGMENTS...... iv

EXECUTIVESUMMARY ...... ,. v

INTRODUCTION...... 1I Research objectives...... Research methodology...... 2 Interview sites and choice of households ...... 3

WHAT IS POVERTY?...... 5 Comparisonswith the past ...... 5 Insecurity and shame ...... 6 Generational differences ...... 6 Who became rich and who became poor?...... 7 Conclusions...... 8

THE MATERIALDIMENSIONS OF POVERTY...... 9 Hunger...... 9 Comparing past and present ...... 9 Cutting back ...... 10 Food vulnerability:pensioners and children ...... 11 Housing conditions...... 12 The problem of utilities...... 12 Heating and cooking...... 12 Paying for utilities and services...... 13 Water and waste ...... 14 Poverty and ill health...... 15 Paying for hospitalization...... 15 Chronic or serious illness...... 16 Folk healers ...... 16 Dentistry...... 17 Maternal and child health...... 17 Abortions...... 17 The cost of childbirth...... 17 Child health...... 18 Conclusions...... 18

EDUCATION...... 19 and poverty...... 9 Deteriorating infrastructure;inadequate teaching materials...... 19 Rising absenteeism...... 20 Teaching: declining salaries and prestige; rising workloads...... 21 The role of bribes...... 21

i Technical Paper I

How students see their future...... 22 Education in ...... 23 Conclusions ...... 23

THE AGRICULTURAL SECTOR ...... 24 The impact of land reform ...... 24 Restructuring the collective: Background ...... 24 Working conditions on collective farms ...... 25 Farm worker - farm management relations ...... 27 Leaving the collective farm: fears and intimidation ...... 28 Farm reorganization ...... 31 Attitudes toward American assistance: the experience of Maiak ...... 31 Zavoieni Peasant Farmers Association, Manta ...... 31 Private farming: risks ancl benefits ...... 33 Changing attitudes and interests ...... 35 Conclusions: Who privatizes? ...... 36

SUBSISTENCE FARMING ...... 37 Farming on household plots ...... 37 The importance of husbandry ...... 37 Marketing crops ...... 38 Stealing ...... 39 Urban gardening ...... 39 Conclusions ...... 40

CHANGING LIVELIHOOD STRATECLES...... 41 Introduction ...... 41 Formal employment ...... 41 Finding and keeping jobs ...... 42 Youth unemployment ...... 43 Employrnent, illness, and disability ...... 43 Women: juggling jobs and child care responsibilities ...... 44 Informal employment ...... 44 Buying and selling ...... 45 Small-scale retail vending ...... 46 Petty enterprises ...... 47 Capitalizing on skills and hobbies ...... 47 Renting out rooms ...... 48 Selling vouchers ...... 49 Illicit formnsof income-generation...... 49 Prostitution ...... 49 Bribes ...... 49 Begging ...... 49 Theft ...... 50

ii Poverty in Moldova: The Social Dimensions of Transition

Labor migration...... 50 Changing attitudes and risks...... 52 Attitudes toward business...... 52 The role of "connections"...... 52 Borrowing and lending...... 53 Conclusions...... 54

SOCIAL ASSISTANCE...... 55 Introduction: Social assistance in the past...... 55 The state as provider: retention of old attitudes...... 55 Late and haphazard payments...... 56 Obstacles to qualifyingfor or obtaining assistance...... 56 Bankrupt local governments...... 57 Family and child benefits...... 58 Assistancefrom private, religious and humanitarianorganizations ...... 59 Attitudestoward social assistance and public authorities...... 60 Conclusions...... 60

NEW FORMS OF SOCIALINTEGRATION AND DISINTEGRATION...... 61 The family in transition...... 61 Kinship relations...... 61 Changing gender roles...... 61 Communityrelations ...... 62 Social and ceremoniallife ...... 62 Children and youth during the transition...... 63 Crime and the breakdownof trust ...... 64 Increasing social differentiation...... 66 Conclusions...... 67

ETHMC AND REGIONALVARIATIONS IN THE STANDARDOF LIVING...... 68 Ethnic heterogeneityand separatism...... 68 Migration patterns ...... 68 Linguistic issues...... 69 Levels of poverty...... 69 Education and employment opportunities...... 70 Ethnic stereotypes...... 71 Conclusions...... 71

SUMMARYAND RECOMMENDATIONS...... 72 Introduction...... 72 Findings and recommendations...... 73

ANNEX I: Definitions of farm types ...... 79

iii TechnicalPaper I

ACKNOWLEDGMENTS

This study was undertakenwith the assistance of many organizations and individuals. We would like to thank Arup Banerji, the Task Manager of the project, for his support and feedback throughoutthe project, and JacnesParks, Resident Representativein Moldova, and his staff, for their assistance when we were in Moldova.

Field research was coordinated with the assistance of Volunteers in Overseas Assistance (VOCA), in conjunction with its Moldovan partner, ADSISTO,an NGO providingtechnical consultationand training to agriculturalo:rganizations and enterprises.Vasile Munteanu, Executive Director of Adsisto, was overall manager of our study, the results of which owe much to his responsible, serious and competent involvement. We would also like to thank Sean Carmody, Regional Representativeof Agricultural CooperativeDevelopment International as well as VOCA, for Belarus and Moldova, for his interest and support throughout this study. Adsisto staff members Elena Negru, Irna Mariciuc, and Sergei Miroshnikov also contributed in many informal ways to this project, not the least by creating a welcoming atmospherein their office.

We are most grateful to our Moldovaninterviewers for patiently participating in our training and for conducting interviews in difficult physical and psychologicalfield conditions. Their excellent ethnographic reports provide the basis for this report, and we extend our deepest thanks to each of them. In alphabetical order, they are: Oleg Bivol, Valeriu Burca, Nina Cainarean,Igor Cobilteanu, Victor Manolii,Maria Mamaliga, Sergiu Martinenco,Mihai Mereacre,Gheorghe Munteanu, Sergiu Munteanu, Tatiana Munteanu, Svetlana Ojog, Felicia Parasca, Lucia Pogor, Olga Savenco, GheorgheTofan, Irina Tretiacova,and Elena Triboi. In addition, we would like to thank Nina Cainarean for her role in the day-to-daycoordination of the team, and to Gheorghe Tofan for meticulouslyediting the interview reports for content.

Many governmentofficials in Chliisinauand district offices provided time and informationto us and our interviewingteam. Likewise, many local and international organizationsgenerously provided time and information on different aspects of Moldovan society. They include: Tamara Fornea, Administrator,Salvation Army; Stefan Toma, UNICEF; Save the Children, Amy Hastings and Irena Stavenski, UNDP; and Karl Theis, German Cultural Consul.

Our deepest gratitude goes to all the people who consented to be interviewed, often at great length, and whose voices are representedin this study. We hope that the cultural as well as literal translation of their words has done justice to their thoughts and feelings.

iv Poverty in Moldova: The Social Dimensions of Transition

EXECUTIVE SUMMARY

INTRODUCTION

Following Moldovan independencein 1991, collapse of the tightly integrated Soviet economy, disruption of trade links and payments, severe inflation, together with closure of enterprises, layoffs and furloughs, simultaneouslyreduced incomes and wiped out life savings of many . During these years, Moldova'sheavily agricultural economy suffered from severe , early frosts, and torrential rains, and agriculturaloutput and incomes also shrank. These economic disasters were compoundedby separatist movements in Transnistria and in (comprised of several southern districts with a large Gagauz population),with an attendant loss of life and property and displacementof persons from Transnistriato other parts of Moldova.

As elsewhere throughoutthe FSU, the population of Moldova has experienced marked economic and social differentiationand seen a small, wealthy class of entrepreneurs and a larger strata of newly poor emerge. In the countryside,the living standard of collective farm workers has deteriorated. At the same time, an estimated 200,000 persons have withdrawn their land from the collective farms, of whom many have successfullyincreased their incomes. These econornicchanges, still poorly understoodby those in the midst of the process, have altered family and community relations, altered the nature of ties among kin, neighbors, colleagues, and friends, while creating new horizontal and vertical links.

To explore the implication of these economic and social changes and how the population is coping with them, a Moldovan research team carried out 200 household interviews in October and November 1996, using open-ended interviews. Their reports form the basis of this document, in addition to interviews carried out by the internationalconsultants with officials, NGOs, and representatives of internationaldonor organizationsin Chisinau. The interviews explore the following issues: dimensions of poverty as poor people experience and define them; coping strategies; and implications for social and economicpolicies to address poverty and its consequences.

FINDINGS

Poverty is relative and multi-dimensional

Urban and rural poor Moldovans define poverty in relative rather than absolute tenns, using the Soviet period as the standard of normnalcy. Poverty in Moldova and the FSU is unusual in that it now affects both people who were always economically"vulnerable," such as unskilled workers, or very large single-parentfamilies, as well as highly educated persons who once enjoyed socially prestigious and well-remuneratedpositions as scientists, engineers, or professors.Hence they define poverty in relative terms, depending on the positions they previouslyoccupied in the socioeconomnichierarchy. None of our respondents described

v Technical Paper I _ themselves as having been "rich"; a few said they had always been "poor"; most felt they had lived well by prevailing standards.

Poor Moldovans blame unemployment, hyperinflation, loss of savings, and incompetent, disinterested government for their poverty. Despite the fact that salaries have drastically shrunk, most respondents attributed impoverishment to widespread unemployment, the loss of lifetime savings which occurred at the time of the currency conversion, and the inflation which has eroded the value of their salaries, pensions, and social assistance payments. Whatever their analysis, most blame "the government," although they continue to look to the government to reassume their traditional responsibilities and "fix" the economy.

Poverty in Moldova means hunger, cold, bad living conditions, and bad health

The poorest respondents prioritize hunger, cold, illness, and bad living conditions as the worst material aspects of poverty. Pensioners who depend primarily on their pensions survive on the most meager of diets, while children from poor families who are unemployed and lack sufficient land may also go hungry, even in rural areas. Poor households note that the rising cost of fuel is an acute problem in winter, and is compounded by neglected housing, with leaky roofs, rotting floors, and windows without glass.

Poor nutrition and cold exacerbate health problems, which poor respondents described as the most frightening aspect of poverty. Poor health threatens their jobs, and drains limited resources if they treat their illness (although many ignore illness until it becomes acute). Even when checkups are free, rising costs for medicine, lab tests, surgery, and under-the-table payments are defacto privatizing health care. Pregnant women can no longer afford prenatal care; some prefer to give birth at home. Rising medical costs have hit large and/or single headed families, the elderly, and the disabled or chronically ill with particular severity. Poor people also link the lack of potable water and deterioration of garbage collection services to frequent infectious diseases.

Moldova is developing a two-tier medical system consisting of low quality or no care for the very poor, adequate public care or better private care for those who can pay official and unofficial fees. The situation is particularly acute for rural Moldovans, who have much less access to specialized care than inhabitants of large . Infectious illnesses and general health have worsened in children with the deterioration in living conditions and health care. The elderly poor tend to ignore their own illness, which they interpret as an inevitable part of growing old, or simply of less importance given few resources and the competing needs of younger family members.

vi Poverty in Moldova: The Social Dimensions of Transition

Poverty has important social and psychologicaldimensions

Respondentsdescribed poverty as feeling defenseless;finding it impossible to obtain informationorfind out the "truth"; exclusionfrom the cultural, social, and ceremonial life they once enjoyed but can no longer. They experience a pervasive sense of insecurity in the present, and fear for the future, as well as the sense that they do not know and cannot find out what is going on around them. Poor people experience poverty as deeply humiliating, often preferring to characterize themselves as "close to" but not completely"poor," since poverty was ascribed to personal failings during the Soviet period, and the appearance of prosperity was essential to maintain social standing and the "connections"important for securing access to deficit goods and services.

For poor people, independence, "democracy," and the transition to a market economy signify a lack of social justice. They link wealth with criminality, and condemn the new rich former CommunistParty political elite, who simply "exchangedtheir Party cards for parliamentarians'mandates," bureaucrats,local officials, the "mafia,"illegal privatization, rich gypsies, , , and people who used Soviet era political and business connectionsto "grab material and start their own businesses." Poor respondentscharacterize these people as "dishonest,""swindlers," "speculators,"and "thieves,"and insist that "politicians don't care about the sufferingpopulation."

The dangers of reproducingpoverty: problems of access to education and jobs

Poverty affects all ages, but small children, the elderly and disabled are particularly at risk. With closure of kindergartens,small children either remain at home unsupervised, accompanyparents to the fields in agricultural areas, or remain in the care of older siblings who have dropped out of school, or who may be kept out of school to help at home. Children as young as ten now help parents farm during school hours; they also engage in wage labor for others.

The deterioration of infrastructure,the outflow of qualified teachers, and cost of school supplies is reducing the access of poor children and youth to good education. With the inability of the state to fund education at previous levels, private , tutors, and private institutions of higher education have moved in to compensatefor the disastrous fall in educationalquality. Absenteeismis becoming endemic as children from poor families drop out to join the labor force, either to help parents farm, or as part-time agriculturalwage labor.

The school system is also more likely to stigmatizepoor or disabled children as "backward" and recommend themfor special residentialschooling. In some cases, parents have respondedby simply withdrawingtheir children from the school system entirely. Interest in schooling has diminished as parents and children note the current disconnectionbetween level of education and employment. Gifted children from poor families have lost interest because they know they cannot afford higher education; many village students cannot even afford the basic expenses for education in the nearest town center.

vii Technical Paper I

Although some rural youth have found work in cities in Moldova or abroad, others work part-time in , remaining idle for long winter months. In the past, collective farms sometimespaid students allowances for their five years of university education, with the promnise of a job when they returned to their . Today, collectives can no longer hire the young graduates who return; many of these educated young people are forced to return to the .

Subsistencefarniing is a primary coping strategy for rural, small town, and even urban Moldovans

Working conditions on the nominally restructured collective farm enterprises, which continue to dominate agriculture, have dleteriorated sharply. Most farm workers supplement in- kind salaries and the "dividends" the collectivepays for "renting" their land quota by subsistence farming on their household plots, stealing produce and forage from the collective, raising animals, and by some marketing. They almost universallyperceive farm managementas exploiting them and using pretexts of bad weather, unforeseen expenditures,and farm indebtedness to cheat them of their actual earnings. Despite their negative evaluation of farm management,those that remain on collectivescite the complicated and expensive registration procedures, intimidation on the part of local and farm officials, and the high cost of inputs and taxes.

For the very elderly, the ill, and the disabled, even household and/or private plots fail to improve the standard of living. Many elfderlyare no longer capable of physically cultivating their land (includingurban gardens) or transporting water and other supplies to fields far from home. In such cases, they often lease their land, formally or informally, to others, in exchange for what is sometimesa very meagerportion of the harvest. Although many rural households supplementtheir income from collective farms by private husbandry, the poorest families cannot even afford to keep animals or poultry, because they have no access to forage.

The very poorest collective farm workers are at a disadvantage if and when they become independent private farmers, because they are not able to afford the initial necessary investments. The most successful farmers are those who privatized with some capital available to invest in inputs or equipment. Many cofthese new "peasant farmers" report better yields than they received on the collective. Former brigade leaders, technical specialists, vehicle drivers, and managers thus tend to be the more successfulindependent farmers. Those who were ordinary field workers show less initiative and/or success in exiting, because they lack the access to resourcesthat money and "connections"provide; a knowledge of overall farm planning and functioning;and access to marketing information and transportation.

Informal sector activities and labor-migrationhave become critical cash-generating survival strategies

Both state and private sectorformal employment has become less secure, and school- leavers and women with child care responsibilities find it ever more difficult to findformal employment. The ill and disabled experiencethe greatest insecurity, since someone able bodied is always waiting to take their place. Despite low public sector salaries, older respondents, especially those near retirement age, saw state sector employmentjob as key to survival. For

viii Poverty in Moldova: The Social Dimensionsof Transition some, it provided their only cash income; those near retirementknow they are unlikely to find better work, and want to accrue "seniority" for their pensions.

Petty trade and small home-based enterpriseshave become an important supportfor many households. Marketing of goods andfarm produce takes place within Moldova, as well as across borders with Romania, ,and other FSU and East European countries. When possible, people trade in where they have relatives or close acquaintances,to avoid the problem of customs fees. Many use personal connections, access to resources, and skills or hobbies to start small home businesses, such as flower growing and arranging, carpentry,baking, knitting, and other crafts. As people innovate to find ways of earning money, attitudes toward "business" and "the free market" are undergoing a transition. Many middle-aged and elderly have been unable to adapt to this new ; they still consider "business" -- especially buying and selling -- as "speculation,"a criminal activity during the socialist era. Older respondents are often ashamed of selling goods on the street, while youth convey fewer misgivings.

Poor people often lack the social capital essentialfor successful enterprises beyond the level of unregisteredhome businesses. Patronage ties have increased in importance in proportion to the declining role of the state as protector and provider, and "connections"with people who are well-placed, rich and/or powerful are critical for acquiringinformation, dealing with bureaucracy,and avoiding official harassment. Our respondentstend to lack such connections, and tend to remain in the "shadoweconomy." Especially in rural areas, such relations play a central role, and local officials can easily restrict access to both information and resources.

Obtaining start-up capital constitutes one of the biggest problem for poor people who wish to start small enterprisesor private farming. Our respondents displayed a profound distrust of banks. Moreover, few have the collateral to qualify for bank loans. While most small entrepreneursborrow from neighbors, friends, and relatives whenever possible, they must borrow from professional money-lendersat very high interest rates when they need larger amounts, often with catastrophic consequences. A number of respondentsreported losing their cars, homes, and possessionsto moneylenderswhen their small businesses failed, and they and their families feel they have almost no legal recourse against harassment.

As in other FSU countries, labor migration has become the quickest and often riskiest way to earn cash Migrants travel to , Ukraine, Belarus, , Romania (for trade), Greece (for agriculturalwork, housework, and child care), Germany,, and elsewhere. Rural inhabitants frequentlyleave their villages in autumn and winter, when there is less agricultural work to do. In Russia, the largest single destination, men work in heavy construction,or as builders and masons on private homes of the new rich, in agriculture on field brigades or as drivers and tractor operators. Women have broken into the formerly male domain of seasonal labor migration;both men and women travel to Russia, Ukraine, Romania, Greece, and Hungary to work in agriculture. Women also travel to , Russia, and elsewhere to market produce on the street or in produce markets.

The diminishing significance of social assistance

ix Technical Paper I

Many poor people still expect assistance from and appeal to "the authorities" -- which includes the Parliament, district executive committees, city, town and village mayoralties, and collective farm administrators -- during difficult periods. Despite the fact that social assistance payments are poorly targeted and spreaclthin, the very poor, including pensioners living alone or with other pensioners, and with no other source of income, felt that even a timely, predictable payment would improve their situation. Some pensionersreported receiving ration cards, but resented the requirement to redeem themnnat shops for goods which were priced higher than in the open market. Some localities deduct electricity fees and taxes from pensions, which recipients found a helpful alternative to paying cash when their pensions were eight months late.

Social assistance is administerecd in a seemingly haphazard and inconsistent manner. In some cases, respondents found out about entitlementsto certain payments and allowancesby accident, after the deadline for applying had expired. Many poor Moldovans had received assistance from humanitarian and religious organizations,but, especially when they received it through local government offices, suspected that most had been diverted to the private use of politicians. Overall, the changing rules and procedures for obtaining assistance, the inability of the governmentto make payments on tirne, and depleted local budgets has diminished the value of such payments and left recipients feeling cynical, embittered,and betrayedby their govemment.

Impoverishmentin Moldova is part of a larger social change

Poverty has threatened community solidarities, weakened extendedfamily ties, and created new social hierarchies with the new, wealthy elite at the top. Although poor Moldovans rely heavily on close family members, as well as friends and neighbors, poverty has also isolated people from each other, a process to which new internationalfrontiers and rising communication costs has contributed. The elderly show the greatest tendencyto isolation, when close relatives cannot afford to visit or help (although neighborsoften help).

The collapse of public sector employment and the emergence of new labor niches have affected men and women differently. In public sector work, both men and women have lost jobs in production, while lower payingjobs in the social sector, such as teaching and medicine, have become almost completelyfeminized. In the private sector, pregnant women and mothers have found themselvesmore vulnerablethan men; some deal with childcare responsibilitiesby leaving small children in the care of siblings who are slightly older. The prolonged separationof spouses involved in labor migration has altered the division of labor and relations of authority in families, leading to considerable tension, spousal abuse, and divorce. Sometimesprolonged absence turns into abandonmentof families in Moldova when men establish new families abroad. But necessity has also pushed women into enterprises, some involvingtravel, that have simultaneouslygiven them an independent income and therefore, more autonomy.

Increasing social differentiation has intensified resentment among the new poor toward the new rich. The old ideology of egalitarianismis disintegrating,while a sharp economic and social differentiationis dividing communitiesinto distinct layers of rich and poor. This widening gap, which people attribute to the willingness of some to engage in corrupt practices, violates the

x Poverty in Moldova: The Social Dimensions of Transition standards by which people were raised and makes them feel further alienated in the new Moldova. While some people are striving to maintain a sense of social integration through work and maintenanceof old social relations, others have withdrawninto isolation, a process reinforced by the curtailment of traditional social rituals which once maintained communityties.

A perceived rise in violent crime has diminished socializing and decreased trust. Rural families link lack of opportunitiesfor education, employmentand entertainmentto the dramatic increase in youth alcoholism and involvement in petty and violent crime. The increase in theft and violent crimes have frightened many people off the streets and reduced socializing. Rich and poor alike are vulnerable to crime, but poor people feel particularly vulnerablebecause they perceive the police as unwillingto take their complaints seriously. Our female respondents felt the number of sexual assaults had increased, both at work and on the streets, but felt that police were not interested in protecting them.

Regional variations in patterns of poverty

Poverty in Moldova appears to be linked more to regional variations and available opportunities than to particular patterns of ethnic exclusion. The South faces more frequent droughts, has a less developedinfrastructure, and is traditionallyconsidered to be the poorest region. Yet our findings do not demonstrate significantdifferences in the standard of living among poor households in the North and South. On the other hand, significant differencesdo exist within single districts, depending on proximity to major roads and international borders; presence or absence of administrativeoffices, schools, and other community facilities; the particular personalitiesand political affiliations of local officials; the presence or absence of functioningenterprises; the proximity to Romania or Ukraine, etc. Caution should be used before assuming that a given communitywill conform to regional social, political or economic stereotypes.

Although this study did not reveal particular differencesin the degree of poverty in relation to ethnicity, ethnicity does influencepeoples' attitudes toward their own standard of living and the perceived standard of living of members of other ethnic groups. Language and ethnicity have catalyzedethnic conflict and separatismin Moldova, and their significanceshould not be underestimated. Our respondentstended to play down the depth and seriousnessof purely ethnic conflict, although older -- and some younger -- Russian speakers ascribed their unemploymentto language discrimination. While linguistic competencein the dominant languageof a region increasinglyaffects educational and job opportunities (Romanianin towns, Russian in Gagauzia and still, to some extent, in cities such as Chisinau and Balti) people often attribute their perceived disadvantagesto their membershipin an , rather than to lack of competencein the dominant language. Because of tendencies to often employ ethnic stereotypesto reinforce group identity, and to ascribe social problems to particular ethnic groups (be they Gypsies, Slavs, or Gagauz) programs aimed at poverty alleviation in multi-ethnic Moldova must be careful to avoid even the appearance of favoring or excluding any particular ethnic group.

xi

Poverty in Moldova: The Social Dimensionsof Transition

INTRODUCTION

1. A small, verdant country located between Ukraine and Romania, Moldova, after Armenia, is the smallest of the Soviet successor states. Annexedby the in 1812 from the , Moldova enjoyed a few years of independencein 1918 before it joined Romania. During World War II, the annexed the area on the right bank of the Nistru River (now Transnistria); the area on the left bank was combined with part of the right bank, then an autonomous republic within Ukraine, to constitute the Soviet Republic of .

2. Located at the geographiccenter of Europe and what is sometimes described as the "balancingpoint" between the historic Roman, Polish, Russian, Austro-Hungarianand Ottoman Empires, contemporaryMoldova preservesmany of these influencesin an ethnically and linguisticallyrich culture. Today, ethnic Moldovans (the same people, ethnically, as Romanians) speak Romanian and with some exceptions, adhere, like most of Moldova's Slavic population,to Orthodox Christianity.

3. Ethnic Moldovans make up only two-thirds of the national population (as of the 1989 Soviet census), which also includes significantnumbers of Russians, , Poles, , Jews, Gagauz, and Gypsies. Some regions have a particular ethnic mix. The Gagauz,ethnically Turkic, Orthodox Christian people, 3.5% of the population,1 and Bulgarians (2%) live mainly in the South; Russians and Ukrainians constitute the majority of Transnistria's population. Ukrainians (13.8% nationally) also live in northern Moldova; Russians (13.0% nationally) live in Chisinau;Byelorussians are scattered throughout; small numbers of Poles and Gypsies mainly reside in the north, the former mainly in cities; Jews (1.5%) are settledin major cities.

4. Followingindependence, a new languagelaw making Romanian the state language triggered ethnic and political tensions, which led to separatistmovements in Transnistria and southern districts with a large Gagauz population (Gagauzia). The conflicts resulted in loss of life and destructionof infrastructure, and concessions of certain autonomousrights to Gagauzia, and the establishment of a Transnistrianentity whose status remains unresolved. At the same time, Moldova's heavily agriculturaleconomy suffered disastersfrom droughts, early frosts, and torrential rains. The collapse of the tightly-integratedSoviet economy disrupted trade links and payments, also depriving Moldova of its accustomedbudgetary support from . Meanwhile, a 2,200% increase in prices and the introductionof the leu in late 1993 (combined with closure of enterprises, layoffs and furloughs) reduced incomes and wiped out life savings of many Moldovans.

5. As elsewhere throughoutthe FSU, many Moldovans have experienced a sharp decline in their standard of living. As poor Moldovans struggle to feed their families and cover basic educationaland health costs, they have witnessed the appearanceof a small wealthy class of business entrepreneurs. In the countryside, collective farm workers have become steadily more

1/ These figures are from the 1989 census, as reported in the National Human DevelopmentReport for the Republic of Moldova; UNDP; Chisinau, 1996,p. 8. Since 1989, of course, these figures have been altered by migration flows.

1 Technical Paper I impoverished,although some of the farmers who have succeededin fully withdrawing their land have managed to raise household incomes. These economic shifts, still poorly understoodby those in the midst of the process, have started to alter relations within and among families and communities,fragmenting former ties of solidaritybetween kin, neighbor, colleague and friend, and creating new horizontal and vertical ties and increasing socioeconomicdifferentiation.

6. These rapid economic and social changes have raised a host of questions: how is the population coping with unemploymentand reduced access to social benefits, to what extent have they discovered or been able to exploit new opportunities,what kind of obstacles have they encountered, and, importantly,how do they perceive, experience, and evaluate the profound economic and social changes taking place? This study aims to provide a window on these processes, explore their interrelations,and examine implicationsfor policy.

RESEARCH OBJECTIVES

7. This study will examnine:

* how rural and urban Moldovans experience, define and explain "poverty" * the relationship between poverty and material living conditions * coping strategiesin rural and urban settings * the relationship between poverty and health * the relationshipbetween poverty and education * regional and ethnic variations iinpoverty * changing social relations and forms of community integration - changing family and gender relations * ethnic and regional variations in poverty and coping strategies

RESEARCHM1ETHODOLOGY

8. This study was carried out in October and November 1996, in six districts of Moldova. It is based on qualitative research methodologies, primarily open-ended interviews and careful observation of 200 poor individuals and households. Although elucidation of native definitions of "poor" and "poverty" were one of the research aims, we necessarily began the study with a working definition of poverty as a guide to identifying a research sample. We defined poor households as those whose members described themselves, or were described by others, as having difficulties providing their families with the basic elements of food, shelter and clothing. Our interviewers' assessment regarding the level of household poverty did not always coincide with that held by members of the household being interviewed, but that discrepancy itself demonstrates the highly subjective and comparative nature of the concept.

9. The study was organized by Adsisto, a local NGO established by Volunteers in Overseas Cooperative Assistance (VOCA), with the overall guidance of the international consultants (the authors of this study). Adsisto recruited irnterviewers based on their previous experience in carrying out surveys and knowledge of different regions in the country. After an introduction to interviewing skills, interviewers produced several trial interview reports. On this basis, we chose

2 Poverty in Moldova: The Social Dimensions of Transition

18 interviewersto compose six 3-person teams. Because most Moldovans speak either Romanian or Russian, interviewers were asked to conduct interviews in the preferred language of the interviewees.When possible, interviewerswere sent to regions with which they were familiar or where they had personal ties, since in rural communities,such ties facilitate the trust and rapport essential for good interviews and full, accurate information.

10. Choice of respondentswas based on a combination of factors. We aimed to include a range of ages, occupations, and householdtypes, and mainly "typical"(as well as some extreme or unusual) examples. Interviews were carried out with poor households. We aimed at including many householdtypes in each district, rather than attemptingrandom selection. A smaller group of interviews were also carried out with key community figures, such as teachers, doctors, and local officials, who could provide either an overview or an "expert" perspective on poverty in their communities. (Please refer to Annex II for a breakdown of households by age, gender, profession, and education.) Given the remarkable consistency among reports, we believe this report presents a valid picture of how large numbers of poor Moldovans experience, interpret, and cope with their difficult circumstances.

INTERVIEWSITES AND CHOICE OF HOUSEHOLDS

11. Interviews were conductedin six of Moldova, and the city of Chisinau. These raions were chosen to include the range of agricultural,climatic, ethnic, economic and rural- urban differencesbetween North, Center and South. Sites include:

North * Edinit : 30 interviews * Balti raion: 20 interviews in Balti city; 10 in villages Center * Ulngheniraion: 15 interviews * raion: 15 interviews * Chisinau:50 interviews, primarily in three poor sections -- Centru, Ciocana, and Buiucani South * district: 30 interviews * district: 30 interviews

12. In rural areas, interviews were distributedbetween raion centers and villages. One criteria for choosing villages was our desire to capture the different trajectories and degrees of progress in land privatization. Interviewswere carried out with:

* collective farm employees * independent farmers * public sector employees * the unemployed * pensioners

3 Technical Paper I _

13. In urban areas, we chose households whose members represented different occupations, including:

* intellectuals (defined as those with post-secondary professional or academic education) * skilled and unskilled workers * small entrepreneurs, office workers * state sector employees * unemployed

14. In both rural and urban areas, interviews were based on households rather than individuals, although these sometimes proved identical, as in the case of some elderly pensioners. Interviews were distributed among the following:

* youth and young families with main breadwinners in their 20s and early 30s * families with the main breadwinners in their 30s and 40s and 1-3 children * large families with 4 or more children * single-parent families * older families with main breadwinners in their 50s * pensioners, alone or with farrilies * street people, beggars, and homeless (primarily in urban areas)

15. Each interviewer completed 10-15 interviews, at the rate of 2 per day, then submitted two reports. One report summarized the results of all 10-15 interviews, in sections covering the topics of this report. The second report summarized one of the interviews which the interviewer felt most tellingly and powerfully illustrated one or more aspects of poverty. In many cases, the completed interviews were resubmitted to the interviewers for further clarification. The final reports and interviews, along with the best of the trial interviews (conducted in Chisinau or nearby villages) form the basis of this report, along with several dozen interviews, formal and informal, that the authors conducted in Moldova with representatives from government, local and international NGOs, academia, and ordinary members of the population.

4 Poverty in Moldova: The Social Dimensions of Transition

WHAT IS POVERTY?

16. This chapter discusses how Moldovans characterizepoverty. We consider that understandingpoverty from the position of the subject, rather than from objective indicators alone, is prerequisite to understandingthe meaning of peoples' behavior. Certainly,middle-class Westerners would have described the living standard of many "average"residents of Soviet-era Moldova as relativelypoor. But at least in hindsight, our respondents, with some exception, described their pre-independenceliving standardsas adequate at the very least.

17. Most respondents described "poverty"in two ways: by relating it to concrete situations, and by comparingtheir current economic plight with their economic possibilities before independence. In speaking about poverty, they pulled together what they consider the reasons for and consequencesof poverty, what it means and how it feels in material,cultural and social terms to be poor in Moldova, how they experience the growing gap between themselves and the new rich, and whom and what they hold responsiblefor their post-independence impoverishment.

COMPARISONSWITH THE PAST

18. For most poor respondents,poverty is a very recent phenomenon, and they always describe it in relationship to the past. None of our respondentsdescribed themselves as having been "rich" before independence;most felt they had lived well by prevailing standards; a minority said they had always been "poor." Today, Moldovans compare the official minimum salaries with the minimum "food basket," and conclude that "now we are all poor." The following complaint by an elderly pensioner is typical: "[Before independence] I had two thousand rubles saved in the bank for a rainy day, for my funeral. It was quite enough during those times. Now I have 2 lei. What can I buy with them?"

19. Although salaries have lost their former value, many people nevertheless attribute impoverishmentto widespreadunemployment. Many people focus on the hyperinflationand loss of life savings which occurred about the time of the currency conversion. For this reason, in their view, salaries, pensions, and social assistance have become insignificant in comparison to the high prices. People built up sizable savings by having 5-20 rubles automaticallytransferred from their monthlysalaries to savings accounts. Others took out insurance when a child was born, for 1,000-5,000rubles, and received a lump sum when their child reached 18 years of age. They often presented this sum to their child at their wedding.

20. Most respondentstold us that for them, the worst aspects of poverty were hunger, poor health, lack of adequate clothing, and poor housing conditions. One respondent cited the eminent Moldovan writer, Ion Cregna, who in her view had best grasped how poverty feels when he wrote "shame touches one's life indirectly, while hunger touches one's life directly."

5 Technical Paper I

INSECURITYAND SHAME

21. Poverty has important social and psychological components. Respondents described poverty as feeling defenseless; finding it impossible to obtain information or find out the truth; exclusion from the cultural, social and ceremonial life they once enjoyed. They feel poverty is gradually destroying traditions of christernings, weddings, funerals, and other life cycle rituals that once brought people together on a regular basis. Respondents described their loss of hope for the future, and the pervasive sense that they do not know and cannot find out what is going on around them. For many poor people, independence, "democracy" and the transition to a market economy have come to signify the lack of social justice.

22. Despite widespread impoverishment, however, people still experience their own poverty as deeply humiliating. Even those respondents who appeared extremely poor to our interviewer often preferred to define themselves as "close to" but not completely "poor." For the very poorest, however, "not completely poor" means little more than "not dying of hunger." They preferred to characterize their positions as follows:

"My living situation is very difficult, but I still have something to eat and something to wear. This morning., I saw two women who were eating food they had found in the garbage. This is poverty!"

23. The importance of this distinction derives, first, from the fact that Soviet ideologists analyzed the social phenomenon of povein:yas the product of capitalist political economy. To the extent it was acknowledged in socialist societies, in the absence of extenuating circumstances such as severe disability or age, it was ascribed to individual failings: "In the Soviet period, it was said that only lazy people were poor." Second, people were highly conscious of status and position, which more than money, could secure access to important goods and services. High status demanded, in turn, the ability of a household or individual to discharge its social obligations, and to maintain the appearance of prosperity.

"Poverty is pain,; itfeels like a disease. It attacks a person not on llut alsomr6ally. It eats away one's dlgnity aiqddrives one total espir. A person feelsD poverty everymonent withioutevennotic^ig it.j"d:

GENERATIONALDIFFERENCES

24. The experience and interpretation of "poverty" vary according to generation. Youth often prioritize the lack of decent clothing, humiliation in front of richer friends, inability to participate in a normal social life, and the inability to earn money. For young married couples, poverty signifies the inability to separate from parents, to start life on their own, to enjoy a modicum of privacy and independence. For families, the greatest anxiety revolves around feeding and clothing children; when this task is met, t]henext worry is securing an adequate education for them.

6 Poverty in Moldova: The Social Dimensions of Transition

25. At the same time, many youth welcomethe changes. They feel that competent young people used to be held back by the emphasis on seniority and "status," and hemmed in by numerous rules. They already understandthat the state will not help them and that they will have to fight to survive. More than older people, they are more prone to label the poor as people who lack initiative, are lazy, or lack entrepreneurialspirit and ability. Of course, the young also differ. Some young respondents,however, are not so adaptable;they prefer to remain at home rather than undergo the "humiliation"of accepting work outside the profession for which they

An economist'sview "Nobody succeeded in creating a classless society, neither the French philosophers nor the followers of Marxism-Leninism. Equality only existed in the pnmitive commune. People are different, thus they have to live differently. This gap exists, but it should not exist in such proportions, In our society, there are a few rich people but more and more poor ones; a middle class practicallydoesn't exist. This increasing gap could lead to a similar situation to that of 1917, when poor people organized a revolution to destroy the rich." trained.

26. The "saddestand most desperate," accordingto one interviewer, are those over fifty and the disabled, for whom the worst aspect of poverty is uncertainty about the future. A 48 year old women who imports goods from Turkey and Poland to sell at the market sees it as follows:

"When you are more or less healthy, you can still have some hope. I do not know for how many more years I will be able to travel abroad for merchandise. All these trips have damaged my health, and since I have no seniority at work, I cannot expect much from a pension. I am afraid to think about the future."

WHO BECAME RICH AND WHO BECAME POOR?

27. Our respondentsdescribed Moldovan society before independenceas consisting of a large middle class, a small wealthy class, and a small class of poor. As one respondent explained, the "former society provided equal opportunitiesto equal people." Today, middle-aged and elderly respondentscontend that only honest people are poor, because they lack the ability to cultivate, manipulate, and bribe influential people, activities which are key to the success of the rich and powerful. Prominent among "honestpeople" are intellectuals (especially teachers,researchers, professors,and writers), the old and disabled. Likewise, families with many children, pensioners, and people who did not have savings or assets when Moldova became independent alsojoined the poor.

28. The new rich, in the eyes of our respondents,consist of the former CommunistParty political elite, who simply "exchangedtheir Party cards for parliamentarians'mandates," bureaucrats,local officials, the "mafia,"rich gypsies, Russians, Romanians, and people who used Soviet era political and business connectionsto "grab material and start their own businesses." Poor respondents characterizethese people as "dishonest,""swindlers," "speculators," and

7 Technical Paper I

"thieves," and insist that "politicians don't care about the suffering population." Yet respondents are not unanimous in their condemnation. Some consider the rich to include people who were energetic, intelligent -- and who already had some capital when the reforms started. They place their hopes in such people, whom they believe have the potential to improve the republic's economic situation and organize charitable associations to help the needy.

CONCLUSIONS

29. Moldovans define poverty in relation to the past, when the majority of respondents enjoyed secure employment and were able to live on their salaries and pensions. Despite generational differences in how they interpret the new economic realities, most disapproved of the increasing economic stratification, and saw a causal link between wealth and corruption. Despite awareness that impoverishment is widespread, poor people feel humiliated by their poverty and try to minimize it in front of others. Few people had concrete ideas about what should be done, although most felt it was "the government's responsibility" to fix their situation. Although most people have lost hope that the state will restore lost savings, they nevertheless feel it is the government's obligation to do so. Only one respondent expressed a concrete recommendation on eradicating poverty: "Distribute long-term, low-interest-rate loans to all families, so they can invest in land and farming."

8 Poverty in Moldova: The Social Dimensions of Transition

THE MATERIAL DIMENSIONS OF POVERTY

30. Poverty in Moldova and the FSU is unusual in that it now affects both people who were always economically"vulnerable," such as unskilledworkers, or very large single-parent families, as well as highly educated persons who once enjoyed socially prestigious and well compensatedpositions (not only in money, but in privileges)as scientists,engineers, or university professors. Depending on the positions they once occupiedin the socioeconomic hierarchy,they define poverty differently. Nevertheless,the poorest respondents, no matter what their previous occupation,tend to agree on the fundamental and basic aspects of poverty: hunger, ill health, and bad living conditions. Their inabilityto enjoy cultural and intellectual life or to provide a good education for their children are important, but take second place to the more directly life-threateningproblems of hunger and cold.

HUNGER

Comparingpast and present

31. Before independence,the majority of people in this agriculturalcountry were able to feed their families adequately, if not sumptuously. Using heavily subsidized inputs, transportation, and other social goods, collective farm workers as well as urban residents with access to a garden were able to provide for their families' food needs, and had enough from incomes, pensions, and allowancesto purchase what they did not raise. Bread, in particular, was heavily subsidized.

32. Today, poor urban families lack cash to buy food, as well as access to land and inputs. Even villagers say they do not eat as well as they used to. Households which do not have enough land relative to their size cannot cultivate what they have, have lost their crops because of bad weather and sometimesrun out of food before summer. Many respondents said there were days they had gone to bed hungry. Certainly, food plays a very diminishedrole in the visiting and social life of poor Moldovans. As one destitute woman noted, "food in poor families is now solely for survival."

33. Poor people often expressed the sense that they had regressed from a modem standard of living to the poor peasant existence their parents and grandparents once led. For many respondents,their current reliance on mamaliga, a national dish consisting of corn flour boiled in water, rather than on purchased bread, has become the an emblem of their poverty. They view mamaligaas less nutritiousthan wheat bread, and as a reminder of their personal and national humiliation. Meat, once a dietary staple, has a similar significance. Now that meat, fish and dairy products have become delicaciesrather than part of the daily intake, they worry in particular about the lack of these food items in their children'sdiets.

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Fromnplenty to hunger "There was a time when I had two pigs and about 20 chickens, but now I have nothing. My money is hardly enough to buy bread every day. A few years ago my refrigerator was full of sausage. Now the refrigerator is empty. Perhaps God has punished us for our wastefulness in the past?'

34. Land plots and gardens form the rnost important food supplies for collective farm workers and some urban residents, the produce from these plots constituting the bulk of food reserves for many households. As a collective farmnworker insisted, "a family does not starve if at least one member works in the collective farm." In the past, however, families enjoyed not only fresh and , but canned and preserved their own produce or that which they purchased cheaply in summer and fall. Poor households can no longer afford sugar, can lids, or in some cases, even the fuel for preserving the food. They can with salt rather than with sugar, and in far smaller quantities than before. Marina, for example, from the village of Razlog, had only canned two jars of pickles, four jars of cherry preserves, and four jars of juice before winter. She was unable to preserve more, because she ran out of money for the sugar, jars, and lids.

Cutting back

35. Villagers reported two distinct diets: summer diets and winter diets. The summer diet starts in late spring with the first vegetables and fruits, and lasts until early autumn. The winter diet contains potatoes, beans, mamaliga, pork fat -- but no pork -- and sometimes wheat bread. Households with a cow and some chickens can at least consume milk and eggs, but the poorest households don't keep animals because they are not in a position to either buy or steal forage. For families with at least one pig and/or cow, the livestock provide a cushion for emergencies, to be sold in case of emergencies, or slaughtered to provide for the winter. Sometimes, however, they have to slaughter and sell in order to purchase other staples. Families which had a couple of pigs, for example, tried to keep one as reserve for Christmas, and the younger one for spring, when they tend to run out of food.

36. Despite preserved fruits and vegetables, rural respondents complained that over winter, they run out of food stocks, and often feel.hungry and tired because of the lack of vitamins in their diets. Some rural families even starl: the winter without an adequate food reserve, maybe as little as a few jars of unsweetened fruit. The end of winter is when poor families often start rationing food. One poor family reported that during this season, they often eat only one meal a day. Vlad's family hopes to pickle autumn cabbage if the harvest is good.

37. This year, the peasants are upset because the collective farms did not pay them in grain. Nor did they receive their share of wheat from their own land quotas because the hot summer resulted in such a poor wheat harvest. A respondent complained, "Now there is no money to buy flour, and no flour to bake bread."

10 Poverty in Moldova: The Social Dimensions of Transition

A collectivefarm worker 'Only God knows how we shall survive over winter. At night you wake up because of a stomach ache and because of hunger. This year even mamaliga is a problem because of the and the bad corn harvest. When were ripe we had mamaliga mixed with grapes to fill our stomachs, My family only has milk if the collective farms pays us in milk instead of cash, or if someone from the village gives milk to my son for a share of his salary as a shepherd. But this is rare. We can't afford to spend our monthlysalary only on milk. And if we agreed with the collective farm managers to get mnilk,we would only receive milk and no salary."

38. Families in Comrat and Cahul have suffered a combination of problems: delayedcash salaries, delayed in-kind payments of wheat, and on top of this, high prices for having their flour milled. They were forced either to purchase wheat, or to switch to mamaliga. Potatoes also form part of a families' staple diet. But for many households, last year's potato harvest was also poor, and the price rose to 1.2-1.5 lei per kg. Large families, which consume 400-500 kg of potatoes a year, would require 600-700 lei, an impossible sum for cash poor families.

Food vulnerability:pensioners and children

39. Many pensioners assert that if they only received pensions on time they could manage. Most receive pensions anywhere from a few weeks (recorded in Balti) to nine months or more late. Thus, a mildly disabled pensioner who used to buy herself a loaf of bread and half a liter of milk before independence,can no longer afford even these basic foods. A retired school teacher surviving in Chisinau on her monthlypension of 107 lei reported that, after paying utility costs, she has only 65 lei left for monthlyfood and other expenses. Her breakfast and supper consist of tea without sugar and one piece of bread. Such pensionersnow stave off hunger by surviving mainly on mamaliga.

40. Many urban pensioners grow fruit and vegetables on 500-600 m2 plots, but those who are very old or sick have greater difficulties. They cannot afford unsubsidized (and increasingly irregular) bus transportationto gardens located far from their homes; many lack gardeningtools; when they do , they are unable to guard their crops, which are often stolen.

41. Moldovan households now have to think how to divide up food among family members when there is not enough to go around. Respondentswere quite consistent about how they go about this: women, responsible for preparing and planning meals, first fed their husbands, then their children, and only after the others have finished, allow themselvesto eat the leftovers. Ion, the father of small children, described their meals as follows: "All the children eat from one pot. Each child eats as much as he or she manages. My wife and I eat the leftovers. Sometimesthere are no leftovers, then we only eat a loaf of bread or mamaligawith onions."

42. Despite the concern most parents exert to make sure their children are full, many children go hungry each day to school. Teachers report that by the third or fourth hour of class, they begin to notice which children have come to school without breakfast. Parents with many children

11 Technical Paper I point out they have to spend up to 10 lei a day just on bread, and eggs or meat are out of the question.

HOUSING CONDITIONS

43. At least for rural Moldovans, buil(ding and owning a remains an important measure of family well-being, and families traditionally spent any surplus income on their homes. Architectural styles differ regionally, but most contain large ovens, built into an inner wall, which can keep two rooms warm, thick, whitewashed walls, and brightly painted fences and gates. The appearance of a house was thought to reflect a family's self-respect and position in the community. Today, families can no longer afford the luxuries of paint, much less materials for repair. In rural areas, the people started before independence remain uncompleted.

44. Complaints about housing centered on leaking roofs (whether slate or thatch, they need regular maintenance); moldy, fungus-infested and smoke-blackened walls; rotten floors (from leaking roofs and walls); broken water pipes and taps; windows with broken glass. Families without money cope by cover leaking roofs with transparent oil cloth and broken windows with cardboard; those who have access to building materials at work sometimes simply "appropriate" them.

45. In urban areas, many respondents live in apartments (mostly privatized), rented rooms, or worker hostels, to which they moved after coming to the city to find work. Overcrowded housing is a problem for people who started families in a hostel many years ago, but never received a state apartment. Galina, for example, has lived with her husband and two children for the last 23 years in a single room. Another woman lives with her 9 children in an 18 m2 room, with stacked bunk beds. In other cases, couples who divorced because of alcoholism and domestic violence remain living together because neither former spouse can afford to move out.

46. Many poor households lack even such basic furniture as beds. Among very poor and or younger respondents, many had never purchased new or good quality furniture; others had worn out or sold what they had, so that their apartments were virtually devoid of furniture. Among this group were large families who had been unable to keep up with the birth of their children. With one bed and one couch, most family members sleep on the floor; they keep their food in the refrigerator of neighbors. Other interviewed households, while not quite so dismal, often had only the bare minimum of furniture; in several, children either slept on the tile stove, shared a single bed, or spent their nights directly on the floor.

THE PROBLEMOF UTILITIES

Heating and cooking

47. In urban and rural areas alike, many houses remain unconnected to gas and water systems. I n Cahul, in the South, many houses have never been connected with the gas mains. In cases where families could install a gas cylinder, they often prefer to go without. If they install it in the house, they risk explosion; if they install it outside, they risk theft. In Balti, people who are connected complain they have not received gas in two years.

12 Poverty in Moldova: The Social Dimensionsof Transition

48. Likewise, municipally-suppliedhot water is a thing of the past. In urban cooperatives which do receive hot water, wealthier tenants sometimescover the bill of those who cannot pay so that the entire cooperative will not be disconnectedfrom the hot water supply. Reflecting on these problems, a pensioner commented, "The promised in the last elections that he was going to give us gas and hot water, but since the whole town has been privatized, we don't have anything. I cook on a single electric plate."

49. Coal used to be a common form of fuel, and is still supplied at discount to pensioners. Many families cannot spend 900-1,000 lei for two tons of coal required to heat a home for the winter. Those who do, however, complain about the quality. In Nisporeni,respondents claimed their coal had been mixed with gravel, and barely heated their homes. Pensioners, entitled to free or discounted coal, often lack the 30-40 lei needed to have their 500 kg entitlement transported to their apartment.

50. Some households have installed wood-burningstoves. Steadilyburning fires in rooms or apartments without ventilationtend to impregnatehousehold items with smoke. Furthermore, wood is costly; in Comrat andCahul, a cubic meter costs 40 lei. People conserve by moving into one or two rooms in winter; if they live near , they sometimes cut their own wood; some families, includingthe elderly, ask neighbors for the small bits that are left over. In rural areas, in addition to collecting small branches, people burn sunflower stems, corn cobs, corn stalks remaining in the field after harvest, dried vines, nut shells (which sometimes explode and blacken the walls), or dung mixed with straw (kizyak), a foul-smelling alternative most people dislike.

51. Poor urban families gather wood from city streets after the town hall has cleaned the parks. Others gather cardboard every day from the town markets. A widow with five children burns wood she obtained from dismantlingthe small wooden shed in her garden. She hoped it would get her family through the coming winter, although she was not certain how hot the wood would burn. One young mother of four keeps her three school age children out of school so they can help scavengecardboard. She explained, "We simply have to survive. If we had nothing to burn, we would die. My children can't go to school because without them, I wouldn't be able to gather enough cardboard every day."

52. In new Chisinauapartment buildings, heating is provided by hot water, which is pumped to the top of the building, then comes down through the radiators. Although it is heated to 50-60 Celsius, it is usually cold by the time it reaches the lower floors, although apartment dwellers still have to pay the full heating costs. Galina's family cannot afford to run an electric heater; their utility bills already come to 85 lei per month. Yet they are pleased they have an apartment at all - - they received it a few years ago after living in a hostel and remaining on a waiting list for 17 years.

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Paying for utilities and services

53. Despite the price of electricity, many families still resort to electric heaters and hot plates for cooking because they no longer receive natural gas. Most families try to pay their electricity bills; those unable to do so, including the very elderly or infirm who are surviving on tiny pensions, often have their service cut. Some cash poor families would like to make in-kind payments for electricity; not surprisingly, the state-operated electric company prefers cash. In other cases, people look for alternatives because of daily interruptions in electricity, which some communities receive only for 2 hours in t]e morning and 2 hours in the evening. Some people hire an electrician to illegally connect them directly to a power source, bypassing the meter. For the price of 10 lei a month to an electrician, they can receive free electricity.

54. Many people are unable to keep up with the many fees and expenses. In some cases, they are forced to pay for those services they should not be liable for. Recently, Nelli, whose daughter is paralyzed and whose arthritic mother virtually never leaves their 4th floor apartment, learned that people who do not use the apartment elevator do not have to pay the usual monthly fee (2.5 lei in her case). In order to get the fee waived, however, she had to go through a complicated bureaucratic procedure, and produce medical certificates confirming that both her daughter and her mother are immobile. She succeeded only with the assistance of an acquaintance who had faced a similar problem.

Water and waste

55. Throughout the country, access to potable water is a problem. Apartment dwellers complain their pipes are rusty. The local housing offices (Zheks) that used to take care of such problems now demand payments for eve:ry service, and will not undertake capital repairs. Especially in southern regions such as C4onmrat,the people receive water in their apartments only a few hours a day, and get the rest of theiirwater from wells, often lugging heavy containers to their apartments. In the city of Balti, many people also rely on well water. In many cases, well water is salty, and residents believe it is contaminated, although they still rely on it. In villages, water is supplied almost exclusively from wells, and sometimes villagers must wait hours in line to get their water. In villages such as , in Cahul, wells are located 1-2 km outside the village, so villagers have to pay for water to be delivered to their homes.

56. Respondents linked contaminated wells to outbreaks of hepatitis and , and parents blamed the lack of water for washing (and a warm room for bathing children) on virtual epidemics of scabies and lice. A family in Rotunda reported that they had been unable to wash themselves for three weeks. They didn't have soap, shampoo, or even enough fuel to heat water.

57. Respondents also complained about waste disposal. In urban areas, with the deterioration in collection services, garbage now piles up in apartment chutes, where it attracts rats. In villages and small towns, where people used to haul away garbage to at least dump far from their homes, today they dump it in nearby ravines, on roads, even near their homes, where it forms unsightly heaps around which stray cats and dogs collect. People also express concern that it seeps into the water supply and pollutes streams and wells.

14 Poverty in Moldova: The Social Dimensions of Transition

POVERTYAND ILL HEALTH

A blind woman from "For a poor person, everythingis terrible -- illness, humiliation, shame. We are cripples; we are afraid of everything; we depend on everyone. No one needs us, we are like garbage which everyone wants to get rid of."

58. Poor families consider bad health one of the most frightening aspects of impoverishment. It threatens their ability to keep their jobs, and drains limited resourcesif they choose to treat their illness, rather than ignore it, as they often do. Although the state has officially continuedto provide free or low fee medical services,serious shortagesof hospital equipment and medicine, low salaries for medical personnel (130-220 lei for doctors), and a long tradition of doctors and nurses demanding and accepting small "gifts" for special attention, have created what is predominantlya defacto, if not de jlure, system of private medicine. Many qualified doctors have left their positions; in Balti alone, it was reported that 20 specialists had found jobs in Romania, Germany, and Israel.

59. The decline in access to health care has hit large and/or single headed families, the elderly, and the disabled or chronically ill with particular severity. For poor families, bad health and poverty are part of the same problem, for "we are ill because of poverty -- poverty is like an illness." Our respondentsdescribed the many illnesses that family members now suffer from. These included hypertension,heart diseases, nervous breakdowns and other stress-related disorders. Unheated houses and malnutritionhave increased the prevalence of , bronchitis, and other lung infections; poor nutrition, irregular meals, and increased alcohol intake were blamed for the rise in gum diseases, gastritis, ulcers, and cirrhosis. People also expressed concern about diphtheria epidemics. Poverty also contributes to dangerous working conditions-- people are more likely to purchase cheap materials, even if they are toxic, and to ignore work related injuries.

Paying for hospitalization

60. When patients enter the hospital, they must provide everything:bed linens, blankets, food, medicine, even syringes. Patients who enter a hospital in Chisinau for surgery must ask their relatives to bring blood; doctors claim the hospital supplies have been depleted. Alternatively,relatives look for donors whom they must pay to provide blood. Once hospitalized, patients have to bribe doctors and nurses just to look in on them. They give either food products, or cash, often borrowed for this purpose.

61. Rural families sometimes sell food surpluses, even farm animals, to cover such emergencyexpenses. Scutaru, from Milesti, sold the family's one horse for 1,500 lei to cover surgery (600 lei) and medicine, hopefully with something left over. Some families actually take out bank loans to pay for hospital treatment. Ivan and his wife, teachers in Gordinesti, are both seriously ill. The husband is partially disabled and suffers from arteriosclerosis. In 1995, he underwent leg surgery at the cost of 1,000 lei. He and his wife took out a bank loan at 50%

15 Technical Paper I interest to pay for the surgery. Their meager salaries have not allowed them to pay back the loan, or to pay for required post-surgical treatment.

A hospital stay After receiving a heart operation, hemia surgery, and removal of gall stones in the course of two weeks, Valentina remaine:d in hospital for four more weeks. During that time, most of her elderly parents' money was spent on her treatment and medication. Each of the nurses had to be paid 10 lei wuhenshe was in the emergency ward, otherwi se they wouldn't have bothered to bring her meals in time, and 10 lei so they would be -careful when they gave her injections. Similar amounts were distributed to the other hospital personnel on a regular basis. At"the end of the treatment, the doctors demanded that Valentina's mother organize a dinner for them. She acquiesced, selling some household items to purchase the food, since she feared that Valentina might have to enter hospital again and would depend on the doctors'good will, if not their skill, which her mother felt was inadequate.

Chronic or serious illness

62. Families on the edge of indigence or already in debt, are often unable to treat chronic or serious illness. Maria, the wife of Ivan, above, recently discovered several lumps in her breast. The family already has such a large debit from Ivan's treatment that Maria has refused to even consult a doctor, although she realizes she might have cancer. A disabled man in the district of Balti reported similar behavior on the pErt of his wife: "She has a serious liver disease and even though I tell her to go to the doctor, she won't. She is afraid of paying money." Even when poor people do start treatment, they sometimes find they can't afford to complete it. A respondent reported she had come down with pneumonia. She borrowed enough money to buy ten doses of penicillin, but only had nine injections, since she could not afford a tenth syringe.

63. In the past, people with chronic illnesses were assured a steady and affordable supply of at least the most essential medications. Diabetics, for example, could buy special sugarless foods at special shops. Such shops no longer exist, nor does the special bread that they used to purchase. Worse, many diabetics can nc, longer afford their daily insulin, which, according to one respondent, amounts to 54 lei every three weeks.

Folk healers

64. People have increasingly resorted to folk healers and folk medicine. They are particularly sought out for what would otherwise be considered psychological or emotional problems. Folk healers, mostly older women, have lower, more affordable fees. They call on their patients, accept in-kind payments, and scale their demands to the actual possibilities of their clients to pay. Marina, from Crihana Veche, is a typical patient. She complained of an illness which causes hearing loss, a swollen chest, and such weakness she cannot even stand. She now pays a folk healer to "exorcise" her for 3 weeks, twice a year, for 5 lei and 1 liter of oil per

16 Poverty in Moldova: The Social Dimensions of Transition treatment. In some cases, however, respondentsreported that folk healers did real harm, as in performing incomplete abortions.

Dentistry

65. Poor nutrition has worsened dental problems, while visits to the dentist have become less affordable. Typical prices include 5 lei to have a tooth removed, 10 lei for a filling, and 25 lei for a new tooth. Parents try to get emergencydental service for their children and delay their own treatment as long as possible. Ecaterina, who has a host of medical problems, complained she doesn't have any teeth left, but then noted philosophically,"I don't need them anyway,because I don't have anything to eat."

66. In a village in Edinit district, two dentists opened a dental clinic. They invested 6,000 lei to purchase the equipment and some of the materials, while the mayoralty had allotted 1,000 lei, the premises, and some equipment. The dentists had offered to treat children, the elderly and disabled free of charge, if the mayoraltypaid their monthlywages of 134 lei and allowed them to keep paymentfrom their other patients. In fact, the mayoraltyrefused to pay their salaries, claiming it did not have money, so the dentists charge all their patients. Indeed, this is how most "free" medicine works at this point in Moldova; medical personnel receive such low salaries they feel justified in demanding paymentfrom patients.

MATERNAL AND CHILD HEALTH CARE

Abortions

67. During the Soviet period, abortions were legal, and often served as the principal means of birth control. According to an interviewed doctor, the number has increased, especially among women from 18 to 20. One such woman,Tatiana, explained why she chose to have an abortion. Unable to afford an apartment, she moved into a hostel. Her neighbor has been forced to move out after the birth of her baby, because its crying disturbed the other residents. When Tatiana became pregnant, she therefore elected to have an abortion rather than risk eviction. When women cannot find enough money to pay, they sometimes consult folk healers. Elena, 16 years old, after receiving an abortion from the hands of a local folk healer, realized a few months later that she was five months pregnant.

The cost of childbirth

68. Pregnancy inauguratesan endless series of expenses and debts. Irina, for example, could not afford the 100 lei fee for an abortion. She consequentlygave birth in November 1996. Before the birth, her hemoglobin level dropped, but she could not afford the medicine her doctor prescribed. After giving birth, she had to borrow 200 lei for some urgently required injections. She soon developeda high fever, but the medical staff had no medicine with which to treat her. Since the baby's birth, most of the family income has been spent on medicines for the baby.

69. Decreased access to prenatal and postnatal care has had a marked impact on the health of babies. A recent UNICEF report relates these findings to the "extragenitaldiseases, abortions,

17 Technical Paper I _ hemorrhages and complications during pregnancy."2 Pregnant farm women often work up to the seventh month of pregnancy doing such physically demanding jobs as hoeing, picking fruit and loading vegetables. Some women have had miscarriages as a result.

70. In many cases, women refuse to cleliver in a hospital, to avoid fees which usually come to hundreds of lei. Women who do enter the maternity hospital report they must provide: surgical gloves, novocaine, iodine, cotton wool, bandages, several meters of gauze, sterile solution, food, bed linens and even electric heaters.

Child health

71. Children's health reflects the poOr housing conditions in which many live: cold, unheated homes alternating with smoky interiors, and poor nutrition. Chisinau parents noted the increase in chronic bronchitis and other cold related illnesses, as well as stomach problems, such as gastritis, that they link to the fact that their children often skip meals or go to bed hungry.

72. Children in rural and urban Moldova still receive some basic health examinations and vaccinations in school or in kindergartens, free of charge. At the same time, village parents complain that most attention during the checkups is paid to children's hygiene -- whether they have scabies or lice -- and less attention is given to vaccinations against diphtheria and polio, or to monitoring their growth. In addition, most examinations for children at the clinic level are also free, although parents must pay for extra expenses or dental treatment.

CONCLUSIONS

73. As detailed above, the material diimensions of poverty are interconnected, and affect all aspects of life. Lack of cash to buy food and/or lack of access to land, along with sufficient resources and physical ability to cultivate it, make the difference between adequate nutrition and hunger. For the poorest respondents, poverty signifies nothing less than a literal struggle to feed themselves and maintain their health. Even in rural areas, adults and children suffer not only from poor nutrition, but from literal hunger. Poor nutrition interacts with deteriorating housing conditions in which people can no longer protect themselves from cold, damp weather, or be assured of enough fuel to heat their houses or prepare hot meals. The continuing anxiety of trying to obtain food and fuel is matched by the constant fear of falling ill. Poor people can no longer afford to pay for examinations, medicines, hospital procedures, or for the bribes necessary for ensuring "free" treatment. Many respondents no longer consult doctors for anything but acute or life-threatening illness. Elderly persons consider that by the time they reach retirement age, they no longer deserve to spend valuable household resources on their own health.

2/ UNICEF. National Report: The Situation of the Mother and Child in the Republic of Moldova--Realities and Tendencies. Government of Republic of Moldova: Chisinau. Page 65. Draft of November 22, 1996.

18 Poverty in Moldova: The Social Dimensions of Transition

EDUCATION

EDUCATION AND POVERTY

74. Public education has received a double blow in Moldova. The educational systemno longer pays adequate, on-time salaries, maintains infrastructure,or purchases new equipment. Private schools, tutors and institutionsof higher education have moved in to compensate for the disastrous fall in quality. Few parents in our sample are among those who can afford fees of 1,500 lei for these private schools. But even those activitiesand subjects that public schools once provided for free now cost money. Thus, parents who want their children to study an instrument or take part in clubs, pay anywherefrom 40-65 lei a month. Teachers and parents are particularly distressedby the deteriorationin a system which they once took pride in, and which once provided an avenue of social mobility even for children from remote rural villages.

Deterioratinginfrastructure; inadequate teaching materials

75. With neither municipalitiesnor collective farms taking responsibilityto maintain, repair, or heat school buildings, schools themselveshave become unwelcoming, even unhealthyplaces for children. Children come down with cold-relatedillnesses, so many parents keep them at home during the winter. Because of such problems, Pirlita and Milesti villages have considered transferring the summer break to winter. Elsewhere, schools have reduced class times from 45 to 30 minutes. In , the school closed down for two months during the winter. Few schools can offer children a snack or hot meal to compensatefor these uncomfortable circumstances. In villages, collective farms used to supply food for breakfasts and lunches; the supplies have stopped and pupils must pay for even modest snacks.

76. In many communities,parents have become the main sources of upkeep, through their labor and/or frequent monetarydonations. In Gordinesti, parents painted school walls and furniture. In other schools, they contributed sums such as 20 lei to the school fund, 100 lei for repairs, and 12 lei a month for a school watchman. Parents also provide fuel; in Comrat, they brought electric heaters to school, although frequent electricity cuts often made these useless.

77. Teaching materials and textbooks have become more expensive and less available. The switch from Cyrillic to Latin orthographyfor Romanian, as well as the increased emphasis on Romanian rather than Russian have aggravatedthis problem, because few new textbooks using the new orthographyhave been printed. In Cahul and Comrat, many schools rely largely on the old textbooks. Poor families also have difficulties finding enough money to buy their children notebooks,pens and paper. Before independence, school supplies were very inexpensive; now a 12-pagenotebook costs 0.50 lei. The new textbooks are also expensive: a math textbook costs 7 lei, and a French grammar, 8 lei. Outfitting a first grader with clothes and supplies can come to 200 - 250 lei. Parents complain that a single monthly salary does not even cover books, notebooks,pencils, and clothes for one child.

19 Technical Paper I _

Rising school absenteeism

78. In the present school system, students are expected to complete nine years of basic education, after which they enter vocational or technical "colleges" or continue to "high schools" or "lycee" as a preparation for university. Today, teachers say that up to 15% of pupils regularly absent themselves from school; there are also cases of complete absenteeism, when parents fail to enroll young children and older children leaving school before completing their nine years.

79. Increasing use of child labor competes with their education. Especially in rural areas, parents take children out of school to help with farmwork, where their labor is especially valuable during the busy agricultural months of spring and fall. Children help prepare fields for planting, look after younger siblings whi.le parents work, and help harvest corn, sunflowers, and other crops, tasks some parents say they could not complete without their children's assistance. Although some children just miss school for a few weeks to help with planting or harvest, some leave to work full-time, such as boys who find full-time work as herders to provide valuable cash or in-kind income for their families. In some areas, children as young as 10 work as wage laborers on other peoples' farms.

80. Children also stay at home because they don't have warm clothes or footwear. Soviet schools used to have "school funds" for buying such items for children from "socially vulnerable families," but the amounts in current school funds are too small to cope with the growing need. Sometimes siblings share a single warm outfit and alternate going out. Others refuse to attend school because they are afraid other children will make fun of their unstylish or ragged clothing.

81. The new system of private classes in public schools singles out "elite" children and demotivates the other children. In some poor households, children have nowhere to do their homework; they do not even have their own beds. These are often the children that fall behind or leave school early. They are also more likely to be labeled "backward" and further stigmatized. In some cases, medical commissions have labeled such children from particularly poor households "mentally handicapped" and assigned them to special boarding schools. Some parents refuse to surrender them to these schools, but then keep them at home entirely.

82. Children also miss school because inter-village buses no longer run regularly, and not every village has a middle or secondary school. In Antonovka, in the north, children must take a bus 8 km to the village of Prazhila. In recent years, the bus is frequently out of commission, sometimes because of fuel shortages. Elsewhere, children walk several kilometers on roads which turn into mud during the winter. In Mihailovca and Marculesti, in Balti district, children of military personnel are driven to school in the military van, but the collective farm provides no transportation.

83. While many parents make considerable sacrifices to keep their children in school and buy the necessary school supplies, some parents, especially those with less education themselves, no longer see much value in education, espiecially when they see their children's teachers supporting themselves by manual labor. Collective farm parents feel that since their children will most likely be farm workers as well, education is expendable. Ghenadie, for example, is a collective

20 Poverty in Moldova: The Social Dimensions of Transition farm worker whose eldest son just finished 9th grade and whose next son works as a shepherd. As far as this father is concerned, nine grades will suffice for his children, since working and contributingmoney to the family budget have become more urgent tasks.

Teaching:Declining salaries and prestige; rising workloads

84. Teaching used to be a prestigious profession for men and women. While it was a largely feminine profession, men who entered the field were considered to have a special love of children or a gift for teaching. Village teachers belonged to the rural "intelligentsia,"and parents and children respected their moral and intellectual authority. Today, this prestige has practically vanished.

85. Those teachers who have remained at schools receive salaries of 100-150 lei with months' delay. In the countryside, they supplementtheir salaries by extensive subsistence gardening. Teachers,however, as state employeesrather than collective farm workers, are not entitled to full land shares under the agriculturalprivatization laws; at best they receive half a land share, which also reduces their subsistence base. In cities, teachers complain that the loss of staff has forced them to work several shifts and teach subjects outside their specialty. A teacher of computer science, for example, has doubled a teaching load of 18 hours in order to increase her salary from 147 to 294 lei. She finds this exhausting, but has no choice -- she has two children and her husband is unemployed. There has also been an increase in unqualifiedteaching staff, with older pupils often teaching the younger children.

86. Teachers -- especially men -- have left their positions in large numbers. Many have found work locally or abroad in construction; female teachers, especially those with older children, have become involved in the shuttle trade. In the village of Rotunda, only one man has remained at the school. Most village teachers reported that they would leave their positions if better paying opportunitieswere available elsewhere, and young teachers entering the market are often unwilling to work in villages, with their bad working conditions,isolation, and lack of cultural life.

87. Some teachers have found new opportunitiesto make money by tutoring, for fees averaging$2 per hour in languages,math, and science. The new emphasis on Romanian as the state languagemeans that teachers are in demand, as are those who can tutor in English, French, and German. In villages, teachers accept payments of food or labor. In Prazhila, for example, some parents weed the land of teachers in exchange for private lessons. In , some teachers sell textbooks; elsewhere, teachers buy manuals from printing houses and resell to pupils for a small profit.

The role of bribes

88. Bribery was hardly unknown in the Soviet educational system, but it was less pervasive. Today, parents find that some teachersexpect gifts and bribes of several hundred lei at every stage if they want their children to pass. In some cases, teacherspressure their pupils by hinting they will not pass into the next class unless they pay for extra coaching. In such cases, teachers demand advance payments of up to 200 lei. Other teachers are said to give children extremely

21 Technical Paper I difficult lessons in order to force their parents to pay for extra coaching to help them pass their exams. Parents who don't pay risk seeing their child fail their class. After exams, some teachers expect gifts, which range from in-kind payments of produce to jewelry.

89. Many parents hire tutors to ensure their children's success in university entrance exams, paying hundreds of dollars a year to hire tutors in language, math, and science during the last year of secondary school. Parents often go into debt in the process. One mother borrowed $700 to pay for private tutoring to help her daughter pass the entrance examination for university, and hopes to pay off the debt by offering her services in knitting and sewing.

90. Guaranteeing a place in university frequently requires further bribes of several thousand lei or even dollars. Amounts depend on the "prestige" of the department, prestige, which in this case depends on expectations that the profession will be lucrative. Economy, law, and medicine are among the most "prestigious" fields. A place in a humanities department costs $2,000 - $5,000, while a place in economy, law or medicine cost $5,000 to $7,000. After admission, students must frequently pay 50 lei to $100 a year for each academic subject.

91. These high prices often prove insurmountable to even highly motivated, bright youth. We heard many accounts of village youth with excellent grades who tried to enter university. In several cases, they were forced to return to their villages, because their parents could not pay the large bribes professors demanded to guarantee their admission. One such discouraged mother reported,

"My oldest son graduated as a locksmith from a technical college but could not find a job. He had very good grades and decided to reeducate himself in the Academy of Economic Studies. I was asked to give a bribe of 2,000 lei, but I had no money. As a result, my son failed the entrance examination."'

How students see their future

92. In these circumstances, many children have lost hope, interest, motivation, and ambition. In their view, "only those in high positioIns are rich today, while teachers and other intelligent people are not rich." School children express skepticism regarding the rewards of education, since every day, they see teachers and other educated people falling into poverty, while only the new businessmen become rich. Many children say they go to school only because their parents force them to. Gifted children from pooI families have lost interest because they know their parents cannot help them, while those from prosperous or rich families strive less because their parents can virtually buy their diplomas. Sometimes village students cannot even afford the basic expenses for education in the town center.

93. For example, the daughter of a village respondent dropped out of the lyceum in Cahul where she hoped to prepare for medical school -- her parents could not even cover her basic food, lodging, and clothes. A student from Pirlita who hoped to study accountancy at a vocational school in Chisinau also gave up because her family couldn't afford the school fees, transportation costs, or living expenses. Only one girl from Pirlita has been successful in pursuing her education. She passed the entrance exam to the medical college in Ungheni and

22 Poverty in Moldova: The Social Dimensions of Transition receives a monthly stipend of 35 lei, which covers rent at 20 lei a month. Her parents provide her with food. Once in a while, however, poor youth succeed in obtaining vocational training away from their villages with free room and board. This was reported of a school in the district of Donduseni in the north, and for Chisinau.receiving free room and board. University students also expressed numerous concerns about sub-standarduniversity facilities; new legislation concerningeducation requirements which they felt did not reflect the opinions of teachers of needs of students.

Education in Romania

94. For some students from modest backgrounds,the exchangeprogram establishedbetween Moldova and Romania offers more possibilities. Some families start their grade-school children there; university students also attend.Moldovan studentsreceive small stipends (supplemented by money from their parents), but claim they receive a better education than in Moldova. Young people, especially, find a much livelier city with more cultural offerings and activities. Russian-speakingstudents are not as lucky. Once they might have gone to Moscow or St. Petersburgfor their university education; these universitiesare now financially inaccessibleto most of them.

CONCLUSIONS

95. Aside from pervasive problems of decaying, uninhabitableand poorly equipped schools, education is deterioratingbecause of the outflow of qualified and experienced teachers. Increased demand for their labor, especially in rural areas, inability to buy essential school supplies and clothing, and breakdown in intervillagetransportation are keeping increasing numbers of children out of school. The number of bright, motivated school graduates who can continue their education has sharply decreasedamong the families we interviewed. They cannot afford the tutoring fees or bribes demandedat every stage; village students have the additional burden of paying for board and lodging away from home.

23 Technical Paper I _

THE AGRICULTURAL SECTOR

96. For rural, small-town, and even some urban residents, subsistence farming has become the mainstay of household economies, whether they work on the nominally-restructured collective farms, on their own household plots, or on their own privatized "peasant farms." Over a million rural households now have title to household plots, averaging .30 ha per household (with an additional. 10 ha per person for households consisting of more than three persons). These plots were distributed free of charge during the first phase of land reform which began in 1991, and most households now have title to them.

97. Many Moldovans also have additional gardens. These include: land around their houses, land rented from others; land received from urban enterprises; unclaimed land taken over for small-scale husbandry and vegetable cultivation. This chapter will discuss farming on collectives and privatized family farms (referred to officially as "peasant farms") in the first section, and subsistence gardening on urban plots and gardens in the separate section. In practice, these forms overlap, especially since the .30 ha household plots most households have also play a critical role in rural and sometimes urban subsistence.

THE IMPACT OF LAND REFORM

Restructuring the collective: Backgroujnd

98. Restructuring of collective and state farms began after independence and made headway in 1992, but has proceeded slowly. Farmers faced many obstacles, including incomplete and inaccurate information; time-consuming and arcane procedures for withdrawing land shares from collectives and registering them; passive and active hindrance from farm managers and local officials; and fears about risks entailed by independent farming.3 This section will briefly introduce the main aspects of land reform of state and collective farms, then discusses land reform from the point of view of our respondents -- how they perceive their experiences as collective farm workers, and how they evaluate the opportunities and risks of becoming independent farmers.

99. After the distribution of .30 ha household plots doubled the size of household plots, a second phase began in 1992, with the adoption of the Land Code and the Law on Peasant Farms. This phase involved distribution of land and other collective and state farm assets as paper shares or certificates of entitlement. By November 1994, some 14,000 families had withdrawn their land from collective farms to establish individual farms, and an additional 40,000-50,000 had submitted applications to do so. The large number of households wishing to privatize their land stirred conservative opposition to land reform and led to the November 1994 Law on Suspension of Some Articles of the Land Code, which "effectively stopped the process of privatization." After considerable opposition to this restrictive law, the Constitutional Court of Moldova

3/ Please see also "With Farmer's Eyes: A Grassrcots Perspective on Land Privatization in Moldova;" EC4NR Agriculture Policy Note #7; October 17, 1996; and "Land Reform and Private Farming in Moldova EC4NR Agriculture Policy Note #9; January 29, 1996, detailed surveys of the rural sector. 4/ "Land Reform and Private Farming in Moldova," p. 2.

24 Poverty in Moldova: The Social Dimensions of Transition

declared limitationson exit unconstitutional,and the process again accelerated, this time with more governmentsupport.

100. As of mid-1996, 91.4% of agriculturalland was declared to be in private ownership, and 983,000 households had rights to a land share. Most households had received certificatesof entitlement, but only 10% of them had actuallybeen assigned a specific plot of land. By October 1996, there were 90,000 independentprivate farmers, farming alone or in groups, farming on 130,000 ha, 5% of the total . Today, organizationsworking with agriculturalreform in Moldova estimate the number of private farmersSanywhere from 117,000 to over 200,000.6 The remaining farm population has continued to work on collective farms that have been nominally restructured,or on "new" farm associationsand cooperatives that have split from the collective farms but essentially replicated their structure. Except for the enterprisingfew who successfullyinsisted on withdrawingtheir land from collectives, the majority have left their land in the collective ("renting"back their land shares) in return for dividends, or a share of farm profits.

101. Definitions and understandingsas to what distinguishes one farm from the other prove to be very confused in the field. Thus, most collective farms have formally restructured themselves, but in fact made little change in their actual organization. Now they pay "dividends"as well as salaries to collective farm workers to use the latters' land shares. However, the farm managers, to retain their positions, treat "members"as wage workers rather than participants with a say in decision-making,and prevent households from withdrawingland and non-land assets without great difficulty. (Please refer to Annex I for definitions of new farm types.)

102. The function of the true associations of peasant farms is frequentlyjust to allow independentfarmers to acquire their "value-shares"in the form of a tractor, combine, and/or other heavy equipment and non-land assets, which they can do as a group, but not as individuals.

Working conditions on collectivefarms

103. For the majority of farmers who have remained on collectives,working conditions have deterioratedsince independence. Before independence,of course, people worked in cold, damp and often unsafe conditions, with toxic materials which damagedtheir health, but with the assurance they would receive commensuratepensions, medical treatment, and periodic holidays at health resorts. These benefits no longer exist; moreover, labor is increasingly performed manually because farm equipment is falling apart and farms cannot buy spare parts. In many collectives, people continue to work in specializedteams of several dozen farm workers, on , vegetable, field crop, tractor, and other "brigades." Plowing, sowing, cultivating,and harvesting are mechanized,but farm workers prune, harvest fruit and grapes, and hoe manually,

I/ Independentor private farmers refers to individuals, whetheror not they farm alone or in groups, who have not only received land shares (entitlementsto plots of land, which average 1.4 he) but who have already been assigned and taken over a specific, identifiable plot of land.

6/ In part, this differencedepends on the extent to which the private farmers have completed the bureaucratic procedures for receiving formal title to their land.

25 TechnicalPaper I

each on a separate plot to which they have been assigned. On one such farm in Cahul, farm workers must walk to plots located 4-8 krn from their homes in the village. Most of the work on the farm is manual, with tools which are 1]0-15years old. Machinery is rarely used because it so frequently breaks down.

104. Farm workers throughout Moldova express deep dissatisfaction with these working conditions and with their pay. They should receive monthly salaries of 30-100 lei. Instead, land and house taxes and electricity fees are subtracted from this amount, and they take home only 50- 200 lei a year in cash, along with milk, meat, wheat, sunflower seeds, sugar, , and other products. Some farn workers complain that their in-kind payments are based on higher-than- market-rates (1 leu per kg of potatoes, which could be purchased at the market for .80-90 lei, or sugar valued at 2.70 lei, but priced at 2.30 lei in the market), effectively overvaluing the goods and paying members less than they were entitled to. Respondents in Cahul were also angry that the food they received was valued at higher than market rates, and that in many cases it was old, such as corn and flour already contaminated with ground beetles.

105. Conditions are similar in many collective farms in the north. Respondents on a collective farm in Balti district say they work 12-17 hours a day during the heavy seasons, only resting on Sunday. In addition, some undertake work on a norm of sugar beet or tobacco, a plot the family works on in exchange for a portion of the profits, which they receive once or twice, after the crop has been sold. For example, a family wi]Llreceive 30 lei plus 5 kg of sugar, for each ton of cleaned sugar beets that they load on a truck. In most cases, whole families work on the norm, taking even their small children with them.

106. In Gordinesti, Rotunda, and Blesteni in Edinit district, families were assigned a land share when their collective farms changed into "joint stock companies," and now "rent" these land shares to the collective farms. Like f.arm workers elsewhere, they feel their payments, which

A, Cahul farmer Radu works on a specialized collecti ve farm team responsible for taking care of the . Like all such brigades, it concentrates on the same task for the whole year, although it may pitch in with other jobs during harvest time. Radu's team has to walk 3-5 km, to the field every day. This is alright during good weather, but during rain or snow, "you're tired before you've even gotten to work."' Although the team works together, each member is responsible for a separate share, including 4 ha of vineyard and I ha of cornfield to hoe. Radu would prefer to become a private farmer., "but the local authorities won't even hear this." Radu subnitted a request to withdraw his land, but "the official tore it into pieces." Radu is also angry because the collective farm leaders are never to be found in their offices. Moreover, they use the collective farm assets as their own, driving home to lunch on the collective farm tractor or truck, or using the vehicles to drive their children to school. But when the farmers request use of the vehicles, they claim they donl have enough gas. they receive in the form of sunflower seeds, wheat, cucumbers, cabbage and onions, are much too low. They are also angry that, except in 13lesteni)they had to buy wheat, an important staple, rather than receiving it as part of their payment. One worker received a in lieu of the 340 lei he expected. None of the workers had received cash, but few understood the reasons for this. Yet most of these respondents expressed reluctanceto withdraw their land: they worry about lack

26 Poverty in Moldova: The Social Dimensions of Transition of access to transportationand equipment,fear expenses will be higher than profits, especially since they cannot afford inputs; and comfort themselveswith the fact that they bring home somethingevery day from the collectivefarm fields to feed their families.

107. In Comrat, when collective farms registered as "joint stock companies," farm workers received land shares of 1.5-2 ha, depending on their years of employment. But workers report that both working methods and the way profits are distributed have remained unchanged. Payment is made in-kind, depending also on the number of days an individual worked. Members can also receive agriculturalgoods (wheat, beef, oil, beans, etc.) at below-marketrates. Although pensioners who have adequate "seniority" (25 years of work experience) are supposed to receive a share of the profits in "joint stock companies,"pensioners who never completed seniority receive nothing at all.

108. Workers cultivating profitable crops were more satisfied. For example, farm workers specializingin tobacco expect higher earnings, paid as cash. A Gordinesti worker reported that he expected to receive 1,400 lei for having picked 1.2 tons of tobacco leaves. The farm was to sell the tobacco for 4 lei per kg, 30% of which had been promised to the workers. In Balti, some young farm workers agreed to receive their salary in the form of building materials for repairing their homes. In Mihailovca, an extremelypoor and relatively isolated village in Balti district, farm workers realized that apples were very profitable. Some insisted on being paid in apples, and in some cases, the collective farm had provided transport from the fields and allowed them to use farm buildings to store apples.

109. For the most part, both farm workers and pensioners receive payments with considerable delay, anywhere from a few months to a year. When they do finally get their meager salaries, they must often pay their taxes immediately,which leaves them almost cashless. Mihailovca farmworkerscomplained that when they come to the farm office for payment, they would find the tax collector waiting there for them to collect taxes on their homes and livestock.

Farm worker - farm management relations

110. For the most part, relations between farm workers and farm managers follow a pattern of "state patriarchy"established during the Soviet period, when decisions were made centrally, implemented by farm managers, and simply presented to farm workers. Today, however,the benevolent aspect of the old paternalism has vanished, since lack of funds, growing farm indebtedness, and unsettling transitionshave turned management and farm worker against each other.

111. Farm workers perceive farm managementas exploiting them, lying to them, and cheating them of their rightful earnings. Although as "members"of the new restructuredcollectives they should receive dividends from profits after sale of crops, they claim that the farm management uses pretexts such as the drought, bankruptcy, unforeseenexpenditures, and farm indebtednessto cheat them of their actual earnings. Farm workers have little knowledge of the actual finances of the farm, however, since management never shares informationon earnings or expenditures. The

27 Technical Paper I _ farm workers accuse them of siphoning off profits through devious ploys which has enabled them to buy luxury cars and large houses.7

112. Farm workers often feel they have no recourse or appeal. A young mother told our interviewer, "When I go to the director, 1 don't know why, but I am afraid of him, I am afraid to talk to him. He never looks at you when you talk to him. He looks through the window, and then suddenly he screams What do you Want?!! Go and work!! I don't have any money! !" Several neighbors, listening to this report, confirmed the impression -- "Animals also die from overwork, when they are hungry."

113. The administrators of the collective farms and joint stock companies claim that their hands are tied, because when payments are made to the farm account, the banks block them from withdrawing money and force them to pay back old loans rather than distribute salaries. These debts include the profit tax, value added tax, as well as payments to the social funds. These debts can come to several million lei. As a result, many of these farms conduct many transactions through barter. One such farm near Balti worked out a trade agreement with farms in Belarus and commercial agents from the Baltic countries, where they receive much better prices for their apples than in Moldova. In Belarus, they found it profitable to trade apples for spare parts and fertilizers. They are also obliged to sell wheat and other grains to state enterprises at the fixed price of 1 lei per kg. But even when they have supplied the wheat, they do not receive payment, or a smaller payment is offered, such as 50 bani rather than 1 lei.

Leaving the collective farm: fears and intimidation

114. Attitudes toward land reform differ. Not only do farm workers feel there is no framework or support to cushion the risks, some people are deeply disturbed by the increasing gap which now separates rich and poor, even in the formerly egalitarian village communities. The collectives, they assert, guaranteed some form of equality between people -- "If the collectives are dissolved and land distributed to individuals, 5 or 6 people will buy most of the land, while the rest of the people will end up working for them, as in the past when we worked for the Romanian boyars." People who have more resources, strength, and/or confidence, dismiss such nostalgia, claiming that only the lazy and envious oppose privatization: "Our people are hard- working, but if everyone is in a heap, nobody can see what anyone is doing."

115. The degree of privatization differs regionally, but it also varies significantly within regions and districts. In Comrat, only a few farming households had applied to withdraw their land shares, but they had been waiting months without any response. The majority express the fear that poorer soil and frequent droughts in the south would require extra fertilizer, intensive irrigation, and guaranteed access to farm machinery, all of which they felt would be a problem to obtain. Even collective farms are now plagued by lack of spare parts and lack of cash to replace them. In Sadova, Balti district, tractors hlave been breaking down, and the manager finally replaced two truck engines from tractors, and then pulled parts from three tractors to make one tractor which functioned. Such problems provide more reason for workers on the Sadova and

7/ See Sorin Radilescu's interviews with farmers for their account of how management manages to embezzle farm profits.

28 Poverty in Moldova: The Social Dimensions of Transition other collective farms to hesitate to privatize. Independenceis seen as a burden rather than an opportunityespecially for those who are able to earn supplementaryincome, for example, through private construction work.

116. In some cases, farm workers have been stymiedby the fact that they simply don't have adequate information, or even the channels to obtain accurate information. For example, farm workers in the agriculturalvillage of Crihana Veche, near the southern town of Cahul, wish to privatize their land. Some of it belongs to the Technical AgriculturalCollege of Cahul, under the Ministry of Education, some belongs to a state collectivefarm. Many have submitted applications to the farm administration, but with no success -- "the reason is simple -- they [farn management]will lose their chairs." Some respondents,however, had learned from the farm managementthat privatization had been stoppedbecause the college was owned by the state, and did not have the right to privatize its land; they did not understand why this should be the case. In fact, the law does exempt some collective farming enterprises from privatization, because they grow seeds, conduct research, or have some other highly specialized function. Farm workers, however,have become suspicious,and frequently do not know when they can trust the accuracy of information.

117. Those farm workers who stronglyfeel they would be better off farning their own land have persisted. Even when they have organized protests, their protests often fail to have the required effect, because they simply lack access to the critical channels of power. For farm workers who live far from the capital, even the cost of going to offices there is prohibitive, especially if they must make repeated visits. In the case of Crihana Veche, in November 1995, farmers organized several protests. Once they blocked the Chisinau-Giurgiulestiroad, another time they organized a meeting in front of the building of the district executive committee to protest the decision to transfer 800 ha of village land to the AgriculturalCollege (thereby reducing every household'sland quota by one hectare). Ultimately,700 hectares were transferred to the college, and the farm workers remain unreconciledto this decision.

118. In Pirlita village (Ungheni) and Milesti village (Nisporeni),quite a few households had exited from collective farms as of this study: 93 out of 1,600 households in Pirlita; 200 out of 1,100 households in Milesti. In these cases as well, many fanners reported that they had been forced to assemble many documents, acquire signatures from officials who often delayedthem, and get approval from the leadership at village, district, and national level. Many feared that by the time they had assembled them, a new law would be passed and they would have to start over again. Others worried about what taxes would be expected of them. In many cases, they had to travel to the district center, and then to Chisinau,as many as five times to find the official who was to sign a given document, often only to be told to return another time, or to go first to another office.

119. Some farm managers had prevented farm workers from withdrawing their land shares by threatening not to allow them to rent the farm equipment. Mihai, for example, had submitted a request to the mayoralty to withdrawhis land quota, but withdrew it when the head of the collective farm warned him that the collective would not give him any assistance. In many cases, farm managers succeededin completelypreventing distributionor even access to farm assets. According to regulations, tractor drivers working on collective farms were not to rent out their

29 Technical Paper I

services to private farms without permissi on of the mayoralty, to whom farmers were to submit a formal request and pay in advance. Several respondents alleged that their requests were refused on the grounds that the collective can't spare the tractor driver. In fact, they felt the real reason for refusal was the desire to force them back into the collective and prevent others from trying to withdraw.

120. Some farm workers could not produce all the appropriate documents. A widow in Cahul had been unable to privatize because she could not find her "work book" (a document listing one's past jobs). This book should have been in the collective farm offices, or in the district office archives. Officials at this office refused to surrender the book to her; she then applied to the collective farm officials, but they did not help either.

121. Many would-be independent farms said that they were told both officially, and through meetings and rumors, that they would lose money if they tried to farm privately. Because of the lack of information about land reform, most people remain ignorant about relevant legislation and regulations. They rarely protest their meager in-kind salaries from the collective farms for fear the farm manager will respond, "If you don't like it, take your land and leave the collective. Then see what you will do!" Although many people in the villages of Mihailovca, Prajila, and Marculesti in Balti district, for example, expressed a hypothetical interest in independent fanning, for the most part, they have remrained within collective and state farms.

122. Many farm workers perceive the task of privatizing land as consisting of:

- Wandering among district and national offices for weeks and months at a time; - Collecting numerous poorly u.nderstood documents, which they fear the farm managers will only sign if the farmer has already established a "special relationship" with them; - Continued opposition from farm management, and exclusion from jobs and access to common assets; * Fear that the Communists will return to power and they will be deported to Siberia as were kulaks (rich peasants) several decades earlier; * Total isolation from workmates; * Numerous tax obligations to the state.

123. Many local people did not receive land shares. This includes people who worked for state (so-called "budget") organizations, as well as many young people who have moved back to their parents' village in recent years. In E,dinit, this includes many people from the village of Gordinesti who had worked as miners in LheCupcini mines, which have now completely closed down. They had banded together to write to Parliament, but had not received an answer as of this study.

30 Poverty in Moldova: The Social Dimensions of Transition

FARM REORGANIZATION

Attitudestoward American assistance: the experience of Maiak

124. Deep distrust in their own farm managers have contributedto the hope of a respondent of Milesti, a village in , that the "AmericanProject," the break-up of the Maiak Collective Farm in the town of Nisporeni, will be implementedin his village. Funded by USAID, this program was piloted in Nisporeni,and is currentlybeing carried out in 70 farms throughout the country. According to him, this hope has kept some farm workers from pushing to exit on their own. Villagers had heard that a commissionto inventory farm assets had been organized,and hoped they could also receive Americantechnology and assistance to make their work more efficient and their lives easier. Despite some questions about the program, most respondents felt that supervisionby "the Americans" had guaranteed fair distributionof land and assets.

125. Accordingto members of Maiak, the reorganizationwas undertaken in five phases: an inventoryingof farm assets; calculation of each household'sland and value quota; election of group leaders; distributionof the land quota and non-land assets; and the selection of the kind of enterprise each household wanted to register as. Individuals could choose to run for leadership positions; others were nominated by the households.In addition to the approximately600 persons who had left Maiak before the Soros-aidedbreakup, an additional 90 became independent farmers as part of the program.

126. Farm workers did, however, express concerns: they did not know how individual financial responsibilityfor repairing or replacing expensive,jointly-owned farm equipment would be allocated; they worried it might be difficult to change the leaders of the new farming enterprises, since their positions would give them power, money, and connections; they did not know what would happen if someone whose land was in the middle of a larger field wanted to withdraw and start farming independently.

Zavoieni Peasant Farmers Association, Manta village

127. Althoughvillagers in Crihana Veche in Cahul remained working on the collectivefarm, farm workers living in the nearby village of Manta successfully withdrew their land despite the resistance of the collective farm management. As of this study, almost 50% had been withdrawn, and one associationof peasant farms (consistingof 234 members) and two separate familyfarms existed alongside the collective farm. Several respondentsdescribed their struggle to exit from the collective, hindered by farm managementwho wanted "to be able to steal in the future as well." Their story suggests the kinds of obstacles farm workers contend with, and the importance of finding a leader with status in the collective farm hierarchy.

128. In 1995, 400 members submitted applicationsto withdraw to the village mayoralty. The farm administrationtried to discourage applicants by forecasting famine if they tried to farm alone. Finally, the mayor held a meeting with the applicants, who decided to elect a leader who would be in charge of getting the applicationsprocessed. They selected Mr. Tudor, an

31 Technical Paper I _ agronomist by education,8 to organize the plowing, sowing, seed buying, and other collective tasks, in return for a payment of 1 leu per member (234 lei total) per month, as well as a share of farm income. The farm association would be structured on the basis of individually-owned farms.

129. The Registration Court in Cahul directed the association to the survey office in the Ministry of Agriculture in Chisinau, which was to form a commission to estimate soil quality. This request was not accepted until the Land Committee in Manta village had allocated specific plots, and decided what should be grown on them. The collective farm leadership also created numerous difficulties; at one point, the district public prosecutor even seized the documents to do with the establishment of the association. After two days, however, the documents were released to them. Members of the Agrarian Democratic Party (an offshoot of the Communist Party), the head of the collective farm, and the chairman of the district executive committee also tried to halt privatization. Finally, the deputy head responsible for distributing land gave way, although association members received their land parcels in a different place than the one they had requested.

130. The association, named "Zavoieni," drew up a business plan which involved 5,000 lei for use of equipment, plowing and sowing, part of which was to be gathered from members, the other part which was to be paid from earnings. The 234 member households ended up with 203 ha of arable land, 116 ha of vineyards, 15 ,a of , and 20 ha of pasture. The land was distributed by lottery, each member receiving land in each category, sometimes in lots separated by 8-10 km. Members received the opportunity to use their value shares to acquire the association's share of livestock (including cows, pigs, sheep, two horses and a bull), as well as other non-land assets. Most of the farm buildings, however, were in such a state of disrepair they could hardly be used; members intended to use the construction materials to build a . Members also collected money among themselves to repair four tractors (4,100 lei), to buy seed, and to pay for hiring equipment. They harvest manually, because the combines are so old that 30-40% of the harvest remains in the field when they are used.

131. The members experienced a number of problems: they couldn't afford enough diesel fuel to finish their plowing; the collective farnm'swinery owed them 30,000 lei, but in lieu of cash had proposed to pay them with wine, which w ould force them to sell it or barter it for oil. More active farmers expressed resentment at members whom they perceived as indifferent, or lazy, but still claiming part of the harvest. They wculd like to get rid of these members, especially since other farmers are eager to join the association. Overall, they are pleased with the results of their efforts, especially given the drought of April-October 1996. Average yields per member were: 740 kg of wheat; 110-140 kg of sunflower seeds, 1,400 kg of corn, and 2,300 - 3,700 kg of grapes; this far exceeded the 300 kg of wheat and 40 kg of sunflower seeds received by households who had remained in the collective farm. Out of money earned from sales, members paid for taxes, transportation, and electricity. In the future, they hope they can obtain a low interest loan to purchase technical equipment, pesticide, fertilizer, and seeds to improve future harvests.

3/ It should be noted that agronomists were not siimplytechnical specialists, but had positions of some power in Soviet collective farms.

32 Poverty in Moldova: The Social Dimensions of Transition

Tarifero Peasant Farmers Associationin Manta,

In Pirlita, farm workers wanting to privatize were frustrated by the many obstacles placed in their way. As a result, 79 households, composed of teachers, kolkhoz workers, and pensioners choose a schoolteacherto help them push for privatization. They named their group "Tarifero"("strong as iron"). During the first meeting between their leader and the managerof the collective farm, the latter promised to implement land reform. But in fact, he only distributed a small portion of the promised area -- the oldest and least productive -- and began to oppose them. Members tried to register Tarifero as a forrnal Peasant Farmers Association. But although they had submitted all the necessary documents for registration, in 1995 the land law changed, and such associations could only register after they had received their share of non-land assets. Althoughthey remained unregistered,tax authorities demandedthey pay taxes as if they had alreadyreceived their value quota. The collective farm managementcontinued to actively hinder them. It refused to allow them use of the equipment on the grounds that it couldnl spare the equipment, forcing them to purchase used equipment for cash. Tarifero's leader declared, "The leader of the collective farm was and remains a king; he does not obey any law; he does what he wants, when he wants."

132. As the experiences of Zavoieni and Tarifero suggest, farm workers are not completely defenselesswhen it comes to strugglingto establish themselvesas independent farmers. Yet it is clear that when they do make up their minds, they confront an array of hostile individuals and authorities, who often appear determined to thwart change and sabotage the success of farmers who succeed in withdrawingtheir land. It is not surprisingthat those households least able to withstand this kind of opposition, and who, for one reason or another, feel dependent on the goodwill of farm management, often prefer not to antagonize authorities whose help they think they might call on in the future.

Private farming: risks and benefits

133. Many farmers who managed to withdrawland shares received parcels 6-10 km from their homes, and claim they received poor soil. Some complain that when they received different kinds of land -- vineyards, orchards, and arable land -- many different kinds of tools and equipment, as well as too many different specializations,were required of a single land owner. The high price of inputs has been daunting, and some farmers regret their move. In Comrat, for example, the few households which succeededin exiting confronted lack of cash to pay for seeds, fuel and rental of heavy equipment. Services for plowing land may come to as much as 200-300 lei for 1 ha of land; taxes can come to 110 per ha. Pensioners are exempt from this tax; others simply incur debts and refuse to pay.

134. The collective farms did not provide any assistance. Independentfarming has pushed some new farmers into debt. An independentfarmer who cultivated 2 ha of beans and 3 ha of corn, promised her crop and a cow as collateral for short-term credits at the local bank, at a rate of 28%. The drought resulted in a poor crop of 500 kg of corn and 10 kg of beans. She was

33 Technical Paper I _ forced to sell her cow and borrow money from relatives to repay the principal on her loan. She still owes 850 lei in interest and 900 lei for her land tax.

135. Farm families which have resources such as a car, and/or possibilities to earn off-farm income, have more chance of success. One such couple in the , Ghenadie and Lena, withdrew their 2.6 ha of land in 1993. Ghenadie, 46, periodically goes to Russia to earn cash. Although their land is located 8 km from their house, he and Lena depend on their old car to get them there, at least when it's dry and the unasphalted road has not turned to mud. They purchase seeds, but use animal manure rather than chemical fertilizer. Last year, some of their fees included the following:

* land taxes - 260 lei * road repair fees to the local government - 300 lei * plowing fees (to the collective farm) - 548 lei * cultivating fees - 192 lei * sowing fees - 260 lei * transporting manure to the fields - 40 lei

136. Last year, the couple harvested 1.5 tons of corn, with which they planned to feed their two cows and their poultry; to consume themselves; and to sell. They also sell milk for 1.50 lei per liter, and onions for .40 lei per kg. In addition, they grow alfalfa as forage. The family has six children. They don't receive allowances for them, but at least the amount they should receive has been deducted from their land taxes. On the whole, they are satisfied with independent farming. Their harvest of corn, beans, pumpkins, and cucumbers, far exceeded the 100 kg of wheat, 150 kg of corn kernels, 5 kg of sunflower seed oil, 22 kg of cucumbers, and 22 kg of sugar that local collective farm workers receive.

137. In many cases, peasants complained that they received orchards and vineyards that had been neglected for years and were unprodLuctive. Even farmers who have received what they consider inferior land, sometimes report success. Farmers in Ungheni had worked diligently on the vineyards and reported a better harvest than the collective farm, concluding, "The way you work is the way you eat." Unfortunately, abundant autumn rain had destroyed some of the harvest and impeded gathering the rest. Farmers had managed to salvage part of the crop and sell it to local wineries (although several months had passed and they had yet to receive payment). Independent farmers have devised innovative ways to work in difficult conditions. An experienced machine operator modifies a sowing machine each time he uses it to sow different crops. He also adjusted a plow intended for a draft animal, so he could hook it up to his own tractor. Others have compensated by usinig horses in their work.

138. In the village of Marandeni, Balti district, about 20 households had exited from the collective farm. The director of the collective forbid the tractor drivers to assist them, on pain of dismissal. The farmers had to rent tractors from neighboring villages at a higher cost. Moreover, they were concerned about the lack of markets, and the fact that the state bought first from the collective farms at a higher price, and private owners were forced to sell for much lower prices.

34 Poverty in Moldova: The Social Dimensions of Transition

Despite these hindrances, however, the farmers received much better yields than those in the collective.

139. In Edinit district, households had faced differentlevels of opposition and expense. In Blesteni, some families had apparentlymanaged to withdraw their land after a simple application. A family of pensionersin Blesteni had managed to get back land they had owned before collectivization in 1949. In Gordinesti,the agronomist reported that about 20 documents were required, and the price came to about 600 lei. In another village, managementused all possible means to hinder farmers, for example, waiting until the beginning of May, when it was too late to sow, to distribute the land.

140. Despite these obstacles, some private farmers reported they were satisfied with their results. One couple began with a land share of 1.58ha; the wife, a teacher, was not eligible for land. They rented three more quotas from elderly relatives, and paid for the services of the collective farm's tractor. The couple, with their daughter and son-in-law, did most of the work, occasionallyhiring people for in-kind payments. They used their own car to transport their crop of watermelons to market. If it were not for such high local interest rates -- 45-50% -- they would purchase their own equipment.

Changingattitudes and interests

141. The most conservativeexpress negative attitudes toward land privatization: "Moldova has become a farm without a master, without a fence, where any thief can come to rob or even kill you. And nobody will care. It was better in the Soviet Union, and better with the Russians than the Americans."

142. But others, as the result of experience of farming their household plots, have changed their thinking about independent farms: "The more you put in, the more you get out; one cannot blame the drought for all the problems." Farmers, however,feel the following measures could ease their burdens:

* Access to farm machinery * A 5-year moratorium on state taxes, and removal of export taxes * Access to longer-term (5-7 years), low interest loans to invest in advanced technologiesfor food processing * Better information about soil cultivation,chemical use, crop rotation * Instruction, through extension services, about new methods, technological advances; how to farm more efficiently; how to protect their legal rights * Informationand advice about export regulations and procedures, local and foreign markets * Distribution of land to all interested potential farmers * Reduced interest rates on loans for buying machinerywith low fuel consumption * Establishmentof the same purchase prices for crops from collective and private farms * A state policy which actively supports and assists private farmers

35 Technical Paper I

CONCLUSIONS: WHO PRIVATIZES?

143. The most interesting question to ask may be: what constitutes the difference between households that manage to privatize, and those that remain on the collective farm? Our interviews suggest a tentative answer to this question. In one northern village, the only families which had succeeded in privatizing were those who had special resources, and access to powerful people. One family was related to the manager of the local fuel supply, a connection which gave them access to technologyand fuel at a nominal price, as well as the opportunityto acquire "startup capital" by illegally selling the fuel. Another extended family drew on personal farming experience from the interwar period. After privatizing, two relatives and their families formed a joint enterprise. Yet other families which successfullyprivatized had managed to purchase vehicles during the Soviet period; in addition, one of them had earned money from his work in Russia. The report, From Farmers'Eyes, notes that people who occupied leadershippositions in collective farms -- foremen, brigade leaders, agronomists,veterinary specialists, and so forth -- tended to be among the more successful independentfarmers, an observationsconsistent with this study's findings.

144. Thus far, farm managementand local officials in the mayoralty,as well as at the district level, have considerablepower to prevent households from privatizing. They do so by threatening to withdraweven paid access to heavy equipment, such as tractors; by seizing, destroying,or failing to act on applications;by trying to convince households with inadequate resources and knowledgethat they risk certain failure. Family composition also matters; the presence of at least two able-bodied adults in the family makes it easier to farm. Families more able to withstand these pressures are often those with greater access to information, strategicties to those with political or economic power, and/or specialized skills, all of which make it easier to cope with risk.

36 Poverty in Moldova: The Social Dimensions of Transition

SUBSISTENCEFARMING

FARMINGON HOUSEHOLDPLOTS

145. Many rural households which have not yet withdrawntheir land from the collective farm, rely for subsistenceon the.30 hectare lots distributed in 1992. Married couples who lived with their parents received their own .30 hectares. Doctors and teachers, however, only received .15 hectares. Families use the lots for subsistence, sellingor bartering their surpluses, if they produce any. Sometimes, the collective farm provides the services of tractors for plowing, cultivating, sowing and harvesting. Most rural households also have gardens near their houses of .10-.15 hectares, which they work manually. Workers responsible for taking care of the collective farm's horse sometimes keep it on this land and use it for their own transport. Because it is easier to regularly cultivate and water this land, as well as guard the harvest, these gardens often produce better crops than more distant plots.

146. In Balti, some farmers received their lots already sown with corn. But for harvesting, farmers who cannot afford the services of a tractor driver have to call on every family member, including small children, to perform the labor manually, bringing in the harvest in small carts they pull themselves. In Comrat, local prices are much lower than those in Chisinau, but families only travel to the capital if they have large quantities of goods.

147. In many cases, these lots are redistributedto households each year. Peasants in Balti complain that they tend to receive poor quality lots, where the soil has often been exhausted by years of sunflower cultivation. Moreover, they cannot plant fruit trees or vineyards on these lands, and have little incentive to make long-terminvestments of labor or capital. A number of plots, located on the banks of the Raut River, however, were flooded during the heavy rains, and crops were destroyed. Others complained their crops were stolen. In Comrat, people complain that the harvest only suffices to supply seed for the following year.

148. For the very elderly or disabled, a land lot does not necessarilyimprove their standard of living. Many are not physically able to cultivate their land, especially since cultivationalso requires walking to distant fields, transporting water, and other heavy labor. A female pensioner from village has not cultivated her lot for 3 years. She complains that a liter of diesel costs 4 lei, and one has to "give a bottle" to the tractor operator to plow it. Like many pensioners, she had given her land lot to relatives, who she says occasionally "throw her some potatoes." Pensioners with children, even if the latter live in town, often give their land to them in return for a share of the harvest.

THE IMPORTANCEOF HUSBANDRY

149. Rural households also supplementtheir income from collective farms by private husbandry. In Balti, people raise turkeys and chickens, selling them on the market, or cows and pigs, some of which are purchased by local merchants who have trade relations in Bulgaria and Turkey. Several young families said that raising pigs was relatively profitable if one could afford the initial 125 lei per piglet. Middlemencame to the villages to purchase the pigs, at a rate of 4-5

37 Technical Paper I lei per kg of live weight. Many families have a few cows; in a Milesti village, Nisporeni, several families put their cows into a single herd, which each family took turns guarding.

150. Sometimes livestockbreeding provides a seasonal income to youth who herd cows for a number of families. Stefan, in Cahul, earns 7 lei for each cow. He herds 80 cows, although he has gotten another boy to help him. He pockets 300 lei, the other boy 260. Some people pay them in cash, others in food. Some people find work as watchmenin collective farm fields. Bee- keeping also provides some households a stable source of income; 1 kg of honey can be sold for 7 lei.

151. In Comrat, families with their own cow are considered relatively well off. They use milk and cheese for family consumption,marketing surplus several times a week in the town market, earning 15-20 lei each time. The Gagauz government,however, now taxes animals at 10 lei a head, and pasture land at 40 lei a month; they explain this is to control overgrazingand rapid deteriorationduring droughts.

152. The poorest families cannot even afford animals. In Cahul, a cow costs 1,000 lei; forage is an additional expense. Some families in this district do not even own poultry. Those that do complain about the lack of veterinaryservices and the high price of vaccines and medicines. Poultry and rabbits are particularlyvulnerable to disease, and often die for lack of appropriate medicine.

MARKETINGCROPS

153. Marketing crops from individual plots or gardens is an important way of generating income. In the north, apple selling can be profitable. Starting in November, people from Balti go by train to , taking 150-200 apples, packed in cardboard boxes or in sacks. There, they sell them wholesale or at the market over 2-3 days. Some have been swindled and returned empty handed. Alternatively,villagers may hire a bus and go to Ukraine or Russia, paying bribes up to $100 to customs officials. Another potentially more profitable way is to sell directly to middlemen from Moscow or St. Petersburgwho drive their trucks directly to the villages and pay $25 per 25 kg container. This can also entail risks. In some reported cases, a police detained the loaded truck and driver. When they failed to reappear,the farmers realized that the police and middlemen had conspired to cheat them out of their payment.

154. In many villages, collective farm workers lack cash to buy even such elementaryitems as soap or detergents. Instead, they exchange agriculturalproduce with middlemen (who work with the mayor'spermission) who drive to the village. The farmers complain about the extortionate rates:

* 8 kg of wheat for a bar of soap * 10 kg wheat for a package of detergent * 200 kg of wheat for a pair of children'sboots

38 Poverty in Moldova: The Social Dimensions of Transition

STEALING

155. Illegal gathering of crops for marketing as well as subsistence is an important survival strategyin most regions. People steal corn from nearby collective farms to sell at the market or to neighborsraising poultry. Unemployed youth, town residents, or people who live in villages but don't have much land sometimesride their bicycles at night to apple orchards, give a bottle of spirits to the guards, and spend several hours gathering apples. They risk beatings, fines, or even confiscation of their bicycles. Near Gordinesti, several families regularly steal apples in fall and winter, vegetablesin summer. They canned these for the winter; in some cases, sold the vegetables in Ukraine. Some private farmers reported purchasing sacks of fertilizer from farm employeeswho had stolen them.

URBAN GARDENING

156. Between 1987 and 1996, state enterprises established "partnerships"for gardeners under their management,whereby employees could receive .06 ha of land near the city. When land privatization began, people could privatize these plots at a low price; today they have to pay the full price. Few respondents in our sample had managedto privatize the plots they had obtained. In cities such as Balti and Chisinau,land plots, whatever their source, play an important subsistence role. Families who own a car often raise enough vegetables to get their families through the winter. One Balti respondenthad raised 150 kg of potatoes, 20 kg of carrots, 35 kg of onions, 10 kg of beets, a pail of beans, and managed to pickle 50 kgs of cucumbers and tomatoes.

157. Some people build small shelters where they live during the summer, to prevent crop theft. Others find this too dangerous,fearing they may be beaten by thieves. Many lack sufficientmoney to pay a guard and make a profit on their small crops. In 1966, crops were particularlysmall because of early rains, which destroyed a significant part of the harvest.

158. Some people received land plots allocatedfor housing, in lieu of apartments, and those who didn't build on them now grow vegetables there. Others cultivate unclaimed patches of urban land, which they fence when disputes arise. There they grow potatoes, tomatoes, onions, cucumbers, carrots, cabbage, and herbs, using animal manure and manual labor. A few have fruit trees. On the outskirts of Chisinau,people have larger lots, where they can even grow cash crops. For example, with .25 ha received from her parents, one young woman spent 500 lei on 250 kg of onion seeds, which produced 1,200 kg of onions, sold for 1,200 lei. A lecturer from the Agricultural Institute borrowed 1,500 lei to build a 25Gm2 greenhouseon his parents' land, invested a further 300 lei for seeds, chemicals and pesticides, and earned 3,500 lei from selling the seedlings and tomatoes.

159. Urban families often buy animals, including poultry, which they keep with their elderly parents, who live in the country. Others raise them in the city. One respondent living in a highrise on the city outskirts raises 6 cows and 3 heifers in the small woods near his apartment, where he built them a small shed, and grazes them. He sells not only dairy products, but even the manure. Still others raise poultry on high-rise apartment balconies. Some urban residents breed

39 TechnicalPaper I livestock and poultry in basements and garages, or near the first-story apartments, to the dissatisfaction of neighbors, who object to the smell.

160. Some urban families go to the countryside to work seasonally as wage laborers, going for a season to pick apples on the collective farms, receiving in pay 200-300 kg for every ton they pick, and selling this at local markets. Others go to collective farms to pick over the fields after the harvest, managing to gather 20-30 kg at a time.

CONCLUSIONS

161. Although many subsistence farmers ostensibly are members of a restructured collective farm, it is their .30 hectare land plots that provide their basic subsistence. For some who contemplate farming as a way of life, this experience has provided a transition to independent farming; for others it is a stopgap which only supplements their income. For still others, it has suggested a way to not only provide basic subsistence, but even earn a predictable income, through the establishment of greenhouses, for example.

40 Poverty in Moldova: The Social Dimensions of Transition

CHANGINGLIVELIHOOD STRATEGIES

INTRODUCTION

162. Since independence,many enterprises have closed or sent their workers home on extended "leave without pay"; salaries have drastically shrunk; benefits, subsidies,pensions and allowances, if received at all, are late or in small amounts. Although some people have found it difficult to adapt, others have actively soughtnew niches and found many strategies to survive and even prosper during the transition.

163. This chapter focuses on those who have been less able to adapt for any one of many reasons: lack of skills, opportunities,access to people and resources, or because of illness, disability, and heavy family responsibilities. For most Moldovans in rural and small town settings, of course, agriculture (dealt with in another chapter) provides a significantif not necessarilythe major source of income; it is also important for many urban residents. This chapter will focus on:

* Formal employment (public and private sector) * Labor migration * Cash-generatinginformal- and self-employment,including small-scale enterprise * Small-scale barter activities * Illicit sources of income

FORMALEMPLOYM1ENT

164. Formal employment includes both public sector employment (which formerly included work in industries, agriculture, and the service sector) and private sector employment for the new private or privatizing factories, firms, and enterprises now emerging. Although the majority of our rural respondentsnow work full-time in agriculture,many had worked in local administrative structures; some continue to work for the state as teachers and medical personnel. Among urban respondents, many still cling to state sector jobs, often holding several jobs at once, or working overtime.

165. Although current public sector salaries are very low, many respondents saw getting and keeping a permanent job as key to survival. For some, it is the only source of cash to supplement subsistence gardening and other items acquired through barter. Many people therefore fear total unemployment. Those near retirement age are especially afraid to leave even poorly paid employment,and feel psychologicallyprotected by having a job. They know it is unlikely they will find other work, and want to accrue "seniority"for pensions, which they hope might someday regain their former value.

166. In other cases, jobs are linked to housing, although state-fundedconstruction has stopped, people remain on job-linked waiting lists for housing, still hoping to acquire an apartment in this way. Many people continue to live in crowded worker hostels, continuing to hold jobs where they may not even receive a salary, sustained only by the hope that they might receive an

41 Technical Paper I apartment after their many years on waiting lists. Some have taken on the job they presently occupy, simply in order to obtain space in a hostel. Tatiana, a dressmaker, took on a job as a lab assistant so she and her husband could move into a 12m2 room in the Medical Institute's hostel, where they share the toilet, shower, and kitchen with five other families.

167. Many large enterprises have managed to change their production lines, and now work at quarter or less capacity. One such example is the former Lenin munitions plant in Balti, which employed 8,000 workers. Employment there was considered "prestigious," and it attracted many workers. Now it employs 2,000 workers to produce consumer items such as umbrellas, electric irons, toasters, and chandeliers, many of which remain in warehouses for lack of customers. Salaries have decreased from the once comfortable amount of 200-300 rubles to 100-150 lei, paid with a 2-3 month delay. In many cases, employees are forced to receive goods in kind, and must sell their supply of electric irons or toasters to local shops, or the market.

168. Those who do work cannot predict their salaries from month to month. A worker at the Candy Factory reported that her salary depended on the number of orders received:

"When we receive more orders, 1 make 300-400 a month; sometimes I get nothing at all for several months in a row. I intended to search for another job, but I was promised that next year I will receive an apartment. Now I live in a two room apartment with my three children, my mother, and my husband, who is paralyzed. Where can I go?"

Findingand keeping Jobs

169. The ability of individuals and households to rebound and find alternatives varies, according to both predictable and contingent factors. A few Soviet era industrial enterprises have recently found new markets and started hiring workers. Some have even invited ex-workers to return, for salaries of 200-300 lei. But judging from our respondents, finding formal employment has been particularly difficult for young people, who lack job experience; for the ill and/or disabled; and for women with child care responsibilities.

170. Moreover, not everyone can benefit from the new regulations concerning unemployment assistance. Some people, such as a young woman in Cahul, have been dismayed to learn they cannot register at the unemployment office to find work if they have privatized their land. In Comrat, few people are aware of the existence of an unemployment service, and even fewer make use of it. For one thing, it takes 5-6 months to accumulate the necessary documents to register, the meager 18 lei per month compensation is paid with a delay of 3-4 months, and few jobs are offered in any case.

171. People frequently obtain their jobs or contracts through sizable bribes. An electrician, for example, worked for an association which had contracted with a collective farm to maintain its agricultural equipment. When the collective farm became bankrupt, it terminated the contract. He then began to conclude his own arrangements with the collective farm. In one case, he received his payment in-kind, in the forrn of a ton of wheat, 600 kg of which he paid to the agronomist who had facilitated this arrangement. In the second case, he was to receive 50 cubic meters of stone, but was ultimately cheated and paid only 20.

42 Poverty in Moldova: The Social Dimensions of Transition

Youth unemployment

172. Many rural respondents were particularlyconcemed about the lack of prospects for young people. Although some youth have left their villages to seek work in cities in Moldova or abroad, others work part-time in agriculture,remaining idle for long winter months. Rural families note a dramatic increase in youth alcoholismand involvement in both petty and violent crime. In the past, collective farms sometimespaid students allowancesfor their five years of university education, with the promise of a job when they returned to their villages. Today, collectivescan no longer hire the young graduates who retum; many of these educated young people are forced to return to the city.

173. Educated youth find their paths blocked, because they are entering the labor market at a time when the few jobs are given to those with more work experience. Roman is a typical example. He recently graduated as an engineer, and registered at the employment office. He has been receiving 25 lei a month in unemploymentpayments, but has yet to receive a singlejob offer, or even the possibility of requalifying. Instead, he was told that his profession is not needed, and that far more experienced engineers than he remain unemployed.

174. Well-educated and enterprisingyouth, sometimesfind new work after taking re-training courses. The daughter of one respondenttook a course in waitressing; this, plus her youth, helped her find a well-paidjob. Others have finished courses in accounting and been hired by new businesses. Especially lucky are young people who speak English or other languages in demand. Many have found well-paid work with the foreign organizations and private businesses in Chisinau, and may end up as the economic mainstayof their families.

Employment,illness, and disability

175. The ill and disabled also have few chances to compete in the new job market. The employee of a candy factory reported that she does everythingshe can to avoid becoming ill. Twice a year, employees must pass a medical examination;anyone found ill is fired. As for those with a permanent disability, many were employedin special factories during the Soviet period, and took pride in their ability to work and earn a salary. Others were able to hold down ordinaryjobs, which they are now terrified of losing.

A disabled teacher: "Despite my low salary of 160 lei, a month, I am not looking for another job; everyone is letting employeesgo. I don't dare think of leaving this school. Who needs me with my crutches?"

176. Irna, 49, lives with a companion,Rosa, and Rosa's husband, Ion, in a small, privatized two room apartment in Chisinau. Until the 1970s, Irina lived in a hospital for the disabled, briefly with her sister, and then with Rosa, who had worked as a nurse in the hospital. After being rejected by the Moldovan authorities, Irna had appealed to V. Tereshkova, the first female

43 TechnicalPaper I astronaut and president of the Soviet Wornen's Committee, thanks to whom they had received their present apartment.

177. As a child, hina could not attend school because there was no adequate transportation; her siblings taught her to read and write; she also sewed and knitted when her eyesight allowed. Before 1991, Irna participated in a sports club for the disabled, and even took part in competitions in Kiev, and . The club no longer exists. Although Irina has a wheelchair, it does not allow her to go to bookshops, stores, public toilets, or on public transport. Up until 1992, Irmnaworked in a sheltered clothing factory which hired the disabled. In 1992, the factory closed, "and a lot of cripples were thrown into the street." Irina registered at the local employment office, "but what's the use? Healthy people cannotfind a job; what should I hope for?"

Women: jugglingjobs and child care responsibilities

178. Women with many and/or small children have particular trouble finding work because employers know they will often be absent. Thus, Elena, a young economist, reported that although she had graduated with a brilliant record from the Academy of Economic Studies, she was constantly passed over for jobs because she has two small children, while her male colleagues have found jobs in private firrms for salaries of 500-600 lei. For women with higher education or those already accustomed to working, job loss and unemployment are psychologically devastating; they feel completely excluded from social life.

179. Sometimes women leave their jobs because they find they must leave small children unsupervised. Tatiana, a single mother of three, found a part-time evening job washing dishes at a restaurant through the unemployment office, for 80 lei a month. She worked in the evenings after her 9th grade son returned home to 'look after his younger siblings, but quit when she realized the children were often by themselves until 11 p.m. Like many women from poor households, her employment possibilities are limited by the fact that she cannot start a day-time job because she cannot afford clothing and fees for her children to attend kindergarten.

180. Women are no longer protected by laws which formerly allowed them to enjoy up to three years of maternity leave before returning to their job. Svetlana, a collective farm employee, encountered this problem when she went on leave to give birth to her fourth child. While she was on leave, the collective farm started shedding workers, and she lost her job. Svetlana protested her firing to the district authorities and to the prosecutor's office and was rehired. She refused to return to her previous job as milkmaid, and was placed on the brigade in charge of the vegetable fields. But she is fearful that any small mistake will provide grounds for her boss to fire her: "There is no one without faults. But if the leaders look for a needle in a bottle, then theyll find one."

INFORMALEMPLOYMENT

181. Most of our respondents tried to combine several strategies at once: formal employment, especially if they could take some time cff to pursue other ends; subsistence agriculture, and finally, part- or full-time income generating activities such as buying and selling, street vending,

44 Poverty in Moldova: The Social Dimensions of Transition small-scaleproduction and sales, and services. For some families, the latter categoryof activities have developedinto full-scale, profitable enterprises;such households, however, did not fall into our sample, most members of which succeededat best in just making ends meet.

182. The new labor market has confrontedpeople with paradoxes. On the one hand, people are accustomedto and feel better with permanent, full-timejobs and salaries. On the other hand, salaries are now received with great delay, while short-term intermittent work generallyproduces an immediate return, although people experience it as very insecure. Raisa, a mother of three from the town of Edinit, described this dilemma as follows. She had no formal employment between 1993 to 1996, before which she had worked as a cook in a kindergarten until 1993, when she was fired in the context of general down-sizing. Although she registered for unemploymentcompensation, she found out she was ineligible because she had registeredtoo late. In 1996, she found a job as a cleaner at the local House of Culture, eaming 58 lei a month, a salary she received with 2-3 months' delay. She became pregnant, and in September 1996, went on maternity leave.

183. As part of the privatization process, many of our respondentshad received "patrimonial bonds," which some had invested in companies or collective farms, sometimes with high hopes of receiving dividends. None had ever received any return, however. Another respondenthad decided not to invest, because she did not want someonebenefiting at the expense of her family - - she did not think the company's profits would ever benefit its investors.

184. Comparing her present situation with the time when she was unemployed,she reflected, "while I was unemployedI was very depressed. I tried to find any job to earn money; I began to repair apartments and whitewashwalls in houses. For a house with three rooms, I could earn 15 lei. Although I was terribly underpaid, I was glad to have at least some money. But such work is insecure and difficult to find. Yet now that I have a permanentjob again, I have even more hardships. My salary is very low and often delayed,my maternity leave isn't paid, and I have no money for baby clothes."

Buying and selling

185. As elsewhere in the former Soviet Union, trading in consumer items and food across the new international borders has become a lucrative source of income for the lucky few, a helpful supplementfor many people, and a financial catastrophe for people who find they cannot repay money borrowed to start the business. People use kinship and other personal ties to find work or establish trading relations throughout the FSU, in Romania, Hungary, Greece, Turkey, and other countries in western Europe. Several respondentshad been eaming profits of $250-$300 per car, importing cars from Germany,but found this dangerousbecause "rackets" started demanding money from them.

186. Wheneverpossible, people study customs regulations so as to best exploit them. For example, Romania does not tax Moldovans who bring goods through their country. Romanian merchantsuse this fact to work with Moldovans, whom they hire to declare as their own the goods purchased by Romanians in Turkey. Once in Romania, the goods are sold on the spot. Marcu, a Moldovan, makes money in this way. He teams up with a Romanian partner, with

45 Technical Paper I _ whom he travels to Turkey. There they buy goods which they resell in Romania. This earned him $200 a month. In both rural and urban areas, both serious farmers and gardeners barter or trade surplus produce in town, city, and sometimes foreign markets. Where people live near national frontiers, such as in the district of Cahul, they often take produce across the nearby frontier to Romania; in other cases, they travel to Ukraine. Women frequently travel to Moscow to sell herbs and vegetables.

187. Alternatively, people trade in regions where they have relatives or close acquaintances, to avoid the problem of customs fees. Thus, people profit from the higher prices in Transnistria. They buy agricultural products in Chisinau and resell them in Transnistria, using the pretext of relatives there to avoid the customs taxes. Likewise, people who have relatives in Ukraine buy goods manufactured by the Zorile shoe enterprise or the Steaua textile enterprise to take to their relatives there, and their relatives barter these goods locally. Some trades bring second-hand clothes from abroad and sell them in villages for 0.50 lei for a T shirt, 2 lei for a shirt, or 15 lei for a jacket. In Comrat, many villagers can be seen wearing such clothing. Others take their own second-hand clothing to villages to barter for food.

188. Ira used to work as a secretary in the Ministry of Agriculture. She finally left the job because the salary was so low, and even then, paid with delays. On the advice of her sister, she borrowed $1,000 (without interest) from several relatives, and started importing goods from Poland. A typical trip involves the following expenses:

* $160 for bus transport and $20 in customs fees (these are paid to the bus driver, who assumes all risks related to "rackets." * 240 lei/month to rent a space in the market * 100 lei/month for warehouse space In the market itself, Ira said that police protect the sellers from rackets. The best seasons are spring, and fall, just before school starts. In a good month, she makes 400-500 lei; in a bad month, she only breaks even.

Small-scale retail vending

189. Some people acquire their goods wholesale from merchants, selling everything from sweets, pastries, soap, shampoo, underwear, even alcoholic drinks, which they hide under the counter when the police come. In many cases, unemployed female teachers and engineers have started to bake at home, and give their pastries to their husbands to sell in the market.

190. In villages, people with a small amount of capital have opened small booths, where they sell sweets, cigarettes, liquor, food items such as sugar, flour and pasta, soap and shampoo. Despite the high prices, however, their profits are small, since few villagers have the cash to buy such goods. Booth traders sometimes offer credit to customers they trust to pay them when they receive their salaries.

46 Poverty in Moldova: The Social Dimensions of Transition

A disabled entrepreneur

Irna, already described above, is an enterprisingwoman who loves to read. After losing her factory job, she tired to start a modest booksellingbusiness in 1994. It took 7 months to fill in the necessary documents, including2 months to obtain one of the required stamps. The whole process cost 100 lei, although Irina, as a pensioner, will not have to pay taxes on her business. After a few months, however,Irina gave up; the books were not in demand, and they were too heavy for her to easily lift. She began to sell chewing gum, cigarette lighters and cigarettes. The police began to harass her since the cigarettes had been smuggled in to the country, but she solved this problem by giving them a carton. Now she is thinking of selling sunflower seeds, since she disapprovesof smoking.

Street children often harass her, beggingfor cigarettes and gum. She is frightened that if she refused them, they would overtum her counter and steal her money. She makes 10-15 lei a day, but feels it could be higher if she had fewer competitors. The other sellers do not even have licenses, but bribe the police when they come to check. Irna sells on the street from May until October, unless it is raining. Vasile brings her at 8 in the morning and picks her up at 9 or 10 in the evening. During this time, Iina is stuck on the street. She admitted shamefacedlythat she could not even go to the public toilet, which cannot accommodate her wheelchair. As a result, she has her first "meal"-- a roll -- at 2, but waits until evening to have a meal.

PETTY ENTERPRISES

Capitalizingon skills and hobbies

191. A host of small enterprises have sprung up; some operate without licenses from peoples' homes, others involve private arrangementswith buyers. These services often serve the smaller class of newly wealthy or prosperous in both town and countryside. For example, men and women with skills in painting and renovating houses often work privately. Dimitru quit his job, and now repairs apartments painting walls and doors, and putting up wall paper. With two others, he makes 1,000 lei from an apartment. Over summer, his team renovated three apartments, and Dimitru thinks he could find more work if he only had a telephone at home.

192. People often use their connectionor access to resources to start their own business. Two brothers in Chisinaucleaned out their basement,installed a stronger door, and set up a carpentry shop. One of the brothers is a student, and works part-time at a lumber factory, where he can buy lumber. The brothers produce metal doors, which they cover with wood; they hire a welder to help them, and produce one door a week, earning about 200 lei per door.

Hobbies sometime become businesses. Natalia had beautiful flowers in her home, and sold some of them when she needed money. She discovered the market was good, and began to

47 Technical Paper I

grow seedlings. She sells seedlings for 2-6 lei, depending on the species, and markets them 4-6 times a month, on the street to avoid the 6 lei market fee. The police often drive her away, but she just returns. An elderly woman knits 2-3 pairs of socks each day, and sells them on the street every Sunday for 5-8 lei each. Another woman sews dresses on order, making 100-150 lei per month. Breeding dogs is particularly lucrative; those who sell puppies are quite satisfied with their earnings of $20 -$200 for a puppy, depending on the kind. Since Moldovans like live music at weddings, christenings, and other ceremonial functions, people who play instruments well can earn occasional money this way. Ion, 14, has played the accordion for five years, and plays at such parties occasionally, making about 20 lei for such a function.

193. Many people manufacture goods to sell on the street, from home-made pastries to clothing they have knitted or sewn. Whien she became unemployed, for example, Rodica traveled from Chisinau to nearby villages, where she would sew clothing or men's fur caps in return for food or money. A dress earned her the equivalent of a hen or goose; a cap either 120 lei or the equivalent in food. In summer and autumn, elderly people travel by train to nearby forests, where they pick berries, medicinal herbs, mushrooms, and nuts for their own use and to sell to acquaintances. One such family of Chisinau pensioners earned 2,000 lei in this manner.

194. Knowledge of foreign languages has become an important and lucrative skill. During the Soviet period, the overwhelming majority of language students at the university level were girls, aiming to use their diplomas for the typically "female" job of school teaching. Today, many are working as interpreters for the growing foreign community, especially in Chisinau, and have become important contributors to the farnily budgets.

Renting out rooms

195. Given the lack of available, low-cost housing, renting out even modest apartments, rooms -- or sometimes, just a bed -- forms an important source of income in urban settings. The luckiest are those whose apartment happens to be in the higher priced, more fashionable center of the city, where they can demand higher rents. People often sell their bigger apartments and buy smaller ones, using the profit to support themselves. Parents sometimes exchange a large apartment to acquire separate apartments, for themselves and for a married child, especially if they lack the cash to simply buy an apartment. Sales are complicated by the fact that apartment owners can only sell after all housing bills have been paid. The sale has become even more difficult now that the number of apartments for sale has increased.

196. Alternatively, people double up to free their apartments; others move into a single room to free their other room up, often to students. A pensioner who had been selling clothing, dishes, and books just to survive, posted an announcement and found a student willing to pay 50 lei or the equivalent in food, per month. Graduates of urban technical institutes unable to find work in their own villages often return to the city to search for jobs; they are among the families forced to rent apartments.

197. Often, families move elsewhere to free up their own apartment for rent in order to pay off outstanding debts. One family accrued such a large electricity debt that the entire family, consisting of Maria, a 61year old pensioner, her daughter, son-in-law, and nephew, moved from

48 Poverty in Moldova: The Social Dimensions of Transition their two room apartment into the two-room apartment of another family (already occupiedby a couple and their 16 year old son). Maria's family used the rent from their own apartment to clear their debts, although the pressure of seven people in two rooms forced them to leave before they had intended. Another family moved into the balcony kitchen of another family in order to rent out their own apartment. Sometimesrenting one's apartment is risky. One couple discovered their lodger was bottling bootleg whisky to sell in the market. Similar experiences make many apartment owners reluctant to rent to anyone but personal acquaintancesof themselves or their friends.

Selling vouchers

198. As part of the privatization process, many of our respondentshad received "patrimonial bonds," which some had invested into companies or collective farms, sometimes with high hopes of receiving dividends. None had ever received any return, however. Another respondent had decided not to invest, because she did not want someone benefiting at the expense of her family - - she did not think the company'sprofits would ever benefit its investors.

ILLICIT FORMS OF INCOME-GENERATION

Prostitution

199. According to figures from the Ministry of Internal Affairs, 1,517 women are registered as conducting an "immoral way of life." In reality, respondentsalluded indirectly to increased prostitution, at home and abroad. Althoughonly a few speculated about people they knew, a few suggestedthat young women, including some of their acquaintances,working abroad in Turkey and elsewhere, who returned after long absences with large amounts of cash, were working as prostitutes. Many newspapers now carry job offers for "nice girls who are not self-conscious;" invitations for weekends or longer vacations accompaniedby a list of young women and their photographs. Streetwalkersopenly work in front of many hotels, and some women stop cars on the outskirts of the city to offer their services.

Bribes

200. Poor people are usually not in the position to demand or receive bribes of any size. But the small gifts they receive in their capacity to expedite services or solve someone'sproblem may neverthelessplay a role in their householdeconomy. This includes people who remain in public sector employment, receiving very small salaries, simply because they periodically receive a bottle of champagne,a box of chocolate, or a package of coffee. One such person was happy to receive such gifts, which she could then use as a gift on an important family occasion.

Begging

201. Elderly beggars are increasinglyseen in towns and cities. In Cahul, a pensioner spent the summer begging in front of the market, using the money to buy bread. When it gets cold, she plans to go to a sanatorium or pension and ask if she can consume the food remaining after meals have been served. Beggars, including children, sometimes accompaniedby their mothers, as

49 TechnicalPaper I well as the elderly, are also to be seen in Chisinau, often occupying regular places in front of food shops or bread stores. A widow of '74had lost her home in the catastrophic flooding of 1991. She had long since buried her only son, and had no relatives to help her. A farm worker her whole life, she had come to Chisinaui to beg, to supplement her 60 lei pension. She asked for very small amounts in the Chisinau produce market to buy some rolls, living in cellars during the summer, returning to the countryside in winter, where she asks people to house her for a night. Asked why she only begs for 5 bani a time, she replied, "Others live difficult lives too."

Theft

202. Theft is a complicated issue in Moldova, given the long history of "appropriating" goods from state-owned enterprise for personal use or resale. This practice has continued, with some respondents declaring that they consider it a legitimate practice since these enterprises haven't paid their salaries in many months. People also steal up to hundreds of kilos of crop from collective farm fields to resell.

A :miigrantlabrer Ion borrowed 200 lei two years aLgo,and traveled with a friend to Moscow. They received work in the suburbs but after being promised 2,000 lei for a months work, they received only 500, with the threat that if they did not accept it, they would receive nothing at all. Vlad had earned a lot of mn from 2 months work in Krasnodar. The evening of his departure, several men with stockings over their heads, armed with machine guns, threatened to kill him if he didnt surrender his money. He remained three more weeks just to earn enough money to return to Moldova.

LABOR MIGRATION

203. As in other FSU countries, labor migration has become one of the most significant ways to make money. Rural inhabitants very frequently leave their villages in autumn and winter, when there is less agricultural work to do. A number of new companies have undertaken to arrange documents and ease relations with customs officials, police and rackets. Sometimes they are unable to follow through on promises, however. A company which offered to arrange work in Saudi Arabia, in exchange for 120 lei, and a $70 bribe to expedite departure, resulted in applications from 40,000 people. According to respondents, the Department of Labor had delayed their departure, ostensibly because they object to this number of people leaving. Finding jobs carries other risks. On several occasions, special firms have offered to find people work abroad. Applicants found that after they paid their fee of 12-20 lei and filled out forms, the office had disappeared. But complaining to the police had proved useless.

204. Migrants travel to Russia, mainly for construction; to Ukraine, Belarus, Hungary, Romania (for trade rather than jobs), Greece (for harvesting fruit, housework, and babysitting), Germany, Israel and elsewhere. Some lsraeli organizations have sent recruiters to Moldova to find workers for the construction , where they can earn $1,000 a month; local companies whose members have ties to Israel also recruit workers. In Russia, the largest single destination, men work in heavy construction, or as builders and masons on private homes of the new rich; in

50 Poverty in Moldova: The Social Dimensions of Transition agriculturalbrigades in orchards or in vineyards;as drivers and tractor operators. One respondenthad found temporary work on a ship in Murrnansk,Russia, using his pay to purchase a used car which he now uses to transport and sell agriculturalproduce. In Comrat, a local private enterprisehires people to work as foresters for the companiesfrom which they import wood. Payment is made to the employees'close relatives in Comrat. People with special skills may leave temporarily, then emnigratepermanently to Western countries where they have relatives.

205. Women have increasinglybroken into the fonnerly male domain of seasonal labor migration. Both men and women travel to Russia, Ukraine or Hungary to work in agriculture. Especially people living in border communitiesoften find casual work. In districts such as Cahul, people may take a few days leave from working on the collective farm to go to Romania, by themselvesor with a family member, to pick cherries for a few weeks. Some people steal grapes from their collective farm, which they market in Romania. Others work as intermediaries, buying goods wholesale directly from the train station to sell retail. Women work as small-scale street produce vendors in Turkey and Russia. Women in the Balti district travel in winter by train to Moscow to sell beans, nuts, garlic, and carrots in small quantities. Others buy goods at train stations and markets to resell at higher prices, making as much as $100 to $300 a month. Greece has become a significant destination for young women, who work as maids and nannies for $400-600 a month. "Rather than suffering from poverty, we should better go sweep up the garbage in other peoples' houses," explained one respondent. Elena also wishes to go, but still lacks the $600 to pay for a passport, visa and transportation.

206. Although one should be registeredto work in Moscow, many people avoid paying the 80,000 Russian ruble fee for a 45-day visa, risking a 300,000 ruble fine, or even a beating by police. Some go abroad in groups, ranging from a pair of friends or relatives, to a whole team. People often suffer from the many rackets operatingin Russia. Many reported that their documents and money had been stolen. Sometimes they were forced to remain in Moscow, wasting money on hotels, while replacing the documents. In most cases, the work is done unofficially, without working agreements,contracts, or visas. Work in Europe is less dangerous and quite lucrative, although people generallyrely on others to help them. A young engineerhad found work through a friend of his godfather. After 3 and 1/2 months, he was able to afford a Mercedes car.

Encountering"rackets' Sergiu, from Ungheni, worked as a railway fitter in Kemerovo, Russia, 5,000 km from Moldova, in a team of 20 people from Ungheni. He received 1.5 million rubles a month, and worked alternate months, returning in between to his family. The workers were provided money for housing and their trips back and forth. Sergiu had worked in this way for two years and always received his salary on time. In 1996, however, a racket preached them to collect a promised one time only unofficial tax of 6 million rubles to "protect" them from future harassment. The racket violated its word, however, and came back three months later to demandlO million rubles. The Moldovans refused to pay. They returned without incident to their homes in Moldova, but in November were not called back for work. Probably the racket has taken care of that.

51 Technical Paper I _

CHANGINGATTITUDES AND RISKS

Attitudes toward "business"

207. Middle-agedand older respondentsin particular still consider "business" -- especially buying and selling-- to be a form of "speculation,"a dirty word during the socialist era. For this reason, some of our respondents admitted that they were initially ashamed of being seen selling goods on the street. Nelli, a leather worker employedfor many years at a local shoe factory, explained her shame as follows. When she recently began selling roasted sunflower seeds on the street, she worried colleagues, acquaintances,or even the friends of her son, might see her. She explained that when such activities started, administratorsat enterprises and unions, along with the police, tried to prevent the selling of seeds on the street, and to reinforce the perception that this was socially inappropriateand shameful behavior. School teachers reinforced this unofficial policy and attitude toward private commerce.

208. Young people, who were only children during the socialist period, convey fewer misgivings or self-consciousnessabout practicing street trade. Radu, a student, for example, was very matter-of-factabout his own street vending business. Like many other students, he was unable to find anyjob in his field after gr-aduatingfrom the Technical University. At the suggestion of a friend, he started his ownrbusiness. He borrowed money from his parents to buy a tape recorder, 15 new audio tapes, and 3 recorded tapes. He tapes from these recordings, and sells them for 15 lei. He now has his own stand, for which he pays.

The role of "connections"

209. In commerce, as in other fields of endeavor, "connections"with people who are well- placed, rich and/or powerful, remain important for acquiring access to information, dealing with bureaucracy, and avoiding official harassment. Almost by definition, the individuals and households falling into our sample exclude those with connectionsto the rich and powerful. They are virtually forced by the daunting requirementsof taxes, bribes, official and unofficial fees, to work in the "shadow economy," where they are vulnerable to both organized crime ("rackets")and to the police as well.

210. For the poorer entrepreneurs,problems begin with obtaining-alicense. Several respondents focused on the difficulties cf this process. Nina, who makes funeral and wedding wreaths, for example, had obtained her first license through her mother, who had "connections" in the licensing department;since then the license has expired. Nina does not know who can help her "expedite"her application, and says she doesn't have enough money in any case to pay. Svetlana,who borrowed money to start a business selling her goods in the central market in Chisinau,which has the greatest turnover, submitted a formal application to the city mayoralty for a license to get a place in the market. Six months had passed, but she had still not received a reply, although she has written a letter of inquiry to the deputy mayor. "I've heard you can only get a place in this market if you have relatives in the mayoralty,"she explained resignedly.

211. Because of the problems and the expense of licenses, many market or street vendors prefer to work without them, but as a result, suffer constant harassment by police. In many cases

52 Poverty in Moldova: The Social Dimensions of Transition they pay a bribe, and are then left in peace. Alexandr, an unemployedlocksmith in Chisinau who worked at a state enterpriseuntil 1992, now makes a subsistenceliving working on the family plot, and selling wine for his neighbor, who pays him 15-20 lei a week. People come to Alexandr's and buy a couple liters at a time. Alexandr doesn't have a license, however,and believes that his neighbor hired him so that if trouble arises, he, rather than the neighbor, will get in trouble. But Alexandr is prepared: if a policeman comes to his home, he plans to buy him a bottle of cognac and slip him a bribe. Alexandr's wife, Anya, bakes her own pastries and walks to the nearby market several times a week to sell them. She has the same problem -- sometimes the police drive her and other unlicensedsellers away; some buy her pastries and leave her alone.

212. Working in the large city markets carries many risks, even for those who just work for larger traders. They are the ones on the frontline, who get harassed by gang members, or cheated by customers. Nineteen year old Petre, for example, was cheated when a customer paid him witk a "doll" -- a bank-sealedwad of 400 lei, in which only the top and bottom turned out to consist of banknotes. Petre's mother was forced to borrow 395 lei to pay back her son's employer, so that Petre would not be beaten by him. Other cases were reported of sellers whose goods were stolen or who were cheated, and then brutally beaten by "friends"of their employers.

Borrowing and lending

213. Obtaining capital for any kind of business venture is a risky business. While people regularly borrow small sums from neighbors, friends, and relatives, they try to obtain money for their business ventures, or to travel abroad, only from relatives. Some reported obtainingbank loans at high interest rates, others borrowed from wealthy acquaintances,who charged interest ranging from 2-10%; still others use professionalmoneylenders, often with catastrophic consequences.

214. Professionalmoneylenders have acquired a reputation for being extremely ruthless in order to get their money back. They return on a weekly basis, in some cases threatening to beat the debtor or blow up his home. In some cases, respondents had lost their homes, which they put up as collateral for loans. Some people have lost their homes to moneylendersand banks after using it as collateral. One such couple lost their village house after borrowing 5,000 lei from the Bucuria Bank, thinking they would soon pay the money back. Unfortunately,the wife became very ill, and her husband was forced to leave his job in order to look after her. The bank extended the repayment date for one month to find the 8,000 lei (principle and interest) that they owed. This did help, and the couple was forced to auction their home, receiving only $100 after the loan had been repaid.

215. Failure to repay large loans obtained from kin may be less life-threatening,but it can rupture family relationships. Vladimir and his wife couple borrowed $500 from Vladimir's uncle to cover their rent, and to start a small business importing and selling goods. Due to their inexperience,the business failed. In response to pressure from the uncle to repay the loan, however, they moved to another apartment so that he would not be able to find them. Now, because he fears running into his uncle, Vladimir says he is afraid to visit his sick mother until he has paid off the debt to her brother.

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CONCLUSIONS

216. The labor market in Moldovais in a state of transition today, and respondentsreflect the distress and confusion at the radical changes in the rules of the game. Although most people cope with non-paymentof salaries and pensions by looking for other sources of income, some are paralyzedby the fact that skills they mastered after years of study are not in demand; still others have turned to alcohol or crime. Success at coping with the transformationsdepends on: having occupied key positions in previous state enterprises or having close kinship or friendship relations to people in power, including people in governmentoffices, the police force, and customs; having entered the transition with money which wasn't tied up in the SavingsBank and devalued during currency reform; possessing assets such as large apartments in "good" sections of town, working vehicles; having skills important to serve the new rich, as in construction and house renovation; and having good mechanicalskills, computer literacy, or foreign language competence. Contingentfactors such as personal enterprise and good luck also play an important role.

217. People without the kind of resourcesnoted above but with an enterprisingspirit often find themselvesin the nether world of quasi-legalbusiness, unable or unwilling to deal with the complicationsand expense of obtaining registrations,licenses, and protection, and therefore, very vulnerable to harassment at every step. Others are unable to re-enter the labor market, because they cannot afford child care, or have disabilitieswhich make them less competitive. For these categoriesof respondents,more effective labor legislation,wider dissemination of information regarding employment opportunities,lirited though they are, and fairer implementationof current legislationwould improve their present situation.

54 Poverty in Moldova: The Social Dimensions of Transition

SOCIAL ASSISTANCE

INTRODUCTION:SOCIAL ASSISTANCEIN THE PAST

218. Many Moldovans consider that "it was easier to live several years ago," because the state bore more responsibilityfor vulnerable persons. Assistance included sick leave, maternity leave, money at the birth of a child as well as regular child allowances; discounts for kindergartenand additional lessons; cash assistance during familycrises; free trips to summer camp for children and trips to sanatoriafor adults. Depending on the enterpriseone worked for, one might be granted a free stay at a resort for a honeymoon. In addition, people often paid officials under the table to produce false certificatesunderestimating family income, exaggerating the seriousnessof an illness or disability, and so forth, so they could receive unearned discounts or disability allowances and privileges. Indeed the very presence of a disabled family member (or a certificate attesting to disability) often gave families access to discounted "deficit" goods, electricity, even cars.

219. For pensioners (who now make up a sizable part of the Moldovan population) who live alone, with an elderly spouse, or with a dependent child or grandchild,as a number of our respondents did, the decline in the real value of pensions has forced many into actions they never contemplated during their working life, such as raiding garbage cans for bottles to redeem, or for other useful or edible items, or begging outside shops and on the street. It should be stressed that even during the Soviet period, many pensioners had a rather modest conception of what constituted a dignified old age. Many pensioners (notjust in Moldova, but in other Soviet and post-soviet countries), seem obsessed by the need to provide for their own funeral. In former times, they were able to put away a few thousand rubles of "funeral money" in the savings bank. For those who have lost their savings, anxiety about their own funeral matches their distress at day-to-day discomforts of hunger and poor health

The state as provider: retention of old attitudes

220. Many people retain the expectation,or at least the hope, of receiving assistance from "the authorities"-- which includes the Parliament, district executive committees,city, town and village mayoralties, and collective farm administrators-- to whom they still appeal during periods of difficulty such as serious illness or death of a family member. Others had appealedto the "Women'sLeague," a recently formed NGO, but had been put off. People appeal to employers and trade unions for assistance. Respondentsfind the process very humiliating, especially when they receive amounts such as 15 lei after repeated appeals to organizationsthat were once generous benefactors.

221. Some appeals may result in sums of up to 100 lei (reported by the paralyzed father of 3) from the district departments of social assistance, although it is considered pointless to apply too often for such help. Sometimes collective farms aid poor families with food. In all such exchanges, however, personal relations "have a strong word to say." Thus, the former chairman of a collective farm in the Comrat district receives free supplies of fire wood, coal, and 200 kg of straw as forage for their animals.

55 TechnicalPaper I

Late and haphazardpayments

222. Pensions average about 70-80 lei; despite their small size, many pensioners claim they could manage on them if they only received them on time. Many people felt it would be helpful if their monthly payments for electricity were simply deducted from their pensions; at least they would not be asked to pay out cash they didn't have. Some localities have already put this measure into practice. Elsewhere, pensio:ners organized a protest: after waiting many months, fifty pensioners in Ungheni blocked railway traffic between Chisinau and Balti. Although pensions should depend on years of service and amount of salary, those still working have further uncertainty: no one is sure whether their pensions will be based on their old ruble salaiies, or their current salaries in lei.

223. While many of the government pensions and allowances still exist on the books, most enterprise benefits no longer function. Moreover, state assistance is itself administered in a seemingly haphazard and inconsistent manner. In many cases, respondents found out about their rights to certain pensions and allowances by accident, often only after the deadline for obtaining the aid had already expired. This is frequently the case with family and child allowances. For example, women should receive 72 lei on the birth of a child. One young mother who gave birth to twins only learned of this entitlement after the six-month deadline had passed. A mother in Cahul district was equally unaware of her entitlements, both for payment at the child's birth, or the monthly entitlements she should have received for her children.

224. Distribution and access to both state and humanitarian assistance differs a great deal between city and village. In Balti, for exiample, pensioners receive their pension with delays of one or two weeks, while in nearby villages such as Prazhila or Antonovka, villagers have not received their pensions in 10 months. In southern districts, pensions are received with several months delay. Few large families in these villages have received assistance; those that did received amounts of 18 lei. In the villages of Edinit, pensioners receive their money 4-8 months late. On the other hand, villagers sometimes received aid in kind when their urban fellows did not. Villagers in Prajila and Antonovka received their 500 kg of free coal, but in Balti, pensioners were unable to pay the appro.ximately 50 lei for its transport. Villagers who did receive free coal, however, frequently complained that it was of such poor quality it barely burned. In Cahul, pensioners were to receive both firewood and coal, but asserted this happened only once every several years.

Obstacles to qualifyingfor or obtaining assistance

225. For some recipients of assistance and discounts, the price of obtaining the discount sometimes makes the discount itself inaccessible. Pensioners in Chisinau, for example are to receive 500 kg of coal, but many never actually obtain the coal because they do not have the 30- 40 lei required to transport it to their homes. Marina, an elderly pensioner living with her mentally handicapped adult son, has turned off the two refrigerators they use -- "We don't need them anymore; there's nothing to put in them" to reduce their electricity expenditures to a minimum. Because of her son's disability, the family was entitled to receive 500 kg of free coal, but they couldn't afford the money to bring the coal home. Last year, she cut down all the trees in

56 Poverty in Moldova: The Social Dimensions of Transition their courtyard;this year, she and her son intend to endure the cold. Teachers used to receive free coal, but have lost this-entitlement.

Collective farm worker, Cahul district If assistance for people from different social groups ever comes at all, no one ever knows what happens to it -- there is anarchy in our village, and I wouldn't even like to talk about this. Village authorities often act in defiance of the law. The mayor does not even observe his daily schedule. Villagers need these meetings to have the opportunityto submit their applications or proposals. Every day one can see people waiting for the mayor, and often, when he is in his office, they are kept waiting in the cold. The president of the collective is the mayor's cousin, and they take care of their relatives.

226. Unfortunately,not every disabled person can afford the procedures to qualify for disability payments;the medical examinationalone is 170 lei, and families outside Chisinau must also reckon in transportationcosts for the disabled person as well as the accompanying person. Radu, a 60 year old watchmenat a boarding school can barely walk. He does not receive any disability payments because he cannot walk to the local town (Cahul), nor can he afford car fare. But he is not interested in this or any medical treatment that would prolong his life: "I will live as much as God allows; I don't want to bother anyone."

227. People who are disabled, or were exposed to fallout from Chernobyl receive pensions, should also benefit from a 50% discount on apartmentfees, land and house taxes, and electricity bills. Even this is administeredinconsistently; a disabled man in Cahul claimed he has received only a 25% discount in taxes. They should also receive a 50% discount on medications, but most pharmacies now refuse to honor this discount. As a result, their families are often forced to borrow money to buy medicine. World War 11veterans, as well as veterans of the recent conflict in Transnistriaalso receive this discount. Some villages and collective farms also allow the disabled to buy foods such as oil, sugar, meat and cheese in modest amounts at a 50% discount. In Chisinau,veterans received . In 1995, only those with pensions of less than 86 lei received several kgs. Veterans also received land after the war, although for some, it may be as far as 40 km from the city and virtually inaccessible.

228. Veterans from the conflict in Transnistriashould benefit from 50% discounts in the price of gas and electricity, and urban transportation. A respondent who was still constructinghis house, however, was unable to benefit from the discount because he was not permanently registered in a house. Another benefit for veterans were loans of several hundred dollars, to finance house construction, although even in such cases, it helps to have personal contactsin a bank to actually get the loan.

Bankruptlocal governments

229. Mayoraltiesoften refuse to make payments on the grounds that they have not received any funds from the district budget. The themselvesclaim their offices have not received financial support for years, and they regret their inability to help the population. Several mothers from Edinit, in both villages and district center, report that a lack of cash was claimed by the

57 Technical Paper I local social assistance office when they applied for their childbirth payment. Some localities deal with this problem by giving out a form oif"scrip." In both Blesteni and Gordinesti, the Mayoralty distributes coupons which represent a cert.ain sum; the families can redeem these coupons for food at local shops. Sometimes people monetize the scrip, losing in the process. Ivan, from Edinit, received a certificate worth 125 lei, which could be redeemed at a particular shop designated by the mayoralty. He bought a sack of sugar for the full 125 lei, then sold it at the market for 100 lei in cash, with which he purchased wheat flour, which had not been listed as one of the products which could be obtained by the certificate. Such methods are practiced in other localities, although respondents were puzzled by the practice, ascribing it only to the fact that "there is no money."

Family and child benefits

230. Many discounts and allowances still exist for large families and children, sometimes augmented by humanitarian assistance, although they are much smaller than before independence. If before independence women received payments for 3 years after the birth of a child, today they would receive 28 lei per month for only 1.5 years after the child's birth. Mothers also complain they receive these payments so late they have already lost their value. Galina, for example, had a baby in June 1996, but by the end of 1996 she had still not received any maternity allowances. Her workplace should be paying her 500 lei for the two months before and the two months after childbirth, but each time she inquires, she is told that they have no money.

231. Families with children still receive a variety of payments. In many cases, primary school children receive free breakfasts and a snack at school, although the poorest parents sometimes use this fact to send their children to school without any morning meal.

232. Another benefit that is in the process of disappearing is the kindergarten subsidy. Some villages allow poor families to send their children to kindergarten free of charge; others must pay 25-30 lei per month. Urban kindergartens charge 40-50 lei per child per month. Poor rural parents who work on farms often take their children into the fields with them; urban parents prefer to leave their children with older siblings or grandparents. Since reading is taught at kindergarten, respondents expressed the iFeartheir children would be at a disadvantage when they entered elementary school.

State assistance to a single mother

Anna, a single mother of 10 children, no longer receives any help with medical or dental fees, the opportunity to buy food at disccunt from special shops or assistance toward summer camp for her children. But she does receive the following from the state:

- 9.25 lei per month for each chi ..d (families with fathers receive only 5 lei) - 15 lei per child quarterly - 27 lei "bread money" per child - a pension of 45 lei for one of her children who has an "underdeveloped" kidney - 3 free places at kindergarten ______

58 Poverty in Moldova: The Social Dimensions of Transition

- free school lunches for 3 children - a 50% discount in monthly fees on their apartment In humanitarianaid in the past year, Salvation Army gave her: - 100 kgof pasta - 50 liters of vegetable oil - 20 kg of beans - 20 kg of wheat She also received foods distributed through her children's school by the Moldovan-American organization, Samarteanca: - IO kg of sugar - canned vegetables - biscuits - chocolates

233. Many of the kindergartensthat still function are unheated, in bad repair, and unable to provide meals. Few poor families can afford the fees even for such kindergartens,and increasinglykeep their children at home, either with older relatives, or unsupervised. Since kindergartensused to teach reading and writing, these children enter school with a built-in disadvantage.

Assistancefrom private, religious,and humanitarianorganizations

234. Some enterprises take on the sponsorshipof poor or orphaned children, sometimespaying up to 500 lei, purchasingwarm clothing, or food. For example, the Tobacco enterprise sponsors children, while a meat processingplant in Edinit supplies food products to a family. The district offices of education sometimes offer small sums to the very poorest families. In the past, schools had funds of 1,000-2,000rubles to purchase shoes or clothing for children from indigent families; now such children receive only 20-30 lei. Salvation Army now operates in Balti and Chisinau, where they feed 100 people a day in a free kitchen.

235. For some respondents, religion, and involvement with some of the religious groups now proselytizingin Moldova, has become their solace when other sources have failed. In some cases, visiting members of the new evangelicalreligions which have become established in Moldova have provided psychologicalas well as material assistance to indigent families. The help comes in the form of secondhandclothing, sometimes food and medicine from church organizationsheadquartered abroad, or, as relationshipsare established,items a particular family needs. Some of the churches mentioned included the Baptist and the Jehovah's Witnesses, adherents of which had received clothes and food products from Germany, Finland, and Poland.

236. A number of respondents in Chisinau,including large families and pensioners,reported considerable assistance from the Salvation Army, a Moldovan-Americansociety called "Anacom,"the Catholic Church, a Jewish-American organization (which distributes both to Jews and non-Jews)in the form of good quality used clothing and food staples (such as oil, beans, and wheat). Disabled respondents had received help in the form of very small amounts (15-40 lei) from the "Invalids Association."

59 Technical Paper I

Attitudes toward social assistance and 1publicauthorities

237. In the past, large rural families received gifts of food products when children were born. Leonte, for example, reminisces that after the birth of his third child, he used to go to the mayoralty each month for sugar, butter, and sunflower oil, given as a form of assistance to large families. Now he is ashamed to go to the mayoralty "with his hand outstretched." In the past, such assistance was not provided as charity to the poor, but as a stimulus and honor for large families. Large families were invited to the mayoralty on special occasions; enterprises often distributed gifts to children of its employees on holidays. People perceived these forms of assistance as a form of respect the state gave to its citizens.

238. Many recipients of pensions feel cheated by local officials. Varvara, for example, read an article in a local newspaper which cited the district executive chair regarding supplementary payment on salaries and pensions in 1995-96. She wrote to the district executive committee to find out about this payment, since she had received nothing for two years, but never received an answer. Others are angry at the senseless bureaucratic obstacles. Vera, 82, is a blind widow who rarely leaves her house. She asked a neighbor to bring her the 1 kg of sugar she was entitled to receive from the mayoralty. The neighbor was told that the sugar could only be given personally to the recipient, so Varvara remained without.

239. Often, such aid is distributed through local government offices, although respondents express the conviction that much of it is either siphoned off, or sold for profit, by the officials responsible for distributing it. People feel that officials deliberately refuse to share information with them, and use any excuse to deny them assistance. A collective farm worker and mother of five, for example, reported that she had purchased clothes in Belarus for her own children, and to sell. She made 40 lei from this venture, but was told that as a businesswoman, she had disqualified herself from any other assistance. Such is popular cynicism about aid distribution that when used clothes appear on the market, people assume they arrived in the form of humanitarian aid (although in fact many such clothes are brought in by merchants, from Europe or other FSU countries). In Comrat, people complained the government of Turkey had been prornising all sorts of assistance for two years, but they had never seen any of it.

CONCLUSIONS

240. Given the precipitous decline in the purchasing power of pensions and other forms of assistance, social assistance plays a smaller role in household economies. Nevertheless, among the people who still rely on such payments, such as single pensioners with no other source of cash, many felt that even a timely, predictable payment would be a great improvement over the current situation of pensions which arrive many months late. Many reported receiving various kinds of ration cards, but resented the fact that when they redeemed them for various products at special shops, they ended up paying higher-than-market prices. Some people received assistance from humanitarian and religious organizations, but especially when it was distributed through local government offices, they suspected that much of it had been diverted to the private use of politicians. Overall, the changing rules, procedures and practices, and late payments, provide little help to the majority of recipients arndleave them cynical and embittered toward local and national government.

60 Poverty in Moldova: The Social Dimensions of Transition

NEW FORMS OF SOCIAL INTEGRATION AND DISINTEGRATION

241. Since 1991, with increased economic stratification,open borders, new patterns of migration, ethnic homogenization,and the pervasive impoverishmentof state and family budgets, the social landscape and accustomedpatterns of social interaction have altered. This sections examines some of the implications of poverty, in particular, on social relations at the level of family, kin, and community, since these have important implications for the coping strategies of individuals and households.

THE FAMILY IN TRANSITION

Kinship relations

242. Moldovans rely heavily on their closest family relations, particularly spouses, parents, adult children, and siblings, for child care; for help in repairing houses and gardening; and for goods, particularly food, and money. While exchangesbetween close family members are freely given, those with neighbors are more often based on different forms of exchange, as the following example suggests. Stefan, a pensioner, has an unemployed son searching for a job, and a daughter-in-lawwho is employedin a collective farm in Nisporeni district. Although child care is not the traditional occupation for men, Stefan now takes care of his two grandchildren, doing electrical repair work for his neighbor in exchangefor a pot of porridge to feed them. Likewise, Scutaru helps relatives in the villages when they need the use of his horse and wagon, but charges the other villagers to plow their fields.

243. Poverty has also weakened relations, especially when new internationalfrontiers and the breakdownor greater cost of communicationsprevent relatives from keeping in touch or sending help; sometimes,because people lack the resources, financial and emotional, to help kin. These ruptures are tragic for many elderly, when close relatives are unable to visit them or help them pay for things they need, although in such cases, neighborsoften lend a helping hand. Varvara, from Nisporeni,is 84. She has one daughter in Russia, but hasn't heard from her in 10 years. Her other daughter lives in the same village, but is an alcoholic who cannot take care of her own household,much less her aging mother. Rodica, 82, from Milesti, finds herself in a similar position. One daughter lives in the town of Ungheni, where she has 4 daughters and no time to visit her mother. The other, who lives in Milesti, is ill and physicallyunable to help Rodica. In such cases, pensioners sometimes find that even though their grandchildrenlive nearby, they have stopped visitingtheir elderly or ailing grandparents.

Changing gender roles

244. Within families, the stress of conformingto traditional gender expectations -- providing an adequate income, for men, and ensuring the family is well-fed, well-clothed, and healthy, for women, have taken a toll. Men used to enjoy higher incomes and be considered the family breadwinner and household head. This is no longer alwaysthe case, and men feel displaced when their wives earn more than them. These tensions contribute to family stress and disintegration. Women often blame their husbands for the family's financial situation, criticize

61 Technical Paper I them for their lack of success in finding work. Unemployed or underemployedhusbands feel emasculatedand angry; some confess to losing their tempers and hitting wives and children.

Placing Blaime: Tatiana, living in Chisinau, feels that her unemploYedhusband has become indifferent to his family. She complains that he sleeps or drinks the entire d4y,sometimes bringing his other alcoholic friends home with him. She has become the family breadwinner. When she returns home from work, her husband often picks a fight and then beats her. Hiehas also begun to sell household items, even turniture.

245. The prolonged absence of husbands, and in some cases wives, has further challenged the division of labor and power in the family. When husbands leave for a season or even longer, their fathers sometimes step in as household heads. But in many cases, women take over traditionallymale responsibilitiesand decision-making. Sometimes prolonged absence turns into abandonment,as men establish new families where they work, and women are left to support their children and themselves as best they can. A few women have, likewise, used trips abroad to search for new husbands. Sometimes,husbands object to their wives' working abroad, fearing her prolonged absence may result in divorce.

COMMUNITYRELATIONS

Social and ceremonial life

246. For urban and rural Moldovans alike, life cycle rituals such as baptisms, birthdays, weddings, and funerals have always been important social events, during which families publicly and symbolicallydisplayed their prosperity. By offering hospitality to relatives, neighbors, colleagues and friends, families maintainedtheir honor, earned respect, and fulfilled necessary social obligationsin order to maintain their place in the social collectivity and to maintain relationships,

247. Today, ceremonies which once included whole neighborhoodsor the entire village, only take place in a small circle of close relatives. People particularlymourn the demise of the wedding ceremony,a festivity which could involve up to 300 guests. Victor recalls that "in northern Moldova,the wedding party w,asan index of a family'swelfare. Parents prepared their whole life for the weddingparty. They saved money to purchase furniture, refrigeratorsand televisionsfor the young couple. During the Soviet era, it was very shameful for the parents if they couldn't give their children a big wedding. It meant they were poor, and people who were poor were thought of as lazy. Some parents even gave their children a house and car as wedding presents. Weddings then were held either under tents that covered huge land areas, in culture palaces, or in restaurants. Now they are simply held at home."

248. Such ceremonies traditionallyalso entailed important obligations for guests, who were obliged to come with gifts or money. Pcor Moldovans say they are now forced to choose between refusing such invitations because they lack appropriateclothing and money for gifts, or

62 Poverty in Moldova: The Social Dimensions of Transition borrowing money so they can meet their obligations. Ion, from Ungheni, had to decline several wedding invitations last fall, somethinghe says he had never done in his life. But refusingto attend the wedding of his sister's daughter would have been dishonorable. He therefore borrowed 35 lei for the wedding gift.

249. In addition to the ceremonieswhich mark personal transitions,people used to celebrate religious and patriotic holidays, such as Easter, Christmas, Temple Day, New Year's, and Labor Day. These were supplementedby constant socializing, which has radically diminished since people are afraid to impose on their hosts, who cannot really afford to offer them the expected meal, and afraid if they visit they will have to receive guests in turn. Visiting used to cement relationships and facilitate informationsharing; the decline of such socializing has left people feeling increasinglyabandoned and isolated.

250. This collapse of community has been further aggravatedby the fact that social institutions from the bath houses to the village Houses of Culture, have practically stopped functioning, because they are no longer funded by municipalitiesand because people can no longer afford their service. In many villages, clubs and movie houses open only on the annual "village anniversary,"Christmas, or New Year's. Sadly, many pensioners,who used to seek solace in the local church, no longer go there because they can no longer afford to buy even the cheapest candles, and find it shameful to go into a church without lighting a candle.

251. Maintainingcontact with kin and friends living in other towns has become more difficult with the deterioration in transportationservices and the fact that fewer people can afford cars and/or gasoline. Many poor families cannot even afford bus fare except for emergencies. Cash- poor villagers do not even waste money on non-essentialbus rides to the nearest town. Typical prices are: 70 ban for a bus ticket from Crihana Veche to Cahul; 9 lei from Cahul to Chisinau. Locally, many villagers have fallen back on a horse- or cow-drawn cart for transportation. Those who have bicycles use them to commute to fields or to the nearest town. In rural areas, the lack of an effective transportationsystem has cut people off and isolated them from towns and cities, especially during winter and spring, when some roads become muddy and impassable. The isolation is especially severe for poor families who are the most likely to have poorer access to information because they lack telephones,radios and TVs (because of electricity cuts), newspapers, and magazines.

Childrenand youth during the transition

252. Children have become a liability for poor families. The birth rate is falling, the abortion rate rising, and rumors abound concerningpoor mothers who have sold -- or been forced by middlemen to "sell" their newborns. Children who have been abandoned or have run away sleep in cellars, sewage pipes, and train stations. Sometimespolice take the smaller children to the "child collector," and try to find their parents or relatives. If there are none, they are often sent to special schools, where conditions,according to the Salvation Army, which visits children's institutions, are terrible. A local branch of Save the Children has opened a small home in Chisinau, where they have provided beds for 25 street children, for some of whom they manage to find foster homes.

63 Technical Paper I _

253. The problems of going to town, combined with lack of social activities in villages is compounded by the fact that schools often close in winter, that families can no longer afford to pay for their children to join after-school music, chess, and other clubs, and that there are no jobs for school leavers. As a result, young men and women find themselves completely idle. Sometimes they organize a discotheque, charging an entrance fee of 50 bani and bringing their own tape recorders and tapes. But parents express great concern over their children's idleness. Maria, from Gordinesti, wishes that the former House of Culture, formerly the venue for regular films and other theatrical events, would start functioning again "so that we would know where our kids are. They have no entertainment or fun and are terribly bored."

254. For some youth, boredom and poverty have combined to create a sharp rise in youth gangs and criminality. While people in villages are often unaware about narcotics and addiction, in Chisinau and Balti, people speak frankly about acquaintances who take drugs. One respondent spoke about a young relative, whose mother buys him drugs, trying to cut down the dose. The respondent viewed his addiction as an illness requiring support rather than recrimination. A young woman observed that young people who used to try drugs out of curiosity now take them from their despair at their lack of a future.

255. Village respondents say they fear going out in the evening because the streets are filled with "aggressive and intoxicated youth." The phenomenon characterizes both village and town life. lura, from Ungheni, was attacked at dawn by a group of young people, who beat him up and stole his watch, leather jacket, shoes, and bag. The police eventually found the group of attackers, and Iura's stolen belongings were returned to him. But the beating was so violent lura had to remain in hospital for 7 months.

Crime and the breakdownof trust

256. According to many respondents, violent crime of all sorts has risen sharply, and directly affected their everyday lives. This crime has taken several forms: youth gangs, organized and violent crime by outsiders, and violent assaults, including rape, by intoxicated local youth. Especially in cities such as Balti, respondents claim that the incidence of drug-related crimes have increased. Particularly in towns, which have responded to rising electricity prices by eliminating street lighting, people feel the unlighted streets have encouraged burglaries. In the town of Edinit, gang crime has resulted in several murders, although people make a distinction between the groups responsible for the homicides, and the less organized gangs of jobless youth who steal on the streets and rob apartmenl:s, but have not yet killed.

257. Women noted increasing numbers of sexual assaults, and the inability or unwillingness of the police to protect them. Women such as Ecaterina, forced to work night shifts, reported that a man had attempted to rape her where she worked. Many of the reported rapes have been particularly brutal. Thus, a widow in a nearby village had been gang-raped by 7 men while her 10 year old daughter looked on. Three mnenof the group returned and tried to rape her again, but she managed to escape through a window. She has since moved in with her sister and is afraid to return to her own home.

64 Poverty in Moldova: The Social Dimensions of Transition

258. The way in which crime in communitieshas altered dramaticallyreveals the way in which hardship has diminishedrelations of trust. Although it was common in the past for both managementand workers to steal from state enterprises (on the principle that "what is everyone's is no one's), it was rare for people to steal from their neighbor's home or fields. Today, such theft of items ranging from tools to poultry, even to the family horse, are taken from their houses, yards, or farm buildings. Despite their awarenessof increased theft, many villagers are powerless against it. Scutaru, for example, reported that he did not have a watchdog because he could not feed it. As a result, his 300 liter wine barrel, worth 300 lei, was stolen. Because Scutaru could not identify a possible culprit, the police closed the case without making any effort to pursue it.

259. The rise in crime has left poor people feeling extremely defenseless. Most of those respondents who had reported crimes to police felt the police were not interested in helping them. This was true in cases of village theft, rape, and other forms of assault. At other times, people were too frightenedto seek police protection. Respondentsfrom Avdarma village reported that several girls had been raped. The frightened girls did not inform the police, however, because they thought the perpetrator might return to punish them. Similarly,lura, mentioned above, remained in the hospital for 7 months after his brutal beating on the street. Despite the fact that the police had helped him, he decidednot to pursue the case when his attackers threatened his life. They even gave him 80 lei with the demand that he bribe the judge to dismiss the case. Iura complied.

260. In some cases, police only acted when the complainantidentified the thief; in other cases, thieves were identified but police declined to detain or investigate them. In some cases, when people complain to police, the police often blame them for being victims. A woman purchasing a ticket to Moscow pulled the money out of her purse, only to find herself attacked by three youths. She cried for help, but those around pretended to ignore her. When she complainedto the police, they said they could not do anything, and that she was to blame for not taking more precautions. Poor respondentseven find themselvesin the position of suspecting their own neighbors, in some cases, of taking from them or injuringthem, but feel more than ever that they can expect no protection from the official enforcers of law and order.

261. When disputes arise between neighbors, there are few legal channels by which to resolve them. For example, a young woman, living with her baby and her brother, had lost their parents, but remained in their house. Their neighbor offered what they considered a ridiculouslylow price for the house, with the intention of razing it and building a house for his son on the lot. He suggestedthe sister and brother move to their grandmother'sone-room apartment. They refused, and the neighbor start to harass them in a variety of ways. They complained to the police, but since the neighbor's son works for the police, complaints were useless. They have now written to a newspaper, with the hope of publicly shaming their neighbors.

262. Poor respondentsfeel abandoned by the very authorities they once looked to for help in difficult situations. In the past, they also had a further recourse -- when local authorities ignored or abused them, they could appeal above their heads to Moscow. This provided a psychological outlet and some hope. Occasionally,people were successful. Elena, mother of six children, is a typical example. During the Soviet period, she had gone to Moscow and successfullyappealed

65 Technical Paper I to Valentina Tereshkova, the first Soviet cosmonaut, for a two-room apartment. Likewise, a mother of 9 had moved from a two-room to three-room apartment after appealing to the USSR Council of Ministers. Today, the possibility of further recourse "to higher authorities" after rejection by Moldovan authorities no longer exists.

INCREASINGSOCIAL DIFFERENTIATION

263. The rocky transition from the planled and centralized Soviet political economy to a market system has assaulted the egalitarian ideology which many ordinary citizens had internalized. To a certain extent, status and access to wealth and power have been successfully monopolized by the political and economic elite, who were able to use their connections to accrue property and invest in business. The volatility of the last few years has also allowed some enterprising people to take advantage of new openings. But the majority of rural and urban workers express great resentment at the new rich. As one farmer observed, "The so-called smart people, those who know what to do and when to do it, have a good life now, just as they did before. The communist era educated the people to be modest, obedient, and grateful for what they had. Most people still live up to this; they retain the idea that if you had something to eat and a place to live, then you should be happy. The government still promotes this idea and stops every initiative that could benefit a poor person."

264. Malevolent rumors, jealousy, and r esentment are easily stirred as people compare the situation of their own families with those of people who have managed to retain their jobs, or find new ones. Valentina, for example, was upset to see that her daughter's friend, who lived nearby, not only dressed better, "but could" afford to eat ice cream!" For Valentina, this difference has an important social significance; the fact that others, by what she assumes is dishonest behavior, are able to provide better for their children, violates all the standards by which she and other Soviet citizens were raised, and makes them feel further alienated in the new Moldova.

265. Part of the resentment is conditioned by a mixture of shame, inferiority, resentment, and envy. On the one hand, poor people complain that the "rich people see us as dirt and not as humans." They also suspect and envy their rich neighbors: "How is impossible that my neighbor is so rich? He has a modest job. Look at the house he's building and at his new car." People are also fearful of the future. If they keep their money in their sock, they fear it will lose its value; if they spend it, they are not sure they will earn any money the following day. As one man put it, "you can now swim wherever you want, but you are given neither boat nor compass."

266. Poor people claim that they are getting used to poverty, and note that they feel an ever- greater solidarity with other poor, at the same time as the distance between them and more prosperous kin, friend, and neighbors increases in proportion to the gap in their incomes. They also mourn the increasing penetration of market values into personal relationships. A respondent from Cahul commented that people were now dominated by the sentiment: "Let the brother be a brother, the cheese still goes for money." People complain that social interactions are increasingly governed by the philosophy of "I do something for you, and you do something for me."

66 Poverty in Moldova: The Social Dimensions of Transition

CONCLUSIONS

267. The effects of poverty on social relations are apparent both in families and in the larger communitiesin which they live. While many people rely heavily on their closest relations for assistance, whether in terms of money, food, or labor, other families are disintegrating under the pressures of unemployment,alcoholism, shifting gender expectations, and extended work-related separations. In many cases, relatives are drifting apart because they can no longer fulfill basic social obligationstoward each other, or maintain contact by letter, telephone calls, or visits.

268. The curtailment of traditional social rituals such as christenings, weddings, birthdays, and funerals, as well as cultural events which provided opportunitiesfor socializing, have weakened old communityties. The increase in theft and violent crimes and growth of youth gangs have frightened many people off the streets and decreasedtrust, especially in urban communities. Those left behind in the sharp and often vicious race for resources and position feel disoriented and betrayed. The old ideology of egalitarianismis disintegrating, while a sharp economic and social differentiationis dividing communitiesinto distinct layers of rich and poor. While some people are striving to maintain a sense of social integration through work and maintenance of old social relations, others have withdrawninto isolation,jealous and suspicious of their neighbors, nostalgic for the past and frightenedof the future.

67 Technical Paper I _

ETHNIC AND RlE'GIONALVARIATIONS IN THE STANDARD OF LIVING

ETHNIC HETEROGENEITY AND SEPARATISM

269. Following independence, Moldova's ethnic and regional heterogeneity had several offshoots, some quite negative. The first consisted of separatist movements in the Gagauz region in the South (centered around Comrat) and in Transnistria.9 The Gagauz conflict was settled with the creation of the Gagauz Eri autonomous unit. In Comrat district, for example, the heart of Gagauzia, the Gagauz comprise about 70% of the population. Since December 1994, thirty Gagauz villages in Comrat and adjacent districts have certain administrative rights, including the ability to levy special taxes. Some dissatisfaction remains -- some majority Moldovan villages on the River found themselves in Ga,gauzia and have made requests to join the district of Cahul instead. In Transnistria, given its relative concentration of industrial capacity and its pro- Soviet and pro-Russian political orientation, ethnic-related political confrontation turned into a serious armed conflict, starting a flow of refugees into Chisinau and other cities, and creating an economic crisis for much of Transnistria's population.

MIGRATION PATTERNS

270. During the same period, many people left Moldova, in part, perhaps, as a result of new nationalism and the tendency for the Rorrcanian language and to replace Russian and the , in part because economic conditions in Russia were better. Approximately 190,000 people emigrated to Ukraine and Russia, 38,000 to Israel, 10,000 to the U.S., and 5,000 to Germany. This population loss was somewhat mitigated by over 150,000 mainly ethnic Moldovans immigrating to Moldova fromi Russia, Ukraine and other FSU countries.' 0 With the conflict in Transnistria, many ethnic Mo].dovans fled or relocated to other regions of Moldova.

271. Overall, Moldova is now ethnically more homogeneous, although it retains a significant Russian-speaking, Slavic population. Probably a majority of the 35% Russian-speakers (particularly in Transnistria, but elsewhere as well) as well as many middle-aged Romanian- speakers, feel a particular nostalgia for the Soviet period, and would prefer closer reintegration with the CIS. Many elderly, along with some Romanian-speaking intellectuals, express a preference for integration with Romania,

272. The growing presence of ethnic Moldovans in more prosperous countries, such as Germany or Israel, creates new opportunities for those at home, who use old connections to find

2/ Today, the conflict in Transnistria appears closer to peaceful resolution. When the study was undertaken, however, the potential volatilityled the World Bank to recommend that the Poverty Study not include Transnistria. Reports from other sources about the comparativelygreater hardship there suggest that such a study be undertakenin the near future.

-0/ "NationalReport: The Situation of the Mother and Child in the Republicof Moldova. Realities and Tendencies." Draft, 22 November 1996, Chisinau, p. 19.

68 Poverty in Moldova: The Social Dimensions of Transition jobs abroad. Several respondents had found temporary employmentin Germany in this way; some of the workers in Israel had been recruited by Israelis, who may well have been emigres from Moldova. Many Moldovans have relatives (by blood or marriage) in Ukraine, Romania, and Russia, and they also use these ties extensivelyin commercial transactions. In this sense, while some of the emigres certainly constitute a "brain drain," many retain close connection with home; as economic life improves, they may well constitute a body of future investors.

LINGUISTICISSUES

273. In 1989, Moldova passed a new languagelaw, giving primacy to Romanian as the state language,and setting off a wave of reaction from ethnic Russians and other Russian speakers (including the Gagauz) throughout the country. According to Russian-speakingrespondents in Chisinau,the initial post-independencewave of linguistic nationalismhas passed, and once again, they feel comfortable speaking Russian in public. At the same time, lack of Romanian- language proficiencyhas become an economic impedimentto many Russian-speakers,who have lost their jobs to Romanian speakers as the country embarks on a linguistic derussification program, accompaniedby the switch from the Cyrillic to Latin alphabets. Some respondents ascribed their joblessness to local prejudices (rather than linguistic competence per se). A Ukrainian shop-assistantin Comrat,for example, thought she had lost her job because she was Ukrainian and did not speak Gagauz. She felt that the Gagauz had made managementpositions inaccessible to ethnic Moldovans and Slavs.

274. For our respondents,language issues caused other forms of real or perceived exclusion, since mastery of Romanian has become a new criteria for employment. A number of people felt they had been demoted in state institutions because they did not speak Romanian. For some respondentsin Transnistria,the origin of their diploma proved a problem. A respondent who graduated from an institute of higher education in Tiraspol found her diploma not acceptable elsewhere in Moldova.

275. Romanian speakers in Comrat district (in Gagauzia)complained that higher education in local institutes is conductedprimarily in Russian, forcing them to pursue higher education elsewhere. In Romanian speaking regions, however, Russian-speakersmade the same complaint; few poor families were able to contemplate, as one parent stated, that they would send their children to universitiesin Russia.

LEVELS OF POVERTY

276. To the extent that our sample allows us to generalizeabout patterns of poverty, these patterns appear to derive more from regional variations and opportunitiesrather than particular patterns of ethnic exclusion. The strongest regional differencesoccur along the North-South continuum (excludingsharp differencesbetween the left and right banks of the Nistru River which did not form a part of the study). Accordingto many of our respondents, some differences mark living standards and opportunities,seen as lower in the South than the North. Overall, the South is presented as not only more agriculturaland less industrially developed compared to the rest of the country,but more conservative in its orientation.

69 TechnicalPaper I

277. Recent Bank surveys have suggested regional trends from North to South in the difficulties farmers experienced when they wished to privatize."1 In the South, for example, many villagers were very poorly informed about the process and procedures of privatization, and those who did submit applications to withdraw their land from the collective farm experienced many obstructions. In our Study, this was particularly the case in the Comrat region, where many respondents were also fearful about the risk of independent farming in a region so prone to drought.

278. At the same time, our findings do not support sweeping generalizations about regional differences. In the neighboring district of Cahul, in the South, farm workers in Crihana Veche felt forced to stay on the collective, but those working nearby in the village of Manta pushed aggressively to form the Zavoieni farming association. Similar differences appear within central districts of Nisporeni and Ungheni, where some farm workers managed to form an independent farmers association, perhaps inspired by the USAID-funded and organized project on Maiak Collective Farm, yet others remained intirmidated and felt forced to remain within the collective farm.

279. What our Study does show are important intra-regional differences between villages, often based on the presence or absence of direct road and rail links to local towns and cities. In the North, such a pattern can be seen in the Balti and Edinit district. Mihailovca village, for example, is located off main routes, and lacks its own school, town hall, or market. Its inhabitants expressed a much greater sense of dependence on local officials to help surmount the numerous obstacles they faced, and were much more vulnerable to intimidation.

EDUCATIONAND EMPLOYMENTOPPORTUNITIES

280. Many respondents in the South feel they have fewer educational opportunities than in the Center and North. Indeed, people feel that the Moldovan government has been dominated by people from the northern part of the country, who have given greater priority to that region, and neglected the South. One manifestation of this neglect, according to respondents, is the relative lack of opportunities to obtain a higher education locally. For this reason, many families in the South had responded enthusiastically to a proposal to open a local university in Cahul, which they felt would give talented youth greater chances to continue their studies. This project has stopped. At the moment, a teaching and arts college runs with 60% enrollment, but its art department, the only one in the south, has closed. Likewise, a medical college functions in Cahul, but remains housed in decrepit premises. A new college building is 70% completed, but no funds are left to complete it, despite peoples' understanding that parliament had set aside 1,200,000 lei from the national budget to complete it. They fear that if it is not completed, the finished part will quickly deteriorate.

281. According to many respondents, attitudes in the South are more conservative toward those in the North, especially when it cornes to free market relations. This is reflected in the current term for the local market, "tolchok, " a term which used to signify the black market, and

-U/ "Land Reform and Private Farming in Moldova," p. 8. But see the survey by Sorin Radilescu for a varied perspective of North-South differences.

70 Poverty in Moldova: The Social Dimensions of Transition carries a negative connotation reflecting the assumptionthat many of the goods sold in the market, such as clothing and householdand industrialitems, have been acquired illicitly. The use of this term evokes the socialist condemnationof individual commerce as a shameful activity.

ETHNIC STEREOTYPES

282. Althoughthe Study did not reveal particular differencesin degree of poverty accordingto ethnicity, many respondents categorize those around them in very clear ethnic hierarchies (the order of hierarchyvarying with the ethnic identity of the subject and the immediate environment). In Comrat, for example, in response to the increasinglywidespread theft which has hurt many poor households, both Gagauz and Moldovan respondentsexpressed the convictionthat because the Gagauz had historicallyacquired a love of luxurious living, they now avoided hard work and were thereforeprone to steal. Likewise, many Moldovan inhabitants characterizedgypsies as either typicallyrich (as in the northeasterncity of , where many gypsies have built huge villas), or thieves. School children sometimes insult each other for poor, ragged clothing by labeling each other as "Gypsies."

283. At the same time, perhaps tired of the post-independenceethnic conflicts and tension, many respondentsdownplayed the importance of ethnic differences. Yet many alluded to occasional conflicts which had crystallizedaround ethnic differences. Youth were often the main people involved in village brawls, such as a fight at a village discothequein Comrat between Russian, Moldovan and Gagauz youth or between Gagauz and Bulgarian youthsin a bar. In the north, analogous conflicts have also taken place among youth.

CONCLUSIONS

284. Poverty in Moldova appears to be linked more to regional variations and available opportunitiesthan to particular patterns of ethnic exclusion. In addition to the important north- south agroclimaticdifferences, there are significantintraregional variations in infrastructure development, availableresources, trading patterns, and integration with Chisinau. Althoughthis Study did not reveal particular differencesin the degree of poverty in relation to ethnicity, the data suggest that ethnicity does influence peoples' attitudes toward their own standard of living and the perceived standard of living of members of other ethnic groups. While linguistic competencein the dominant language of a region increasinglyaffects educational and job opportunities,people often attribute their perceived disadvantagesto their membershipin an ethnic group, rather than to their lack of language competence. Likewise, they often employ ethnic stereotypes and hierarchiesto boost their own group identity, and to interpret social problems and changes as the responsibilityof a particular ethnic group.

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SUMMARY AND RECOMMENDATIONS

INTRODUCTION

For the majority of the respondents in this study, impoverishment has been recent and rapid, and few people have fully grasped the causes, consequences, and implications for the future. Many factors have contributed to household poverty. These include unemployment; a dramatic fall in the real value of state sector salaries, pensions and other forms of social assistance; loss of lifetime savings; and the introduction of both official and unofficial fees for health care and education. In rural areas, factors contributing to poverty include: the rupture of old Soviet-wide trade relations; new regulations and fees for cross-border trade; land reform, with the related competition between farm managers and farm workers to assert rights over land and assets; several years of bad weather and poor harvests.

Although Moldova is not yet a free market economy, its citizens are beginning to understand they can no longer rely on the state to guarantee their well-being. Many older people, however, have not fully accepted that the era of the paternalistic state and planned economy is over, and their understanding of new economic arrangements, particularly in rural areas and on collective farming enterprises, remains very confused. Whether or not people accept the demise of the old system, a majority of our respondents resent what they perceive to be the dishonesty and unvarnished greed of national, raion, and village leaders, who have successfully used their. power and connections in the old system to ensure positions to secure their power and prosperity in the new one. Many people view the growing differentiation between the newly poor and the newly rich with great antagonism; only younger respondents felt the transition offered them positive economic possibilities.

For our poorest respondents, especially those without the skills or resources to compete effectively in the new economy, such as the elderly and/or disabled, and single parents without marketable skills but with many dependents, life has become a struggle to survive. Inability to maintain and repair housing and pay utility bills contributes to the steady deterioration of their immediate living situation. Poor diets and inability to afford medical or dental treatment except in dire emergencies contribute to poor health. School expenses, especially for large families, encourage children to quit school; unforeseen medical expenses can throw vulnerable households into debt. Such households feel they have fallen into a hole from which they cannot climb out.

72 Poverty in Moldova: The Social Dimensions of Transition

FINDINGS AND RECOMMENDATIONS

Poverty, material deprivation,age, and gender

Although most rural and many urban Moldovans have access to land, hunger exists in both urban and rural areas. Even in rural areas, there are households whose members reduce their daily intake to one daily meal by late winter, when food stocks run out, and which send their children to school without breakfast. Those most at risk include the very elderly and/or infirm and households which have no land or insufficient land in proportion to family size.

Poor health care compounds problems of poor nutrition and housing, with a two-tier medical system developing. Poor Moldovans are neglecting preventive care, including prenatal care, and waiting until illnesses become acute (and less treatable) before they seek medical care. The situation is particularlyacute for rural Moldovans, who have much less access to specialized care than those in large cities.

Poor families are least able to feed, clothe, and educate their children, who will thus enter adult life less healthy and less prepared educationally to compete as the job market improves. Teachers complain that absenteeismhas reached epidemic proportions,as qualified staff seek other work and children leave school to help their parents farm. Poor children also have little access to higher education; their families can afford neither bribes, supplies, nor their upkeep away from home.

The nexus of poverty and crime have put youth at special risk. Respondents connected unemployment(especially in rural areas), lack of relevant and accessibleeducational opportunities,and lack of affordableentertainment for young people to the rise of youth gangs and youth criminality in villages,towns, and cities.

Although this study does not address the incidence of poverty for different population categories, it is clear that many poor and isolated elderly and/or disabled live in appalling material circumstances. In some cases, they cannot even manage to obtain the social assistance to which they are entitled, and are entirely dependenton the goodwill of neighbors who are almost as indigent.

Issues: Lack of opportunities for training and education * decline in access to education for the poor, rural, and disabled * school absenteeism and entrance of children into the labor market * development of a two-tier educational system for rich and poor

Recommendations: * eliminate the system of private and public classrooms within a single school * educationalreform should include incorporation of vocational training geared to current labor market needs, and responsive to local differences * classes in Western business principles,taught by visiting faculty, should be offered to students in village vocational schools

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* work with NGOs to ensure that school age children can obtain adequate clothing and school supplies (lack of which is a frequent reason for absenteeism)

Issues: Difficulties in learning about and obtaining social assistanceand entitlements * lack of access to health care; lack of prenatal and preventive care for pregnant women and children * lack of preventive medical care (including prenatal care) and affordable, competent treatment * poorly targeted and thinly spread social assistance * lack of information and transparency in social assistance and other forms of aid

Recommendations: * reform of the medical system to provide a basic package of low-fee preventive care, particularly for pregnant women and children, which can cover salaries of medical personnel at a level which will reduce their demand for unofficial payments * reform of the social assistance program so that payments, whatever their size, are received on time and in the form of cash, and when necessary, by proxy (for the homebound or disabled)

Poverty, alienation, and disempowermtient

Poverty has created rifts in commrunities between fonner friends and neighbors. People are cynical, suspicious, and jealous of others' successes, which they most often attribute to dishonest and corrupt behavior. In their own communities, the poor feel ashamed and constantly humiliated in their encounter with former neighbors and friends who have prospered. This humiliation is particularly poignant in the case of children and young people, who sometimes prefer to remain at home rather than risk their classmates' mockery at their old clothes. Although poor people extensively rely on each other, frequent mutual suspicions and animosity as well as fear of those in authority neverthleless limit people from cooperating on a community scale to help each other more effectively and improve local conditions.

Poverty makes people feel helpless and paralyzed. As old structures of power have dissolved and realigned, many people no longer know where to go for help, or to whom they can appeal. At the same time, they do not yet feel empowered to take initiative; they have neither information, understanding of their iights, or confidence that "paper rights" will be observed in practice. Many Moldovans feel politically powerless, based on real or feared intimidation by officials who still retain considerable power over the day-to-day lives of the population they serve.

Increased crime, ranging from pilfering from other poor households and private fields, to violent crimes such as rape and assault (often in the context of burglary), makes people fearful of venturing out of their homes in village, town and city. They feel police neither respond to their complaints nor show interest in protecting them; they are vulnerable to threats, intimidation, and all sorts of abuse from those in power.

Poor people have considerably less access than the non-poor to information about rights, entitlements, and opportunities. Many people felt that although the mayor and his office were

74 Poverty in Moldova: The Social Dimensions of Transition the most logical points for disseminatinginformation, that in fact, mayors sometimesstopped information. Whether the topic was information,access to humanitarian aid, or business contacts,respondents complained that information and resources were too concentratedin Chisinau,and that most contacts with the outside world came through Chisinau,and in many cases, never reached them.

Issues: Disempowermentand distrust among the poor * difficulties in obtaining timely and accurate information * lack of trust within communities * lack of trust between citizens and officials * collusion between local officials and police and perceptionsof a two-tier system of justice * distrust for the banking system and public financial institutions * constraints on citizens' initiative and grass-roots activity, particularlyoutside Chisinau

Recommendations: * ensure regular and full disseminationof informationregarding rights, entitlements,and opportunitiesto mayoralties,along with regular information (disseminatedthrough TV, radio, and newspapers) regarding the kind of information available * more active collaborationwith NGOs (and with other international organizations supporting NGOs, such as the Open Social Foundation [Soros])to help in organizing and delivering services; providing legal and other council to communities. * in working with NGOs, carefullymonitor NGO transparencyand functioning

Poverty, unemployment,and the private sector

The poor lack social capital. Patronage ties have increased in importance in proportion to the declining role of the state as protector and provider. As a form of symbolic capital, connectionsare among the key resources which give people access to information,jobs, and a way to escape poverty. Lack of connectionsmakes escaping poverty more difficult. These relations have great importance in the village, where local officials can more easily restrict access of villagers to information and resources.

Poor people are the least able to qualify for loans and credit to start the small enterprises which might help them escape their poverty. Poor people exclude themselves and are excluded from the banking system. Traumatized by the loss of lifetime savings and unable to pay the high interest rates demanded by banks, most Moldovans now save money -- even large savings from work abroad, "in a sock" rather than invest in an institution, and borrow from relatives (at no interest) or private moneylenders(often at high interest rates). When they borrow large sums, they are often forced to risk all their possessionsas collateral to high-interest professional moneylenders,a strategy which often ends in disaster for the borrower and his or her entire family.

The collapse of public sector employmentand the emergence of new labor niches has affected men and women differently. In public sector work, both men and women have lost jobs in production, while lower paying jobs in the social sector, such as teaching and medicine, have

75 Technical Paper I _ become almost completely feminized. Women have also migrated abroad, where they have found work as childminders, housekeepers, and prostitutes. Women have also moved into petty commerce in large numbers, but in private sector work, pregnant women and mothers tend to be more vulnerable than men; some deal with childcare responsibilities by simply leaving small children in the care of those who are slightly older. On the job, they are prone to harassment, even rape. Increasing numbers work as prostitutes in Moldova and abroad. At the same time, they have entered new fields: as migrant laborers and independent landowners, which may give them some share of independence and authority.

Issues: Unemployment and lack of skills * lack of skills and training which adequately respond to the current labor market * lack of a clearinghouse of information on job availability in Moldova * extreme vulnerability to abuse and crime as labor migrants abroad

Recommendations: * establishment of a clearinghouse for collection of and dissemination of information about regional labor needs and jobs * vocational re/training, available in district centers and/or large villages, based on current labor needs * public works for rural unemployed youth, which can simultaneously address the problem of lack of skills, lack of rural employment opportunities, and youth crime 3 create a regulatory framework to give some protection to labor migrants working abroad and private sector workers in Moldova and enforce child labor laws * support the rural unemployed in the form of training, marketing assistance, and organization for small scale entrepreneurs and, paruticularlyin local crafts

Issues: Impediments to entrepreneurs (includingfarmers) * lack of knowledge about how and where to market * lack of access to low-interest loans * lack of clear information about registration, taxation, importing and exporting regulations on legal procedures, etc. * lack of access to legal advice and support in pursuing their entitlements * lack of clear dispute-resolution mecthanism for businesses * high level of taxation for new enterprises

Recommendations: * establishment of clearinghouse for rmarketing information (TACIS has initiated a marketing project for agriculture, which could be expanded to non-agricultural domains) * micro-credit programs aimed at small entrepreneurs and new private farmers, especially women, who cannot qualify for bank loans * dissemination of clear information about legal requirements for registration, taxes, and other bureaucratic requirements

76 Poverty in Moldova: The Social Dimensions of Transition

* establishmentof a system of free legal advice, available in villages (this could expand on the TACIS program, now funding the NationalFarmers' Federationto train villagers to give advice regarding land reform legislation) * reductionof taxes for the first few years, as an enterprisegets on its feet * establishingan effective, fair, and transparentmechanism for dispute settlementregarding financial issues, contracts, land clams, property claims

Issues: Problems of independentfarmning * arcane, obstructive and expensive proceduresfor establishingprivate farms and obtaining land titles and non-land assets * lack of access to small quantities of inputs * lack of knowledgeabout running an entire farm * lack of extension services * lack of accurate information regarding entitlements * lack of legal advice and support in acquiringentitlements

Recommendations: * simplificationof bureaucraticprocedures involved in land reform (this simplificationis said to be underway) * technical assistance in establishing purchasingand marketing cooperatives * a simplification and reduction of taxes and export tariffs for new farmers * access to longer-term (5-7 years), low-interestloans to invest in off-farm enterprises such as food processingand agriculturalequipment (with reduced interest rates for environmentally friendly technologies) * access to low-cost extension services which can provide advice about new technologies,more efficient farming methods, and organizationand financial aspects of running an independent farm * establishment of information centers or networks to disserninateinformation and advice about export regulations and procedures,local and foreign markets * a state policy which actively supports and assists private farmers; actively pursues demonopolizationof state purchasing and supplyingenterprises

Regional and ethnic variations in poverty

Ourfindings do not demonstrate significant differences in the standard of living among poor households in the North and South. It is true that the South faces more frequent droughts, has a less developed infrastructure,and is traditionallyconsidered to be the poorest region. On the other hand, significant differencesdo exist within single districts, depending on proximityto major roads and international borders; presence or absence of administrative offices, schools, and other community facilities; and finally, individual officials. Caution should be used before assuming that a given community will conform to regional social, political, or economic stereotypes.

77 Technical Paper I

Language and ethnicity have catalyzed ethnic conflict and separatism in Moldova, and their significance should not be underestimwated. Our respondents tended to play down the depth and seriousness of purely ethnic conflict, ;although older -- and some younger -- Russian speakers ascribed their unemployment to language discrimination. Our study did not focus on or particularly discern marked economic diff-erences between different ethnic groups, but it did show that many respondents believe such differences to exist.

Poverty takes differentforms in rural and urban settings. Most -- but not all -- rural families have access to enough land to feed their families, while poor urban residents are often forced to survive on cash or barter. Rural opportunities, however, for education, employment, and information, are far more limited than in cities, particularly in the capital. In many cases, information, opportunities, and practical assistance remain there, never reaching outlying districts in the North and South

In some districts, collective farm leaders, village and city mayors tended to be former Communist Party officials with strong links to the central government, who use their offices to hinder land reform, violate legislation and:ignore citizens' rights. Violations included media censorship, suppression of demonstrations, and obstructing independent NGOs and small enterprises.

Issues: Regional and rural/urban disparities * North-South differences in investment, infrastructure and opportunities - serious underdevelopment and neglect of rural areas - concentration of resources and non-governmental assistance to and/or through Chisinau, with the lion's share remaining in the capital

Recommendations: - Focus a SIF or SEF-type project on reconstruction of rural infrastructure. Individuals and NGOs offered us the following suggestions: * asphalting village roads * repairing public buildings * renovate run-down summer camps where summer courses in both vocational skills and foreign languages could be offered to children from poor families * renovate and re-open Houses of Culture for films, clubs, musical groups, discotheques, and other activities aimed at village youth * The Bank can aid the process of opening public debate about issues, problems, and potential responses by expanding the debate cutside Chisinau: through regional workshops, regional press conferences, engaging with NGOs and grass-roots organizations in the North or South of Moldova rather than in the more accessible Center.

78 Poverty in Moldova: The Social Dimensionsof Transition

ANNEX I: DEFINITIONS OF FARM TYPES

Cooperativefarming enterprises: These include state and collectivejoint stock companies, partnerships,cooperatives, and so-called "associations,"all of which continue to rely on joint agriculturalproduction.

Joint stock companies: These are enterprises the statutory capital of which has been fully divided into shares. The members, or "shareholders,"are responsible for the obligationsof the Company in proportion to the number of shares they own. Although many collective farms refer to themselvesas joint stock companies, few have actually gone through the required restructuring process.

Land shares: These are paper shares (sometimesreferred to as "certificates of entitlement" which entitle an individual to a physical parcel of land in a collective enterprise. These should not be confused with the "title" an individual receives when s/he registers a specifically designatedparcel of land.

Peasant farm: These are independentfamily farms, based on land shares individuals or households have formally withdrawnfrom collectivefarning enterprises, and can actually identify on the ground.

Peasant farm associations or cooperatives: These are groupings of peasant farms, which come together, formallyor contractually, to produce, process and/or sell agricultural products. Because of the law (in effect from February 1995 until January 1996) restricting individual households from withdrawingfrom collectives, and the difficulties encountered by individual households in receiving their value quotas (share of non-land assets), many peasant farms registeredas "associations"for purely formal reasons.

Household plots: These are the approximately0.30 hectare (on average)plots distributedto rural households. Families with more than 3 members qualify for an additional .10 ha per member.

79

TECHNICAL PAPER II

POVERTY IN MOLDOVA:

PILOT RESULTS FOR FEBRUARY 1997

by

Jeanine Braithwaite The World Bank

The views contained herein are those of the author only, and do not represent the opinions of the World Bank nor of its Board of Directors, nor of any individual country member, nor federal, nor local govermnent.

Poverty in Moldova: Pilot Results for February 1997

Table of Contents

I. Introduction.I

1:I.Moldova Poverty Profile...... 4 A. Location...... 5 B. Household Composition..... 6...... 6 C. Gender...... 10 D. Housing,Durables, and Inequality...... 11 im. RegressionAnalysis ...... 12

IV. Social SafetyNet ...... 13 A. Incidence Analysis...... 15 B. Pensions, Child Allowances,and Privileges...... 17 C. Proxy Means Tests and Targeting ...... 20

V. Conclusionsand Policy Recommendations...... 22

Bibliography...... 25

Annex 1: Text Tables ...... 29 Annex 2: Additional Tables ...... 51 Annex 3: Poverty Lines ...... 54 Annex 4: Equivalence Scales ...... 56

Poverty in Moldova: Pilot Results for February 1997

Poverty in Moldova: Pilot Results for February 1997*

I. Introduction

Moldova is a small, land-lockedcountry of the former Soviet Union (FSU), situated between Ukraine and Romania,facing similar challenges in managing poverty during the transition to a market economy. More agrarian and less diversifiedthan Ukraine, but smaller than Romania,Moldova's early days of independencefollowing the break-up of the Soviet Union were troubled by a violent civil conflict that resulted in substantial loss of life and the partitioningof the country. Although the territorial integrity and sovereigntyof Moldova as a whole country is recognized internationally,in practice the economyis bifurcated, and with two separate currency regimes.

The defacto separation of the country into two separate econorniczones with different prices, currencies, and market relationshipssomewhat complicated the comparison of poverty in the two areas, but on a whole, the measurement problem was resolved by the excellent work of the Moldovan Department of Statistics, which was able to conduct a pilot household budget survey in the two separatedregions (hereafter,the pilot survey). Unless otherwise noted, all the information in this report is derived from using the pilot survey data base.' In this report, statistics are reported for the country as a whole (Moldova), and separatelyfor the area called the Left Bank or Transnistria,and for the remainder of the territory, called the Right Bank. The Right/LeftBank terminologyis a bit awkward as it relates to the direction of the flow of the Nister (Dnestr) river which physically separates the two areas, and is supplanted in this report by the terms Right Bank and Transnistria. The major city in the Right Bank area is the capital, Chisinau (formerly spelled Kishinev), and the major city in Transnistriais Tiraspol. When Moldova is used, it is understood to reference aggregatedstatistics for the country as a whole.

Many thanks to Wlodek Okrasa, Task Manager,and the team at Moldova Department of Statisticsfor a job well done! Special recognitionof Robert Ackland,who although continentsaway, always provided crucial assistance cheerfully. The research assistance of Giselle Nevada, ZhongminWang, and Catherine Ying is acknowledged. Document processing and other vital services were performed by Precy Lizarondo under extremetime pressure. The followingprovided helpful comments: Robert Ackland, Arup Banerji, and David Lindauer.

I The pilot survey methodology is described by Okrasa et al in a series of processed notes (1997), including informationabout the sampling and population weightscreated, the variablescreated, and how the informationwas extracted from a free-formhousehold diary combined with a standard questionnaire module. This informationis not repeated here in this report, except to note that the pilot survey data were for one month only (February 1997)and can not be generalizedto annual-baseddata or other general conclusionswithout caution.

1 Technical Paper ll _

In order to discriminate between the.poor and non-poor, poverty must be defined and a poverty line or threshold adopted. Conceptually, few would dispute that poverty is the inability to sustain some minimal level of existence. Yet defining that "minimal" level, especially when money income may not give a good measure of real consumption opportunities, is problematic. A standard approach to defining an absolute level of poverty is to price a basket of essential goods and compare income to the cost of these necessities. Both in the definition of nutritional needs and the calculation of corresponding cost, value judgments occur on the part of experts or the politicians deciding on a certain method, and the reliability of conclusions formed on this basis depend critically on the reliability of the income infonnation to which it is compared.2

In a variety of country contexts, households do not fully disclose their income to survey interviewers/enumerators or even to the tax authorities. However, there have been legal challenges in some OECD countries (e.g. the United States) which safeguarded the confidentiality of household income responses to the Census and other surveys. While such legal challenges may have encouraged households to be more forthcoming in the US context, there is no evidence that poverty investigators in other country contexts have similarly benefited. Particularly in Latin America and the former Soviet Union, but found in every country everywhere, the inforrnal sector plays a major role in household behavior and in transition economies. During the Soviet period in Moldova, virtually all informal sector activities were illegal with severe penalties, and it would be unrealistic to expect that Moldovan households today would not be careful to under-report such income. Indeed, in every World Bank assessment of poverty in a FSU country to date, reported expenditures have exceeded, in some cases by several orders of magnitude, reported income, suggesting that households are cautious to report the full extent of informal sector income, private entrepreneurial income, private remittances, and private transfers.3

Since the goal of poverty analysis is to assess the real welfare of households and the people who comprise them, expenditure can be a better measure of household

2 Although many statistical publications rely on household income as a measure of household welfare, there are many studies which demonstrate that if household expenditure data are available, they should be used in preference to data on household income, which tends to be under-reported, especially on the high end of the income distribution (Deaton and NMuelbauer1986, Hentschel and Lanjouw 1996). Household income tends to appear frequently in statistical publications of many countries because typically, monthly estimates of household income are made by central statistical agencies for national reporting imperatives, while household expenditures data are more commonly available on an annual (or sometimes quarterly) basis. 3 For example, in data from nationallyrepresentative surveys in Russia (conducted by the All-Russian Center for Public Opinion Polling (VTsIOMI)and by ISEPN in a longitudinalstudy of Taganrog), as well as the Russian LongitudinalMonitoring survey and, to a limited extent, official Goskomstat Rossii data, reported income has found to equal less than 50 percent of actual household consumption(measured by the value of householdpurchases of consumer goods and food, and householdproduction of food on private plots). In practice, this pervasive and informnalsector renders the use of income only for means-testing as highly problematic. The only reliable way to rank householdwelfare is to use consumption-basedmeasures that include the value of food produced on private plots.

2 Poverty in Moldova: Pilot Results for February 1997 consumptionthan income (Deaton and Muellbauer 1986). Beyond the saving and non- saving of households attempting to smooth their consumptionover time, expenditure aggregatescan be constructedto include the imputed or self-reportedvalue of food produced on a household's private plot of land, and also the consumptionof food or other goods received in kind by the household. In Moldova, Russia, and other FSU countries, households (even urban ones) have access to small plots of private land. In the Soviet period, these plots made up 3 percent of arable land, but produced 25 percent of gross agriculturaloutput (Gregory and Stuart 1991).

Thus, the choice of an appropriate poverty line is conditioned to a large extent on what the line will be compared to, and also, to the availability of data for constructionof an absolute poverty line. In the Soviet period, even data for providing the food component of an absolute poverty line were scarce, and Moldova and other FSU countries inherited a concept of a "minimal consumerbasket" that was not minimalist in any sense. The actual basket contained over 250 norms for the consumptionof food and non-food goods, including alcohol and tobacco, and a "normed rate" of savings (Sarkisian and Kuznetsova 1967). This basket is inappropriate for truly determining vulnerabilityin Moldova or indeed, in any other FSU country today (see Annex 3: Poverty Lines).

Diet-based or nutrient-basedabsolute poverty lines have their advocates (Ravallion 1992) as well as their critics (Lanjouw 1996). Although, in principle, it would have been possible to use the pilot survey data set to extract information about the physical consumptionof food products of those in the lowest consumptiondecile or alternatively,to use diets based in other countries, to construct absolute lines, the extreme seasonalityof the database rendered this attempt premature. Since data were reported only for February 1997, a month that cannot be consideredrepresentative of annualized food consumption,there was no attempt made to derive an absolute poverty line from the pilot data. Instead, for comparison, some standard absolute lines were tested (see Annex 3: Poverty Lines).

As a result, a relative poverty line was chosen for this first attempt at examining who is poor in Moldova. The relative poverty line adopted was 40 percent of the unweighted mean per capita consumptionin the Right Bank (Moldovan lei 67.12 per person per month) and in Transnistria( 7,831 per person per month). There are many methodologicalissues associated with the choice of the poverty line (see Annex 3: Poverty Lines), but this particular line was used for one very practical reason--it was available immediately while the versions of population weights were being finalized. Using the population-weightedmean per capita consumptionwould lead to a slightly higher poverty line and therefore a slightlyhigher headcountin Transnistria, but to a slightly lower poverty line and, therefore, a lower headcount in the Right Bank. Neither line is "right" or "wrong"--theyare merely different. If the final population weights had been available slightly earlier, the population-weightedmean would have been used, but the findings in the report would not have been affected since the two measures are so

3 Technical Paper II _

close.4 A per capita line was chosen because econometric tests did not indicate that there were significant economiesof scale in consumption(see Annex 4: Equivalence Scales).

Finally, all the results in this cross-sectionalanalysis are highly affected by data measurement issues, the extreme seasonalityof the data (pertainingto only one month, February 1997), and the first-time nature of the pilot survey itself. Further, during the crop years both preceding and immediatelyfollowing the pilot survey period, Moldova experiencedserious droughts,which depressed food production and consumption. Therefore,results should be viewed as indicative but not necessarily definitive.

II. Moldova Poverty Profile

Moldova shares many of the general characteristicsof the poverty profiles observed to date by the World Bank (for example, Russia and Ukraine) for FSU countries, while differing in some important ways from Armenia and from (Grootaert and Braithwaite 1997). In general,the poor in Moldova, as in other transition economies,are children, the working poor (especially,therefore, the working poor with children),and some, but not all, elderly people. Pensioners defined as those who receive a pension from the state are not at special risk of poverty. Those who live in the capital (or in the case of Moldova,the capital city of Chisinau and the major city of Tiraspol) are much better off than those in other cities, while those in rural areas of Transnistria are also better off (as observedin most FSU countries). However, in the Right Bank area of Moldova,there are more poor households in rural areas than in other urban areas. In this section, poverty correlates are explored and possible explanations considered, leading in turn to further econometricexploration in the following section.

Summarypoverty measures are presented in Table 1 (Poverty Measures, February 1997). All tables are presented in Annex 1: Statistical tables. Summary poverty measures include the headcount (the share of the population with a per capita consumptionbelow the 67.12 Moldovan lei per person per month in the Right Bank, the share of the population with a per capita consumptionbelow the 7,831,000 Transnistrian rubles per person per month in Transnistria,and the weighted average headcount for the country of Moldova), the P1 measure (sometimes called the depth of poverty), the poverty gap (the percentage shortfall between the consumptionof the poor and the poverty line), and the P2 measure (sometimescalled the severity of poverty).5

4 In no way should this statementbe read as a criticism in any way of the Moldovan team who produced the pilot survey and data set. It is merely a reflection of the fact that the extended team (Moldova/World Bank) was separated by an ocean and other responsibilities. For example, for the background paper on the labor market (Lindauer 1997), poverty dummy variables were required sooner since that paper was written before this one. See Ravallion 1992, Ravallion 1988, Grootaert and Braithwaite 1997.

4 Poverty in Moldova: Pilot Results for February 1997

Based on the relative poverty line of 40 percent of unweighted mean per capita consumption,approximately one-quarter (23.3 percent) of the Moldovan populationis poor, and there is very little differencebetween the rate for the Right Bank (23.5 percent) and Transnistria(22.6 percent), suggestingthat the distribution of consumptionin the two regions is very similar. However, the structure of relative prices and the difference between currency regimes are obviouslyquite diverse, and some interesting results emerged upon experimentationwith various poverty lines (Table 2).

II. A. Location

In every FSU country with a poverty assessment completed to date, poverty rates in the capital or two largest cities have been markedly lower than in the rest of the country. Besides the famous example of Moscow and St. Petersburgin Russia, this finding was true for Kiev, , and several other FSU countries. In Moldova, this pattern repeats exactly. Chisinau, capital of the country and the major city of the Right Bank, has a much lower poverty rate than other Right Bank urban areas, while Tiraspol, the major city in Transnistria,also has much lower poverty (Table 1).

One of the striking characteristicsof FSU countries with household surveys which allow the market-pricevaluation of food produced and consumed by the household, is the finding that rural households are less at risk for poverty than urban ones. This finding, although somewhat unconventionalfor many developing countries, is rather standard for the FSU, and relates in some ways to the changes in relative prices instituted after the breakup of the Soviet Union on December25, 1991. In January, at highly differentiated rates, the newly-independentcountries allowed some prices to rise. In particular, food prices in general (not just one or two items but rather all food and many consumer goods), which had been extremely subsidized,were subject to substantial phased increases and in many countries, eventually freed. At the same time, the prices of rent, utilities, and transportationremained controlled and (sometimescross-) subsidized, so that the relative price of food greatly increased. Then, further, with the breakup of the ruble zone and the established supply and trading network of the estimated 16,000 monopolistic (and therefore, utterly dependent on other up- and down-streammonopolies by deliberate design of the planned economic system), GDP collapsed in the FSU, leaving households unable to afford much of the newly availablerange of non-food goods and greatly increased services.

Therefore, depending on the survey period, it is quite possible that a market-based imputation for food prices would show householdconsumption to be higher in rural areas, which was found to be the case in Russia (earlier years 1992-94), Ukraine, and Armenia. In Armenia, there was a crucial incentive--landprivatization--which some have suggested kept the country from outright starvationduring the armed conflict and continuing economic blockade with Azerbaijan. There is a very clear link between early land privatization such as Armenia's in 1992 and increasedwelfare for rural households (World Bank 1995 Armenia Poverty Assessment).

5 Technical Paper II _

On the other hand, not every household survey is designed to easily facilitate the imputation of market prices for food products consumed from household production. This is unfortunately the case for the Moldovan pilot household survey. Respondents were asked to report their own valuation of what the food they both produced and consumed was worth. While in principle it might be possible to reconstruct the data base to calculate some market prices based on other inforrnation (household purchases), the open-ended diary system used in the pilot survey makes this an extremely formidable programming problem. Adding prices from other sources (such as the State Department of Statistics) would open up the potential of adding bias from mixing two very different sources of information. So, it was decided to retain the self-reported valuation of food products, even though this is probably the major reason for the surprising finding for Moldova that the rural consumption-based poverty rate is higher in the Right Bank than in other urban areas. Of course, there are more poor rural Right Bank Moldovans since more people live in rural areas than in urban areas in the Right Bank. Finally, the extreme seasonality of the survey meant that rural households were asked about their food consumption in February, just as household stores are running out, but too early for spring vegetable harvests.

For Transnistria, the poverty rate of rural households is also higher than that of other urban households, but not quite as noticeably as for Right Bank, while Tiraspol poverty is sharply lower than other urban or .

In the final analysis, these results, especially for rural poverty in Moldova, are probably as reflective of problems associated with the pilot nature of the survey (only one month of data, and that was the nadir month of February following on from a previous drought, plus reliance of the self-reporting of the value of food produced and consumed by the households, which has been slhown to lead to dramatic undervaluation of actual consumption in other countries), as they are indicative of underlying differences in the country. On the other hand, from the qualitative assessment (De Soto and Dudwick 1997), and other anecdotal information, the results that poverty rates are lowest in Chisinau and Tiraspol should be viewed as robust and reliable.

II. B. Household Composition

In international comparisons and from simple common sense, the over-arching effect of household (family) composition on a household's poverty status emerges as the single most important determinant of household poverty in virtually every country, and Moldova is no exception to this general rule. 6 Household composition matters because

6 In Moldova, "family" and "household"are often used interchangeably,with family used colloquially and householdbeing the province of statisticians and economists. There is a standard definition of a household which was used by the Moldovan team who producedthe pilot survey. This is a group of people living together who share income and expenditures. The term household does not imply that the group of people are related in any way at all. Of course, in a country like Moldova, a householdis usually formed out of family groupsthat are related by blood, marriage,or by degrees of relationships(particularly in rural

6 Poverty in Moldova: Pilot Results for February 1997 some household members can contribute more to the common pool of resourcesfrom which the household decides to save or consume, while other members (dependents) contribute little or nothing to the household's cash or physical resources. In households with a high dependencyratio, the income earners will have to be better-paid in order to cover the costs of these extra dependents,or the general level of household welfare will decline when new dependents are added.

There are two serious considerationsthat pertain to this generalization about householdcomposition. The first considerationis the extent to which household members can share resources in ways that are more effective than a single person could. For example, the marginal cost of an additional householdmember can decline up to certain limits. The household alreadyhas a flat or house. An additional member can be brought into the flat (squeezed in somewhere),so that now the rent which was previously divided by, say 5, is now being divided by 6. So the marginal rental cost of the sixth person is lower than that of the fifth. In a similar way for other things (like reusing clothing as hand-me-downsto youngerchildren or "stretching" a stew by adding potatoes instead of meat), families may be able to achieve economies of scale in consumption. Further, to the extent that dietary requirementsdiffer among family members, household needs also vary with composition.

For example, a recent paper by Ravallion and Lanjouw (1995) demonstratedthat larger families were not necessarilypoorer in some country contexts because of economies of scale in consumption. In the United States, t'Thepoverty line" is actually a set of 7 differentpoverty standards,based on differing household compositions,to take into account these economies of scale. In a different approach, the OECD countries have adopted a standardizedequivalence scale (which is the termninologyused for measuring economies of scale in consumption) wherebythe first adult in the household is assigned a value of 1.0, the second and subsequentadults are assigned values of 0.7, and children are assignedvalues of 0.5. However accurate this scale might be for OECD countries, it does not seem to perform well in econometrics tests when applied to FSU countries (see Annex 4).

It is possible to estimate econometricallywhether a particular data set displays economies of scale in consumption(see Annex 4). For Moldova, there were not found to be any significant economies of scale in consumption,so the equivalence scale for Moldova is a simple per capita one. Having tested economiesof scale and found them to be not statistically significantin the pilot data household set for Moldova, we therefore settled on a per capita standard for the poverty line used in this report. Interestingly enough, this was also found to be true for Russia some years ago (Foley 1993), and probably reflects the impact of the prolongationof maintaining defacto price controls (through controlling "margins" or cross-subsidization)in Moldova. In this sense, the villages) that would not be thought of as especially close in some Western countries (e.g. first and second cousins), but are binding enough so that the people involved are pooling their incomes, labor effort, and expenditureresponsibilities (De Soto and Dudwick 1997).

7 Technical Paper 11 relative price of non-food items has either not changed much (rent, utilities) so the composition of household expenditureremains oriented towards food, or in some limited cases, other prices have become so stratasphericallyexpensive (restaurant meals, Western clothing) that hardly any families purchasethese items, given the general economic malaise in Moldova and the low level of per capita GDP.

The second serious considerationabout household compositionand consumption is the intra-householddistribution of householdconsumption (sometimes called the "unitary model" of household consurription). In this study and in most economic analyses of poverty, it is assumed that the householdwill divide its consumption"fairly" or "according to efficiency considerations"to the various household members, but in reality as observed by anthropologistsand other social scientists,this may not be the case. (See Folbre 1995, 1994, Haddad et al. 1994.) Since this problem has not yet been handled tractably in the literature, it is not further addressedin this study, although careful reading of De Soto and Dudwick (1997) may raise questions about the applicability of the unitary model in Moldova. At the same time, it is clear the most of the cost of an additional household member in Moldova is food, regardless of how other goods are allocated among the individual members.

Just as the non-unitary models, (De Soto and Dudwick 1997) and common sense would suggest, so too can it be demonstratedthrough the quantitative findings of the pilot survey that some kinds of dependents are more serious a burden for a household (have a greater impact on the chance that the household will be poor) than others (Table 1). For example, in Moldova, as in Russia, UJkraine,and Armenia, the presence of children in a household is strongly associated with poverty, and more strongly so than the presence of elderly members.

In both the Right Bank and Transnistria,poverty headcounts and other measures of severity are much higher for families with children than families with no children or elderly members (which is certainly as one would expect), but also marked so for the case of families with elderly members but no children (Table 1). In other words, if a household wants to avoid poverty, better to have elderly members than children! But what if a householdhas both children and elderly members--wouldnot such a household be the worse off of all? In Transnistria,this is clearly the case--householdswith both children and elderly members have tlhiehighest headcount and worst associated measures of poverty severity. However, in the Right Bank, this "double whammy" or "double burden" does not appear. Families with both children and elderly members are indeed poorer than families without either, but not quite as poor as families with children only.

There are several logical reasons for this finding in the Right Bank. First of all, an extended family structure in a mostly rural country context would enable the householdto diversify its household production. 'Whilean elderly grandfathermnight be too old to do heavy plowing, he could watch the younger children while the mother and father turned the soil together. Also, depending o:rihow the private plots were allocated before Moldovan independenceand the uneven course of land reform, it is possible that senior

8 Poverty in Moldova: Pilot Results for February 1997 or more well-establishedfamilies might have preferentialaccess to more or better land (De Soto and Dudwick 1997). Third, there are fewer alternate employment opportunities in Transnistriaon private plots than in the Right Bank, as Transnistriais much more urban. Almost four-fifths of the Right Bank population reported having access to a private plot, but only about 45 percent of Transnistrianhouseholds did. Having a grandmotherto babysit a child is not as much of a boost to household consumptionif the father or mother can't find an industrialjob that pays salaries on time (see Lindauer 1997).

One mechanical effect of any per capita standard for a poverty line is that larger families will appear to be poorer (Ravallionand Lanjouw 1995), but this is a valid finding for Moldova, given that initial empirical testing validated the per capita standard (see Annex 4: Equivalence Scales). In Moldova, larger households have higher poverty rates than smaller households (Table 3). In Moldova, this effect is further driven by the influence of children as contributingmore to the dependencyburden than elderly members. For example, in Table 4, poverty rates sharply increase with an additional child under the age of 14. It should be noted that there was only one household in Right Bank with more than six children, so this finding is not especially representative,but is indicative, while in Transnistria,there were no households with more than 3 children under the age of 14. The findings for elderly family members are quite different (Table 5).

Adding an elderly member (aged 65 and over) will not increase the measured poverty rate in the Right Bank at all, as a matter of fact, households with one elderly member have a lower poverty rate than households with none, and households with two elderly members have an even lower poverty rate (perhaps because many of them are living in families without children). In Transnistria, households with one elderly member do have a higher poverty rate than households without, but then, the poverty rate drops sharply for Transnistrianhouseholds with two elderly members. Stepping outside of the householdframework, and looking at individualsonly, some of the lowest headcounts in the sample were for Transnistrian men and women at or beyond retirement age (60 years for men, 55 for women) of approximately14 and 19 percent each, while the situation for Right Bank men and women at or beyond retirement age was not as advantageous(21 and 19 percent poverty rates respectively),these rates were still below the average of 23.5 percent for the Right Bank as a whole.

The finding that the elderly are not especially at risk for poverty in Moldovais a conventional one for the FSU countries, as demonstratedby World Bank poverty assessments in Russia, Ukraine, Armenia, Kyrgyzstan,Azerbaijan, and Estonia and also emerged from cross-comparisonswith Eastern Europe (Grootaert and Braithwaite 1997). This finding can be a difficult one for the general reader to accept, especially given the way that the elderly sometimes characterizetheir own situation. For example, in De Soto and Dudwick (1997, p. 42), one female village respondent's situation was described as follows. "Like many pensioners, she had given her land lot to relatives, who she says

9 Technical Paper II _ occasionally 'throw her some potatoes.' Pensioners with children, even if the latter live in town, often give their land to them in return for a share of the harvest."

Although elderly respondents may bitterly resent the loss of independence represented by the intragenerational transfer of the responsibility for the land plot, the reality seems to be that the pensioners are "being thrown some potatoes" and other kinds of food, too. Later in the study, De Soto and Dudwick do document extensive intra- familial and intra-social sharing and coping strategies among the poor. These arrangements do seem to be working to keep many of the elderly out of poverty, as defined in this study, which is based on the value of consumption, including gifts given to the household in kind (e.g. food from plots farmed by friends or other family). Of course, it is not clear how long such coping mechanisms can continue to function, and additionally, it is clear that sharing arrangements would be greatly facilitated by a more rational distribution and use of land through land reform.

II. C. Gender

Although gender has emerged as a significant correlate of poverty in many countries of the world, to date, it has been difficult to establish quantitatively the impact of gender on poverty in the FSU countries. There are several reasons for this difficulty, and a major cause is the impact of the use of the unitary model in which household consumption is divided either by the number of household members (per capita) or by household per equivalent adult members (equivalence scale) means that gender differentials in within-household consumption are not observable in household survey data. For example, the participatory survey stated that "Respondents were quite consistent about how they go about this [dividing up inadequate amounts of food]: women, responsible for preparing and planning meals, first fed their husbands, then their children, and only after the others have finished, allow themselves to eat the leftovers" (De Soto and Dudwick 1997, p. 12). Although this is very likely true in Moldova as was also documented in Armenia (Dudwick 1995), it can not be confirmed nor disproved by using household survey data of the type of standard questionnaire used in the Moldovan pilot survey (and in countless household surveys in other countries, such as the Consumer Expenditure Survey in the US).

For example, the age-specific poverty rates for Right Bank and Transnistria (Tables 6 and 7) show very little gender differentiation, but striking age differentiation. Children are clearly much more at risk for poverty than the elderly in Moldova, but the differences between males and females reported in the tables are so small as to be likely statistically insignificant and practically meaningless in terms of discriminating among the poor. Again, the elderly of both areas are much less likely to be poor, but there is little difference between elderly men and women, except in Transnistrian males aged 60 and over. The difference in the reported poverty rates between males aged 60-69 and 70 and above in Transnistria is likely influenced by the demographic impact of World War II, which probably reduced the naturad number of males in the 60-69 age cohort.

10 Poverty in Moldova: Pilot Results for February 1997

An additional factor is the relativelylow number of female-headedhouseholds in the FSU when headship is determinedby either the absence of a male of working-agein the household (regardlessof marital status) or as in the Moldovan pilot survey, by the gender of the highest income earner in the household. In Moldova, about two-thirds of households were male-headed(Table 8) since headship was determined by the highest income-earnercriterion. However, there was no differencein poverty rates by gender in the Right Bank, while in Transnistria,female-headed households had a slightly lower headcountthan male-headedhouseholds. These results in Transnistria probably reflect the labor market situation there, and the lower rate of female labor force participation,as explainedby Lindauer (1997).

II. D. Housing, Durables, and Inequality

In Moldova, there are few strong correlatesbetween the poverty status of the household and its assets, whether these assets are housing amenities (such as number of rooms or indoor plumbing)or consumer durables (such as washing machines or refrigerators). There are examples where poverty rates of the "haves" differ noticeably with the "have-nots" (such as private plot access on the Right Bank, Table 10), but the difference is not large enough to serve as a discriminator between the truly needy and the less needy for the purposes of targeting of the poor by the social assistance authorities (see Section IV. B.).

This is also a common heritage of the former Soviet system and characterizesthe poverty profiles in all the FSU countries done to date by the World Bank. The lack of strong correlation between poverty status and whether the household has, for example, a radio or a car is due to the previous system wherebyconsumer goods were allocatednot by price, but by non-market mechanisms,primarily by queuing,po znakomstvu (through acquaintanceship),reciprocal and delayedreciprocation favor-trading (blat), and more recently, through outrightbribery, side-payments,and under-the-tablepayments, often in kind.7

In the Right Bank, there is a rather larger differencebetween, for example, the number of rooms in a house and the poverty status of the household than in Transnistria, since so many Right Bank residents live in homes they constructedthemselves during the Soviet period (when this was permitted on private plots in rural areas), and rather stronger correlation between other housing amenities and poverty.

However, overall, the distributionof housing amenities and consumer durables remained rather much the same among the poor and non-poor in Moldova in February 1997, reflecting mostly that households had inherited a housing stock and distributionof consumer durables primarily from the previous system, so holdings were not determined

7 These informal sector activities were so pervasive under the old system that in total, they were called "the second economy" or "the shadow economy" (Braithwaite 1995, Dudwick 1995, De Soto and Dudwick 1997, Gregory and Stuart 1991 and therein, a list of other textbooks and references).

11 Technical Paper ll by market outcomes (such as how much household income was). Of course, by early 1997 this was beginning to change, and as could be expected, the few households which reported ownership of such high-end consumer goods as videocassette recorders and personal computers were not found to be poor in this study.

Further change in the distribution of such proxies for household wealth as housing amenities and consumer durables are highly likely, considering how very unequally current consumption was distributed in Moldova in 1997 (Table 11). A common measure of inequality, the , for both the Right Bank and Transnistria was around 40 or 41 percent.8 This compares to Brazil (49 percent) or Russia during some of the worst transition years (49 percent) or Armenia (52 percent). In other words, inequality in per capita consumption is very high in Moldova. Other indications of a highly dispersed distribution are the very high decile ratios presented in Table 11, although the ratios for household income should be treated with some caution.9

To the extent possible, given the limitations of the pilot data base, these characterizations about the poverty profile and inequality in the distribution of consumption in Moldova were econometrically assessed, and the econometric analysis corroborated the findings illustrated up)to this point by poverty cross-tabulations (Tables 1-10).

II. Regression Analysis

Multivariate regression analysis revealed little, given measurement problems in the data and the inability of even a basic model to explain the differences in per capita consumption across households (Table 12). However, nothing in the regression analysis contradicted the pattern for the profile of poverty as shown in the preceding section through cross-tabulations. Even worse was the case for other FSU countries (Grootaert and Braithwaite 1997); models used to explain per capita consumption in Moldova were not very convincing, with extremely low values for the R2 statistics estimated in every case.

8 Expressed as a percent, the closer the Gini coefficient is to 0, the more equal the distribution. The closer it is to 100, the more unequal. Sometimesthe Gini coefficient is normalizedto 1 instead of 100 percent. The standard for this study is per capita household consumption,which was calculated as the sum of householdpurchases in cash (or in kind), the self-reportedvalue of consumptionof food in kind regardless of source (own-productionor gift/privatetransfer from another household),and the self-reported consumptionof non-food goods in kind regaridlessof source (own-productionor gift/privatetransfer from another household). The income informationprovided by the Moldovanteam was not used extensively, owing to concerns about its reliability. In every FSU householdsurvey, reported purchases in cash have been greatly in excess of reported income. Dae to the algorithmsused by the Moldovan team to construct their income aggregates from the diary information,household gross income is essentiallyequal to reported household expenditures,suggesting some untenable imputationprocedures. This issue will be investigated further in subsequentwork.

12 Poverty in Moldova: Pilot Results for February 1997

It is difficult to be sure why these disappointingresults were encountered. There is clear evidence of measurementerror in some of the variables. For example, whether or not a household had access to a private plot was not estimated as a significantcausal factor for household consumptionin the Right Bank. Since we know from a variety of other sources of information, including direct observation,that the private plot plays a major role in rural subsistence and sustenance in the Right Bank, it is disturbing that the regressionanalysis did not attribute any statistically significant weight to this factor. This could reflect problems with the household's imputationof food consumed from private plot production (as noted above), problems with accuratelyrecording the response to this question, or both.

Performancewas slightlybetter for Transnistriain terms of explaining overall consumption,but more regressioncoefficients were statistically significant in the Right Bank than in Transnistria. Both areas clearly demonstratedat a high level of significance that the presence of children in a household was negatively correlated with consumption (in other words, children are linked to poverty in Moldova). All other family composition variables were significant in the Right Bank, but not in Transnistria, where the presence of both the elderly and of female adults did not correlate significantlywith household consumption. In the Right Bank, adding any sort of household member depressed consumptionat more or less the same level, but in Transnistria,children reduced consumptionmuch more than other kinds of additional household members.

In both areas, higher education was stronglycorrelated with higher consumption, but no other variable was more than 10 percent significant,except for rural location in Transnistria,which was associated with higher consumptionthan the omitted variable of other urban location.

Even though these findings are disappointing,overall by simply using the regressioncoefficients as estimated, approximatelythree-quarters of household were correctly identified as poor or not poor, suggestingthat variables which are as basic and easy to collect as householdcomposition could do a tolerablejob of identifying the poor for targeting purposes (see additional on proxy means testing below).

Probit analysis worsened these dismal findings considerably,with very few factors found to contribute on the margin to the probability of a household's being poor. As a result, the Probit findings are not reproduced here, except to note that an additional child increased the probability of the household's being poor by 7 percent in the Right Bank and by 6 percent in Transnistria.'0

0 Full results can be obtained by direct request to the author.

13 TechnicalPaper II

IV. Social Safety Net

Moldova inherited a social protection philosophy and system from the former Soviet Union which has proved to be tnsuited for the immediate needs of the transition itself, much less the requirements of Elmodem market economy. In spite of the best intentions of policy-makers and the deep devotion of individual social workers and social protection staff, the current system is staggeringly untargeted, inefficient, and inequitable. There is a general historical context to the problem, and then there are factors specific to Moldova and steps that Moldova did or did not take immediately following its declaration of independence from the former Soviet Union, which have created the challenges currently facing the social protection system.

The general milieu in which social protection policy was formed in Moldova was that of the former Soviet Union, since Moldova was one of the fifteen titular republics of that conglomeration. In the FSU, social protection policy did not really exist as policy per se, but was an outgrowth of the Marxist labor theory of value and how this was expressed in the command economy system (Braithwaite 1995, 1991, 1990). Generally, working-age people were expected to work, and the system of formally low-wage payments with significant fringe benef'its combined with price controls and very large subsidies on certain consumer goods, increasingly in the late 1970s and especially throughout the 1980s on food as well as non-food consumer goods, meant that only those without a link to the formal labor market were considered as needing special interventions.

Further, the system of social insurance (sick pay, maternity benefits, and pensions) was set up to further the links between formal employment and the avoidance of social protection as a general policy. Maternity leave, sick leave, university study and special work-release retraining educational programs, as well as military service all were counted into the worker's stazh (work-tenure expressed in years, months, and days). This left only the hard-core "social parasites" such as political prisoners, alcoholics, and drug addicts, as well as the mentally ill who were u-nable to work regularly as the primary concern of the social protection authorities. A highly individualist case-based system evolved for social protection, with local social workers with a very good degree of individual knowledge of their clientele, and a rather small clientele at that.

The transition to the market economy brought with it sweeping changes in economic relationships, a precipitous decline in GDP as established monetary and trading relationships collapsed, and the emergence of a new and large group of working people who were demonstrably poor, and unlike the previous clientele of the social protection system, in many cases, through "no fault of their own." This numerous group of newly- needy people were termed "the new poor" in Russia (Braithwaite 1995), but they emerged throughout the FSU and to a lesser extent in Eastern Europe (Grootaert and Braithwaite 1997).

14 Poverty in Moldova: Pilot Results for February 1997

In Moldova and the rest of the FSU, social workers were swamped by a rapidly rising caseload, and frustrated by the lack of tools with which to help these new poor. Especially, the working poor could not be handled by the old system, which was premised on the idea that working people would be able to support themselves and their families through formal employment supplementedby social insurance. The only sort of general cash benefit that social workers could give to a working poor family was the so-called "one-time emergency assistance" (razovaya skoraya pomoshch'). Social workers also tried to help their clients work the system as best they could, informing them of what limited cash transfer options were available,identifying where and how clients could qualify for so-called privileges (I'goty)--benefitsin kind or reduced prices for certain consumer goods (particularlyutilities and transportation),and directing them to whatever limited non-governmentalor humanitarianassistance was available in the immediate area.

In Moldova from 1992 onwards, these problems were compounded by a series of poor policy decisions on the macro level, which led to rampant inflation and sharp GDP declines, as well as a series of decisions on social protection (such as trying to defend the average old-age pension from erosion from inflation) which had severely negative fiscal consequences, which then fed back into the general economic malaise. For example, in the FSU, there were no generalizedchild allowancesuntil 1991. There was a system of payments to single mothers and mothers of many children (set up in 1927 and expanded immediately following World War II), but there were no general child allowances." The system of generalizedchild allowanceswas decreed in 1991 for the Soviet Union, but very early in 1992, most of the independentcountries adopted it. Moldova has retained some forms of child allowances,but with the continuing growth decline, increasingly,the governmenthas not been able to pay these allowanceson time. There are also clear problems in implementing these allowances(see below) owing to.local fiscal crises and the devolution of collection and payments responsibilitiesbetween the MoldovanFund for Social Welfare (national,regional, local), the Pension Fund, and the federal and local governments.

As a result of these various factors, Moldova today has a very poorly-targetedand regressive systems of social protection as do many neighboringcountries in the FSU, an area which is notable for having poorly-targetedsocial protection programs. The problem is partly due to the nature of poverty in Moldova and indeed the FSU, where it is difficult to fully explain poverty using conventional variables (as explained above in the regression section), and partly due to Moldova's case-based system being overwhelmed by a flood of applicants who can not easily be processed on a case-by-case,individual basis in a system where there are no real tools (targetedbenefits, public works, training programs) with which to help these applicants help themselves.

See description of the Soviet context in Ukraine by Braithwaite and Hoopengardner(1997).

15 Technical Paper II

IV. A. IncidenceAnalysis

Incidence analysis is a technique for studying the targeting performance of a social protection system.

An illustration of the low targeting performance of the system is somewhat indicated by comparing the per capita average amounts of a given benefit received by the poor or the non-poor (Tables 11 and 13). These tables were constructed by summing the total amount of any given benefit or private transfer (and for illustration, a few forms of income reported by households), dividing by the number of household members, and comparing the average per capita amount received by poor households to non-poor households. However, there are several problems with this approach, since it is based per capita (per household member).

Since larger households are poorer, and since per capita amounts are constructed by dividing total amount received by th.e number of household members, the average per capita benefit paid to the poor should almost always appear to be lower than that paid to the non-poor, because the non-poor have a smaller family size on average. Conversely, where one can identify a transfer, bene:Fit,or income item which is larger on a per capita basis for the poor than the non-poor, one can expect that this item would be especially significant for the poor. Unfortunately, there are no state benefits in the Right Bank for which amounts received by the poor on a household per capita basis are greater than those received by the non-poor, but this is true for private transfers (income received from non- specific "other individuals" and from individuals in Russia). In Transnistria, poor households did report receiving significantly more on average than did non-poor households for child allowances, suggesting that child allowances might be better- targeted in Transnistria.

Also telling are those cases on a per capita basis when either not a single recipient household was poor (for the Right Bank, this includes alimony and the state benefit for care of an elderly or disabled family member, and the social pension paid to those with inadequate stazh (work tenure), while for Transnistria, no household reporting receipt of the state benefit for care of an elderly or disabled family member or a survivors' pension or an early retirement pension was pocr) or when the amounts reported by the poor family were so low that on a per capita basis, they were essentially zero (and are shown as zero in this formulation).

Another way to look at the issue of targeting is to consider the percent of recipient households which are poor or not poor. In other words, for all households which reported receipt of any positive amount (or amounts) of a given transfer or benefit, how many were poor and how many were not (Tables 14-15). Tables 14 and 15 are on a population basis, which means that data from the pilot household data set were weighted to sum to the total of the population in Moldova.12 The final column gives one some idea of how many

12 Details of the weights are provided in an annex to Okrasa (1997).

16 Poverty in Moldova: Pilot Results for February 1997 households did not report receipt of a given benefit or transfer. For example, in Table 14, less than 0.1 percent of Right Bank households reported receipt of an unemployment benefit, so this particular finding about the unemploymentbenefit being distributed slightlymore to the poor than to the non-poor should not be viewed as representativefor the Right Bank area--simplybecause too few households reported receiving this sort of benefit.

Unfortunately,this non-representativefinding for the unemploymentbenefit in the Right Bank is the only example of a benefit (or private transfer, or income type) which is received by more poor households than non-poor households. In both Transnistria and the Right Bank (Tables 14 and 15), more non-poor households receive all the sorts of governmentbenefits included than do poor households, with 100 percent of these benefits "leaking" to the non-poor: maternity and sickness pay and social pensions in the Right Bank, and the benefit for the care of an elderly or disabled family members, the survivors' benefit pension, and the early retirementpension in Transnistria.

There are much more sophisticatedapproaches to incidence analysis than the few presented here (Milanovic 1997), but some technical problems with manipulatingthe data base in its current free-form diary format made it difficult to implement any of these approaches by the deadline for this incomplete first draft.13

IV. B. Pensions, Child Allowances, and Privileges

The pension system in Moldova is currently in financial crisis, and public dialogue over reform options is active and pointed at times. It might be useful to review the implicationsof the poverty profile and the incidence analysis for this debate. Although detailed information on the incidence analysis of child allowances was not available at the time of writing this partial first draft, previous work in Moldova (Mabbett 1994a, 1994b) and the experience of neighboring countries (Russia, Ukraine, and Armenia) suggest stronglythat of all the various benefits offered in Moldova, only the child allowance was at all pro-poor. Since the child allowance only accounts for a small percent of total expenditureson social protection, it is the most cost-effectivetransfer in Moldova today.

13 Again, as noted previously, there were problems verifyingthe algorithms used by the Moldovan team to produce subcomponentsof income items such as governmenttransfers. One of the worst technical issues was the use of a free-form diary for expenditureand income items, which then was precoded by the Moldovanteam, tagging various individual items. These were then aggregatedby the team to produce six basic "analytic" files and 22 "raw data files." However, the aggregationused by the Moldovan team was not very precise for governmenttransfers, which were more or less lumped together in one of the six basis "analytic" files. This meant that informationfor the incidence analysishad to be reconstructed from using the six- or eight-digitcodes provided in one of the 22 raw data files, a file itself which had more than 16,000 observationsfor the Right Bank alone. Of course, this awkward structure was then repeated for Transnistria. It is strongly recommendedthat the Moldovan team switch to a more standard format for its database construction, learning from the pilot experience,since in practice, it is extremely difficult to extract the necessary informationquickly for precise analysis of many important variables, including individual cash transfers from the Moldovan government.

17 TechnicalPaper 11

As shown in the poverty profile above, children are at much greater risk for poverty than the elderly, regardless of whether the elderly are pensioners who actually receive their pension or not. Indeed, so many Moldovans are eligible for one kind or another of pensions that resources are not available for paying child allowances on time, much less increasing their level.

In Moldova, all four major types of pensions appear to be poorly targeted, with the worst offenders being the early retiremnentpensions (za vyislugu let) and puzzling enough, social pensioners in the Right Bank, although few old-age pensioners are at real risk for poverty.14 Disability pensions award in Moldova and other FSU countries soared in 1992-93 for two major reasons: this was really a disguised form of firing people, and people could bribe the VTEK (expert commission of doctors which certify labor disability) for the certificate more readily and with less fear of being caught than previously (De Soto and Dudwick 1997).

The quantitative findings of this study and several others in the FSU (World Bank, various poverty reports) and the general region including Eastern Europe (Grootaert and Braithwaite 1997; Milanovic 1997; Milanovic 1996; Milanovic 1995; Krumm, Milanovic, and Walton 1995) have al]Ldocumented repeatedly that the elderly are not especially at risk for poverty in the FSTJ, and in Moldova. Yet individual stories are heartbreaking (De Soto and Dudwick [L997,author interviews in region Spring 1997), and there is an extremely strong public perception that pensioners are especially needy. De Soto and Dudwick (1997) argue strongly that these perceptions relate to the contrast between the difficulties of the transition period and the nostalgic perceptions of the previous period. Certainly, the relative price of food has increased and Moldovans are aware that they are spending a higher proportion of their household budget on food and other necessities than they were previcusly (Tables 16 and 17). At any rate, there is no evidence presented either in this quantitative study, in Lindauer 1997, in De Soto and Dudwick 1997, or in previous work on Moldova (Mabbett 1994a, 1994b) which suggests that pensioners are especially poor in Moldova.

The implication of this findingyand the poverty profile are that first and foremost, children should be the major focus of social protection efforts. In a non-scientific sample of social workers interviewed in Chisi-nau city and region and Orhei region, every single social worker named families with children (especially with many children) as the worst- off of their clients (author interviews Spring 1997). Yet there are few ways that social workers can actually help clients with children, particularly the working poor who may have a job on paper, but haven't been paid in months.

14 Social pensions are lower than the minimum old-age pension, and are paid to those with inadequate stazh (work tenure), who typically are women. Since most elderly women do not live alone (particularly not in the Right Bank), the implications of the household unitary model and the per capita poverty line used in this study meant that none who actually received their pension were found to be poor. The problem is that we can not be sure how many people were eligible for a pension, but did not receive it, since the household survey was not constructed to provide a detailed analysis of social assistance and insurance beneficiaries.

18 Poverty in Moldova: Pilot Results for February 1997

The inability of social workers to help families with children stems from a lack of proper tools (such as a poverty-targetedcash benefit from the government),which in turn is caused by a catastrophic lack of financing for targeted social protection. Here the major contributors to the financial crisis are the untargeted system of pensions noted above, and the prevalence of special privileges(I'goty) which are collected by only those savvy enough to know about the system of privileges and those with the ability to manipulate it--traits which were conspicuouslyabsent in the poor in Moldova (De Soto and Dudwick 1997).

Moldova, like many FSU countries,has a bewildering array of special privileges for specific categories of people deemed to be needy. These special privileges are the provision of no-cost or low-cost food and consumer goods and services, especially fuel such as coal, and reduced fares for inter- and intra-city transportation. Along with the rest of the FSU, Moldova in general and sometimes specific localities, adopted these privilegesin an ad hoc and unorganizedway. However, based on information from the Government of Moldova, the list of such privilegesin Moldova seems at least as long or longer than the privileges maintainedby the central Russian government.15

Such privileges are expensive for the economy as a whole. Someone (usually a state-owned enterpriseor newly-privatizingenterprise or a local or central government) has to cover losses caused by distributing goods at prices below cost. Such implicit subsidiesmean that resources are diverted towards covering these costs while the privilegesthemselves are not received by the most needy. Additionally,there is a real cost in time and human energy in managingsuch essentiallybarter transactions. The householdmust make arrangementsto pick up the goods or to use the service. Meanwhile, social workers, alreadyoverwhelmed by a greatlyincreased case load, must try to figure out how to get perishablefood to client A, to help client B use the coal privilege, to get client C to point D to pick up item E...the deadweight loss from these activitiesis staggering to contemplate.

Since in Moldova, the list of those eligible for privileges is essentially many variations on the theme of those categories thought to be vulnerable in the previous social protection system,these privileges are not going to the non-poor. In the poverty profile section, it was demonstratedthat the largest categoryof the poor are families with children. For example, the data calculatedfrom Table 18 demonstrate that 77 percent of poor households in the Right Bank, 66 percent in Transnistria,and 76 percent of poor households in Moldova have at least one child member under the age of 15.

Typically for the systemof privileges,if someone in the household has a formal job (regardlessof whether that person has been paid), they are ineligible for the privilege.

15 A list of special privileges in Russia was published in the journal Chelovek i Trud (No. 9, 1996) available to specific groups. A superficial comparison with the Government of Moldova list and this article suggests that the array of privileges is at least as large in Moldova or larger than in Russia.

19 TechnicalPaper I1

This means that most families with children are excluded from privileges, except for families with "many" children, defined variously in the system of privileges and child allowances (usually 3 or 4 or more). Of course, relatively fewer families have that many children (Table 4), so most families with one or two children are not receiving special help from the system of privileges.

At the same time, the genuine devotion of Moldovan social workers to their clients may mean that some families in especially dire circumstances receive privileges on an ad hoc or arbitrary basis. Also, the repeated use of the cash benefit for urgent help is also sometimes a last resort of social workers. Technically this benefit is supposed to be used "one-time only" for a crisis such as a fire which destroys the home or some other cataclysmic event. However, people do what they can to help others, and this benefit and privileges are sometimes used by social workers in ways not covered by the existing legislation. Unfortunately, these acts of mercy and any system which is essentially arbitrary and not based on clear rules and a good definition of who is poor are both likely to be perceived by those who do not get such extra help as unfair, and this has clearly happened in Moldova (De Soto and ])udwick 1997).

IV. C. Proxy Means Tests and Targeting

Moldova's difficulty in deterraining the poor is not unique. In the FSU in general, strong poverty correlates of the type demonstrated by data from Latin American and African countries are absent. However, it is not true that lack of strong poverty correlates precludes improvements in targeting. First, most benefits are regressive, and this is true in Moldova, Russia, and the majority of FSU countries. Almost any targeting device would lead to improved outcomes in such a case. Even more significantly, proxy means tests have been found to lead to acceptable targeting outcomes even in the absence of strong poverty correlates (Grootaert and Braithwaite 1997).

A proxy means test is a method to estimate household consumption or welfare without requiring extremely detailed information about household income. In countries such as Moldova, Russia or Chile, wlhere there is a large informal sector, it can be very difficult and administratively very costly to verify true household money income. Furthermore, in Moldova and other countries, a very significant part of household food consumption comes from food grown on private garden plots. It can be very difficult to estimate the true value (impute the value correctly) of home-produced goods, since typically, they are produced with "costless" family labor and their quality may be different than, for example, food items which are produced for sale.

In proxy means tests, rather tlhan trying to measure total income perfectly, information is collected on items which are much easier to measure and verify, such as the number of children in the family, etc. These variables should be ones which are known to correlate with poverty in the country, and ideally, which are easy to measure and thus require little administrative cost to verify. The first large-scale use of proxy means-testing occurred in Chile in ttLelate 1970s and 1980s, in a program called the

20 Poverty in Moldova: Pilot Results for February 1997

Ficha CAS (card for social assistance). Since 1994, Costa Rica and Columbia have adopted proxy means-tests for some of their social assistance programs,Mexico is about to start a proxy means-testprogram, and Argentina and Venezuela are actively consideringthe idea.

The measure of household welfare used here is total household consumption, which includes the household's own estimate of the value of food and other goods it produced and consumed and the value of all household reported purchases of food, non- food goods, services, and mniscellaneousother purchases. Total household consumption is then divided by the number of householdmembers to generate per capita consumption. Thus, below per capita is understoodto be "per household member."

The next step was to try to measure the correlation between household welfare (per capita consumption) and other easily-measuredvariables. The technique used was stepwise least squares regression,in which variables are excluded if they are not significantlycorrelated with per capita expenditures. Technicallyspeaking, this technique should only be used for variableswhich are thought to be independent (exogenous)and not directly correlated with each other. However, since we are only trying to find proxies (substitutes) for poverty which are more easily measured than household expenditures(rather than trying to decide what determines poverty) we can ignore this caveat in this context.

However, the relatively poor performanceof the Moldova pilot data meant that the proxy means test was less successfulthan those done for other FSU countries. Few regressors were able to meet the entry criteria for the stepwiseregression. In the Right Bank, all of the household compositionvariables (children, male and female adults, elderly), whether the head had higher education, and whether or not the household had a car or a private plot, were all included into the specification. Using all these estimated coefficients, approximately76 percent of households could be correctly predicted to be poor or not poor. The prediction was slightly better for the poor--78 percent of poor households were correctly identified by the proxy means test.

In Transnistria, the proxy means test performed essentially as well as in the Right Bank, identifyingcorrectly 75 percent of households and 78 percent of poor households. However, the admitted regressors were quite different--the Transnistriaproxy means test did not include the elderly (unlike the Right Bank) nor higher education. Instead, variables such as the age of the householdhead and the age squared (this approximatesa life cycle effect) as well as rural location were found to be significant predictors of the poverty status of the household.

Curiouslyenough, the performanceof proxy means tests for both the Right Bank and Transnistriasignificantly worsened if imposed on only the lower half of the distribution. Overall errors increased to 42 and 36 percent respectively, which are not acceptablerates for using the proxy means test for targeting exclusively to the lower part of the distribution. This is in sharp contrast to the experience of other data sets for the

21 TechnicalPaper II region (Grootaert and Braithwaite), and suggests that the pilot data are unusually non- robust, since the proxy means tests based on the full sample correctly identified 78 percent of the poor households. It is not clear why restricting the sample to the lower part of the distribution should worsen the predictions of consumption so starkly.

V. Conclusionsand Policy Recommtendations

Moldova's system of social protection is stressed beyond a level which can be maintained. Urgent reforms are needed to get the system back on track and to have focus on those who are actually poor in the country, instead of wasting resources on those who are not as needy. The situation is a challenge for any government that has endured 5 years of declining or very slow growing GDP--there's simply not enough to go around, and everyone rightly feels poorer than before. Solving these macroeconomic problems is a task for the government which is beyond the scope of this paper, but its importance clearly comes through from this analysis, from Lindauer 1997, and from De Soto and Dudwick 1997.

From strictly the poverty point of view, there are two key questions awaiting resolution: land reform and reform of the pension system. Early land reform (1992) was shown to keep most of the rural population of Armenia out of poverty (World Bank Poverty Assessment; Braithwaite 1995; Holt 1995; Dudwick 1995). With the bulk of the poor in Moldova living in rural areas of the Right Bank, land reform is clearly a pressing task.

Pension reform is also a clear priority for financial stability in Moldova, but there are important poverty implications for the direction of that pension reformn. Pensioners are not the poor in Moldova, and most pensioners are among the better off in the country, in spite of the continued payments crises in the pension system suffered until mid-1997.

Resources are being spent on the non-poor, while families with children are not being adequately helped by the system. The social protection system is in desperate need of rationalization, so that resources could be freed to create a poverty benefit (or sometimes called a family benefit) of last resort for families with children. Once there is the possibility of financing such a benefit, it should be properly targeted. Once non-pilot data are available from the national household survey, and following on from further regression analysis of the poverty profile (as done in Grootaert and Braithwaite 1997), it should be possible to significantly irmprove the targeting of the system by using a proxy means test for benefit eligibility.

A proxy means test is a formula for determining eligibility for a poverty benefit which is based on information from a nationally representative household survey. Poverty correlates are determined from household survey data and used to construct a household score, which then is used to determine whether the household is eligible for a poverty benefit. The idea first surfaced in Chile, where it was implemented in the Ficha CAS program (Grosh 1994). Currently, experiments are underway in the region (in

22 Poverty in Moldova: Pilot Results for February 1997

Armenia and in Volgogradoblast, Russia) to bring this technique to social protection authorities.16Using the rich source of the forthcomingquarterly or semi-annualnational household survey, it should be possible to extend this technique to Moldova.

However, without serious decisions about pension reform and eliminating the system of privileges,Moldova will not have the financial resourcesnecessary to adopt such a poverty-targetedbenefit, nor to help its poor families--especiallythose with children.

16 The Government of Armenia and the World Bank are collaborating on research work under the general direction of Margaret Grosh (Grosh 1994)for refining the Paros program currently used to distribute humanitarianassistance. It is expected that these findings will be used by the Government of Armenia to introduce a targeted poverty benefit (called the familybenefit) in the near future. Additionally,the technique is being used experimentallyin Volgograd oblast as part of the Social Protection Adjustment Loan from the World Bank to the Governmentof Russia. Details of the Volgograd conceptual framework are available in both English and Russian (Braithwaite 1997) and the Volgograd authorities have agreed to make public the implementationexperience and documentationused, once the experimentalprogram has been nationally evaluated.

23 Technical Paper II

Bibliography

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Braithwaite, Jeanine. "General Concepts for Proxy Means Testing In Russia." Mimeo. February 14, 1997.

. Two Chapters in Jeni Klugman (Ed). Poverty in Russia: Public Policy and Private Responses. 1997. Washington, DC: The World Bank, 1997.

. 1994. Poland: , Report No. 13051-POL, Washington, DC: September.

. "Armenia: A Poverty Profile." ESP Working Paper No. 80. World Bank, 1995.

. "From Second Economy to Informal Sector: The Russian Labor Market in Transition." Background paper for Russian Poverty Assessment. ESP Working Paper. World Bank, 1995.

_ "The Old and New Poor in Russia: Trends in Poverty." Background paper for Russian Poverty Assessment. ESP Working Paper. World Bank, 1995.

. "The Social Safety Net in Arrnenia." Chapter in World Bank. Armenia: Country Economic Memorandum. Forthcoming 1994. Edited version in World Bank. Armenia: Overview of Recent Development and Reform Priorities. Prepared for the Consultative Group Meeting for Armenia. October 12, 1994.

Braithwaite, Jeanine D. and Timothy G. Heleniak. "Social Welfare in the USSR: The Income Recipient Distribution." Center for International Research, US Bureau of the Census, September 1989.

Conniffe, Denis. "The Non-Constancy of Equivalence Scales." Review of Income and Wealth. No. 4. pp. 429-44:3. December 1992.

Deaton, Angus and John Muellbauer. "On Measuring Child Costs: With Applications to Poor Countries." Journal of Political Economy. Vol. 94. pp. 730-744. 1986.

De Soto, Hermine and Nora Dudwick. "Poverty in Moldova: A Qualitative Study. June 1996-May 1997." Mimeo. 1997.

24 Poverty in Moldova: Pilot Results for February 1997

Dudwick, Nora. "A Qualitative Assessmentof the Living Standards of the Armenian Population: October 1994-March1995." Mimeo. 1995.

Fisher, Franklin. "Household EquivalenceScales and InterpersonalComparisons." Review of Economic Studies. 1987. pp. 519-524.

Folbre, Nancy. "Children as Public Goods." AmericanEconomic Review, Papers and Proceedings. Vol. 84. pp. 86-90. May 1994.

"EngenderingEconomics: New Perspectives on Women, Work, and DemographicChange." Paper for World Bank's Annual Bank Conferenceon DevelopmentEconomics. May 1995.

Foley, Mark. "Family Allowancesin Russia: Progressivityand EquivalenceScale Implications." Mimeo. August 1993.

Gregory and Stuart. The Soviet Economy. 1991.

Grootaert and Braithwaite. "The Determinantsof Poverty in Eastern Europe and the Former Soviet Union." Draft. Mimeo. 1997.

Grosh, Margaret. AdministeringTargeted Social Programs in Latin America: From Platitudesto Practice. World Bank. 1994.

Haddad, Lawrence and Ravi Kanbur. "How Serious is the Neglect of Intra-Household Inequality?" Economic Journal (U.K.). Vol. 100. pp. 866-881. September 1990.

Haddad, Lawrence, John Hoddinott, and Harold Alderman. "IntrahouseholdResource Allocation: An Overview." US: World Bank, Policy Research Working Paper, No. 1255, February 1994.

Hentschel, Jesko and Peter Lanjouw. "Constructingan Indicator of Consumptionfor the Analysis of Poverty: Principles and Illustrationswith Reference to Ecuador." Living Standards MeasurementStudy Working Paper No. 124. World Bank. 1996.

Klein, Thomas. "A SpecificationSeparating Family Size and Individual Age Effects on Subjective EquivalenceScales: A Note." Review of Income and Wealth. No. 2. pp. 209-219. June 1988.

Lanjouw, Peter and Martin Ravallion. "Poverty and Household Size." Economic Journal (ULK)Vol. 105. pp. 1415-1434. November 1995.

Lanjouw, Peter. "The Purpose and Importance of a PovertyLine in Central Asia." in Falkingham,J. et al. Household Welfare in Central Asia. MacMillan, 1996.

25 TechnicalPaper 11

Lindauer, David. "Labor and Poverty in The Republic of Moldova." Mimeo. August. 1997.

Nelson, Julie. "Methods of Estimating Household Equivalence Scales: An Empirical Investigation." Review of Income and Wealth. No. 4. pp. 295-310. September 1992.

Okrasa, Wlodek et al. Notes on the M[oldova Pilot Survey. Mimeo. 1997.

Ravallion, Martin. "Poverty Comparisons: A Guide to Concepts and Methods." World Bank. Living Standards Measurement Study Working Paper No. 88. 1992.

Sen, A. K. "On Weights and Measures: Informational Constraints in Social Welfare Analysis." Econometrica. Vcjl.45. No. 7. pp. 1539-1572. October 1977.

. "The Welfare Basis of Real Income Comparisons: A Survey." Journal of Economic Literature. Vol. 17. pp. 1-45. 1979.

. "The Living Standard." Oxford Economic Papers. N.S. 36 (supplement). pp. 74-90. 1984.

. Commodities and Capabilities. : North-Holland, 1985.

Subbarao, K. et al.. Safety Net Programs and . Directions in Development. Washington, [DC: The World Bank, 1997.

Van Der Gaag, Jacques and Eugene Smolensky. "True Household Equivalence Scales and Characteristics of the Poor in the United States." Review of Income and Wealth. No. 1. pp. 17-28. Tvlarch1982.

World Bank. 1996a. Armenia: Conjronting Poverty Issues. Report No. 15693-AM. Washington, DC.: June.

. 1996b. Belarus: An Assessment of Poverty and Prospects for Improved Living Standards, Report No, 15380-BY. Washington, DC: June.

. 1996c. Estonia: Living Standards During the Transition, Report No. 15647-EE Washington, DC.: June.

I . 1996d. Hungary: Poverty and Social Transfers, Report No.14658-HU. Washington, DC: March.

_ 1995a. Kyrgyz Repubi'ic: Poverty Assessment and Strategy, Report No.14380-KG, Washington., DC: May.

26 Poverty in Moldova: Pilot Results for February 1997

. 1994. Poland: Poverty in Poland, Report No. 13051-POL, Washington, DC: September.

_ 1995b. Russia: Poverty in Russia: An Assessment, Report No. 141 10-RU, Washington,DC: June.

. 1995c. Ukraine: Poverty in Ukraine, Report No.15602-UA, Washington, DC: June.

27

Poverty in Moldova: Pilot Results for February 1997

Annex 1: Text Tables

Table 1: Moldova: Poverty Measures, February 1997

Right Bank Transnistria Moldova

Overall

Headcount 23.5 22.6 23.3 P1 measure2 7.5 7.9 7.5 Poverty gap 3/ 31.9 35.1 32.4 P2 measure 4' 3.5 4.3 3.6

Major City/Other Urban/Rural 5/

Major City Headcount 11.3 20.1 13.7 P1 measure 2' 4.1 8.5 5.2 Poverty gap measure 31 35.8 42.0 37.5 P2 measure 4' 2.0 5.1 2.8

Other Urban Headcount 22.8 28.2 24.3 P1 measure2 ' 6.7 9.7 7.5 Poverty gap measure 31 29.5 34.4 30.8 P2 measure 4' 3.0 5.4 3.6

Rural Headcount 27.5 18.0 26.7 P1 measure 2' 8.8 4.8 8.5 Poverty gap measure 3/ 32.0 26.6 31.6 P2 measure 4' 4.2 1.8 4.0

(Continued)

29 Technical Paper 11- Annex 1

Table 1: Moldova: Poverty Measures, February 1997 (Continued)

Right Bank Transnistria Moldova 1

Family Composition 6!

No Children, No Elderly Members Headcount 12.6 13.2 12.7 P1 measure 2 ' 3.4 5.4 3.9 Poverty gap measure 31 26.9 40.9 30.2 P2 measure 4' 1.4 3.2 1.8

Children, but no Elderly Mermbers Headcount 29.9 31.2 30.1 P1 measure 21 10.1 10.7 10.2 Poverty gap measure 3/ 33.8 34.2 33.8 P2 measure 4' 5.0 6.1 5.1

Elderly Members, but no Children Headcount 17.0 16.2 16.8 P1 measure 2' 4.5 3.7 4.3 Poverty gap measure 3/ 26.3 22.8 25.6 P2 measure 4' 1.9 1.4 1.8

Both Children and Elderly lembers Headcount 23.7 39.4 26.4 ' P1 measure 2 7.0 14.9 8.4 Poverty gap measure 31 29.6 37.8 31.0 P2 measure 4 ' 2.7 6.8 3.4

Source: Author estimatesfrom MoldovanPilot Household Survey, 1997. Notes: " Moldovan totals are the weighted (by population) average of the individual measures for Right Bank and Transnistria. 2' Foster-Greer-Thorbecke P1 measure sometimes called "depth" of poverty (see text). 31 Poverty gap terminology from Grootaert and Braithwaite (1997, see text). 4/ Foster-Greer-Thorbecke P2 measure often called "severity" of poverty (see text). 5' For Right Bank, the major city is the capital of Moldova, Chisinau. For Transnistria, the major city is Tiraspol. 6/ Family composition was defined as follows: children are under the age of 14 and elderly are over the age of 65. Adults are aged 14-64.

30 Poverty in Moldova: Pilot Results for February 1997

Table 2: Moldova: Various Poverty Lines, Sensitivity and Exchange Rates, February 1997

1 Right Bank Transnistria 2/ Poverty Headcounts Poverty Headcounts Lines Lines

Alternative Poverty Lines

40% of Unweighted Per Capita Consumption 67.12 23.5 7,831 22.5 40% of Sample Weighted Per Capita Consumption 69.41 24.7 8,059 23.4 40% of Population Weighted Per Capita Consumption 59.32 19.0 8,286 23.8 SarkisiyanMinimum ConsumptionBasket (MCB) 415.00 96.9 62,250 98.0 SarkisiyanMCB Food Portion Only 201.00 78.7 30,150 84.6 Absolute Minimum PPP Per Capita Poverty Line 3/ 14.40 0.9 2,160 2.8 Market Exchange Rate $3/day Per Capita Line 4/ 140.28 61.4 21,042 74.8 UnweightedPC crossed with Market Exchange Rate 5' 52.21 13.7 10,067 36.4 Sample Weighted PC crossed with Market Ex Rate 5t 53.73 14.5 10,411 38.9 Population Weighted PC crossed with Market Ex Rate 5/ 55.24 15.6 8,899 27.7 New Line as 90 percent of Base Line 6/ 60.40 19.3 7,048 17.6 New Line as 80 percent of Base Line 6/ 53.69 14.5 6,265 13.7 NewLineas 10percentofBaseLine 6' 73.83 28.1 8,615 25.9 New Line as 120 percent of Base Line 6/ 80.54 33.1 9,398 31.4 OECD Per Equivalent Consumption 67.12 11.8 7,831 11.9

(Continued)

31 Technical Paper II - Annex I

Table 2: Moldova: Various Poverty Lines, Sensitivity and Exchange Rates, February 1997 (Continued)

Right Bank Transnistria Percent Percent Percent Percent Change Change Change Change in Poverty in in Poverty in ______Line_ Headcount Line Headcount

Sensitivity Measures4/

40% of Sample Weighted Per Capita Consumption 3.4 5.1 2.9 4.0 40% of Population Weighted Per Capita Consumption -11.6 -19.1 5.8 5.8 Sarkisiyan MinimumConsumption Basket (MCB) 518.3 312.3 694.9 335.6 Sarkisiyan MCB Food Portion Only 199.5 234.9 285.0 276.0 Absolute MinimumPPP Per Capita Poverty Line 3/ -78.5 -96.2 -72.4 -87.6 Market Exchange Rate $3/day Per Capita Line 4' 109.0 161.3 168.7 232.4 UnweightedPC crossed with Market Exchange Rate 5' -22.2 41.7 28.6 61.8 Sample Weighted PC crossed with Market Ex Rate ;' -19.9 -38.3 32.9 72.9 Population Weighted PC crossed with Market Ex Rate 5/ -17.7 -33.6 13.6 23.1 New Line as 90 percent of Base Line -10.0 -17.9 -10.0 -21.8 New Line as 80 percent of Base Line -20.0 -38.3 -20.0 -39.1 New Line as 110 percent of Base Line 10.0 19.6 10.0 15.1 New Line as 120 percent of Base Line 20.0 40.9 20.0 39.6 OECD Per Equivalent Consumption 0.0 49.8 0.0 47.1

Exchange Rates

Lei-Dollar 4.676 (1 US$ = 4.676 ML) Lei-Russian Ruble 82.52 (100,000 Russ R = 82.52 ML) Lei-PPP (February 1997) 3/ 0.48 Official Lei-Transnistrian Ruble Cross Rate 126 (1 ML= 126,000 TRR) Estimated Market Lei-TransnistrianRuble Crcss Rate 150 (1 ML=150,000 TRR)

Source: Author estimatesbased on official data and estimated market rate for ML-TRR from Wlodek Okrasa. Notes: Unless otherwisenoted, crosses made into Transnistrianrubles were done at the estimated market ML/TRR rate. ' Poverty lines in Right Bank are expressed in Moldovan lei per person per month. Headcountsare percent of Right Bank population. 2/ Poverty lines in Transnistria are expressed in 10)00Transnistrian rubles per person per month. Headcounts are percent of Transnistrianpopulation. 3' Based on a 1993 PPP rate of US $1 = 0.16 lei, irnflatedto February 1997 by the CPI, yielding US$1 = 0.48 PPP lei and the World Bank Absolute MinimumPoverty Line of $1 per person per day and 30 days per month. 4/ Based on the February 1997 market exchange rate (lei to dollar) and $30 (that is, $1 per person per day). For Transnistria,this number crossed by the estimatedmarket exchangerate. 5' For Right Bank, the first three poverty lines from Transnistria crossed into lei at a rate of 150 TRR = 1 ML. For Transnistria,the first three poverty lines from Right Bank crossed into Transnistrian rubles at a rate of I ML = 150 TRR. 61 Using the unweighedper capita consumptionline as the base for calculating percent changes in poverty lines and in their associatedheadcounts.

32 Poverty in Moldova: Pilot Results for February 1997

Table 3: Moldova: HouseholdSize and Poverty Status

Number of Household Right Bank Transnistria Country Members

Headcount (PO,in percent)

1 7.7 9.1 8.0 2 13.9 14.7 14.1 3 19.4 22.2 20.0 4 21.7 27.7 22.6 5 34.9 32.2 34.6 6 32.2 48.3 34.0 7 24.6 0 22.9 8 63.1 ... 63.1 9 100.0 ... 100.0 Total 23.5 22.6 23.3

Poor (Number)

1 19,514 7,639 27,152 2 73,717 24,811 98,527 3 129,719 37,959 167,678 4 214,419 46,269 260,688 5 229,271 25,999 255,270 6 107,891 19,728 127,619 7 28,054 0 28,054 8 22,105 ... 22,105 9 19,938 ... 19,938 Total 844,627 162,405 1,007,032

Population (Number)

1 254,702 83,692 338,393 2 531,652 168,823 700,475 3 667,086 170,734 837,819 4 988,150 166,958 1,155,108 5 656,042 80,758 736,800 6 334,913 40,877 375,790 7 114,027 8,362 122,389 8 35,023 ... 35,023 9 19,938 ... 19,938 Total 3,601,534 720,203 4,321,736

Source:Author estimates based on data fromMoldovan Pilot HouseholdSurvey, February1997.

33 TechnicalPaper ! - Annex I

Table 4: Moldova: ChildrenUnder 14 and Poverty Status

Number of Children Under 14 Right Bank Transnistria Moldova

Headcount (Percent)

0 14.0 14.0 14.0 1 21.8 30.7 23.0 2 31.7 37.9 32.6 3 41.1 ... 39.6 4 35.5 ... 35.5 5 48.9 ... 48.9 6 ... 7 100.0 ... 100.0 Total 23.4 22.6 23.3

Poor (number)

0 187,110 55,084 242,194 1 224,400 51,729 276,129 2 263,015 55,593 318,608 3 129,332 0 129,332 4 2.0,832 0 20,832 5 8,521 0 8,521 6 0 0 0 7 11,417 0 11,417 Total 844,627 162,405 1,007,032

Population (number)

0 1,337,801 393,125 1,730,926 1 1,030,678 168,551 1,199,229 2 831,105 146,626 977,731 3 314,435 11,901 326,336 4 58,660 0 58,660 5 17,438 0 17,438 6 0 0 0 7 1.1,417 0 11,417 Total 3,601,534 720,203 4,321,737

Source: Authorestimates based on datafrom Moldovan Pilot Household Survey, February1997.

34 Poverty in Moldova: Pilot Resultsfor February 1997

Table5: Moldova:Number of Elderlyand PovertyStatus

Number of Elderly Members (Over Age 65) in the Household Right Bank Transnistria Country

Headcount (PO,in percent)

0 24.4 21.8 24.0 1 21.9 29.0 23.3 2 14.4 11.9 13.9 All 23.5 22.6 23.3

Poor (Number)

0 699,868 119,215 819,083 1 116,449 38,013 154,461 2 28,310 5,178 33,487 All 844,627 162,405 1,007,032

Population (Number)

0 2,871,742 545,683 3,417,425 1 532,882 130,968 663,848 2 196,610 43,552 240,161 All 3,601,234 720,203 4,321,436

Source:Author estimates based on datafrom Moldovan Pilot HouseholdSurvey, February1997.

35 TechnicalPaper II - Annex 1

Table 6: Moldova: Poverty, Age and Gender in Right Bank, February 1997

No. o population In percent of total Poor N,-n-poor Total Poor Non-poor Total

Children under 5 80,798 178,166 258,964 31.2 68.8 100.0 Children 5 to 9 114,893 210,415 325,308 35.3 64.7 100.0 Children 10 to 14 83,380 259,241 342,621 24.3 75.7 100.0 Children 15 to 19 50,382 220,877 271,259 18.6 81.4 100.0 Adults 20 to 29 137,529 358,034 495,563 27.8 72.2 100.0 Adults 30 to 39 133,633 401,582 535,216 25.0 75.0 100.0 Adults 40 to 49 93,521 427,088 520,609 18.0 82.0 100.0 Adults 50 to 59 62,959 239,856 302,816 20.8 79.2 100.0 Adults 60 to 69 48,307 263,300 311,607 15.5 84.5 100.0 Extremely aged"' 39,225 198,346 237,571 16.5 83.5 100.0

______M ales

Children under 5 52,131 107,658 159,788 32.6 67.4 100.0 Children 5 to 9 58,552 101,397 159,949 36.6 63.4 100.0 Children 10 to 14 52,545 139,160 191,705 27.4 72.6 100.0 Children 15 to 19 22,942 97,594 120,536 19.0 81.0 100.0 Adults 20 to 29 63,850 166,975 230,825 27.7 72.3 100.0 Adults 30 to 39 64,235 197,539 261,774 24.5 75.5 100.0 Adults 40 to 49 43,216 190,647 233,862 18.5 81.5 100.0 Adults 50 to 59 28,045 96,775 124,820 22.5 77.5 100.0 Adults 60 to 69 22,014 1.05,028 127,042 17.3 82.7 100.0 Extremely aged"' 15,031 71,071 86,103 17.5 82.5 100.0

Females

Children under 5 28,667 70,509 99,176 28.9 71.1 100.0 Children 5 to 9 56,341 109,018 165,359 34.1 65.9 100.0 Children 10 to 14 30,835 120,081 150,915 20.4 79.6 100.0 Children 15 to 19 27,440 123,283 150,723 18.2 81.8 100.0 Adults 20 to 29 73,676 191,059 264,738 27.8 72.2 100.0 Adults 30 to 39 69,399 204,043 273,442 25.4 74.6 100.0 Adults 40 to 49 50,305 236,442 286,747 17.5 82.5 100.0 Adults 50 to 59 34,914 143,082 177,996 19.6 80.4 100.0 Adults 60 to 69 26,293 158,272 184,565 14.2 85.8 100.0 Extremely aged"' 24,194 127,275 151,469 16.0 84.0 100.0

Source: Author estimates based on data from Moldovan Pilot Household Survey, February 1997. " Extremely aged are those age 70 and above.

36 Poverty in Moldova: Pilot Results for February 1997

Table 7: Moldova: Poverty, Age and Genderin Transnistria,February 1997

No. of population In percent of total Poor Non-poor Total Poor Non-poor Total

Children under 5 4,287 14,924 19,211 22.3 77.7 100.0 Children 5 to 9 14,226 31,298 45,524 31.2 68.8 100.0 Children 10 to 14 22,472 44,253 66,726 33.7 66.3 100.0 Children 15 to 19 15,926 51,768 67,694 23.5 76.5 100.0 Adults 20 to 29 15,724 85,870 101,594 15.5 84.5 100.0 Adults 30 to 39 27,947 62,922 90,870 30.8 69.2 100.0 Adults 40 to 49 31,108 83,613 114,721 27.1 72.9 100.0 Adults 50 to 59 9,652 72,786 82,437 11.7 88.3 100.0 Adults 60 to 69 9,874 63,331 73,205 13.5 86.5 100.0 Extremely aged"' 11,189 47,033 58,222 19.2 80.8 100.0

Males

Children under 5 2,193 9,553 11,746 18.7 81.3 100.0 Children 5 to 9 9,394 16,594 25,988 36.1 63.9 100.0 Children 10 to 14 9,217 27,890 37,107 24.8 75.2 100.0 Children 15 to 19 6,901 28,212 35,113 19.7 80.3 100.0 Adults 20 to 29 6,053 40,139 46,192 13.1 86.9 100.0 Adults 30 to 39 14,262 24,978 39,240 36.3 63.7 100.0 Adults 40 to 49 16,202 36,127 52,329 31.0 69.0 100.0 Adults 50 to 59 5,397 29,036 34,433 15.7 84.3 100.0 Adults 60 to 69 2,021 29,029 31,050 6.5 93.5 100.0 Extremely aged"' 3,488 9,555 13,043 26.7 73.3 100.0

Females

Children under 5 2,094 5,371 7,464 28.0 72.0 100.0 Children 5 to 9 4,832 14,705 19,536 24.7 75.3 100.0 Children 10 to 14 13,255 16,363 29,618 44.8 55.2 100.0 Children 15 to 19 9,026 23,556 32,581 27.7 72.3 100.0 Adults 20 to 29 9,670 45,731 55,402 17.5 82.5 100.0 Adults 30 to 39 13,685 37,944 51,630 26.5 73.5 100.0 Adults 40 to 49 14,906 47,486 62,392 23.9 76.1 100.0 Adults 50 to 59 4,255 43,750 48,004 8.9 91.1 100.0 Adults 60 to 69 7,854 34,301 42,155 18.6 81.4 100.0 Extremely aged"' 7,701 37,478 45,179 17.0 83.0 100.0

Source: Author estimatesbased on data from MoldovanPilot HouseholdSurvey, February 1997 Extremely aged are those age 70 and above.

37 Technical Paper II- Annex I

Table 8: Moldova: Gender of HouseholdHead and Poverty Status

Gender of Household Head Right Bank Transnistria Country

Headcount (PO, in percent)

Male 23.4 24.3 23.6 Female 23.5 19.5 22.8 All 23.5 22.6 23.3

Poor (number)

Male 550,101 111,982 662,082 female 294,526 50,424 344,950 All 844,627 162,405 1,007,032

Population (Number)

Male 2,346,734 461,006 2,807,740 Female 1,253,970 259,198 1,513,168 All 3,601,534 720,203 4,321,737

Source: Author estimates based on data from Moldovan Pilot Household Survey, February 1997.

38 Poverty in Moldova: Pilot Results for February 1997

Table 9: Moldova: Private Plot and Poverty Status

Whetherthe Household Has A Private Plot Right Bank Transnistria Country

Headcount (PO,in percent)

No plot 16.2 20.5 18.6 Has plot 25.4 25.0 24.9 All 23.5 22.5 23.3

Poor (Number)

No plot 123,180 80,049 203,229 Has plot 721,447 82,357 803,803 All 844,627 162,405 1,007,032

Population (Number)

No plot 760,659 330,032 1,090,691 Has plot 2,840,875 390,171 3,231,044 All 3,601,534 720,203 4,321,736

Source:Author estimates based on data fromMoldovan Pilot Household Survey, February1997.

39 Technical Paper II - Annex I

Table 10: Moldova: Inequality Measures, February 1997

Based on Per Capita Consumption1/

Right Bank (In percent Transnistria (In percent (M. Lei) of total) (1000 Tr r) of total)

First 31.8 2.1 2953.4 1.6 Second 54.0 3.6 6452.0 3.6 Third 69.5 4.6 8240.3 4.6 Fourth 84.5 5.6 9865.1 5.5 Fifth 102.6 6.8 11792.1 6.5 Sixth 125.8 8.3 14459.1 8.0 Seventh 150.7 10.0 17621.6 9.8 Eighth 186.2 12.3 21231.3 11.8 Ninth 241.0 16.0 28688.4 15.9 Tenth 463.4 30.7 59131.7 32.8

Total 1509.6 100.0 180435.0 100.0 Decile ratio 2 14.6 20.0 Gini coefficient, consumption 3' 40.0 40.8 Gini coefficient, gross household income 4/ 39.7 39.5 Gini coefficient, net household income 4' 39.6 39.6

Source: Authorestimates based on data from Moldovan Pilot Household Survey, February 1997. Notes: 1/ Consumptiondefined as the sum of total purchases plus the value of gifts received or given to others (see text). 2/ Percent of consumptionof the top (tenth) decile divided by percent of consumptionof bottom (first) decile. 3/ The Gini coefficient is a measure of inequality. The closer it is to 0, the more equal the distribution. The closer the Gini coefficient is to 100 (percent), the more unequal the distribution. 4/ Income defined by Moldovan team (See Okrasa 1997). On a populationbasis.

40 Poverty in Moldova: Pilot Results for February 1997

Table 11: Moldova: AverageBenefits and Transfers Received by Right Bank Households,February 1997

Per Capita (Per Household Member) Amount Received (Moldovan lei)

Income Received from Resale of Goods Poor 0.0587 Non-poor 1.5004 Average 1.2056

Alimony Poor 0 Non-poor 0.0336 Average 0.0267

Care of Elderly or Disabled Member Benefit Poor 0 Non-poor 0.0345 Average 0.0274

Disability Pension Poor 40.1749 Non-poor 114.9845 Average 99.6912

Child Allowances, all types Poor 0.3526 Non-poor 0.815 Average 0.7205

Old Age Pension Poor 6.5242 Non-poor 15.8067 Average 13.9091

Income Received From Other Individuals Poor 0.3381 Non-poor 6.6974 Average 5.3974

(Continued)

41 Technical Paper ll - Annex 1

Table 11: Moldova: Average Benefits and Transfers Received by Right Bank Households,February 1997 (Continued)

Per Capita (Per Household Member) Amount Received (Moldovan lei)

Income Received from Individuals in Russia Poor 0.2974 Non-poor 0.0639 Average 0.1116

Reported Earnings from the Private Sector Poor 3.1564 Non-poor 9.6639 Average 8.3336

Social Pensions Poor 0 Non-poor 0.0312 Average 0.0249

Student Stipends Poor 0.138 Non-poor 0.8248 Average 0.6844

Survivors Pension Poor 0.138 Non-poor 0.8248 Average 0.6844

Early Retirement Pension Poor 1.7302 Non-poor 5.6956 Average 4.885

Source: Author estimatesbased on data from MoldovanPilot HouseholdSurvey, February 1997.

42 Poverty in Moldova: Pilot Results for February 1997

Table 12. Moldova: RegressionResults, February 1997 Linear Model (DependentVariable is Per Capita Consumption)

Coefficien Standard P> Itl Coefficient Standard P> Itl Estimate Error Estimate Error

Right Bank Transnistria

Constant 122.41 52.41 0.02 43,592.99 10,798.71 0.00 Children 0-13 -24.59 4.09 0.00 -4,213.66 1,150.10 0.00 Elderly -24.12 5.85 0.00 -1,292.32 1,119.90 0.25 Male Adults 14-64 -24.91 6.62 0.00 -2,914.81 1,449.45 0.05 Female Adults 14-64 -25.42 10.82 0.02 -2,669.21 2,221.39 0.23 Higher Education 59.30 13.10 0.00 4,819.36 2,671.54 0.07 Vo-Tech Education 2.23 10.41 0.83 2,222.22 2,252.46 0.33 Primary Education -22.15 16.94 0.19 2,352.55 3,872.84 0.54 illiterate I/ -4.86 28.85 0.87 -2,556.29 9,690.22 0.71 HH Head Age 3.27 2.00 0.10 -684.46 457.18 0.13 HH Head Age Squaredc2 -0.03 0.02 0.19 5.76 5.21 0.27 Not working 3 -2.44 12.93 0.85 2,302.76 2,924.58 0.43 Capital City 15.85 14.79 0.28 316.48 2,857.66 0.92 Rural 9.92 12.05 0.41 3,684.03 2,188.44 0.09 Plot 16.97 14.80 0.25 -2,878.58 2,095.94 0.17

Number of observations 918 2.84 Prob >F 0.00 0.00 R square 0.13 0.16 Adjusted R square 0.11 0.12 Predicted Poor Error 23.97% 23.70%

Source: February 1997 pilot householddata set.

Notes: 1/ Primary and incompleteprimary education comprisedthe omitted variable. Other urban was omitted for location. 2/ Squaring the age of the head of householdapproximates a life-cycle effect, which was found to be significantfor both the Right Bank and Transnistria. 3/ If an individual reported that her/his main source of income was an unemploymentbenefit, social assistance, pension, stipend, or was self-describedas "dependent", then the individual was classified as "not working"for the purposes of this regressionexercise.

43 Technical Paper II - Annex I

Table 13: Moldova: Average Benefits and Transfers Received by Transnistrian Households, February 1997

Per Capita (Per Household Member) Amount Received (1000 Tr r)

Income Received from Resale of Goods Poor 81.2 Non-poor 1288.9 Average 1039.5

Care of Elderly or Disabled Member Benefit Poor 0.0 Non-poor 16.7 Average 13.2

Disability Pension Poor 46.3 Non-poor 145.6 Average 125.1

Child Allowances, all types Poor 109.5 Non-poor 24.8 Average 42.3

Old Age Pension Poor 1619.8 Non-poor 2571.9 Average 2375.3

Income Received From Other Individuals Poor 32.2 Non-poor 300.5 Average 240.0

Reported Earnings from the Private Sector Poor 6.4 Non-poor 797.2 Average 633.9

(Continued)

44 Poverty in Moldova: Pilot Results for February 1997

Table 13: Moldova: AverageBenefits and Transfers Received by Transnistrian Households,February 1997 (Continued)

Per Capita (Per Household Member) Amount Received (1000 Tr r)

Reported Earnings from State-OwnedEnterprises Poor 2588.1 Non-poor 4336.7 Average 3975.7

Student Stipends Poor 33.1 Non-poor 150.2 Average 126.0

Survivors Pension poor 0.0 Non-poor 29.2 Average 23.2

Early Retirement Pension Poor 0.0 Non-poor 257.9 Average 204.7

Source: Author estimates based on data from Moldovan Pilot Household Survey, February 1997.

45 Technical Paper II-Annex I

Table 14: Moldova: Share of Riglit Bank HouseholdsReporting Receipt of various benefits or kinds of income u, by Poverty Status, February 1997

Poor Nonpoor (percent) (percent) Missing cases 2

Alimony 0.0 100.0 3,589,926 Income received from resale of goods 9.2 90.8 3,470,694 Benefit for Care of Elderly 20.4 79.6 471,256 Disability Pension 20.4 79.6 471,256 Individual Labor Activity Income 0.0 100.0 3,593,828 Child Allowances,all types 31.8 68.2 3,483,551 Old Age Pension 17.2 82.8 2,738,610 Income from Other Individuals 12.3 87.7 3,253,647 Income from Individuals from Russia 24.2 75.8 3,585,799 Income from Private Sector 17.9 82.1 3,166,327 Sickness or MaternityBenefit 0.0 100.0 3,570,169 Income from State-OwnedEnterprise 17.1 82.9 2,287,975 Social Pension 0.0 100.0 3,598,092 Student Stipend 15.8 84.2 3,526,702 Survivors Benefit Pension 29.7 70.3 3,564,149 Unemploymentbenefit 64.6 35.4 3,590,100 Early RetirementPension 14.7 85.3 3,517,026

Source: Author estimates based on data fromrMoldovan Pilot Household Survey, February 1997. Notes: 11 If a household reported any positive amounit received of the benefit or income item. Of these households, how many people living in such recipient households were poor or non-poor. 27 Obviously, under-reporting of all income items, including transfers, was substantial.

46 Poverty in Moldova: Pilot Results for February 1997

Table 15: Moldova: Share of TransnistrianHouseholds Reporting Receipt of various benefits or kinds of income 11,by Poverty Status, February 1997.

Poor Nonpoor (percent) (percent) Missing cases 21

Income received from resale of goods 10.1 89.9 667,558 Benefit for Care of Elderly 0.0 100.0 718,182 Disability Pension 22.1 77.9 696,523 Individual Labor Activity Income 0.0 100.0 701,041 Child Allowances,all types 42.9 57.1 666,738 Old Age Pension 14.8 85.2 491,993 Income from Other Individuals 5.3 94.7 643,077 Income from Individuals from none reporting none reporting 720,203 Romania Income from Private Sector 18.2 81.8 680,789 Sickness or MaternityBenefit 41.0 59.0 716,778 Income from State-Owned Enterprise 21.4 78.6 386,938 Social Pension none reporting none reporting 720,203 Student Stipend 4.1 95.9 676,845 Survivors Benefit Pension 0.0 100.0 717,140 Unemploymentbenefit none reporting none reporting 720,203 Early RetirementPension 0.0 100.0 698,091

Source: Author estimatesbased on data from MoldovanPilot HouseholdSurvey, February 1997

Notes: 1/ If a householdreported any positive amount received of the benefit or income item. Of these households, how many people living in such recipient households were poor or non-poor. " Obviously,under-reporting of all income items, including transfers, was substantial.

47 Technical Paper ni- Annex I

Table 16: Moldova: Struictureof Right Bank Monthly Per Capita Consumption", (In percent)

Total Poor Nonpoor Households

Food and beverages 73.2 60.7 63.4 Alcoholic beverages and tobacco 2.5 2.2 2.3 Clothing and footwear 3.2 6.3 5.6 Housing (rents and utilities) 4.1 6.2 5.7 Furniture and household items 2.3 2.3 2.3 Healthcare 1.1 3.2 2.7 Transportation 1.2 1.7 1.6 Miscellaneous2' 2.2 3.1 2.9 Private transfers to others 1.1 3.1 2.6 Consumptionin kind3 ' 8.4 11.2 10.5 Total 100.0 100.0 100.0

Source: Author estimatesbased on data from MoldovanPilot Household Survey, February 1997 Notes: " Based on population weights. Includes the self-reportedvalue of consumption in-kind of food and non-food goods (see note 3). 2/ Sum of communication,entertainment, education, hotels, meals purchased outside the home, insurance,and other miscellaneousexpenclitures. 31 Consumptionin kind. Could include food and/or non-food goods from other households. Does not include consumptionof food in-kind prodlucedby the household's own private plot (which was classified in "food and beverages").

48 Poverty in Moldova: Pilot Results for February 1997

Table 17: Moldova: Structureof TransnistrianMonthly Per Capita Consumption"1 , (In percent)

Total Poor Nonpoor Households

Food and beverages 79.8 67.7 70.4 Alcoholic beverages and tobacco 3.1 2.3 2.5 Clothing and footwear 1.1 5.7 4.7 Housing (rents and utilities) 2.0 2.9 2.7 Furniture and household items 1.7 1.3 1.4 Healthcare 1.2 2.4 2.1 Transportation 1.0 1.4 1.3 Miscellaneous 2.5 3.7 3.4 Private transfers to others 2.1 2.8 2.7 Consumptionin kind3 ' 3.7 8.9 7.7 Total 100.0 100.0 100.0

Source: Authorestimates based on data from MoldovanPilot Household Survey, February 1997 Notes: " Based on population weights. Includes the self-reportedvalue of consumption in-kind of food and non-food goods (see note 3). 2' Sum of communication,entertainment, education, hotels, meals purchased outside the home, insurance, and other miscellaneousexpenditures. 3/ Consumptionin kind. Could include food and/or non-food goods from other households. Does not include consumptionof food in-kind produced by the household's own private plot (which was classified in "food and beverages").

49 Technical Paper II - Annex I

Table 18: Moldova: Family Compositionand Poverty Status

Family Composition Right Bank Transnistria Countiy

Headcount (PO, in percent)

No children, no elderly 12.6 13.2 12.7 Children but no elderly 29.9 31.2 30.1 Elderly but no children 17.0 16.2 16.8 Both children and elderly 23.7 39.4 26.4 Total 23.5 22.6 23.3

Poor (Number)

No children, no elderly 115,532 37,325 152,857 Children but no elderly 584,336 81,891 666,227 Elderly but no children 71,578 17,759 89,337 Both children and elderly 73,181 25,431 98,612 Total 844,627 162,405 1,007,032

Population (Number)

No children, no elderly 917,209 283,205 1,200,414 Children but no elderly 1,954,532 262,477 2,217,009 Elderly but no children 420,592 109,918 530,510 Both children and elderly 309,199 64,601 373,800 Total 3,601,534 720,203 4,321,737

Source: Authorestimates based on data from MoldovanPilot Household Data, February 1997. Note: Children are aged 0 through 14 inclusive. Elderly are aged 65 and above. Adults are aged 15-64.

50 Poverty in Moldova: Pilot Results for February 1997

Annex 2: Additional Tables

Annex Table 2-1: Moldova: Location and Poverty Status

Locality Right Bank Transnistria Country

Headcount (PO,in percent)

Major city (Tiraspol or Chisinau) 11.3 20.1 13.7 Other cities 22.8 28.2 24.3 Rural 27.5 18.0 26.7 Total 23.5 22.6 23.3

Poor (number)

Major city (Tiraspol or Chisinau) 78,809 51,288 130,097 Other cities 164,711 75,336 240,047 Rural 601,107 35,782 636,889 Total 844,627 162,406 1,007,033

Population (Number)

Major city (Tiraspol or Chisinau) 697,216 254,791 952,007 Other cities 721,135 266,909 988,044 Rural 2,183,182 198,503 2,381,685 Total 3,601,553 720,203 4,321,756

Source: Author estimates based on data from MoldovanPilot HouseholdSurvey, February 1997.

51 Technical Paper II - Annex 2

Annex Table 2-2: Moldova: Prices, ExchangeRates and Real Wages

(,Pi,/ (US$/LCU)/ Real Wage ExchangeRate 1992 Jan 8.6 109.51 Feb 11.33 97.13 Mar 13.4 99.53 April 16.49 99.37 May .18.26 123.67 Jun :17.62 143.3 Jul 18.32 139.51 Aug 119.88 130.72 Sep 22.82 137.61 Oct 28.62 132.61 Nov 39.36 152.14 Dec 44.75 292.57 1993 Jan 69.67 0.51 106.34 Feb 88.48 0.65 91.76 Mar 111.67 0.73 95.43 Apnil 128.08 0.82 89.54 May 141.66 1.04 96.72 Jun 189.25 1.31 98.13 Jul 2160.98 1.21 106.94 Aug 321.53 1.54 105.74 Sep 447.89 2.04 85.65 Oct 642.72 2.38 65.85 Nov 788.62 3.85 69.24 Dec 1255.48 3.64 89.24 1994 Jan 1492.77 3.67 47.18 Feb 1815.2 3.85 40.76 Mar 1996.72 3.93 41.32 April 20'36.56 4.06 37.35 May 2153.17 4.07 39.69 Jun 2211.3 4.07 48.88 Jul 2259.95 4.06 49.49 Aug 2257.69 4.14 50.8 Sep 2314.13 4.21 53.02 Oct 241]1.33 4.23 52.53 Nov 2495.72 4.24 52.95 Dec 2568.1 4.27 76.78

(Continued)

52 Poverty in Moldova: Pilot Results for February 1997

Annex Table 2-2: Moldova: Prices, Exchange Rates and Real Wages (Continued)

CPIp (US$/LCU)21 Real Wage Exchange Rate

1995 Jan 2642.57 4.33 47.62 Feb 2703.35 4.38 43.55 Mar 2722.28 4.42 47.23 April 2738.61 4.49 45.14 May 2749.57 4.54 47.73 Jun 2755.06 4.56 49.55 Jul 2760.57 4.53 50.81 Aug 2766.1 4.53 50.48 Sep 2838.01 4.53 48.83 Oct 2915.17 4.54 52.37 Nov 3089.52 4.57 50.72 Dec 3179.12 4.53 71.64 1996 Jan 3290.38 4.53 45.30 Feb 3372.64 4.56 46.60 Mar 3409.74 4.54 50.20 April 3447.25 4.55 50.08 May 3474.83 4.59 51.05 Jun 3478.30 4.64 54.53 Jul 3481.78 4.65 54.24 Aug 3471.34 4.61 53.79 Sep 3523.41 4.63 53.09 Oct 3579.78 4.61 56.19 Nov 3629.90 4.65 57.50 Dec 3658.94 4.67 80.63 1997 Jan 3728.46 4.67 51.72 Feb 3780.66 4.68 Mar 3818.46 4.65 April 3849.01 4.59 May 3879.80 4.58

Source: MoldovanEconomic Trends. Notes: ' CPI - Consumer Price Index 2/ LCU - Local Currency Unit (Moldovan Lei)

53 Technical Paper H - Annex 3

Annex 3

Poverty Lines

Setting a poverty line is at best an approximate "science" and absolute poverty lines tend to be more arbitrary or relative than suggested by name. Most current thinking on the subject (Ravallion 1993, 1994l;Atkinson 1992) suggest that "absolute" poverty lines are actually fairly arbitrary and open to criticism even about the food portion of the absolute line. Standard World Bank practice is to set at least 2 poverty lines, and to test for sensitivity to these lines. Although the notion can be difficult for many to accept, the reality that all poverty lines are arbitrary or normative has been well-established in the literature (Sen 1977, Lanjouw 1995). The "poverty" lines used in Mtoldova currently trace their origin to the USSR. When the USSR adopted a means-tested benefit in 1974 designed to alleviate material difficulties for "under-provisioned" families, the income test adopted reflected several years of study on "minimum consumption budgets" initiated during the Khrushchev era (Sarkisyan and Kuznetsova 1967, Atkinson and Micklewright 1992, Sipos 1992). The Tninimum consumption budget was intended to be an absolute measure of what would be minimally acceptable consumption under a socialist system, and not an absolute measure of poverty per se (since, after all, poverty did not officially exist). In the USSR, during the Khrushchev era, work was done by an Armenian economist following the Armenian academic tradition of relatively independent scholarship on establishing "norms" for the "socially desirable" consumption of food, non-food goods, and a few services (Sarkisian and Kuznetsova, 1967). This was called misleadingly "the minimum consumption budget" (MCB). The MCB included very generous consumption allowances for meat, milk, and other products which do not normally consist in a "minimum survival" basket of food products, and also included such non-essentials as alcoholic beverages, tobacco, and even a "normed rate" of savings. The minimum consumption basket approach resurfaced in the late 1980s, when poverty issues were first openly discussed. Unfortunately, galloping inflation in the early 1990s made any poverty line based on the minimum consumption basket to be unaffordable. During the high inflation years of 1992 and 1993, the MCB lost whatever policy relevance it ever had, and many (although not all) FSU countries have since repudiated the contents of the MCB basket (e.g. Russia and most recently, Ukraine, have adopted official poverty lines with less generous allowances than in the MCB).

The most crucial task for a poverty line is to serve as an effective way to separate the needy from the not-so-needy. In many countries, there is both an official poverty line and a line of social assistance eligibility (e.g. the US) which is lower or markedly lower than the official poverty line. When Dfficial poverty lines are used that classify more than 50 percent of the population as poor, the usefulness of the line is undermined. Since no

54 Poverty in Moldova: Pilot Results for February 1997 governmentcan afford to help 75 or 95 percent of the population,it is better to use a line of social assistance eligibility that can differentiatethe poorest and which is affordable.

A variety of poverty lines were estimated for this study (Table 2). The MCB line still somewhat in use in Moldova would classify 97 percent of the Right Bank population as poor and 98 percent of Transnistria. Although 100 percent of both populations may feel poor, the reality is that other absolute poverty lines would suggest that less than 3 percent of the population was poor. The relevant reality for policymakers lies within these two extremes.

There is no one "right" poverty line for Moldova. For pragmatic reasons, relative lines of 40 percent of the unweightedmean per consumptionwere used (see text). Other relative lines would have been equally valid. The choice of a particular line is not the objective; rather one should seek a way to differentiatethe poor from the rest of the population, and to only hive off an amount of people for which one can realistically anticipatebudgetary support.

55 Technical Paper II - Annex 4 _

Annex 4

LquivalenceScales

In this study, per capita expenditures and income were used where per capita is understood to mean "per household member" not per individual in the population. The relative poverty lines are a percent of real (family member) per capita expenditures. In such a formulation, each household member has been assumed to consume equal values. In actuality, the needs of household members differ.

It is not very difficult to show that if families can obtain economies of scale in consumption, using a per capita poverty standard will overstate poverty (Lanjouw and Ravallion 1994). Economies of scale in consumption mean that an additional household member does not cost as much as preceding members. Some common-place examples are using hand-me-down clothes for young children, "stretching" a stew by adding potatoes instead of meat, and the mechanical effect that comes from dividing a fixed cost (such as rent) by an increased number of household members. A related consideration is the fact that nutritional requirements vary among people, depending on their age, gender, and activity levels. Since household composition is different, caloric requirements will also differ, depending on the age-gender make-up of the household members.

A standard approach is to normalize the household to (typically) a standard male adult, which results in a scale that assigns an equivalence of less than one to a female adult, and even lower to a child as children tend to consume less goods than adult males (Ravallion 1992). An example of anrequivalence scale used in the OECD is adult male equals 1, adult female equals 0.7, arid a child equals 0.5. In the OECD approach, a child is assumed to consume 50 percent of a working age adult, and an adult at or past retirement age is assumed to consume 70 percent of a working age adult. Sometimes equivalence scales are differentiated by gender. ][nthe US, an alternate approach is used. The US poverty line is said to take into accou1nteconomies of scale in consumption,' 7 and there are actually 7 different US poverty lines, based on different family compositions. 18

Rather than apply a normative scale such as the OECD one or one derived from another country's experience, it is preferable to estimate equivalence directly when household data are available. The fi:rst step is to test the hypothesis that there are no economies of scale; that the appropriate standard is per capita. Following Deaton and

17 Economies of scale in consumptionmean that the marginal cost of an additional family member declines. This results from the fact that soirmefixed costs are little affectedby the addition of an additional familymember (e.g. the heating bill) as well as "savings"in variable cost familiar to anyone who has worn "hand-me-down"clothes or eaten a stew "stretched"to feed an unexpectedguest.

18 In actuality, the US poverty methodologyhas not been revised since the 1956 regressions run by Orshansky,and is open to criticism on this and other points.

56 Poverty in Moldova: Pilot Results for February 1997

Muelbauer (1980), Lanjouw (1995), and Foley (1993), we estimated theta (0) based on a regression of the Moldovan householddata. Unfortunately,we had no regional price index, but were forced to regress the food share as follows: foodshare = constant + I3iln(totalconsumption) + f321n(householdsize) + PA2(numberof elderly)+ A3(numberof children).

This regression led to an estimate of 0 of 0.97, which was statistically indistinguishable from 1. When 0 = 1, there are no economies of scale in consumption and a per capita standard is indicated. There was essentiallyno difference if we used children as the omitted dummy variable and ran on number of adults instead of number of children. Preliminaryresults from the RLMS indicated that economies of scale in consumptionwere not significantin Russia if a simple equivalence scale based on household size was estimated (Foley 1993). In such a case, household per capita income is an acceptable approximation of the equivalence scale, which is also the preliminary finding for Moldova. Since Moldova met the criteria for a per capita standard, further work on estimating a gender-separatedor age-differentiatedequivalence scale was not necessary. Given the nature of the pilot survey data, and the fact that approaches for estimating equivalence are not without controversyin the literature (Nelson 1992, Van Der Gaag and Smolensky 1982, Klein 1988, Conniffe 1992, Fisher 1987), suggest that further experimentationis not warranted.

57

TECHNICAL PAPER III

POVERTY IN THE REPUBLIC OF MOLDOVA IN MAY AND AUGUST 1997

by

Robert Ackland

Australian National University

The views contained herein are those of the author only, and do not represent the opinions of the World Bank nor of its Board of Directors, nor of any individual country member, nor federal, nor local government.

Poverty in the Republic of Moldova in May and August 1997

Table of Contents

1. Introduction...... 1 2. MeasuringLiving Standards: Levels and Distribution...... 2 3. ...... 4 4. Poverty Profile: Cross-tabulations...... 9 5. Poverty Profile: Regression Analysis...... 22 6. Targeting of Social Assistance...... 25 7. Proxy Means Tests...... 30 8. Conclusions and Policy Recommendations...... 33 9. References...... 35

Appendices Appendix A: A Locational Food Price Index.37 Appendix B: Relative and Absolute PovertyLines .41 Appendix C: Economies of Scale in Household Consumption.45 Appendix D: Sensitivity Analysis.47 AppendixE: Functional form for regressions: linear versus semi-log.49 AppendixF: Poverty in the Republic of Moldova: AdditionalTables .51

List of Tables Table 2.1: Distribution of monthly per capita householdconsumption .3 Table 3.1: Poverty measures by location, May 1997 (percent) .5 Table 3.2: Population and poverty shares by location, May 1997 (percent) .6 Table 3.3: Household consumption budget shares, May 1997 (percent) .8 Table 3.4: Share of calorie consumption and food shares, May 1997 .9 Table 4.1: Poverty rates by number of children and elderly persons, May 1997 (percent). 12 Table 4.2: Poverty rates by type of settlementand presence of food plot, May 1997 (percent).. 19 Table 4.3: Selected housing characteristics by household poverty status, May 1997.21 Table 5.1: Consumptionregression, May 1997.23 Table 6.1: Incidence of receipt of social assistance, May 1997.27 Table 6.2: Impact of social assistance on individual poverty measures, May 1997.29 Table Al: Average prices and budget shares, Right Bank, May 1997.39 Table A2: Average prices and budget shares, Transnistria,May 1997.39 Table A3: Food price indices, May 1997.39 Table B 1: Per capita quantities, calorie shares and prices (Right Bank, May 1997).41 Table B2: Per capita quantities, calorie shares and prices (Transnistria, May 1997).42 Table B3: Relative poverty lines, Moldova 1997.44 Table C1: Assumed size elasticity and average size of poor and non-poor households.46 Table DI: Sensitivityanalysis, May 1997.48 TechnicalPaper III

List of Figures Figure 3.1: CDF of log monthly per capita consumption, Right Bank, May 1997 ...... 7 Figure 4.1: Poverty rates by household size, May 1997 ...... 10 Figure 4.2: Poverty rates by number of children under 14 years, May 1997 ...... 11 Figure 4.3: Poverty rates by number of elderly persons, May 1997 ...... 12 Figure 4.4: Poverty rates by gender and age, May 1997 ...... 13 Figure 4.5: Poverty rates by gender and age of household head, May 1997 ...... 14 Figure 4.6: Poverty rates by education level - persons 2 14 years , May 1997 ...... 16 Figure 4.7: Poverty rates by education level of household head, May 1997 ...... 16 Figure 4.8: Education attainment by poverty status - persons > 14 years, May 1997 ...... 17 Figure 4.9: Poverty rates by gender and socio-economic group (persons 2 14 years), May 199718 Figure 4.10: Poverty rates by gender an,d socio-economic group of household head, May 1997.18 Figure 6.1: Incidence of social assistance receipt, May 1997 ...... 26 Figure 6.2: Percentage of total social assistance received by households, May 1997 ...... 28 Figure DI: CDF of log monthly per capita consumption, Right Bank, May 1997 ...... 47 Poverty in the Republic of Moldova in May and August 1997

1. Introduction

1.1. In this paper, an analysis of poverty and the targetingof social assistance in the Republic of Moldova using data from the 1997 Moldova Household Budget Survey (MHBS) is presented.' The data from the MHBS presently availablefor analysis were collected in the second and third quarters of 1997. Approximately2000 households were sampled in each quarter. Household consumptionin the second quarter was adjusted to the prices of the month of May and the consumption of households sampled in the third quarter was similarly adjusted to August prices. For reasons explained below, the majority of the analysis in this paper uses the data from the May 1997 quarter.

1.2. There is a de facto partition of Moldovainto two economic zones which are known as the Right Bank and Transnistria. The two zones have different prices, currencies and market relationshipsand this necessitated that the household survey be conducted separately in each zone. In this report, results are therefore presented separatelyfor the Right Bank, Transnistria and for Moldova as a whole. As is shown below, the poverty situations are markedly different in the two zones. Within each zone, statistics are generallypresented separately for the capital or major city (Chisinauin the Right Bank and Tiraspol in Transnistria), other urban areas and rural areas.

1.3. The overall objective of poverty analysis is to identify which households and individualsare most vulnerable to poverty and to provide input into the design of policy measures that help to reduce poverty and improve living conditionsfor the poor. The first step of poverty analysis is defining a measure of living standards that can be used to rank households from least well-off to most well-off in a consistent fashion. The measure of household welfare used in this paper is expenditure,although non-monetaryindicators of welfare such as health status and access to basic services are also often used to rank households. The second step in poverty analysis is determining a rule that is used to distinguish the poor from the non-poor; this involves the setting of the poverty line against which householdconsumption is compared. The third step involves using the living standards indicator and poverty line to construct the poverty profile which identifies the salient characteristicsof the poor and thus provides information on the . As one of the main policy tools for tackling poverty in a particular country is the social assistance program, an additional important component of poverty analysis is an assessment of the effectivenessand efficiency of the targeting of social assistance.

1.4. The structure of the paper is as follows. In Section 2, there is a discussion of the measure of living standards used in the analysis (total household consumption) and a brief description of the levels and distributionof this measure. The poverty line used in the analysis is described in Section 3, as well as the index numbers of poverty (describing

1 The paper updates and builds on the analysis of Braithwaite (1997a) who used data from the February 1997 Moldova Pilot Survey. Many thanks to Jeanine Braithwaite for helpful comments on an earlier draft.

1 Technical Paper ll incidence, depth and severity) which are used to describe the poverty situation in Moldova. In Section 4, the poverty profile (which shows how the poverty rate differs across types of individuals and households) is presented. A regression-based poverty profile is presented in Section 5. In Section 6, there is an analysis of the efficiency and effectiveness of the social assistance program in Moldova. Proxy means tests, which can be used as inputs into the targeting of social assistance, are presented in Section 7. Section 8 concludes the paper.

2. Measuring Living Standards:Levels and Distribution

2.1. It is common practice in poverty analysis to use household consumption as the measure of living standards. In forme:r Soviet Union (FSU) countries, consumption is preferred to money income as a measure of household living standards because there is a tendency for income to be underreported (this is particularly true of high income earners) and also the fact that many households rely on food grown in garden plots. Full details of the construction of the consumption measure used in this study are given in Ackland (1998). Briefly, household consumption consists of 'regular' cash and in-kind expenditures (such as on food, clothing, rent and utilities, health care, transportation, entertainment and education), plus the self-reported value of consumption of home production of food, plus cash and in-kind gifts given and received, plus goods and services received free from either a place of study or through humanitarian or social assistance.

2.2. The measure of living standards used in the present study is per capita household consumption (total household consumption, divided by household size). As discussed in Appendix C, no adjustment is made to account for the demographic composition of the household (in general, there is reason to expect that young children and the elderly may consume fewer calories and hence have lower living costs than adults). Similarly, economies of scale (the presence of certain types of fixed expenditures, for example heating and rent may imply that an additional household member does not cost as much as preceding members) are not adjusted for. The focus of most of the analysis is on the individual as opposed to the household. In the absence of information on the intra-household allocation of consumption, the same per capita household consumption is attributed to each household member.

2.3. Table 2.1 shows the distribution of monthly per capita household consumption.2 The first point to note is that the data exhibit a large degree of seasonality, as would be expected during this time of the year. While the CPI only increased by 0.2 percent between May and August 1997 (see Ackland 1998), mean per capita monthly household consumption increased by 9.3 percent in Right Bank and 30.3 percent in Transnistria. The exceptionally large increase in mean consumption in Transnistria is suspect and there may be a problem with the

2 It should be noted that all survey results presented here are weighted population results.

2 Poverty in the Republic of Moldova in May and August 1997 data for the August quarter.3 For this reason, the results in this report focus on the May 1997 data (all results for August are contained in the additional tables paper; in general, the results were qualitatively similar between the two quarters). In May, average household consumption was around 25 percent higher in urban areas comparedwith rural areas. For Moldova as a whole, averagehousehold consumptionin the top 20 percent of the distributionof welfare was between 8 and 10 times higher than average spendingin the bottom quintile and accountedfor over 50 percent of total consumption(while the lowest quintile accounted for less than 5 percent of total consumption).

Table 2.1- Distributionof monthly pe capita household consumption May 1997 Aueust 1997 RB Trans RB Trans % of % of % of % of Mean total Mean total Mean total Mean total Urban lowest 50.0 4.1 6361.3 4.1 56.4 4.3 6965.0 4.6 2nd 89.8 8.0 9921.2 8.5 102.0 8.1 12152.9 8.7 3rd 133.9 12.8 14083.2 13.0 148.6 13.2 17980.9 14.8 4th 200.6 22.4 21341.2 24.7 218.7 20.8 25710.0 23.1 highest 384.8 52.6 48144.5 49.8 441.6 53.6 45760.3 48.8 All 183.3 100.0 20809.7 100.0 207.1 100.0 22696.6 100.0 Rural lowest 34.6 4.7 2718.4 5.4 41.5 4.4 7298.0 5.2 2nd 67.4 9.4 6094.8 7.9 75.0 9.6 12903.3 9.6 3rd 98.9 14.6 10916.7 13.9 104.6 14.9 18765.9 16.9 4th 147.4 21.7 18140.1 25.4 147.9 21.2 29287.7 25.7 highest 296.7 49.6 36935.2 47.4 334.3 49.9 68284.2 42.6 All 145.9 100.0 16758.0 100.0 156.4 100.0 31605.5 100.0 All lowest 40.0 3.8 4677.5 2.5 46.2 4.5 7078.8 3.7 2nd 75.1 8.1 9001.6 7.4 82.4 8.1 12338.3 7.6 3rd 109.6 12.3 13309.4 12.6 118.4 13.3 18295.0 10.6 4th 165.5 21.9 20543.5 21.0 170.9 20.1 26656.3 18.7 highest 335.3 53.8 44222.8 56.6 379.5 54.1 54847.3 59.5 All 161.5 100.0 19548.2 100.0 176.6 100.0 25469.0 100.0 Source: Author estimatesbased on MHBS, 1997. Note: Quintilesare defined in terms of persons rather than households. Per capita consumptionin Right Bank expressedin Moldovan lei per person per month. Per capita consumption in Transnistria expressedin 1,000 Transnistrian rubles per person per month.

2.4. Another measure of the equality of the distribution of consumptionis the Gini coefficient which is bounded between 0 (inequitabledistribution) and I (equitable distribution). In May, the Gini (calculatedover individuals)for per capita consumptionwas 0.4 in the Right Bank and it was 0.44 in Transnistria. These Ginis suggest that consumptionis fairly inequitably distributedin Moldova; however, they are comparable to Ginis calculated

3Note that only rural households in Transnistria experienced a very large increase in consumptionbetween May and August. It is not entirely clear whether there is a problem with under-reportingof consumption in May or over-reporting of consumptionin August.

3 TechnicalPaper III for other transition economies.4 The Ginis were slightly higher in rural compared with urban areas; in May in the Right Bank (Transnistria), the Gini for urban areas was 0.38 (0.43) compared with a rural Gini of 0.4 (0.45).

3. Measuring Poverty

3.1. Derivation of the poverty line. There are two main approaches to constructing a poverty line. An absolute poverty line is constructed under the assumption that it is possible to define minimum standard of living based on physiological needs for food, water, clothing and shelter (see Appendix B for a full description of how absolute poverty lines are constructed). In contrast, a relative poverty line is set so as to reflect a generally acceptable standard of living which is specific to the country and the time of the study. Relative poverty lines are often set at a particular proportion of mean per capita consumption. Hence, they reflect the norms of the particular society being studied both through the decision as to what proportion of mean per capita consumption is considered appropriate for setting the poverty line and also the contents of the basket of goods and services used to measure consumption.

3.2. For several reasons, it was decided that a relative poverty line was appropriate for use in the present poverty study. First, it was necessary that a particular poverty line be chosen in a fairly short period of time (so it could be used as input into other research being conducted as part of the Moldova poverty assessment). This precluded the construction of an absolute poverty line, which would have taken a long time, especially since the raw expenditure data are fairly unwieldy and idiosyncratic. The fact that there are different price structures and currency regimes in the Right Bank and Transnistria would have further complicated the construction of an absolute poverty line. A final reason for using a relative poverty line relates to the potential problem of either under- or over-reporting of expenditures in the MHBS data which was mentioned above. Such errors of measurement are less likely to affect the conclusion of poverty analysis when a relative poverty line is used.

3.3. The relative poverty line chosen for the study was 40% of weighted mean per capita monthly consumption (calculated over individuals), calculated separately for Right Bank and Transnistria.5 The May 1997 poverty line was 57.4 Moldovan lei per person per month for the Right Bank and 7,350 Transnistrian rubles per person per month for Transnistria. It should be emphasized that if the poverty lines were set at different levels this would obviously affect the conclusions from the poverty analysis (see Appendix D for a sensitivity analysis). However, it is expected that the qualitative conclusions from the poverty analysis would be reasonably robust to small variations in the level oDfthe poverty line.

4 Foley (1997) calculated a 1993 per capita consumptionGini for Russia of 0.49; Ackland and Faikingham(1997) calculated a 1993 per capita consumption Gini for the Kyrgy2;Republic of 0.47.

S This is consistent with the poverty line used in Braithwaite (1997a).

4 Poverty in the Republic of Moldova in May and August 1997

3.4. Measures of poverty: incidence, depth and severity. The incidence of poverty or headcount index (P0) is defined as the percentage of individuals who are poor (i.e. who live in households that have per capita consumptionbelow the poverty line). While the headcount index is the most widely used measure of poverty, it does not give any information on the extent to which the welfare of individualsfalls below the poverty line. The depth of poverty is measured by the (PI) which measures the average shortfall of per capita consumption,expressed as a percentage of the poverty line. The poverty gap index is not sensitive to the distribution of welfare among poor households;if a householdjust below the poverty line were to make a transfer to a much poorer household, there would be no change in PI. The Foster-Greer-Thorbeckeindex (P2) measures the severity of poverty, and puts greater weight on the welfare levels of very poor households as compared with households with per capita consumptionclose to the poverty line.6

3.5. The incidence of poverty in Moldova (calculatedover individuals) was 19.3 percent in May 1997 (Table 3.1).7 As is found in many countries, poverty is much higher in rural comparedwith urban areas. In May, the rural poverty rate was 24.6 percent, compared with only 10.8 percent of individualsbeing classed as poor in major cities and 13.6 percent in other

Table3.1: Povertymeasures by location,May 1997 (percent) RB Trans Moldova Major city Po 6.9 25.2 10.8 P1 1.5 7.2 2.7 P2 0.6 3.3 1.2 N 919.4 219.2 1142.5 Other city P0 16.8 6.7 13.6 Pi 4.5 1.9 3.7 P2 1.7 0.7 1.4 N 953.0 409.0 1381.2 Rural P0 23.3 36.5 24.6 P1 8.2 16.0 8.9 P2 4.2 9.4 4.7 N 3053.6 297.8 3328.4 All Po 19.0 20.7 19.3 P1 6.2 7.7 6.5 P2 3.1 4.1 3.2 N 4926.0 926.0 5852.0 Source: Author estimatesbased on MHBS, 1997. Note: Weighted sample sizes for individualsare shown.

6 The three poverty measures can be calculated using the following formula:

(=I where a = 0,1,2; q =number of poor individuals;N= number of individuals; z poverty line; yi= consumption of i'th individualbelow the poverty line. 7 Since poor households tend to be larger, the household poverty rate in May (16.2 percent) was lower than the individual rate.

5 TechnicalPaper 111 cities. The rural poverty rate is higher than the urban rate in both the Right Bank and Transnistria. However, while persons living in Chisinau had a very low incidence of poverty in May (6.9 percent, compared with a raral poverty rate in the Right Bank of 23.3 percent), the poverty rate in Tiraspol is relatively high (25.2 percent compared with 6.7 percent in other cities in Transnistria and 36.5 percent for rural residents).8 The distribution of poverty also varies markedly by type of location (Table 3.2); while 18.7 percent of the population of RB live in Chisinau, only 6.8 percent of the poor in RB live there. In contrast, 62.0 percent of RB individuals live in rural areas, yet rural poverty accounts for 76.1 percent of all poor.

Table 3.2: Population and poverty shares by location, May 1997 (percent) RB Trn Moldova Poor All Poor All Poor All Major city 6.8 18.7 28.9 23.7 10.9 19.5 Other city 17.1 19.3 14.3 44.2 16.6 23.6 Rural 76.1 62.0 56.8 32.2 72.5 56.9 Total 100.0 100.0 100.0 100.0 100.0 100.0 Source: Author estimatesbased on MHBS, 1997.

3.6. The finding that the rural poverty rate is higher than that for major cities corresponds to what has been found in most other F'SU countries. However, it has generally been found in other FSU countries that rural poverty rates are lower than those for 'other' urban areas (i.e. urban areas which are not the capital or major city). In Moldova, the converse was found. It has been argued (see, for example, Braithwaite, 1997a) that the main reason why in the FSU rural residents are found to be better off than those living in other urban areas is that rural residents are able to consume food that is home produced (i.e. grown in a garden plot or produced on a farm). However, in order to be able to adequately value this consumption of home produced food, it is necessary to impute market prices. While some household surveys are designed for relatively easy market--price valuation of home consumption, the Moldova household survey was not such a survey. Instead, households were asked to give self-reported valuations for home consumption, which most likely has led to an undervaluation of home consumption (this has been found in other countries such as Russia). This is most likely the reason for the finding that in Moldova, individuals living in rural areas have a higher poverty rate than those living in other urban areas.

3.7. Stochastic Dominance Tests. The incidence of poverty in Moldova in May is represented graphically in Figure 3.1 which shows the cumulative distribution functions (CDFs) of the log of monthly per capita consumption for urban and rural residents in the Right

s A relatively high poverty rate in Tiraspol in May contradicts the findings for August and also the conclusions from De Soto and Dudwick (1997) that poverty is lowest in the major cities. It also contradicts the general conclusion that in the FSU, capital cities are markedly less poor than other towns (Braithwaite et al., 1997). A potential explanation for this result arises from the calculation of locational food price indices in Appendix A. Food prices in Tiraspol are estimated to be 10 percent below the national average,while in other Transnisti an towns food prices are estimated to be 28 percent above the national average (Table A3). Any adjustment for differences in the cost-of-living across different locations in Transnistria would, therefore, result in welfare levels being adjusted upward in Tiraspol and downward in other towns. This could reverse the finding of a relatively high poverty rate in Tiraspol.

6 Poverty in the Republic of Moldova in May and August 1997

Bank. The vertical line represents the poverty line and the incidence of poverty can be read off the vertical axis as the proportion of individuals with per capita consumption falling below the poverty line. Stochastic dominance techniques can be used to test the robustness of the conclusion that rural poverty is higher than urban poverty in Moldova. The theory of stochastic dominance shows that if the CDFs do not intersect at any point in the graph, poverty in the population represented by the curve lying everywhere above the other is greater, and this will be the case for whatever poverty line is chosen. This conclusion holds not only for the incidence of poverty, but also measures of depth and severity of poverty. The CDFs in Figure 3.1 are typical of those found in many transition countries in that rural poverty dominates urban poverty over all possible poverty lines (this was also the case for the CDFs for Transnistria).

Figure 3.1: CDF of log monthly per capita consumption,Right Bank, May 1997

1- - 0.9 -

g 0.8 poverty line

o0.6 0 0.5 1 2 3 4 58CDF-r-u 0.4 03 030.233

0.117 0.1......

0 0 1 2 3 4 5 6 7 8 Log monthly per capita expenditure Source: Author estimates based on MHBS, 1997.

3.8. Table 3.1 also shows estimates of the depth and severity of poverty. Given that Moldova has a relatively high level of inequality in consumption as measured by the Gini coefficient, it is of interest to note that the overall poverty gap of 6.5 percent is quite small. Russia, in contrast, had poverty gaps ranging between 9.8 and 13.2 percent over the years 1992 to 1995 (Foley, 1997). The relatively shallow poverty gap for Moldova shows that a considerable number of households are bunched just under the poverty line; this has implications for poverty alleviation policies.

3.9. Patterns of Consumption. The analysis of budget shares in Table 3.3 reveals that Moldovans spend a large amount of their budget on food and beverages (67.8 percent in May). This may in part be due to falling living standards due to economic transition, but it is also because imputed household rents and flow of services from consumer durables have not been

7 TechnicalPaper 111 included in the household consumption measure. As expected, the poor allocate a larger share of the budget to food (82.6 percent) compared with the entire population, and spend (proportionately) less on all the other consumption categories (except for housing related expenditures in Transnistria). Private expenditures on health care and education are very low in Moldova.

Table 3.3: Householdconsumption budg^etshares, May 1997 (percent) RB Trn Moldova Poor Adll Poor All Poor All Food and beverages 82.5 67.9 82.6 67.4 82.6 67.8 Alcohol, tobacco etc. 1.9 3.1 2.0 2.7 2.0 3.1 Clothing and footwear 2.3 4.9 1.9 5.1 2.2 4.9 Housing - rents, utilities 2.6 5.4 4.4 4.0 2.9 5.2 Housing - furnishings etc. 1.6 2.1 3.0 2.3 1.9 2.2 Health care 1.7 2.5 0.4 2.5 1.4 2.5 Transportation 1.0 2.0 0.3 1.7 0.8 2.0 Communication 0.1 0. 4 0.1 0.8 0.1 0.5 Entertaimnent 0.3 0.5 0.0 0.6 0.3 0.5 Education 0.0 0.1 0.0 0.1 0.0 0.1 Eating out 0.5 0.4 0.0 0.3 0.4 0.4 Other 0.6 1.2 0.5 1.3 0.6 1.3 Total 100.0 100.0 100.0 100.0 100.0 100.0 Source: Author estimates based on MHBS, 1997.

3.10. Table 3.4 shows calorie and food shares for May 1997. In the Right Bank, the poor derived over 50 percent of their calories from , compared with a calorie share of 41.9 percent for the entire population c the Right Bank. In the Right Bank, the poor also derived relatively less of their daily calories from meat and dairy foods. These consumption patterns are broadly reflected in the food shares (percentage of food budget accounted for by each food group). The estimates of calories consumed per person per data are at this stage only tentative (as detailed in Appendix B). Despite this, the fact that the average calorie consumption of the poor in both the Right Bank and Transnistria is below the standard cut-off of 2,100 calories per person per day is of concern, and it supports the finding of De Soto and Dudwick (1997) that some of the poor in Moldova are experiencing a lack of a nutritious and varied diet, and, in some cases, outright hunger.

8 Poverty in the Republic of Moldova in May and August 1997

Table 3.4: Share of calorie consumption and food shares, May 1997 RB Trn Poor All Poor All Share of calories grains 52.3 41.9 44.2 37.8 meat 1.9 4.4 0.8 3.0 fish 0.3 0.4 0.2 0.6 dairy 17.0 23.8 26.6 24.8 oils 14.7 13.8 12.7 17.2 fruit 0.0 0.1 0.0 0.1 vegetables 8.7 7.6 9.0 7.2 sweets 5.0 8.0 6.5 9.3 Total 100.0 100.0 100.0 100.0 Total calories/person/day 1830.9 3481.5 2092.9 3643.4 Food share grains 39.0 27.5 17.0 21.8 meat 11.8 20.5 4.5 14.4 fish 5.5 5.2 0.8 4.4 dairy 11.3 13.4 4.0 11.4 oils 8.3 6.8 1.9 5.7 fruit 1.6 3.2 0.0 1.8 vegetables 16.1 15.3 70.6 34.7 sweets 6.3 8.0 1.1 5.8 Total 100.0 100.0 100.0 100.0 Source: Author estimatesbased on MHBS, 1997. Note: See Appendices A and B for details of the calculations.

4. Poverty Profile: Cross-tabulations

4.1. This section looks at how the poverty rate differs according to differing characteristics of individuals and households.9 It is found that poverty in Moldova shares some of the general characteristics found in studies of poverty in other FSU countries.' 0 In particular, the incidence of poverty in rural areas is higher than that found in the major cities, children are particularly at risk of poverty and the working poor (especially workers in the agricultural sector) also have high poverty rates. The risk of poverty for pensioners is found to be lower than that of the general population, while those living in female-headed households have a higher poverty incidence.

9 In the paper accompanyingthis report there is a full set of tables which contain the numbers in the figures from this section, as well as tables for August 1997. The tables in this accompanyingpaper are referenced with the suffix 'a'. '° See Ackland and Faikingham(1997), Braithwaiteet al. (1998) and Pomftet (1998).

9 Technical Paper III

4.2. Household size. Household composition is generally found to be a very important correlate of household poverty status and this is also true in Moldova. The headcounts in Figure 4.1 suggest a strong positive co:rrelation between household size and poverty in Moldova.1' In May 1997, individuals from households with four or fewer members had poverty rates lower than the average.

Fiure 4.1: Poverty rates by household size, Ma 1997

70-

60-

50 -5

40- 30 -

20- 100- 0 1 2 3 4 5 6 7 8+ Household size

OIRB CTrans *Moldova

Source:Author estimates based on MHBS, 1997.

4.3. Presence of children. Since some types of household members are more able to contribute to household resources than others, it is to be expected that the demographic composition of the household would have an impact on poverty status. In particular, one would expect the presence of children and the elderly to have a greater impact on the probability of the household being poor than the presence of non-elderly adults. The impact of the presence of children and elderly is in turn dependent on the availability and size of child- and age-related social assistance benefits. From Figure 4.2, it is apparent that the presence and number of children under 14 years is strongly correlated with poverty status. In May, individuals living in households with no children had poverty rates of 13.5 percent, while these rates increased monotonically with additional children to 34.2 percent for individuals living in households with 3 or more children. These results support the findings elsewhere in the FSU and Eastern Europe that the presence of children is strongly related to poverty and hence should be considered as a strong candidate indicator for targeting.

1 Note that this correlation is likely to be influencec,by the fact that the welfare measure used is per capita consumption;as discussed earlier, no adjustmentis made for economriesof scale in consumption.

10 Poverny in the Republic of Moldova in May and August 1997

Figure 4.2: Poverty rates by number of children under 14 years, May 1997

35

30-

252 -

20-

5

0 1 2 4+ Numnberof children under 14 years

[ORB 0 Trans * Total

Source: Author estimates based on MHBS, 1997.

4.4. Presence of elderly persons. From Figure 4.3, it is apparent that households containing elderly persons do not have a higher risk of poverty. In May, the poverty rate for persons living in households with no elderly persons or only one elderly person was close to the average poverty rate of 19.3 percent, while the poverty rate was 14.4. percent for those living with two or more elderly persons. In Russia, Ukraine and Armenia, it was also found that the presence of elderly persons in the household does not significantly increasethe risk of poverty.

11 Technical Paper III

Figure 4.3: Poverty rates by number of elderly persons, May 1997

25

20

15

10

5 -

0 0 1 2+ Number of elderly persons

F]RB 0Trans *ETotal|

Source: Author estimatesbased on MHBS, 1997.

4.5. Table 4.1 gives further evidence to suggest that children contribute more to the dependency burden than do elderly persons. As expected, individuals from households with no children or elderly persons had a very low poverty rate of 12.8 percent in May. However, individuals living in households with elderly persons but no children also had low poverty rates, and in fact, persons from households with no children and two or more elderly members had the lowest poverty rate of 12.6 percent.

Table 4.1: Poverty rates by number of children and elderly ersons, May 1997 (percent) RB Trans Total 0 children <14years 0 elderly persons 11.0 19.65 12.8 1 elderly person 17.6 10.3 16.0 2+ elderly persons 15.8 5.3 12.6 1 child <14 years 0 elderly persons 16.3 22.7 17.4 1 elderly person 15.8 8.4 14.7 2+ elderly persons 24.5 100.0* 31.1 2 children <14years 0 elderly persons 24.8 28.7 25.4 1 elderly person 34.4 100.0* 36.4 2+ elderly persons 12.7 na 12.7 4+ children <14years 0 elderly persons 35.3 33.2 35.1 1 elderly person 37.3 na 37.3 2+ elderly persons 0.0* na 0.0* Source: Author estimatesbased on MHBS, 1997. Note: Asterisk denotes cell size less than 20; estimates may be unrehable. A person is defined as elderly if aged 65 years and over.

12 Poverty in the Republic of Moldova in May and August 1997

4.6. Poverty by age groups. The above finding that the incidence of poverty is higher for households with children is reflected in the age distribution of poverty in Moldova. From Figure 4.4, it appears that poverty in Moldova is more likely to affect young people. People under the age of 20 years have higher poverty rates than the average, while people over the age of 40 years have lower poverty rates than average. Note, however, that there is a rise in the age-poverty profile for persons over 60 years (and this rise in poverty is more apparent for women, compared with men).12 These differences are also reflected in the distribution of poverty by age and gender (see Table 4.6a); in May, children under 15 years comprised 25.4 percent of the population but 30.8 percent of the poor population. In contrast, individuals over 50 years were 24 percent of the population, but only 19.3 percent of those who were poor. The finding that the elderly are not especially at risk of poverty in Moldova is supported by research on other FSU countries. However, it apparently contradicts the findings of the qualitative poverty assessment of De Soto and Dudwick (1997) who conclude that the elderly are a particularly vulnerable group, especially since many have transferred the responsibility of the land plot to relatives and thus no longer have resources to support themselves. One may reconcile the apparent contradiction by noting that extensive intra-familial and intra- social sharing and coping arrangements (as documented in De Soto and Dudwick, 1997) are successful at keeping the elderly out of poverty, as defined in the current study.

Figure 4.4: Poverty rates by gender and age, May 1997

30 -

5 r------i

V 2 - > £ A

Age

+| MaleP-- -- emale

Source: Author estimates based on MHBS, 1997.

4.7. Individuals living in households with heads aged under 30 years have a lower incidence of poverty comparedto other groups (Figure 4.5). In May, the poverty rate for this group was 13.9 percent, while individualsliving in households with heads aged 30-39 years

l2 Thlis pattern also emerges in the distribution of poverty by age and gender (Table4.6a) and largely reflects the differential survival rates of women and men in FSU countries.

13 Technical Paper III had a poverty rate of 22.8 percent. For households headed by males over the age of 40, the individual poverty rate then declines slowly with the head's age.'3 However, for individuals living in households headed by females over the age of 40, the poverty rate begins to increase with the head's age. The finding that individuals living in households with young heads have a lower incidence of poverty suggests that young people may be more adapt at adjusting to changing labor market conditions.

Figure 4.5: Poverty rates by gender and age of household head, May 1997

30-

25

~20 - - -

10

0 i - i <30yrs 30-39 40-49 50-59 60-69 >=70 Age of household head

- +Male -l-- Female

Source: Author estimatesbased on MHBS, 1997.

4.8. Poverty by gender. From Figure 4.4, it appears that males and females are equally at risk of poverty, which supports the findings in other FSU countries. The apparent lack of a gender dimension to poverty in Moldova (and in other countries) may in part be due to methodology. As mentioned above, it is not possible to study the within-household distribution of consumption and hence, it is assumed that all household members receive an equal share. However, De Soto and Duclwick (1997) have documented that women tend to give themselves the lowest priority when dividing up food for meals. To the extent that this occurs, there will be a gender dimension to poverty which is not being picked up using the standard questionnaire format of the household survey.

4.9. While poverty incidence of individuals does not vary by their gender, there is some evidence to suggest that the gender of the household head is associated with poverty status (Figure 4.5). Persons living in households headed by females over the age of 59 have higher than average poverty rates, thus suggesting that there may indeed be a gender-dimension to poverty in Moldova. However, from Table 4.8a, it is apparent that this higher poverty risk is

13 In Russia, the age of the head of the household has simnilarlybeen found to be inversely correlated with poverty (World Bank, 1995b), while there was no uniform pattern to poverty rates by age of household head in the Kyrgyz Republic (Ackland and Falkingham, 1997).

14 Poverty in the Republic of Moldova in May and August 1997 only associated with persons living in female-headedhouseholds in the Right Bank. The multivariate analysis presented in Section 5 indicates that such a gender-effectis present in the Right Bank even after controlling for other characteristicsof female-headedhouseholds that may be correlated with poverty. The finding of a potential gender-dimensionto poverty in Moldova supports the conclusions of poverty studies in other FSU countries. It is clear that changes in the labor market have had major implications for many women. Prior to transition, women were expected to work full-time, but the state provided child care. Transition has led to a drop in female participationand also a fall in the affordabilityof day care and this would contribute to female-headedhouseholds having a higher poverty risk.

4.10. Education. In theory, one would expect a relationship between an individual's ability to avoid poverty and his or her holding of assets in the form of human capital (education) and physical capital (primarily, land). However, the return to education is likely to be dependent on the stage of economic transition; the more further advanced transition is, the higher the demand for well-educatedworkers who are able to adapt to newly emerging skill requirements. In Moldova, there appears to be a reasonably strong relationship between education and poverty status. Figure 4.6 shows a monotonicallydecreasing relationship between incidence of poverty and educational attainmentof individuals aged 14 years and over; in May, the poverty rate for a person with higher education was 7.3 percent compared with 25.8 percent for an illiterate person. This phenomenonis also evident in the relationship between poverty status and education of householdhead (Figure 4.7). In May, individuals living in households headed by a person with higher education had a poverty rate of 6.3 percent, comparedwith 26.8 percent for individuals living in households headed by persons who are illiterate. The link between higher education and lower education is more pronounced than has been found in some of the other FSU countries (while this link in countries more advanced in the transitionprocess such as Hungary and Poland is even more marked).

4.11. It is interesting to note that the there is really only a large 'payoff' to education (in terms of reduction of poverty rate) for the attainmentof higher education qualifications; persons with vocational/technicalor-general secondary/incomplete secondary education do not have poverty rates much lower than the average. In general, the decline in traditional industries has resulted in a fall in demand for workers with pre-transition vocational and technical qualifications. The finding that education enables a person to avoid poverty is consistent with more highly educated persons having lower than average unemploymentrates (Lindauer, 1997).

15 Technical Paper III

Figure 4.6: Poverty rates by education level.14 - persons years, May 1997

40 - 35 30 - 5 -25 20- 15 10O 5 0 higher vocational general primary / illiterate technical secondaryI incomplete incomplete primary secondary Education level

ORB E]TFrans *Total

Source: Author estimates based on MHBS, 1997.

Figure 4.7: Poverty rates by education level of household head, May 1997

35 I- 30- 25- 20-_

-~15 10 5 - W 0 - I higher vocational/ general primary / illiterate technical seccndary I incomplete inccmplete primary secondary Education level of household head

EORB 3 Trans *Total

Source: Author estimates based on MHBS, 1997.

4.12. Education Attainment. Figure 4.8 shows the educational attainment of persons aged 14 years and over, by poverty status. Not surprisingly, people from poor households are less likely to have higher education (only 4.7 percent of poor individuals have a higher degree, compared with 13.4 percent of the non-poor). A study of using the pilot data for the MHBS (Ackland 1997) found marked differences in enrolment rates between

16 Poverty in the Republic of Moldova in May and August 1997 poor and non-poor children. This was particularlythe case in urban areas; in Chisinau, the enrolment rate of poor children was over 20 percentage points lower than that of non-poor children. This suggests that unless policies are designed to improve and maintain enrolment rates for poor children, the gap in education attainment between the poor and non-poor is likely to increase, thus making it even more difficult for the poor to improve their standard of living.

Figure 4.8: Education attainment by poverty status - persons214 years, May 1997 100%-

80%

60%

40%

20% - -

0%~ RB RB Trn Trn Moldova Moldova (poor) (non- (poor) (non- (poor) (non- poor) poor) poor)

E3 higher 0 vocational-technical i E generalsecondary / incomplete secondary* primary/ incompleteprimary | illiterate

Source: Author estimatesbased on MHBS, 1997.

4.13. Socio-economic status. Figure 4.9 shows poverty incidence by socio-economic status for individualsaged 14 years and over for May. Individuals who are farmers have poverty rates similar to that of the average (except in Transnistriawhere the poverty rate for farmers is over twice the overall poverty rate). Workers in the agriculturalsector have a higher incidence of poverty relative to the average (27.6 percent) and this is consistent with the earlier finding that rural poverty is relatively higher in Moldova. The high poverty rates for agriculturalworkers suggest the emergence of the working poor as a vulnerable group in Moldova and is a direct result of the fact that much of the labor market adjustment in the countries of the FSU has been in wages rather than open unemployment.

4.14. Workers in the non-agriculturalsector and self-employedindividuals have lower than average poverty rates (12.2 percent and 9.7 percent, respectively). The finding that self- employed are doing relatively well supports evidence from other FSU countries. Persons who are unemployedhave a relatively high poverty incidence of 23.6 percent; however, this apparent link between unemploymentand poverty is not present when one considers poverty by socio-economicstatus of householdhead (Figure 4.10). Note, however, that in the multivariate analysis presented in Section 5 a significant link between the number of unemployedhousehold members and household welfare is found. As has been found in other

17 Technical Paper III

FSU countries, pensioners in Moldova clo not have a higher than average incidence of poverty (this result also holds when poverty by pensioner status of household head is considered).

Figure4.9: Poverty rates by gender and socio-economicgroup (persons 2 14 years), May 1997

60 -

50 ~8,40- 030 ~20

10

0 farmer worker-ag. worker- self emp. unemp. pensioner not working other nonag.

Socioeconomic group

_. R:B OTrans MTtl

Source: Author estimatesbased on MHBS, 1997.

Figure 4.10: Poverty rates by gender and socio-economic group of household head, May 1997

60-

50

20 10

farmer worker-ag. worker- self emp. unemp. pensioner not other nonag. working Socioeconomic group of household head

E RB l Trans M Total

Source: Author estimatesbased on MHBS, 1997.

18 Poverty in the Republic of Moldova in May and August 1997

4.15. Access to private plot. There is some evidence that households in Moldova are able to improve their standard of living via consumptionof home-grownproduce (Table 4.2).14 In May, individuals living in households with access to a garden plot had an incidence of poverty of 12.6 percent, compared to the averagepoverty rate of 19.3 percent. In the Right Bank, it appears that only rural households are able to use home plots to mitigate poverty -in rural areas, the poverty rate for individuals with access to a garden plot was nearly half that found for persons with no access to a plot, while there is not much difference in urban poverty rates between those who had access to a food plot and those who did not. However, in Transnistria, urban households with access to a plot have lower poverty rates than average. These results support evidence in De Soto and Dudwick (1997) that private garden plots play a major role in subsistence in Moldova.

Table4.2: Povertyrates by type of settlementand presenceof food plot,May 1997(percent) RB Trans Total Urban no plot 11.7 15.2 12.6 has plot 13.0 8.4 11.4 All 12.0 13.2 12.3 Rural no plot 24.4 36.5 25.7 has plot 14.7 na 14.7 All 23.3 36.5 24.6 All no plot 19.9 23.8 20.5 has plot 13.8 8.4 12.6 All 19.0 20.7 19.3 Source: Author estimatesbased on MHBS, 1997.

4.16. Presence of amenities and durables ownership. From Table 4.3 it is apparent that household ownership rates of the listed durables are higher in Transnistria compared with the Right Bank and Transnistrian households are also more likely to have the listed amenities. Householdsresiding in Transnistria are more likely to have piped water, compared with the households in the Right Bank. Private ownership of housing is more common in the Right Bank comparedwith Transnistria,where close to 25 percent of the dwellings are still owned by the state.

4.17. As expected, there are marked differencesin ownership of durables and presence of amenities between poor and non-poor households. In Moldova in May, non-poor households were twice as likely as poor households to have the listed amenities (except for central gas and electric oven). While in Moldova most households live in separatehouses, the non-poor are more likely to live in separate apartments. The non-poor are approximatelytwice as likely as the poor to have piped water and they are also much more likely to own a color television and

14 In May 1997, 17.4 (11.6) percent of urban (rural) households in Right Bank owned garden plots; in Transnistria,26.3 (0) percent of urban (rural) households had garden plots. The finding that no rural households in Transnistria had access to a garden plot was very surprising and may indicate a potential problem with data.

19 TechnicalPaper III _ a car. The marked differences in presence of amenities and ownership of durables between poor and non-poor in Moldova suggest that durables ownership and presence of arnenities may be used as a criterion for establishi:ng eligibility for social assistance (however, see Section 7 on proxy means testing).

20 Poverty in the Republic of Moldova in May and August 1997

Table 4.3: Selected housing characteristicsby household poverty status, May 1997 RB T_ Moldova Poor Non-poor Poor Non-poor Poor Non-pool % households with amenity sewerage 17.0 35.1 29.4 54.3 19.6 38.8 hot water 9.3 25.2 26.3 39.1 12.9 27.9 central gas 13.6 30.9 46.8 52.2 20.6 35.0 electric oven 3.2 3.7 0.0 3.6 2.5 3.7 central heating 18.3 36.3 38.3 56.1 22.5 40.2 bath or shower 14.9 33.1 27.5 51.9 17.5 36.7 phone 18.4 34.9 29.7 51.2 20.8 38.1

Type of housing separate apartment 12.4 29.2 27.5 50.8 15.6 33.4 common apartment 1.0 na 0.0 0.8 0.0 0.2 hostel 5.1 6.0 2.1 2.3 4.4 5.3 separate house 79.2 62.3 67.1 40.6 76.7 58.1 part of house 3.3 2.4 3.3 5.5 3.3 3.0 other 0.6 0.1 0.0 na 0.0 0.1 Total 100.0 100.0 100.0 100.0 100.0 100.0

Tenure type state-owned 8.3 10.6 20.1 25.8 10.8 13.5 mandated 3.7 4.9 4.0 6.6 3.7 5.2 co-operative ownership 0.5 2.7 3.6 2.1 1.1 2.6 private 86.7 79.9 72.3 64.6 83.6 76.9 rented 0.8 2.0 4.2 0.9 9.8 1.8 other 0.3 0.1 0.0 na 0.0 0.0 Total 100.0 100.0 100.0 100.0 100.0 100.0

Water supply piped 19.5 38.0 33.5 58.1 22.5 41.9 channel 10.7 6.4 26.6 18.5 14.1 8.8 well 69.2 55.3 37.4 23.4 62.5 49.2 spring 0.4 0.2 1.6 na 0.0 0.2 river 0.7 na 0.0 na 0.0 na Total 100.0 100.0 100.0 100.0 100.0 100.0

% households owning durable color TV 20.6 40.1 33.1 66.1 23.2 45.1 VCR 1.6 5.4 2.4 8.0 1.8 5.9 CD player 3.1 0.8 0.0 1.4 2.4 0.9 refrigerator 64.8 73.6 74.1 93.2 66.7 77.4 washingmachine 43.5 55.2 60.3 74.1 47.0 58.9 microwaveoven 0.3 0.9 0.0 1.8 0.3 1.1 car 6.3 11.8 9.0 18.7 6.8 13.1 Source:Author estimates based on MHBS,1997.

21 Technical Paper III _

5. Poverty Profile: Regression Aintalysis

5.1. Regressionanalysis is often used to establish the existence of significantrelationships between household welfare and the characteristicsof those households. The results of the regressions can be used to establish whether a particular household characteristic is significantlycorrelated with household welfare and thus can be used to predict household welfare as an input into social assistance targeting.

5.2. Table 5.1 presents the results from regressingthe log of household consumptionon differenthousehold characteristics.15 'T'heobjective of the exercise is to identify determinants of welfare and poverty which, in the short run, can be used as targeting variables. Hence, it is strictly only valid to include those RHS)variables which can be considered exogenous in the short-run. For most of the variables in Table 5.1, the assumption of exogeneity is not an heroic one. While household welfare determninesthe education that children receive and hence influenceshuman capital accumulation,it is reasonableto expect that in a one-period model the education variables are exogenous. Even the labor market variables can be considered fixed in the short-run since in transition economies such as Moldova, unemploymentis high and largely structuraland often the supply of housing is not sufficiently flexible to permit easy migration to areas experiencing growth in labor demand (Braithwaiteet al., 1998). In the proxy-meanstests presentedin Section 7, the assumption of exogeneity of the RHS variables is relaxed further and more variables that are arguably endogenous are included in the regressions.

15The semi-log functional form of the model was chosen for both theoretical reasons and because it passed a test of model specification (for details see Appendix E).

22 Poverty in the Republic of Moldova in May and August 1997

Table 5.1: Consumption Regression,May 1997 RB Trans Dependent variable: log per capita consumption Coefficient P-value Coefficien P-value t Household composition I/ number of children < 14 years -0.159 0.000 -0.379 0.000 number of maleadults -0.087 0.003 -0.030 0.683 number of female adults -0.177 0.000 -0.003 0.971 number of elderly persons -0.227 0.000 -0.302 0.006 Education of household head higher education 0.363 0.000 0.034 0.834 vocational-technical 0.017 0.810 -0.180 0.197 general secondary/incomplete second. -0.023 0.716 -0.223 0.086 illiterate 0.015 0.878 -0.686 0.043 ge of household head 0.016 0.048 -0.078 0.000 (age of household head)x102 0.000 0.034 0.001 0.001 Head isfemale -0.098 0.024 -0.025 0.794 Head is inactive 0.060 0.332 -0.026 0.842 Head is unemployed -0.014 0.930 0.007 0.980 Number of unemployedin household -0.158 0.026 -0.306 0.052 Household situated in major city 0.310 0.000 -0.305 0.004 Household situated in rural area 0.042 0.397 -0.382 0.000 Household has access to food plot 0.106 0.040 0.188 0.088 Constant 4.831 0.000 12.245 0.000 N 1598 359 R2 .174 .203 Prediction error2' .195 .222 Source:Author estimates based on MHBS,1997. Notes: Omitted categoriesare head has primary/incompleteprimary education and household situated in 'other' . P-values less than 0.05 (0.01) indicate that the coefficient is significant at the 5% (1%) level. 1,A test of equality of the coefficients of the household composition variables was rejected and hence they are included separately, rather than includinghousehold size (this applies to all regressions in this paper).2' Proportion of households incorrectly predicted as poor (predicted consumptioncalculated using estimated coefficients).

5.3. The results from the consumption regression are not particularly good; the explanatory power of the models as indicated by the R2 statistics are quite low and many of the coefficients are not significant. Braithwaite et al. (1998) found that in general, poverty correlates for the FSU are not as well-defined as in Eastern Europe and this in part relates to the different degrees of the transition process. The results for Moldova fit this pattern, although it should be stated that the data problems alluded to elsewhere in this paper may also be a contributing factor.

5.4. The following conclusions from the consumption regressions can be made. The human capital of a household is embodied in its members and hence their numbers (by age

23 Technical Paper III and sex) are included in the regression ", along with the education of the household head (which arguably has a greater impact orn welfare than the education of other household members). The work experience of the household head is proxied by age. In both the Right Bank and Transnistria, it appears that the education level of the household head has a relatively large impact on household welfare. In the Right Bank, the head having a higher education degree is associated with per capita household consumption being 36.3 percent higher than that of the reference category (a household where the head has primary/incomplete primary education). In Transnistria, a household whose head has general secondary/incomplete secondary education is estimated to have per capita consumption 22.3 percent lower than the reference houselhold, while this differential extends to 68.6 percent for households where the head is illiterate. The fact that there is no welfare premium to having higher education in Transnistria may be due to the relatively higher concentration of industrial employment (Lindauer, 1997). It is possible that the process of transition is more advanced in the Right Bank, and those with higher education are more able to adapt and are being rewarded for their human capital. In the Right Bank, the age of the household head is positively correlated with household welfare, while in Transnistria there is a significant negative correlation.

5.5. The link with the labor market is captured by the inclusion of dummy variables representing whether the household head is unemployed or inactive, and also the number of unemployed household members. While the labor force status of the household head does not have a significant impact on household welfare, in the Right Bank (Transnistria) an additional unemployed household member is associated with a decline in per capita consumption of 15.8 (30.6) percent. The estimated impact of open unemployment on household welfare supports what has been found in other FSU countries.

5.6. Ownership of land is a key determinant of cash income and consumption of food, especially in rural areas. In most transition countries, ownership of land is not yet fully subject to household choice and hence it can be considered exogenous in the short-term. In the Right Bank, the presence of a food plot is associated with a 10.6 percent increase in per capita consumption, while in Transnistria the presence of a food plot increases household welfare by 18.8 percent.

5.7. Household welfare and poverty are also affected by the economic environment which affects both income earning opportunities and the level of social and economic infrastructure. Hence, the ability of a household to adjust to economic transition will be influenced by its location. The impact of location on household welfare is modeled by the inclusion of location dummy variables in the consumption regressions. Significant coefficients on the location variables indicate that welfare differences across locations are not fully explained by the distribution of demographic and economniccharacteristics of households (i.e. there is a location-specific effect on welfare). The location effects are different in the Right Bank and

16 These variables also reflect the consumption needs of the household and thus capture the abilityof a household to cope with a changing economnicenvironment.

24 Poverty in the Republic of Moldova in May and August 1997

Transnistria;in the Right Bank, living in the major city is associatedwith significantlyhigher household welfare, while in Transnistriathe opposite is true (see, however, the discussionon locationalpoverty rates in Section 3).

5.8. Finally, a dummy representingthe presence of a female household head was included in the regressions to test for the existence of a gender-dimensionto poverty in Moldova. In the Right Bank, households with female heads have an estimated per capita consumption9.8 percent lower than comparable households that are headed by males. 5.9. Despite the relatively low explanatorypower of the regressions and the small number of significant variables, they are reasonably good at predicting household poverty status. The estimated coefficients were used to predict per capita householdconsumption which was then used to compute predicted poverty status. This was different to actual poverty status for only around 20 percent of households;this suggests a potential role for easily observed household characteristicsin predicting welfare for use in targeting social benefits (see, however, Section 7).

6. Targeting of Social Assistance

6.1. This section presents some preliminaryresults on the efficiency and effectivenessof the social assistance program in Moldova. As has been documentedby Braithwaite (1997a), Moldova inherited a social protection philosophyand system from the FSU which has proved unsuitable for providing an adequate social safety net during the transition to a market economy. As is shown below, the social assistance program in Moldova is quite inefficient and ineffective. One of the main reasons for the inadequaciesof the system is that it was designed on the notion that working people would be able to support themselves and their families through formal employment supplementedby social insurance. However, as was shown in the poverty profile above, the incidence of poverty among some groups of workers is very high and the social assistance system simply was not designed to help these new poor.

6.2. For the purposes of the analysis, social assistance benefits are divided into two groups: pensions and other social benefits.17 There are five types of pensions identified in the Moldova survey: aged-workingpensions (paid according to age, even though person could still be working); old-age pensions (paid accordingto period of service and difficulty of work); disability pensions; pensions paid to dependents of deceased person; social pensions. The other social benefits are: unemploymentbenefits; allowances for families with many children; social insurance benefits.18 6.3. Indicatorsof efficiency of targeting. It is useful to define two measures of household welfare: ex post consumptionis total household consumption(as used as the

17 The analytical data base provided by the data team only allowed for this broad disaggregation of social assistance benefits. 1 Unemploymentbenefits could be identified separatelyin the analytical data base, but since so few households were in receipt of such benefits, it was decided to merge these benefits with the other social benefits.

25 Technical Paper III

measure of household welfare in the previous sections) and ex ante consumption is total household consumption, less the amount of social assistance received by the household. Ex ante consumption is an approximation of what household welfare would be without the receipt of social assistance (assuming that the marginal propensity to consume from benefits is one). 19

6.4. Figure 6.1 shows the incidence of receipt of social assistance for different ex ante per capita consumption deciles in May 1997. In the Right Bank, 77 percent of households in the lowest consumption decile were in receipt of social assistance; the incidence of receipt is fairly constant at around 30-40 percent between the third and eighth deciles and then falls to 20.4 percent of households in the highest ex ante consumption decile. The fact that around one-fifth of households in the top decil]e in the Right Bank are in receipt of social assistance suggests that social benefits are not well targeted in Moldova. A similar pattern of receipt of social assistance is found for Transnistiia, with the incidence of receipt declining from 98.3 percent in the lowest ex ante consumption decile to around 20 percent in the top decile.

Figure 6.1: Incidence of social assistance receipt, May 1997

100 900

70

() 60- 8 50 40- o6 30 20 00 .0i

0

Ex-anteper capita expendituredecile

=-- RB - Trans

Source: Author estimatesbased on MHBS, 1997.

6.5. The efficiency of targeting of social assistance in Moldova can also be assessed by considering the incidence of receipt ol social assistance by poor and non-poor households. Table 6.1 shows that 33.6 percent of poor households received social assistance, compared with 43.2 percent of non-poor households. However, when poverty status is calculated on an

19 Note that there may be some problems with assuminga marginal propensity to consume of I since the definition of social assistance used in this section includes some benefits which are paid regardlessof welfare situation (and hence may be paid to households which are savers).

26 Poverty in the Republic of Moldova in May and August 1997 ex ante basis (i.e. using household consumptionless social assistance received as the measure of living standards),62 percent of poor households received social assistance compared with 33.5 percent of non-poor households. Under the assumptionthat the marginal propensity to consume from social assistance is one, then these results suggest that social assistance in Moldova does move some households out of poverty. Table 6.1 also shows the incidence of receipt of pensions and other social benefits for poor and non-poor households. The incidence of receipt of both pensions and other benefits is higher for non-poor households when the ex post living standards measure is used but the incidence for poor households approximately doubles when the ex ante welfare measure is used.

Table6.1: Incidenceof receiptof socialassistance, May 1997 RB Trans Moldova Non-poor Poor Non-poor Poor Non-poor Poor Social Assistance expost"' 39.6 29.7 58.3 48.2 43.2 33.6 ex ante 2' 31.5 56.7 43.8 76.7 33.5 62.0 Pensions ex post3' 37.7 27.9 50.4 47.0 40.2 31.9 ex ante4' 29.8 54.8 33.7 75.8 30.4 60.4 Other Social Benefas 5 ex post 2.9 2.2 9.2 1.3 4.1 2.0 ex ante6 ' 2.5 4.0 8.3 5.6 3.6 4.4 . Source: Author estimatesbased on MHBS, 1997. Notes: " Household incidence of receipt of social assistance where poverty status is determinedusing total household consumption;21household incidence of receipt of social assistance where poverty status is determined using total household consumptionless amount of social assistance received; 31household incidence of receipt of pensions where poverty status is determinedusing total household consumption;4 household incidence of receipt of pensions where poverty status is determinedusing total household consumptionless amount of pensions received; 5/ household incidence of receipt of other social benefits where poverty status is determinedusing total household consumption;6/ household incidence of receipt of other social benefits where poverty status is determinedusing total household consumption less amount of other social benefits received.

6.6. The efficiency of targeting of social assistance can be further assessed by looking at the two types of targeting errors: non-paymentto poor households ('exclusion' or Type I errors) and payment to non-poor households ('inclusion' or Type II errors). Exclusion errors can be quantified by the undercoveragerate which is the percentage of ex ante poor who do not receive social assistance (one minus the ex ante incidence rates in Table 6.1). From Table 6.1, it is apparent that 38 percent of poor households do not receive social assistance, based on an ex ante comparison for the country as a whole.

6.7. Errors of inclusion can be measured by the leakage rate which is the number of ex ante non-poor recipient households as a percentage of all recipient households. From Table 6.1, a total of 814 households received social assistance20, and of these, 469 were ex ante non-

20 =0.416x1957, where 0.416 is the average incidence of receipt of social assistance (not shown in Table 6.1) and 1957 is the number of households in the sample.

27 Technical Paper III poor21, translating into a leakage rate of 57.6 (=469/814) percent. This suggests that the errors of targeting of social assistance in Mol,dova are quite significant.

6.8. Effectiveness of social assistance in reducing poverty. The effectiveness of the social assistance program in Moldova in reducing poverty can be assessed in two ways. First, it is important to look at the amounts of social assistance received by different household types. Figure 6.2 graphs the share of social assistance transfers across the post-transfer distribution of per capita consumption.22 Wealthier households appear to receive a larger share of the total allocation of social assistance than poorer households; this is particularly apparent in the Right Bank, where households in the poorest decile only received 4.4 percent of social assistance transfers, with the percentage of transfers received rising steadily to 19.2 percent for households in the top decile. The inequality in the receipt of social assistance is even more apparent when one considers the share of transfers received by different poverty groups. Poor households received 15.' percent of all social assistance transfers in Transnistria and only 8.2 percent of allocated transf:ers in the Right Bank. This pattern of receipt of benefits was very similar to that found for pensions (where poor households received 15.7 percent in Transnistria and 8.3 percent in the Right Bank). However, the targeting of other social benefits (unemployment benefits, allowances for families with many children, and social insurance benefits) appears to be even less pro-poor. In Transnistria, poor households received 2.2 percent of the total amount of other social benefits allocated, while in the Right

igure 6.2: Percentage of total social assistance received by households, May 1997

20 - is 16 14 12- 10L" , : '' 8 6-- 4 To- 2

0

Ex-post per capita expendituredecile

iu-RB -4Trans

Source: Author estimatesbased on MHBS, 1997.

21 =0.335x1401,where 0.355 is the household ex-ante incidence of receipt of social assistance (from Table 6.1) and 1401 is the number of ex-ante poor households (not shown in the tables).

28 Poverty in thleRepublic of Moldova in May and August 1997

Bank, poor households received 4.6 percent. The apparent poor targeting of unemployment benefits and social insurance benefits is not surprising since these are linked to employment (which the poor may not have). In principle, multi-child benefits should be targeted; however, anecdotal evidence suggests that this benefit has simply not been paid recently in some areas in Moldova.

6.9. A second approach to measuring the effectiveness of social assistance targeting is presented in Table 6.2 which shows the impact of targeting on different poverty measures. The first row of this table shows the poverty measures calculated using total household consumption. The second row shows the impact on poverty measures when total social assistance received by the household is deducted from total consumption, while the final two rows show the poverty mesas when the two components of social assistance (pensions and other benefits) are subtracted from total consumption. Assuming a marginal propensity to consume from benefits of one, the numbers in Table 6.2 give an indication of how social assistance targeting improves the poverty situation in Moldova.

Table6.2: Impact of social assistance on individual poverty measures, May 1997 RB Trans Moldova Consumption measure Headcount P1 Headcount PI Headcount P1 Expost" 19.0 6.2 20.7 7.7 19.3 6.5 Ex ante (social 27.1 11.8 37.0 20.9 28.8 13.4 assistance) 2' Ex ante (pensions)3 / 26.5 11.7 36.2 20.6 28.2 13.2 Ex ante (other benefits) 4' 19.5 6.3 21.7 7.9 19.8 6.6 Source: Author estimates based on MHBS, 1997. Notes: 11Poverty measures calculatedusing total household consumption;2/ poverty measures calculated using total 3 household consumption less total amount of social assistance received; / poverty measures calculated using total household consumptionless amount of pensions received; 4'poverty measurescalculated using total household consumptionless amount of other social benefits received.

6.10. The information in Table 6.2 in some ways contradicts the conclusions from above in that social assistance is found to have quite a large impact on the headcount and poverty-gap measures. The pre-transfer poverty rate in Moldova in May 1997 (calculated using total household consumption less social assistance received as the relevant welfare measure) was 28.8 percent; this compares to the usual ex post poverty rate of 19.3 percent. The social assistance program also reduces the poverty gap significantly from 13.4 percent to 6.5 percent.

6.11. Conclusions. It appears that social assistance is ineffectively targeted and poor households receive a very small share of the total allocation of benefits. However, the social assistance program does appear to be effective in reducing poverty as indicated by the results in Table 6.2. A potential reason for this contradiction is that poverty in Moldova is fairly shallow in that there are many households clustered just below the poverty line; in such a situation, targeted benefits will be effective in moving households out of poverty.

22 Another measure of effectivenessof social assistancetargeting is the mean per capita amounts of social benefits received by each decile; however,the accuracy of this measure is affected by the fact that poorer households tend to be larger.

29 Technical Paper III

7. Proxy Means Tests

7.1. A major difficultywith administeringa social assistance program is the accurate identificationof eligible households. ][nthe countries of the FSU, the presence of a large informal sector makes it both difficult and administrativelycostly to accuratelyestimate household income. In countries such as Moldova, where many households rely on produce grown in private garden plots, the task of estimatinghousehold welfare is even more difficult; imputing the value of home-producedgoods requires detailed information on exactly what produce was consumedby the household and market prices with which to value this consumption. As discussed above, the self-reportedvalue of home consumptionwas used in the construction of the household welfare measure for Moldova; however, this may lead to home consumption being significantly undervalued.

7.2. In Section 5, the determinants of household welfare were explored using multi-variate regression techniques. It was found that human capital and labor market variables are reasonably important in determining household welfare, as are the location of the household, the presence of a food plot and the gender of the household head. This information can potentially be used in the design of poverty reduction programs in Moldova (either for the targeting of social assistance or in active employment creation policies). In this section, the viability of indicator targeting in Molcdovais investigated.

7.3. A proxy means test is a method. of identifying the poor using household information which is reasonably easy and cheap to collect.23 The method involves the re-estimation of the consumption function presented in Seiction 5, where the RHS variables are augmented by several easily verifiable variables: wage income, public-transfer income, and dummy variables reflecting durable ownership and the presence of different household amenities. The coefficients from the consumption function are then used to predict household welfare and to calculate how many households are correctly predicted poor. If the model is reasonably good at identifying the poor, then it may be used as input into a social assistance targeting procedure which uses easily identifiable indicators (the eligibility of households for social assistance will depend on their predicted consumption as calculated using the estimated coefficients from the regression). It should be noted that some of the additional variables in the consumption regression are likely to be endogenous; however, the objective here is simply to predict welfare and hence poverty status.

7.4. The proxy means regressions were estimated with forward step-wise OLS with only those variables with a p-value less than 0.2 being included in the model (Table 7.1). In general, the results for the full sample are not too promising. While the regressions are very good at predicting the poverty status of non-poor households (over 98 percent of the non-poor are correctly identified in both the Right Bank and Transnistria), they are not good at

23 The approach used in this section is based on that in Braithwaite (1997b) and Braithwaite et al. (1998).

30 Poverty in the Republic of Moldova in May and August 1997 identifyingpoor households. In the Right Bank, only 3.6 percent of those households known to be poor (based on actual household consumption)were predicted as being poor (i.e. had a predicted per capita household consumptionwhich was less than the poverty line). In Transnistria,the percentage of poor households with correctlypredicted poverty status was higher at 26.6 percent. The results of proxy means testing in other FSU countries have been more encouraging;more than 50 percent of poor households were correctly identified using proxy means tests in Estonia, the Kyrgyz Republic and Russia (Braithwaite et al. 1998). Unfortunately,it appears that the prediction success rates are not high enough for proxy means tests to be used as input into social assistance targeting in Moldova. 7.5. The fact that the model is very good at identifying the non-poor led to a second simulation. Assuming it were possible to use the household characteristicsidentified in Table 7.1 to correctly identify the upper half of the welfare distribution, how well would the set of indicatorsperform in distinguishingpoor from non-poor households within the group of households below the median welfare level? The last four columns of Table 7.1 show the results of estimatingthe welfare functions using only those households with below median per capita consumption. While the prediction success rates for poor households have improved significantlyto 34.9 percent in the Right Bank and 85.8 percent in Transnistria, it is still unlikely that at this stage proxy means testing could be used in the design of social assistance targeting in Moldova. The prediction success rate using the below median observationsfor the Right Bank is still far below what was found for the FSU countries in Braithwaite et. al. (1998). Further, while the prediction rate for Transnistria is very high, the corresponding prediction success rate calculated using the August 1997 data was much lower (see Table 7.1a).

7.6. In summary, it appears that with the household data currently available, indicator- based targeting (or proxy means tests) will not make a significant contribution to improving the targeting of social assistance in Moldova. However, it should be emphasized that indicator-basedtargeting has been found to have potential applications in other FSU countries. The fact that the proxy means test results for Moldova were not particularlygood may be a result of problems with the householddata, and if these problems are addressed, then there may yet be a role for indicator-basedtargeting in Moldova.

31 Technical Paper III

Table 7.1: Proxy-meansregressions, (1) RB, whole (2) Trans, whole (3) RB. lower (4) Trans, lower May 1997 sample sample half of sample half of sampie Dependent variable: log per capita Coef. Pl-value Coef. P-value Coef. P-value Coef. P-value consumption Household composition number of children < 14 years -0.134 0.000 -0.302 0.000 -0.029 0.134 -0.100 0.054 number of male adults -0.099 0.000 -0.225 0.000 -0.051 0.032 -0.142 0.008 number of female adults -0.154 0.000 number of elderly persons -0.227 0.000 -0.201 0.006 Education of household head 0.069 0.225 higher education vocational-technical -0.080 0.057 -0.224 0.015 general secondary / incomplete -0.214 0.024 0.067 0.065 second. illiterate -0.540 0.077 Age of household head -0.002 0.172 -0.003 0.027 (age of household head)xl&2 Head isfemale -0.050 0.192 -0.053 0.179 Head is inactive Head is unemployed Number of unemployed in household Household situated in major city -0.147 0.165 -0.123 0.193 Household situated in rural area 0.294 0.000 -0.272 0.007 -0.319 0.001 Household has access to food plot 0.157 0.140 Per capita social assistance 4.460 0.000 3.010 0.000 0.031 0.004 benefits/l 000" Per capita employment income/1000" 2.832 0.000 0.013 0.000 2.944 0.000 0.022 0.001 Household has sewerage Household has hot water 0.115 0.082 Household has central gas 0.147 0.045 Household has electric oven 0.179 0.111 -0.384 0.003 0.359 0.110 Household has central heating 0.047 0.525 -0.177 0.073 Household has bath or shower Household has phone 0.066 0.135 -0.135 0.102 Household owns color TV 0.084 0.045 0.306 0.001 0.068 0.107 0.220 0.007 Household owns VCR 0.124 0.111 0.231 0.128 Household owns CD player 0.473 0.169 1.027 0.059 Household owns refrigerator 0.093 0.031 0.225 0.099 Household owns washing machine 0.123 0.001 0.152 0.121 0.187 0.020 Household owns microwave -0.256 0.149 Household owns car 0.177 0.001 0.253 0.022 Constant 4.665 0.000 9.661 0.000 4.249 0.000 8.796 0.000 N 1598 359 799 179 R2 .3'28 .292 .120 .351 Percentage of households with 83.5 85.6 68.1 75.3 correctly predicted poverty status Percentage of non-poor households 98.6 98.1 84.2 69.4 with correctly predicted poverty status Percentage of poor households with 3.6 26.6 34.9 85.8 correctly predicted poverty status Source: Author estimatesbased on MHBS, 1997. Notes: Omitted categories are head has primary/incomr.pleteprimary education and household situated in 'other' urban area. P-values less than 0.05 (0.01) indicate that the coefficient is significant at the 5% (1%) level.'" Includes cash and in-kind. 32 Poverty in the Republic of Moldova in May and August 1997

8. Conclusionsand Policy Recommendations

8.1. This paper presents a detailed analysis of poverty in the Republic of Moldova using data from the 1997 Moldova Household Budget Survey. The MHBS is the first nationally representativehousehold survey to be conductedin Moldova and it contains extensive information useful for the measurementof living standards and poverty. The MHBS is an on- going data collection project, capable of providing informationon the dynamic aspects of poverty and vulnerabilityover a period of major economic reform and change.

8.2. In the present paper, data from May and August 1997 are used to construct a poverty profile and to analyze the social assistance program in Moldova. Since the data used are the first to be collected in the MHBS project, it is not possible to compare the results in the paper with those of previous years. However, it is possible to conclude that poverty affects a large proportionof people in Moldova and it is to be expected that this proportion has increasedin recent years. An initial assessmentof the detailed food expenditure data in the MHBS concludes that some of the poor in Moldova may not be maintaininga reasonable diet in terms of calorie intake. While the majority of Moldovans are purchasingenough food to enable an adequate calorie intake, the relativelyhigh share of food in household budgets suggeststhat many are foregoing expenditureson non-food items that were probably affordablepre- transition.

8.3. From the poverty profile constructedin Section 4 of the paper, it can be concluded that poverty in Moldova shares some of the general characteristicsfound in other FSU countries. In particular, there are higher rates of poverty in rural areas comparedwith the major cities of Chisinau and Tiraspol, children are particularly at risk of poverty and the working poor (especially workers in the agriculturalsector) also have high poverty rates. The risk of poverty for the elderly in general, and pensioners in particular, is found to be lower than that of the general population, while those living in female-headedhouseholds have a higher poverty incidence. The multi-variate analysispresented in Section 5 also found that human capital and labor market variables are important in determining household welfare, as are the location of the household and the presence of a food plot.

8.4. An analysis of the social assistance in Moldova in Section 6 suggests that benefits are ineffectivelytargeted and poor householdsreceive a very small share of the total allocation of benefits. However, since poverty in Moldova is relativelyshallow (in that there are many households clusteredjust below the poverty line) the social assistance program does appear to be reasonably effective in reducing poverty. This suggests that if benefits can be better targeted, then the social assistance program may become effective at reducing poverty in Moldova.

8.5. As has been found elsewhere in the FSU, the poverty correlates identified in the multi-variate analysis in Section 5 are not as well defined or sharp as found in Eastern European countries. This presents a large challenge to the governmentof Moldova in its attempt to reduce poverty and improve targeting of social assistance. In Section 7, the viability of improving the targeting of benefits using indicator-basedtargeting (or proxy

33 Technical Paper III means tests) was investigated. While indicator-based targeting has been found to have potential applications in other FSU countries, the proxy means test results for Moldova were not particularly promising. However, iJhismay be a result of problems with the household data and if such problems are addressed, then there may yet be a role for indicator-based targeting in Moldova.

8.6. Several other policy conclusions emerge from this study. Education was found to be very important in improving welfare in Moldova. Since the educational attainment of the population is difficult to change in the short-run, this aspect will remain a long-term challenge for Moldova. However, it is essential that enrolment .rates for children are maintained and any differentials in these rates between poor and non-poor children are addressed. Other factors that impact on poverty in Moldova, yet are hard to change in the long term, are household location and the presence of a food plot. However, it was found that entrepreneurial activity is important in increasing household welfare and reducing poverty; such activity may be fostered in the short-run via micro credit programs and small business 'incubators'.

8.7. The analysis confirmed the importance of household composition, in particular the presence and number of children, to poverty; households do not succeed in maintaining their welfare levels when the number of children increases. The presence of children should be considered as a strong candidate for anryindicator-based targeting and child-oriented transfer programs need to be moved away from general entitlements to means-tested or proxy means- tested programs.

34 Poverty in the Republic of Moldova in May and August 1997

9. References Ackland, R. (1997), "Human Capital and Poverty in the Republic of Moldova: Background paper for the Moldova poverty assessmentof the World Bank," mimeograph,World Bank: Washington, D.C. (1998), "The 1997 Moldova Household Budget Survey:Documentation," mimeograph,World Bank: Washington, D.C. Ackland, R. and Falkingham, J. (1997), "Economic Transition and the Profile of Poverty in Kyrgyzstan,"in J. Falkingham et al. (eds.), Household Welfare in CentralAsia, : Macmillan Press. Braithwaite,J. (1997a), "Poverty in Moldova: Pilot Results for February 1997," mimeograph, World Bank: Washington, D.C. (1997b), "General Concepts for Proxy Means Testing," mimeograph,World Bank: Washington, D.C. Braithwaite,J., Grootaert, C. and Milanovic,B. (1998), "Determinantsof Poverty and Targeting of Social Assistance in Eastern Europe and the Former Soviet Union," mimeograph,World Bank: Washington,D.C. Deaton,A. (1997), The Analysis of Household Surveys:A MicroeconometricApproach to DevelopmentPolicy, Johns Hopkins:Baltimore and London. De Soto, H. and Dudwick, N. (1997), "Poverty in Moldova: A Qualitative Study," mimeograph,World Bank: Washington,D.C. Foley, M. (1997), "Static and Dynamic Analyses of Poverty in Russia," in J. Klugman (ed.) Poverty in Russia: Public Policy and Private Responses, World Bank: Washington,D.C. Lanjouw,P. and Ravallion, M. (1995), " ", Economic Journal, 105, pp. 1415-34. Lindauer,D. (1997), "Labor and Poverty in the Republic of Moldova," mimeograph,World Bank: Washington,D.C. Okrasa, W. et al. (1997), "Notes on the Moldova Pilot Survey," mimeograph,World Bank: Washington,D.C. Pomfret, R. (1998), "Poverty in the Kyrgyz Republic," University of Adelaide School of EconomicsWorking Paper 98-5.- Ravallion, M. (1994), Poverty Comparisons,: Harwood. World Bank (1995a),Ecuador Poverty Report, Volume II, Report No. 14533-EC, Washington,D.C. (1995b), Poverty in Russia: An Assessment, Vol. II, Report No. 14110-RU, Washington,D.C.

35

Poverty in the Republic of Moldova in May and August 1997

Appendix A: A Locational Food Price Index

In this appendix, the method used to construct a locationalfood price index for Moldova is outlined. A Laspeyres price index is constructedfor May 1997 using data from the 1997 Household Budget Survey.24 The constructedprice index is used to see how the cost of food varies between locations (i.e. major city, other city and rural) for the averagehousehold.

It should be noted that the price index is not used in the poverty analysis in the rest of the paper; the consumptionmeasure used as the measure of household welfare has not been adjusted for spatial variations in prices. Rather, the price index is used to give an indicative measure of how prices vary between locations in Moldova and how the MHBS may be used to construct such an index.

A lack of adequate data meant that it was possible to construct only a food price index, rather than an index for all goods and services. In particular, it was not possible to estimate the cost of housing since this would have involved estimatinga hedonic rent regression, and there were only 169 households with positive rent payments in the May quarter.25 Constructinga non-food price index is problematic anyway,since those items tend to be very heterogeneous.

Because of different currency regimes and market setups, separate price indices were constructedfor the Right Bank and Transnistria. There were several stages in the construction of each food price index.

Prices and unit values

Since suitable price data were not available,prices had to be proxied by unit values (calculated as expenditure on a particular good divided by quantity purchased) constructed from the household expenditure data. The problem is that unit values cannot strictly be equated with prices since the former are affected by the choice of quality, with higher quality goods having higher unit values. Since consumers have choice over quality, unit values are to some extent chosen (in contrast with market prices, which are exogenous to the household). A second reason why unit values are not the same as prices is to do with measurement error; since unit values are a function of expenditure,any error in the measurement of expenditure will be reflected in unit values.

Deaton (1997) discusses the formal relationship between unit values and market prices and outlines econometricmethods for addressingthese issues. In contrast, the approach taken here is a simpleone. Since poorer households are less likely to be able exert choice over the

24 The method used is similarto that used in the World Bank poverty assessment for Bulgaria. Note, however, that the household weights are not used in the construction of the price index, and hence it should be viewed as only giving an indication as to how prices may vary across locations in Moldova.

25 Hedonic rent regressions have generally performedbadly for FSU countries (Braithwaite et al., 1998)].

37 TechnicalPaper III - Appendix A quality of the goods they purchase, it is more likely that unit values calculated from the expenditure data of these households are closer to market prices. Hence, prices were calculated using the data from households in the bottom 40 percent of the nominal per capita expenditure distribution for each economic zone of Moldova. The issue of measurement error in expenditure values is addressed by calculating market prices as averages over all households purchasing the item in a particular region.

Formulae for calculating food prices and the food price index

The 1997 Household Budget Survey has expenditure and quantity purchased information on 95 different items of food and drink; these were collapsed into 11 relatively homogenous food groups.

The mean price for food group j in location L (pL.) was calculated as the total expenditure on food group j for all households in the reference population (each household referenced by the subscript i) divided by the total quantity of the food group consumed by the households:

E ,L

qi where XL is the expenditure of household i living in location L on food groupj and qLis the quantity of the food group consumed by the same household. The national mean price for food group j, p, was calculated in an ainalogous manner.

The food price index for location L (FPL) is calculated by taking a weighted average of the ratio of the locational price to the national price, using the national budget shares as the weights:

FPL =>w] Pi where wT is the average budget share for the national reference population, and is calculated:

ii where the denominator in the above is ;simply total expenditure of the national reference population. It can be shown that the regional food price index is a Laspeyres (i.e. base- weighted) price index.

38 Poverty in the Republic of Moldova in May and August 1997

Food Price Indices for Moldova, May 1997

In Table Al, average prices for the Right Bank for May 1997 are reported. The table also reports the budget shares for the reference households. In Table A2, May 1997 average prices and budget shares for Transnistria are shown.

Table Al: Average prices and budget shares, Right Bank, May 1997 Average Prices (Moldovan leilunit) Average Budget Shares Other Other All RB Chisinau towns Rural All RB Chisinau towns Rural grains 2.12 2.17 2.07 2.19 0.39 0.34 0.43 0.37 meat 8.11 8.15 8.25 7.94 0.15 0.15 0.14 0.15 fish 5.67 7.66 4.46 6.49 0.04 0.02 0.03 0.06 dairy 0.92 0.86 0.87 1.21 0.09 0.15 0.10 0.05 oils 4.73 5.68 4.59 4.53 0.07 0.07 0.07 0.07 fruit 2.17 3.44 2.52 1.53 0.01 0.02 0.01 0.01 vegetables 1.45 1.66 1.42 1.40 0.15 0.17 0.14 0.15 sweets 2.98 2.63 2.65 3.27 0.07 0.05 0.05 0.11 spices 2.30 3.66 2.81 2.05 0.01 0.01 0.01 0.02 beverages 0.08 0.05 0.10 0.16 0.02 0.03 0.02 0.01

Table A2: Average prices and budget shares, Transnistria,May 1997 Averaze Prices (TRRIunit) Average Budget Shares Other Other All Tm Tiraspol towns Rural All Tm Tiraspol towns Rural grains 242.11 216.10 235.56 261.61 0.41 0.33 0.28 0.60 meat 1289.76 1297.86 1221.37 1426.07 0.17 0.17 0.22 0.11 fish 1080.96 985.74 1113.20 1153.46 0.04 0.04 0.05 0.04 dairy 147.81 125.53 149.11 231.26 0.13 0.16 0.16 0.07 oils 167.95 80.63 782.21 382.59 0.08 0.09 0.08 0.06 fruit and veg 218.95 243.80 213.99 177.67 0.13 0.17 0.17 0.05 sweets 409.66 332.38 558.90 409.03 0.05 0.05 0.04 0.07 Note: Fruit and vegetables had to be combined to ensure enough observations for an accurate estimate of price. There were not enough observations for reliable estimatesof the prices of spices and beverages.

In Table A3, the food price indices for the Right Bank and Transnistria are reported. In the Right Bank, food prices in Chisinau and rural areas are 5 percent higher than the national average, while food prices in other towns are 3 percent below the national average. A markedly different pattern for food prices is found in Transnistria, with food prices in Tiraspol being 10 percent below the average and prices in other towns and rural areas being 28 percent and 20 percent, respectively, above the national average.

Table A3: Food price indices, May 1997 Major city Other towns Rural Right Bank 1.05 0.97 1.05 Transnistria 0.90 1.28 1.20

39

Poverty in the Republic of Moldova in May and August 1997

Appendix B: Relative and Absolute Poverty Lines

For reasons detailed in Section 3, a relative poverty line, rather than an absolute poverty line, was used for detennining poverty status in this study. However, it is useful to construct an absolute poverty line and compare it with the relative poverty line used in the study.

Absolute poverty line

The absolute poverty line was constructedfor May 1997, using data from the MHBS.26It should be noted that the absolute poverty lines presented here are only indicative - if absolute poverty lines were to be used for poverty analysis in Moldova the methodologypresented here would have to be improved by the incorporation of household weights and also locational price differentials.

Average per capita quantities of food consumed

The first step is the constructionof average per capita quantities of food items consumed by persons in the rniddle- to lower-rangeof the nominal expenditure distribution. The MHBS collects information on the consumptionof 95 different foods and drinks. So as to get reasonable estimates of average quantities, and to link in with the construction of the food price index presented in AppendixA, the food items were collapsed into 8 relatively homogenousfood groups.

For the Right Bank, average quantities consumed of each food item were calculated by sumnmingthe quantities consumed by the households in the reference population (those in the 2nd and 3rd quintiles, where the quintiles were calculated over individuals)and dividingby 1991, which is the total number of persons in the 2nd and 3rd quintiles.27 Since the household

TableBi: Per capitaquantities, calorie shares and prices(Right Bank, May 1997) Calorie Averagequantity Shareof total conversionfactor per personper day calories Price (leilunit) grains 3282 0.41 0.45 2.08 meat 1537 0.06 0.03 8.42 fish 1114 0.01 0.00 5.61 dairy 1001 0.70 0.23 0.92 oils 8661 0.05 0.13 4.70 fruit 199 0.01 0.00 2.69 vegetables 567 0.39 0.07 1.59 sweets 3861 0.06 0.07 3.10 Note: Prices are slightlydifferent to those calculated in AppendixA because they are derived using the expendituredata of households in the 2nd and 3rd quintiles, rather than the bottom 40% of the expenditure distribution.

26 The method used is based on Ravallion (1994) and also World Bank (1995a).

41 TechnicalPaper III - Appendix B _ budget survey collected information on quantities consumed over a month, the average quantities were divided by 30 to give quantity consumed per person per day. These quantities are reported in the second column of Tables B1 and B2.

Table B2: Per capita quantities,calorie shares and prices (Transnistria,May 1997) Calorie Average quiantity Share of total conversionfactor per person per day calories Price (TRR/unit) grains 3282 0.38 0.37 243.61 meat 1537 0.06 0.03 1179.98 fish 1114 0.02 0.01 848.35 dairy 1001 0.72 0.22 139.42 oils 8661 0.10 0.25 266.27 fruit 199 0.0 1 0.00 327.55 vegetables 567 0.37 0.06 235.66 sweets 3861 0.0'5 0.06 457.98 Note: See note to Table B1.

Calorie content of average food basket

The next step is to calculate the calorific value of the average food basket. Column 1 of Tables B1 and B2 shows calorie conversion factors (calories per unit of food) taken from a standard calorie conversion tables.28 T'he average quantities are multiplied by the calorie conversion factors and then summed up to give the calorie content of the average food basket. For the Right Bank, the average food basket contained 3026 calories, while in Transnistria the calorie content of the average food basket was 3334 calories. Also shown in the tables are the shares of total calories accounted for by the different foods.

The calorie content of the average foocl basket is then compared against a cut-off level and the quantities in the reference bundle are scaled so that the calorie content of the bundle matches the cut-off, resulting in the minimum food consumption bundle. The calorie cut-off level used was 2100 calories per person per day (t'his is a standard cut-off in poverty work at the World Bank).

The food poverty line

The value of minimum food consumption bundle (or the food poverty line) is calculated by multiplying each quantity in the bundle by the price of the good. The prices are average unit prices derived from the data (using the method outlined in Appendix A) and are shown in column 4 of Tables B1 and B2. At this stage single food poverty lines have been calculated for both the Right Bank and Transnistiia (i.e., using a single set of prices for each zone, rather

27 An altemativemethod would have been to calculated the per capita quantities for each household in the reference population and then take the mean; this would have resulted in a similaraverage quantity vector.

28 Note that some of these conversion factors are weighted averages calculated by the author.

42 Poverty in the Republic of Moldova in May and August 1997 than locationalprices within each zone). The food poverty line is equal to 65.2 lei per person per day for the Right Bank and 7970.6 TRR per person per day for Transnistria.

Non-food spending in the poverty line

As there is no biologically determinedrequirement for consumptionof non-food items, the value of these items to be included in the poverty line must be estimated. This is done by estimatingthe value of non-food spendingfor households who were just capable of meeting food consumptionrequirements i.e. the value of non-food consumptionfor households whose total consumptionspending was just equal to the food poverty line. This is done by estimatingthe following regression:29

Wj= U.+ f3ln(xilfp)+ Ei where wi is the share of spending on food for the ith household,xi is total expenditure andfpiis the food poverty line calculated above.

The intercept of the regression (cx)represents the average share of spending on food for households whose total expendingjust equals the food poverty line (e.g. where xi=Jp).The absolute poverty line is the sum of the food poverty line and the value of non-food spending for households for whom xi=fp. This line is thereforecalculated as_fr(2-a).30

The intercept of the regressionis 0.757 and therefore the absolute poverty line is 65.2x(2- 0.757) = 82.1 lei per person per day for the Right Bank. Using the same approach, the absolute poverty line for Transnistriais 9656.1 TRR per person per day.

Relative poverty line

The relative poverty line is much easier to construct, and it was used in the analysis for the reasons outlined in Section 3. For both quarters, the consumptiondata were adjusted so as to be valued in terms of the prices of a particular month (May for the second quarter data and August for the third quarter data). The relative poverty lines (40% of weighted mean per capita monthly consumption,calculated over individuals) calculated separately for Right Bank and Transnistria are shown in Table B3.

29 Note that variables relating to household composition and location are also included in this regression.

30 The absolute poverty line is equal to food spending (fp) plus non-food spending (nfp). However, since nfp is calculated for those households for which xi=fp,then nfp=xi(l-rt)=fp(l-a). Hence, the absolute poverty line is equal tofp +fp(l-cx) = p(2-oc).

43 Technical Paper III - Appendix B

Table B3: Relative poverty lines, Moldova 1997 Right Bank Transnistria May 1997 57.4 7,350.0 August 1997 63.7 9,325.3 Source: Author estimates based on the MHBS, 1997. Notes: Poverty lines in Right Bank are expressed in VMoldovanlei per person per month. Poverty lines in Transnistria are expressed in 1,000 Transnistrianrubles per person per month.

44 Poverty in the Republic of Moldova in may and August 1997

AppendixC: Economies of Scale in Household Consumption

Economies of scale in household consumptionimply that an additional household member does not cost as much as precedingmembers. Economiesof scale are likely to be important for certain types of fixed expenditures,for example heating and rent. Under certain specificationsof household preferences,the economies of scale parameter can be interpreted as the size elasticity of the cost of utility.

As per Lanjouw and Ravallion (1995), economiesof scale in household consumptionwere tested for by estimating a variation of the following Engel regression,

wi = a + 13ln(xi/ni) + oj8i,i + relative prices where wi is the budget share devoted to food by household i, xi is total consumption,ni is householdsize and %niis the proportion of household members in demographic group j.

The parameter 0 measures the size elasticity. An estimated value of H of 1 implies zero economies of scale (and per capita household consumptionis the appropriate welfare measure). In contrast, 0=0 implies perfect economiesof scale in household consumption;the consumptionby one person does not reduce the amount availablefor other household members and total householdconsumption is the appropriatewelfare measure.

An alternativespecification of the test of economies of scale (also suggestedby Lanjouw and Ravallion) involves estimationof the following model,

wi = a* + ,3*ln(xiInie) + l6j nji + relative prices where the nji's are the numbers (rather than proportions)of people in each demographicgroup. This equation can be re-written as,

wi = a* + i*ln(x/n) + (Xj8j*l.i)ni + relative prices and the economiesof scale parameter is calculated as (evaluating %ljiand ni at their sample mean points),

0 = 0* - (Ij8j*%i/P*)ni

With this modified specification,the size elasticity parameter 0 is now a function of both household size and demographiccomposition. The above model was estimated for the Right Bank using the May 1997 data with two demographiccomposition variables included in the regressionfor adults and children (the elderly were excluded from the regression to avoid singularity). Note that regional relative prices are not yet available for Moldova and hence the results should be taken only as indicative.

45 Technical Paper III - Appendix C _

The modified specification resulted in an estimate of 0 which strongly suggests the existence of scale economies. For May 1997, the estimated 0 was 0.70, with a p-value for the test of the null hypothesis that 0=1 of 0.000.

If households do obtain economies of scale in consumption, using per capita consumption will overstate the incidence of poverty and also create a spurious relationship between poverty and household size. It is, therefore, of interest to calculate what size elasticity is required to reverse the finding that poor households in Moldova are on average larger than non-poor households. From Table Cl it is apparent that the size elasticity would have to be equal to 0.6 to reverse the finding in the May data that poor households are larger than their non-poor counterparts.

Table Cl: Assumed size elasticity and average size of poor and non-poor households Averag,esize of poor Average size of non-poor Assumed size elasticity honiseholds households No economies of scale 0=1 4.3 3.6 Mild economies of scale 0=0.9 4.4 3.7 0=0.8 4.3 3.7 0=0.7 4.0 3.7 Strong economies of scale 0=0.6 3.7 3.8 0=0.5 3.6 3.8 0=0.4 3.5 3.8 Source: Author estimates based on the MHBS, 1997.

While the evidence suggests that there may be economies of scale in household consumption in Moldova, per capita consumption is still considered to be the appropriate measure of household welfare for two reasons. First, we have not been able to conclusively test for the existence of economies of scale because of the absence of relative price data for Moldova, and hence the conclusions above are only tentative. Second, adjusting for the presence of economies of scale would require the use of an appropriate equivalence scale. Such a scale could be constructed using the estimatecl parameters of the Engel curves estimated above (however, this would require relative price data that are not available at present). Alternatively, an equivalence scale such as that used by the OECD could be employed. However, the application of a normative scale to Moldova data is not necessarily appropriate (it would be better to use a scale derived directly from the household data) and indeed may induce bias in the data.

46 Poverty in the Republic of Moldova in May and August 1997

Appendix D: Sensitivity Analysis

Table Dl shows the May 1997 poverty rate calculatedusing different poverty lines. Using a different poverty line obviously results in a different calculatedpoverty rate. However, the main aim of this study is not to calculate the absolute size of the poor population,but rather to analyze the characteristicsof the poor and to suggest policy responses to poverty. Since the relative poverty line used in the study falls within the range of acceptable poverty lines listed in Table DI, it can be argued that the conclusionsin this study will be reasonably robust to the choice of poverty line.

Figure Dl graphically shows what happens to the poverty rate in the Right Bank in May 1997 when the base poverty line is shifted 10 percent higher and 10 percent lower.

Figure Dl: CDF of log monthly per capita consumption, Right Bank, Ma 1997

1- 0.9 poverty line+ 10% i 0.8 poverty line 0.7 poverty line - 10% go 0.6 0.5 2 0.4

. 0.3 0.19 110.62 ------.- - - - - gj _ .c..__ . ------...... Z0.153 ------Q 0.1 0* 0 1 2 3 4 5 6 7 8 Log monthly per capita expenditure

Source: Author estimatesbased on MHBS, 1997.

47 Technical Paper III - Appendix D

Table DI: Sensitivity analysis, May 1997 Rifht Bank Transnistria % change % pt. change % change in % pt. change Poverty in poverty Headcount in headcount Poverty line poverty line Headcount in headcount line line Base poverty line (relative) 40% of weighted per capita consumption 57.4 0.0 19.0 0.0 7350.0 0.0 20.7 0.0 Alternative poverty lines Absolute poverty line 82.1 43.0 35.0 84.2 9656.1 31.4 32.6 57.5 Sarkisiyan Minimum Consumption Basket (MCB) 415.0 623.2 96.6 77.6 53950.0 634.0 98.0 77.3 Sarkisiyan MCB food portion only 2/ 201.0 250.3 79.5 60.5 26130.0 255.5 79.3 58.6 Absolute minimum PPP per capita poverty Line 2 3/ 14.8 -74.3 1.4 -17.6 1916.9 -73.9 1.4 -19.3 80% of base line 45.9 -20.0 11.7 -7.3 5880.0 -20.0 14.9 -5.7 90% of base line 51.6 -10.0 15.3 -3.7 6615.0 -10.0 16.9 -3.8 110% of base line 63.1 10.0 22.7 3-7 8085.0 10.0 25 1 44 120% of base line 68.9 20.0 26.6 7.6 8820.0 20.0 28.4 7.7 OECD per equivalent consumption 4 ' 57.4 0.0 9.8 -9.2 7350.0 0.0 13.4 -7.3 Source: Author estimates based on the MHBS, 1997. Notes: Poverty lines in Right Bank are expressed in Moldovan lei per person per month. Poverty lines in Transnistria are expressed in 1,000Transnistrian rubles per person per month. Headeountsare the weighted percentage of individualswith monthly consumptionbelow the relevant poverty line. "See AppendixB for details of calculationof the absolute poverty line. 2' Poverty line converted into Transnistrianrubles using the exchange rate IML = 130,OOOTRR. 31Based on a 1993 PPP rate of US$1 = 0.16 lei, inflated to May 1997 using the CPI, yielding a PPP rate of around US$1 = 0.49 and the World Bank Absolute MinimumPoverty Line of $1 per person per day and 30 days per month. 4' The OECD equivalence scale is as follows:first adult in household = 1.0, additional adults = 0.7, children less than 14 years = 0.5.

48 Poverty in the Republic of Moldova in May and August 1997

Appendix E: Functional form for regressions: linear versus semi-log

In this paper, regression techniquesare used to predict household welfare and to identify the variables that are significantly correlated with welfare. In the regressions, the dependent variable is log per capita consumption,while the independentvariables are either continuous variables or dummy variables reflecting household characteristics. From a theoretical perspective,it is attractive to use the semi-log functional form: lnc = (x + ,Bx,where x is a continuousvariable. This specificationimplies that the effects of household characteristicson welfare are proportionalrather than linear. Thus education, for example, will increase householdwelfare in a fixed proportion rather than by a fixed amount, and hence the absolute returns to education are lower for the poor.

While there are, therefore, theoretical reasons for using the semi-log functional form, it is useful to also econometricallytest whether the data fit this functional form. This was done using the STATA ado program boxcox, which finds the maximum-likelihoodBox-Cox transform. The Box-Cox transform

A,X - 1 y= represents a family of data transformations. For instance:

yX)=y - I if X= I y°) = lny) if X = 0 y(= I- I/y if = -1

The STATA ado program boxcox finds the maximum-likelihoodvalue of X for the model:

yi(X)= UC+ PXi + Ei where £ is assumed to be normally distributed and homoscedastic. The X obtained from boxcox is therefore the value that transformsy to being approximatelynormally distributed.

An estimated X of one implies that the linear specificationof the consumptionfunction is appropriate,while an estimated X of zero supports the use of the semi-log functional form. The boxcox procedure was run for the May 1997 data, using the independent variablesfrom Table 5.1. The estimated X for the Right Bank (Transnistria)was 0.102 (0.050). While the test that X=Owas rejected for Right Bank, it was accepted for Transnistria. This, combined with the fact that the estimated X's were much closer to zero than one, led to the conclusion that the semi-log functional form is appropriatefor use in the welfare regression.

49

Poverty in the Republic of Moldova in May and August 1997

Appendix F: Poverty in the Republicof Moldova:Additional tables

List of Tables Table 3.la: Poverty measures by location (percent), August 1997...... 53 Table 3.2a: Population and poverty shares by location, August 1997...... 53 Table 3.3a: Household in-kind consumption as a % of total consumption,May 1997...... 53 Table 4. la: Povertyrates by household size (percent)...... 54 Table 4.2a: Poverty rates by number of children under 14 yrs (percent)...... 54 Table 4.3a: Poverty rates by number of elderly persons (percent)...... 54 Table 4.4a: Poverty rates by number of children and elderly persons, August 1997 (percent)...... 55 Table 4.5a: Poverty rates by gender and age (percent)...... 56 Table 4.6a: Population and poverty shares by age and gender, May 1997...... 57 Table 4.7a: Population and poverty shares by age and gender, August 1997 ...... 58 Table 4.8a: Poverty rates by gender and age of household head (percent)...... 59 Table 4.9a: Poverty rates by gender and education - persons 2 14 yrs (percent)...... 60 Table 4.1Oa:Population and poverty shares by gender and education (ages 2 14yrs), May 1997...... 60 Table 4.1 la: Population and poverty shares by gender and education (ages 2 14yrs), August 1997.... 61 Table 4.12a: Poverty rates by gender and education of household head (percent)...... 62 Table 4.13a: Poverty rates by gender and socioeconomicgroup - persons 2 14 yrs (percent)...... 63 Table 4. 14a: Poverty rates by gender and socioeconomicgroup of household head (percent)...... 64 Table 4.15a: Poverty rates by type of settlement and presence of plot (percent)...... 65 Table 5.la: Consumptionregression, August 1997...... 65 Table 7.la: Proxy-meansregressions, August 1997...... 66 Table DIa: Sensitivity analysis, August 1997...... 67

51

Poverty in the Republic of Moldova in May and August 1997

Table 3.1a: Poverty measures by location (percent), August 1997 RB Trans Moldova Major city P0 6.7 16.8 8.8 PI 1.8 3.4 2.1 P2 0.7 1.0 0.8 N 823.8 190.3 1017.0 Other city P0 17.2 21.2 18.6 P, 4.7 5.2 4.9 P2 1.9 2.1 2.0 N 957.4 439.7 1418.0 Rural P0 21.1 17.8 20.8 PI 6.9 4.3 6.6

P2 3.4 1.5 3.2 N 3146.8 298.9 3422.0 All P0 17.9 19.2 18.2 P, 5.6 4.6 5.4

P2 2.7 1.7 2.5 N 4928.0 929.0 5857.0 Source: Author estimatesbased on MHBS, 1997 Note: Weighted sample sizes for individuals are shown.

Table 3.2a: Population and poverty shares by location, August 1997 RB Trn Moldova Poor All Poor All Poor All Major city 6.3 16.7 17.9 20.5 8.4 17.4 Other city 18.7 19.4 52.3 47.3 24.8 24.2 Rural 75.0 63.9 29.8 32.2 66.8 58.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 Source: Author estimatesbased on MHBS, 1997.

Table 3.3a: Household in-kind consumptionas a % of total consumption,Ma 1997 RB Trn Moldova Poor Non-poor Poor Non-poor Poor Non-poor Major city 7.6 16.0 5.6 16.3 6.7 16.0 Other city 20.5 22.9 9.4 19.6 18.7 21.6 Rural 78.9 62.6 14.8 20.9 67.5 58.4 All 60.6 43.3 11.5 19.2 50.2 38.7 Source: Author estimates based on MHBS, 1997.

53 Technical Paper HII- Appendix F

Table 4.1a: Poverty rates by household siize(percent) May 1997 August 1997 RB Trans Moldova RB Trans Moldova 1 13.3 15.1 13.7 9.1 4.1 7.9 2 11.4 13.8 12.0 10.5 14.5 11.5 3 11.9 7.9 11.1 11.5 26.3 14.3 4 15.3 30.5 18.2 18.0 22.5 18.7 5 27.0 30.1 27.4 24.0 16.8 23.3 6 32.7 64.0 35.3 31.8 51.6 33.2 7 31.8 0.0* 30.9 20.4 0.0 16.8 8+ 47.6 na 47.6 53.6 0.0* 48.8 All 19.0 20.7 19.3 17.9 19.2 18.2 Source: Author estimates based on MHBS, 1997. Note: Asterisk denotes cell size less than 20; estimates may be unreliable.

Table 4.2a: Poverty rates by number of children under 14 yrs (percent) May 1997 August 1997 RB Trans Moldova RB Trans Moldova 0 12.8 15.7 13.5 12.1 18.5 13.4 1 16.4 22.3 17.5 19.5 15.2 18.6 2 25.5 30.4 26.2 21.4 31.4 22.7 4+ 34.3 33.2 34.2 30.8 0.0* 29.4 All 19 20.66 19.29 17.93 19.23 18.16 Source: Author estimates based on MHBS, 1997.

Table 4.3a: Poverty rates by number of elderly persons (percent) May 1997 August 1997 RB Trans Moldova RB Trans Moldova 0 18.7 23.1 19.4 18.8 18.9 18.8 1 21.6 12.3 20.1 14.1 17.9 14.8 2+ 15.6 10.3 14.4 16.7 26.7 18.8 All 19.0 20.7 19.3 17.9 19.2 18.2 Source: Author estimates based on MHBS, 1997. Note: A person is defined as elderly if aged 65 years and over

54 Poverty in the Republic of Moldova in May and August 1997

Table 4.4a: Poverty rates by number of children and elderil persons, August 1997 (percent) RB Trans Moldova 0 children <14 years Oelderlypersons 11.6 16.6 12.5 1 elderly person 13.7 17.9 14.7 2+ elderly persons 12.2 29.8 16.9 1 child <14 years O elderly persons 18.3 16.5 17.9 1 elderly person 20.1 0.0 17.0 2+ elderly persons 55.0 na 55.0 2 children <14years 0 elderly persons 24.1 29.4 24.9 1 elderly person 8.5 59.6* 12.5 2+ elderly persons 0.0 na 0.0 4+ children <14years 0 elderly persons 32.5 0.0* 31.4 I elderly person 14.4 na 14.4 2+ elderly persons 0.0* 0.0* Source:Author estimates based on MHBS,1997. Note: Asterisk denotes cell size less than 20; estimatesmay be unreliable. A person is defined as elderly if aged 65 years and over

55 Technical Paper 111- Appendix F

Table 4.Sa: Poverty rates by gender and age (percent) May 1997 August 1997 RB Trans M\Ioldova RB Trans Moldova Male <5yrs 24.1 25.3* 24.2 20.4 41.0* 22.9 5-9 24.4 19.7 23.7 21.7 19.0 21.2 10-14 27.7 24.8 27.2 20.1 25.6 20.8 15-19 22.8 32.3 24.1 25.2 24.3 25.1 20-29 17.3 21.1 17.8 15.7 18.1 16.1 30-39 19.4 30.1 21.2 19.7 27.2 20.9 40-49 18.3 16.2 17.9 18.8 23.7 19.5 50-59 12.9 19.8 14.6 13.3 13.7 13.4 60-69 11.7 17.0 12.8 11.1 18.7 12.6 >=70 14.9 9.9 13.9 14.6 26.4 17.1 All 19.6 21.8 19.9 18.2 22.4 18.9 Female <5yrs 22.3 26.9* 22.6 22.5 25.9 22.9 5-9 17.2 20.1 17.6 20.7 6.4* 19.5 10-14 22.6 29.9 24.0 23.8 16.2 22.0 15-19 17.5 15.9 17.3 18.3 16.1 18.0 20-29 19.6 23.3 20.1 16.1 19.6 16.6 30-39 19.3 26.3 20.6 18.5 23.9 19.6 40-49 17.0 19.8 17.6 17.4 14.6 16.9 50-59 14.5 10.8 13.8 13.0 8.5 12.1 60-69 15.0 16.1 15.3 15.9 19.5 16.7 >=70 22.1 12.6 20.1 13.6 14.9 13.9 All 18.5 19.8 18.8 17.7 16.8 17.5 All <5yrs 23.2 26.1 23.4 21.5 32.6 22.9 5-9 20.5 19.9 20.4 21.1 14.7 20.4 10-14 25.3 27.6 25.7 21.8 19.6 21.4 15-19 20.2 24.3 20.8 21.6 19.9 21.3 20-29 18.6 22.2 19.1 15.9 18.9 16.3 30-39 19.3 28.1 20.9 19.1 25.3 20.2 40-49 17.6 18.4 17.7 18.0 18.3 18.1 50-59 13.9 15.0 14.1 13.1 10.8 12.7 60-69 13.6 16.4 14.3 13.6 19.1 14.8 >=70 19.7 11.7 18.1 13.9 18.3 14.9 All 19.0 20.7 19.3 17.9 19.2 18.2 Source: Author estimatesbased on MHBS, 1997. Note: Asterisk denotes cell size less than 20; estimates may be unreliable.

56 Poverty in the Republic of Moldova in May and August 1997

Table 4.6a: Population and povertyshares by age and gender, May 1997 RB Trn Moldova Poor All Poor All Poor All Male <5yrs 9.8 8.0 3.4 3.0 8.7 7.2 5-9 10.8 8.6 7.1 7.8 10.1 8.5 10-14 15.0 10.6 11.1 9.7 14.3 10.4 15-19 9.6 8.2 9.9 6.7 9.7 8.0 20-29 12.4 14.0 11.5 11.9 12.2 13.7 30-39 16.1 16.2 23.4 17.0 17.4 16.4 40-49 12.8 13.7 10.5 14.1 12.4 13.8 50-59 5.3 8.0 11.7 12.8 6.5 8.8 60-69 4.9 8.2 8.7 11.1 5.6 8.7 >=70 3.4 4.4 2.6 5.8 3.2 4.6 Total 100.0 100.0 100.0 100.0 100.0 100.0 Female <5yrs 8.5 7.1 3.2 2.4 7.5 6.2 5-9 8.0 8.6 6.9 6.8 7.8 8.3 10-14 10.1 8.3 13.8 9.1 10.8 8.4 15-19 6.4 6.8 3.9 5.0 6.0 6.5 20-29 14.7 13.9 11.4 9.7 14.1 13.1 30-39 14.8 14.2 19.6 14.7 15.7 14.3 40-49 13.2 14.3 17.6 17.5 14.0 14.9 50-59 8.1 10.4 6.1 11.2 7.7 10.5 60-69 7.3 9.0 11.6 14.3 8.1 9.9 >=70 9.0 7.5 5.9 9.3 8.4 7.9 Total 100.0 100.0 100.0 100.0 100.0 100.0 All =70 6.3 6.1 4.4 7.8 6.0 6.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 Source: Author estirnates based on MHBS, 1997.

57 Technical Paper III - Appendix F

Table 4.7a: Population and poverty shares b age and gender, August 1997 RB Trn Moldova Poor All Poor All Poor All Male <5yrs 6.9 6.2 7.9 4.3 7.1 5.9 5-9 11.0 9.2 7.5 8.9 10.3 9.2 10-14 12.0 10.9 9.7 8.5 11.5 10.5 15-19 12.1 8.8 8.6 7.9 11.4 8.6 20-29 12.2 14.1 9.6 11.9 11.7 13.8 30-39 15.4 14.3 17.5 14.5 15.8 14.3 40-49 15.5 15.0 1i55 14.7 15.5 15.0 50-59 6.2 8.5 7 5 12.4 6.5 9.1 60-69 5.4 8.9 9,3 11.1 6.1 9.2 >=70 3.4 4.2 6.9 5.8 4.1 4.5 Total 100.0 100.0 10(.0 100.0 100.0 100.0 Female <5yrs 8.0 6.3 6.3 4.1 7.7 5.9 5-9 10.0 8.6 11.3 3.4 8.5 7.7 10-14 10.7 8.0 10.8 11.3 10.7 8.5 15-19 8.7 8.5 6.5 6.7 8.3 8.1 20-29 12.3 13.6 11.8 10.1 12.2 12.9 30-39 14.4 13.8 210.5 14.4 15.5 13.9 40-49 14.6 14.9 13.8 15.9 14.5 15.1 50-59 7.4 10.1 :5.8 11.7 7.2 10.4 60-69 7.9 8.9 1:3.9 11.9 8.9 9.4 >=70 5.8 7.5 9.4 10.5 6.4 8.1 Total 100.0 100.0 IOIC.0 100.0 100.0 100.0

=70 4.7 6.0 8.1 8.5 5.3 6.4 Total 100.0 100.0 10(.0 100.0 100.0 100.0 Source: Author estimatesbased on MHBS, 1997.

58 Poverty in the Republic of Moldova in May and August 1997

Table 4.8a: Poverty rates by gender and age of householdhead (percent) May 1997 August 1997 RB Trans Moldova RB Trans Moldova Male <30yrs 14.8 0.0* 14.0 13.0 29.5 14.8 30-39 22.8 32.7 24.2 21.0 23.3 21.3 40-49 19.2 20.9 19.4 19.4 25.9 20.4 50-59 18.1 19.0 18.2 16.9 14.1 16.4 60-69 14.4 23.2 16.0 12.9 17.0 13.5 >=70 15.4 10.3 14.1 20.8 21.6 21.0 All 18.9 22.4 19.4 18.0 21.6 18.5 Female <30yrs 15.1 5.9 13.6 5.4 20.0* 7.7 30-39 16.9 21.8 18.0 16.0 8.1 14.9 40-49 13.4 29.3 16.4 18.5 11.8 17.0 50-59 18.5 13.4 17.4 19.9 14.0 18.7 60-69 23.8 13.5 21.3 26.7 19.7 24.9 >=70 31.4 11.7 27.5 13.6 16.5 14.5 All 19.3 17.6 19.0 17.8 14.7 17.1 All <30yrs 14.9 3.7 13.9 11.3 26.6 13.1 30-39 21.6 29.3 22.8 19.9 19.9 19.9 40-49 17.7 23.4 18.7 19.2 21.6 19.6 50-59 18.2 17.2 18.0 17.8 14.1 17.1 60-69 17.6 19.1 17.9 16.7 18.1 17.0 >=70 23.7 10.9 20.9 17.0 18.5 17.4 All 19.0 20.7 19.3 17.9 19.2 18.2 Source: Author estimatesbased on MHBS, 1997. Note: Asterisk denotes cell size less than 20; estimatesmay be unreliable.

59 Technical Paper IIX - Appendix F

Table 4.9a: Poverty rates by gender and educat ersons 2 14 yrs (percent) Mav.1997 August 1997 RB Traias Moldova RB Trans Moldova Male higher 4.9 11.8 6.6 6.8 17.9 9.0 vocational-technical 17.2 18.4 17.5 18.8 19.9 19.1 second./incomp. second. 18.4 29.9 19.9 19.4 24.2 20.1 primary/incomp. primary 22.8 18.2. 22.1 16.1 21.9 16.6 illiterate 24.1* 100.0* 27.2* 12.6* na 12.6* All 17.5 21.5 18.2 17.4 21.7 18.1 Female higher 7.8 8.1 7.8 4.6 23.2 8.8 vocational-technical 16.5 27.1 19.2 15.7 14.9 15.5 second./incomp. second. 19.1 16.0 18.7 19.4 18.3 19.2 primary/incomp. primary 22.5 13.2 20.8 19.1 9.5 17.6 illiterate 25.2 30.0* 25.6 16.4 0.0* 16.2 All 18.1 18.4 18.2 16.7 16.6 16.7 All higher 6.6 9.7 7.3 5.5 21.2 8.9 vocational-technical 16.8 23.1 18.4 17.2 17.1 17.1 second./incomp. second. 18.8 22.3 19.2 19.4 21.0 19.7 primarylincomp. primary 22.6 15.0 21.4 17.8 12.7 17.2 illiterate 25.1 35.7* 25.8 16.0 0.0* 15.8 All 17.8 19.7 18.2 17.0 18.7 17.3 Source: Author estimates based on MHBS, 1997.

Table 4.10a: Population and poverty shatresby gender and education (ages > 14yrs), Ma 1997 RB Trn Moldova Poor Non-poor Poor Non-poor Poor Non-poor_ Male higher 2.8 11.8 8.4 17.4 4.0 12.7 vocational-technical 23.0 23.5 33.0 40.1 25.1 26.3 second./incomp.second. 52.3 49.1 47.4 30.3 51.3 46.0 primary/incomp. primary 20.3 14.6 9.9 12.2 18.1 14.2 illiterate 1.5 1.0 1.1 na 5.2 0.8 Total 100.0 100.0 100.0 100.0 100.0 100.0 Female higher 4.9 13.0 6.9 17.6 5.3 13.9 vocational-technical 20.8 23.3 51.1 31.0 26.5 24.8 second./incomp. second. 45.1 42.2 27.1 32.2 41.7 40.4 primary/incomp. primary 21.5 16.4 11.8 17.6 19.6 16.6 illiterate 7.7 5.0 3.0 1.6 6.8 4.4 Total 100.0 100I0 100.0 100.0 100.0 100.0 Al higher 4.0 12.5 7.6 17.5 4.7 13.4 vocational-technical 21.8 23.4 42.6 34.9 25.9 25.5 second./incomp. second. 48.3 45.4 36.7 31.4 46.0 42.9 primary/incomp. primary 20.9 15.5 11.0 15.3 19.0 15.5 illiterate 4.9 3.2 2.1 0.9 4.4 2.8 Total 100.0 100.0 100.0 100.0 100.0 100.0 Source: Author estimates based on MHBS, 1997.

60 Poverty in the Republic of Moldova in May and August 1997

Table 4.11a: Population and poverty shares by gender and education (ages 2 14yrs), Au ust 1997 RB Trn Moldova Poor Non-poor Poor Non-poor Poor Non-poor Male higher 4.3 12.2 10.7 13.5 5.5 12.4 vocational-technical 24.1 21.8 32.3 35.9 25.7 24.0 second./incomp. second. 55.8 48.6 49.8 43.3 54.6 47.7 primary/incomp. primary 15.5 16.9 7.4 7.3 13.9 15.4 illiterate 0.4 0.5 0.0 0.0 0.3 0.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 Female higher 3.3 13.8 21.1 13.9 6.6 13.8 vocational-technical 20.7 22.1 29.1 33.1 22.3 24.2 second./incomp. second. 51.8 43.1 41.3 36.7 49.9 41.9 primary/incomp. primary 21.5 18.2 8.5 16.1 19.0 17.8 illiterate 2.8 2.8 0.0 0.2 2.3 2.3 Total 100.0 100.0 100.0 100.0 100.0 100.0 All higher 3.8 13.1 16.1 13.7 6.1 13.2 vocational-technical 22.3 22.0 30.6 34.2 23.9 24.1 second./incomp. second. 53.7 45.6 45.4 39.4 52.1 44.5 primary/incomp. primary 18.7 17.6 8.0 12.5 16.6 16.7 illiterate 1.6 1.8 0.0 0.1 1.3 1.5 Total 100.0 100.0 100.0 100.0 100.0 100.0 Source: Author estimates based on MHBS, 1997.

61 Technical Paper III -Appendix F

Table 4.12a: Poverty rates by ender and education of household head (percent) MaL 1997 Au-ust 1997 RB Trans Moldova RB Trans Moldova Male higher 6.3 11.1 7.6 5.9 27.5 9.9 vocational-technical 20.9 21.9 21.1 20.6 16.5 19.7 second./incomp. second. 19.6 31.9 20.8 19.9 26.6 20.8 primary/incomp. primary 24.1 20.7 23.7 15.2 6.3 14.5 illiterate 12.8 100.0* 15.1 39.5 na 39.5 All 18.9 22.4 19.4 18.0 21.6 18.5 Female higher 3.6 4.1 3.7 7.3 21.0 10.8 vocational-technical 17.1 35.0 21.1 18.6 12.4 16.8 second./incomp. second. 21.4 11.6 19.6 18.2 11.5 16.9 primarylincomp. primary 26.3 14.9 24.0 24.8 18.1 23.7 illiterate 30.4 25.9* 30.0 16.1 na 16.1 All 19.3 17.6 19.0 17.8 14.7 17.1 All higher 5.4 8.7 6.3 6.4 24.7 10.2 vocational-technical 19.9 25.6 21.1 20.1 15.2 19.0 second./incomp. second. 20.0 24.2 20.5 19.6 22.2 20.0 primary/incomp. primary 25.0 17.7 23.8 18.8 13.2 18.1 illiterate 26.4 31.2* 26.8 17.4 na 17.4 All 19.0 20.7 19.3 17.9 19.2 18.2 Source: Author estimates based on MHBS, 1997. Note: Asterisk denotes cell size less than 20; estimatesmay be unreliable.

62 Poverty in the Republic of Moldova in May and August 1997

Table 4.13a: Poverty rates by gender and socioeconomicgroup - persons 2 14 yrs (percent May 1997 August 1997 RB Trans Moldova RB Trans Moldova Male farmer 15.2 55.4* 17.1 17.3 5.6* 16.2 worker-ag. 27.7 30.3 28.0 23.3 14.5 22.6 worker-nonag. 8.5 18.6 11.0 12.4 23.4 15.1 self employed 11.3* 8.8* 10.7 5.3 0.0* 3.0 unemployed 23.3 34.4 26.2 28.8 30.1* 28.9 pensioner 13.7 18.7 14.6 not working 24.6 17.3 23.7 other 12.7 20.7* 14.6 37.1 0.0* 34.1 All 17.5 21.5 18.2 17.4 21.7 18.1 Female farmer 15.3 49.5* 19.6 21.9 20.8 21.7 worker-ag. 26.1 45.2* 27.0 27.1 20.8 26.6 worker-nonag. 12.5 15.3 13.2 12.7 20.8 14.5 self employed 9.8 0.0* 8.1 0.0* 0.0* 0.0 unemployed 18.2 29.7* 20.1 18.1 8.4* 16.4 pensioner 18.1 14.8 17.4 not working 22.0 20.2 21.7 other 13.2 32.0* 16.8 8.1* 41.5* 15.9 All 18.1 18.4 18.2 16.7 16.6 16.7 All farmer 15.3 51.1 18.4 19.5 15.6 19.0 worker-ag. 27.0 34.0 27.6 24.8 16.7 24.1 worker-nonag. 10.6 16.9 12.2 12.6 22.0 14.8 self employed 10.7 5.9* 9.7 2.8 0.0 1.7 unemployed 21.0 32.9 23.6 24.1 15.8* 23.1 pensioner 16.6 16.0 16.5 not working 23.0 19.2 22.4 other 13.0 26.7* 15.8 24.3 30.2* 25.2 All 17.8 19.7 18.2 17.0 18.7 17.3 Source:Author estimates based on MHBS,1997. Note:Asterisk denotes cell sizeless than20; estimatesmay be unreliable.

63 Technical Paper III - Appendix F

Table 4.14a: Povert rates b gender and socioeconomicgroup of household head (percent) Mav 1997 August 1997 RB Trans Moldova RB Trans Moldova Male farmer 27.6 74.5 30.8 12.1 0.0 11.2 worker-ag. 28.8 24.4 28.5 25.0 20.1 24.6 worker-nonag. 10.4 21.9 12.8 14.1 24.5 16.4 self employed 19.0 0.0 14.4 11.9 0.0 7.0 unemployed 29.8 6.2 23.0 0.0* 58.6* 29.2 pensioner 12.7 21.2 14.2 not working 0.0* na 0.0* other 11.6 16.9* 12.7 12.0 na 12.0 All 18.9 22.4 19.4 18.0 21.6 18.5 Female farmer 31.1 0.0* 27.0 29.9 0.0*' 26.1 worker-ag. 12.4 72.3* 18.8 21.2 50.3* 24.1 worker-nonag. 15.6 14.5 15.4 14.1 11.4 13.5 self employed 12.5 0.0" 11.5 0.0* 0.0* 0.0 unemployed 0.0 22.9* 5.8 0.0* na 0.0 pensioner 25.5 15.9 23.3 not working 0.0 0.0* 0.0 other 14.7 24.0 17.0 0.0* 26.1* 7.3 All 19.3 17.6 i9.0 17.8 14.7 17.1 All farmer 28-.1 54.8 30.2 15.4 0.0 14.1 worker-ag. 27.2 30.2 27.5 24.6 23.8 24.6 worker-nonag. 11.9 19.7 13.5 14.1 21.0 15.6 self employed 17.1 0.0 13.6 10.2 0.0 5.7 unemployed 19.6 11.3 17.3 0.0* 58.6* 17.0 pensioner 18.5 18.4 18.5 not working 0.0 0.0* 0.0 other 13.2 21.1 15.0 8.2 26.1* 10.1 All 19.0 20.7 19.3 17.9 19.2 18.2 Source: Author esuimatesbased on MHBS, 1997. Note: Asterisk denotes cell size less than 20; estimatesmay be unreliable.

64 Poverty in the Republic of Moldova in May and August 1997

Table 4.1Sa:Poverty rates by type of settlementand presence of plot (percent) May 1997 Auezust1997 RB Trans Moldova RB Trans Moldova Urban no plot 11.7 15.2 12.6 13.0 15.8 13.7 has plot 13.0 8.4 11.4 10.1 29.2 16.8 All 12.0 13.2 12.3 12.4 19.9 14.5 Rural no plot 24.4 36.5 25.7 21.3 18.0 21.0 has plot 14.7 na 14.7 18.3 0.0* 18.0 All 23.3 36.5 24.6 21.1 17.8 20.8 All no plot 19.9 23.8 20.5 18.6 16.7 18.3 has plot 13.8 8.4 12.6 12.9 28.7 17.1 All 19.0 20.7 19.3 17.9 19.2 18.2 Source: Author estimates based on MHBS, 1997. Note: Asterisk denotes cell size less than 20; estimates may be unreliable.

Table 5.la: Consumption regression,August 1997 RB Trans Dependent variable: log per capita consumption coefficient p-value coefficient p-value Household composition number of children < 14 years -0.169 0.000 -0.140 0.024 number of male adults -0.114 0.000 -0.218 0.001 number of female adults -0.110 0.000 -0.075 0.236 number of elderly persons -0.151 0.001 -0.296 0.004 Education of household head higher education 0.277 0.000 0.257 0.109 vocational-technical -0.030 0.662 0.059 0.683 general secondary / incomplete second. -0.045 0.467 0.002 0.991 illiterate -0.038 0.781 age of household head 0.000 0.995 0.006 0.739 (age of household head)xl0 2 0.000 0.835 0.000 0.899 head isfemale -0.058 0.185 -0.160 0.087 head is inactive -0.085 0.160 -0.208 0.084 head is unemployed 0.359 0.277 -0.323 0.548 number of unemployed in household -0.172 0.004 0.055 0.769 household situated in major city 0.248 0.000 0.000 0.997 household situated in rural area -0.050 0.309 0.230 0.012 household has access to food plot 0.142 0.012 -0.092 0.346 constant 5.343 0.000 9.967 0.000 N 1603 359 R2 .161 .119 prediction error .182 .197 Source: Author estimatesbased on MHBS, 1997. Notes: Ommnittedcategories are head has primary/incompleteprimary education and household situated in 'other' urban area. P-values less than 0.05 (0.01) indicate that the coefficientis significant at the 5% (1%) level. 1/Proportion of households incorrectly predicted as poor (predicted consumptioncalculated using estimated coefficients).

65 Technical Paper III - Appendix F

Table 7.1a: Proxy-means regressions, Augusst 1997 (1) RB. whole (2) Trans. whole (3) RB. lower (4) Trans. lower samvle sample half of sample half of sample Dependent variable: log per capita Coef. P-value Coef. P-value Coef. P-value Coef. P-value consumption Household composition number of children < 14 years -0.141 0.000 -0.086 0.110 -0.031 0.072 number of male adults -0.113 0.000 -0.189 0.001 -0.033 0.145 -0.127 0.007 number of female adults -0.113 0.000 -0.069 0.218 -0.075 0.002 number of elderly persons -0.143 0.000 -0.236 0.001 -0.055 0.097 -0.111 0.044 Education of household head higher education 0.106 0.044 -0.158 0.114 vocational-technical -0.082 0.050 -0.136 0.001 general secondary / incomplete second. illiterate -0.332 0.006 age of household head -0.004 0.007 (age of household head)x10 2 head is female head is inactive -0.174 0.102 head is unemployed 0.346 0.152 number of unemployed in household -0.088 0.086 household situated in major city household situated in rural area 0.227 0.000 0.235 0.005 0.132 0.013 household has access to food plot 0.140 0.006 -0.128 0.143 0.116 0.040 -0.158 0.047 Per capita social assistance 4.733 0.000 0.035 0.000 4.225 0.000 0.027 0.001 benefits/1000'l Per capita employment income/i0O0'8 2.464 0.000 0.016 0.000 2.447 0.000 0.014 0.004 household has sewerage household has hot water 0.054 0.422 household has central gas 0.135 0.037 -0.107 0.138 household has electric oven 0.318 0.002 household has central heating 0.086 0.136 household has bath or shower household has phone -0.168 0.031 -0.177 0.008 household owns colour tv 0.057 0.159 0.194 0.012 household owns vcr 0.294 0.036 0.229 0.180 household owns cdplayer 0.281 0.179 -0.969 0.096 household owns refrigerator 0.134 0.001 0.401 0.000 0.115 0.004 0.230 0.005 household owns washing machine 0.074 0.052 0.088 0.018 household owns microwave household owns car 0.257 0.000 0.171 0.061 0.112 0.058 0.206 0.016 constant 4.837 0.000 9.563 0.000 4.130 0.000 9.183 0.000 N 1603 359 801 179 R2 .317 .311 .151 .221 Percentage of households with 85.2 84.5 69.6 72.0 correctly predicted poverty status Percentage of non-poor households 99.1 98.9 83.8 90.6 with correctly predicted poverty status Percentage of poor households with 5.3 9.5 36.4 33.8 correctly predicted poverty status Source: Author estimates based on MHBS, 1997. Notes: Ommitted categories are head has primary/incompleteprimary education and household situated in 'other' urban area. P-values less than 0.05 (0.01) indicate that the coefficient is significant at the 5% (1%) level. "1Includes cash and in-kind. 66 Poverty in the Republic of Moldova in May and August 1997

Table Dla: Sensitinty analysis August 1997 RiRhtBank Transnistria % change in % pt. % change in % pt. Poverty poverty line Headcount changein Poverty line poverty line Headcount change in line headcount headcount Base poverty line (relative) 40% of weighted per capita consumption 63.7 0.0 17.9 0.0 9325.3 0.0 19.2 0.0 Alternativepoverty lines Sarkisiyan Minimum Consumption Basket (MCB) 1" 415.0 552.0 95.3 77.3 56440.0 505.2 94.4 75.2 SarkisiyanMCB food portion only I 201.0 215.8 77.4 59.5 27336.0 193.1 71.4 52.2 Absolute minimum PPP per capita poverty Line 1/2/ 14.8 -76.8 0.7 -17.2 2009.3 -78.5 0.4 -18.8 80% of base line 50.9 -20.0 11.4 -6.5 7460.2 -20.0 8.8 -10.4 90% of base line 57.3 -10.0 14.4 -3.6 8392.8 -10.0 15.1 -4.1 110% of base line 70.0 10.0 21.3 3.3 10257.8 10.0 22.5 3.3 120% of base line 76.4 20.0 26.2 8.3 11190.3 20.0 25.1 5.9 OECD per equivalent consumption 3' 63.7 0.0 8.9 -9.0 9325.3 0.0 7.1 -12.1 Source: Author estimatesbased on MHBS, 1997. Notes: See Table DI. "Poverty line converted into Transnistrianrubles using the exchange rate IML = 136,OOOTRR. 2' Based on a 1993 PPP rate of US$1 = 0.16 Lei, inflated to August 1997 using the CPI, and the World Bank Absolute Minimum Poverty Line of $1 per person per day and 30 days per month. 31See Table Dl.

67

TECHNICAL PAPER IV

LABOR AND POVERTY IN THE REPUBLIC OF MOLDOVA

by

David L. Lindauer

Wellesley College and Harvard Institute for InternationalDevelopment

The views contained herein are those of the author only, and do not represent the opinions of the World Bank nor of its Board of Directors, nor of any individual country member, nor federal, nor local government.

Labor and Poverty in the Republic of Moldova

Table of Contents

Part One: Labor Outcomes...... 1 I. Unemployment,Participation and Dependency...... 1 A. How Much UnemploymentIs There In Moldova?...... 2 B. How High Is Labor Force Participation?...... 5 C. Dependency:The Burden SupportedBy The Employed...... 6 II. EmploymentOutcomes ...... 7 A. In What Sectors Will EmploymentGrow? ...... 7 B. Who Will Create The Jobs?...... 9 C. Survival Strategies...... 9 m. Wages and the Behavior of the Labor Market ...... 10 A. How Far Have Real Wages Fallen?...... 10 B. Is The Labor Market To Blame?...... 11 Part Two: Labor Correlates of Poverty ...... 13 A. Who Are The Poor? ...... 13 B. Why Are Individuals Poor? ...... 14 C. Conclusion: The Poverty of Households.16 Boxes Box 1: Estimating a Seasonally-AdjustedUnemployment Rate for Moldova.18 Box 2: Survival Strategies Among Ukrainian Workers.19 Figures Figure 1: Labor Utilization in the FSU and Central and Eastern Europe . . 21 Figure 2: Economic Activity of the Adult Population...... 22 Figure 3: Reasons Given for Not Participatingin the Labor Force...... 23 Figure 4: Labor Force ParticipationRates By Age, Gender and Region . . 24 Figure 5: EmploymentTransformation During the Transition, Czech Republic, 1991-1995.... 25 Figure 6: Who are the Poor? ...... 26 Figure 7: Poverty Rates...... 27 Tables Table 1: The Unemployed out of the Adult Populationby Job Status and Region, 1997...... 28 Table 2: Open UnemploymentRates, Central and Eastern Europe, 1995...... 30 Table 3: Under-Employment;Weekly Hours Worked by Sector ...... 30 Table 4: Labor Force Participationby Gender and Region...... 31 Table 5: The Dependency Burden of the Employed...... 31 Table 6: Distributionof the Labor Force By Economic Sector...... 32 Table 7: Poverty Among Individuals,By Labor Force Status and Region...... 33 Table 8: Poverty Among Individuals of Working Ages...... 34 Table 9: Who are the Unemployed And Why Are They Poor? ...... 35 Appendix Table 1: Labor Utilization in the FSU and Central and Eastern Europe, 1995.. 36

Labor and Poverty in the Republic of Moldova

Labor and Poverty in the Republic of Moldova*

1. Since independence in 1991, the has been hit by a series of external and internal shocks including a fall in demand from traditional trading partners, adverse movements in terms-of-trade, and severe drought. GDP growth has remained negative this decade and this devastating trend in output is mirrored in the labor market. Real wages have dropped and un- and under-employment have risen. Almost one out of every four Moldovan families find themselves living in poverty.

2. Systematic analysis of the labor market consequences of economic decline has been hampered by a lack of reliable labor force and household level data. A Family Budget Survey, regularly carried out during and after the Soviet era, is rife with sampling errors and cannot be used for labor market analysis. A recently completed pilot study of a new Moldovan Household Budget Survey provides an opportunity to construct a snapshot of the labor situation as of early 1997. These results are useful in understanding labor market dimensions of poverty in Moldova and can help inform debate over appropriate development strategies.

PART ONE: LABOR OUTCOMES

I. Unemployment, Participation and Dependency

3. Standard data sources on the states of the FSU and nations in Central and Eastern Europe suggest relatively high levels of labor utilization in Moldova.' Moldova's registered unemployment rate ranks among the lowest of those in a cross-section of countries in the region (Figure la). In 1995, only Azerbaijan and Ukraine reported lower levels. Similarly, Moldova's labor force participation rate, estimated at 79.8%, ranks among the highest out of a similar set of countries (Figure lb). If accurate, these results would indicate a high rate of use of available labor resources.

4. More careful inspection of data from Moldova suggests a different conclusion. Open unemployment rates appear well above double digits and participation rates among the entire adult population, especially among older workers, are not high. Two sources of data from Moldova's State Department of Statistics are available for making these determinations. First, there are results from established surveys (referred to as "Official" data below); second, there are

* This project received support from the World Bank. Additional support was received from the Wellesley College Class of '32 Social Sciences Fund. The views presented in this paper reflect those of the author and not necessarily those of either the World Bank or Wellesley College. Special thanks to Giselle Nevada and Xujun Ying for careful and dedicated research assistance. I also wish to thank Arup Banerji, Jeanine Braithwaite and Marshall Goldmanfor their constructive comments.

1. World Bank. Statistical Handbook 1996, States of the Former Soviet Union, (Washington,D.C.: 1996) and the OECD-CCETLabour Market Database.

1 Technical Paper IV the findings of the pilot study of the Moldovan Household Budget Survey (referred to as "Survey" data below.) The distribution of economic activity among Moldova's adult population (those 14 years and older), according to these two sources, is presented in Figure 2.

5. The two sources offer similar estirmatesof registered unemployment, about 23,000 workers or roughly 1 % of the adult population. Anothergroup of effectively unemployed workers are those on forced/unpaidleaves. Althoughnominally connected to a place of employment, such workers are no longer receiving wages or salaries from their employers, usually because the enterprise has been dramaticallydown-sized or has ceased to operate. Adding workers on forced/unpaidleaves, 168,000in 1995,raises unemployment based on official data to 7% of the adult populationfor an unemploymentrate estimated at over 12%.2 Survey results report even higher levels oi total unemployment-- over 15% of the adult population for an estimated national unerrmploymentrate of 28%. Reconciling the differences between the two sources of data is consideredin the next section. Figure 2 also indicates a gap in labor force participationbetween sources, with the survey suggesting lower rates. The survey data indicate that levels of labor utilizaticinin Moldova are far lower than those suggestedby the comparative data in Figure 1.

A. How Much Unemployment Is There In Moldova?

6. The majority of the unemployedin Moldova do not register as unemployed. This is because the benefits of doing so, for both workers and their enterprises, do not outweigh the costs. The benefits for workers include eligibility to receive modest unemploymentbenefits, and access to training and job placement services. But many forms of government assistance are in arrears, including unemploymentbenefits, making the expected value of benefits low. 3 For those on forced/unpaidleaves, the costs of registering as unemployedinclude many benefits -- housing,medical, etc. -- a worker might continue to receive by remaining nominally affiliated with an enterprise. Such workers also leave open the possibilityof going back to work if the fortunes of their enterprises improve and may gain preferential access to privatization vouchers if their enterprises are sold. In addition, there is the time and inconvenience associated with registeringas unemployed, and a social stigma associatedwith being unemployed. From the perspectiveof an enterprise, if workers are permanently laid-off, the firm is obligated legally to make severance payments. This provision creates a disincentive to fire workers. Taken together, these factors explain the small percentage of registered out of total unemployment and account for the prevalence of forced/unpaidleaves, much of which is equivalent to permanent lay-offs. 7. Discrepanciesbetween official and survey results on the amount of unemployment . involve a number of differencesbetween tihetwo sources. Official results refer only to the Right

2. In Figure 2, all percentagesrefer to the entire adult population. The unemployment rate, however, is higher because it refers to the number unemployedout of members of the labor force, those employed or unemployed, ages 16 to 54 for women and 16 to 59 for men. Official data on registered unemploymentuse 16 as the lower boundary of working ages. For all other purposes,the workingage population is defined, in this paper, as it is in the Survey instrument, as 14 to 54 for women and 14 to 59 fir men. 3. Accordingto TACIS, Moldovan EconomicTrends, Quarterly Update (February 1997), the mean unemployment benefit was around 70 lei ($US 16) per month.

2 Labor and Poverty in the Republic of Moldova

Bank region. Survey results refer to the whole country but can be separated and presented for each region.4 Inclusion of Transnistria, however,does not narrow the unemploymentgap between the two surveys, because Transnistriahas lower unemployment than does the Right Bank. Also, Transnistria accounts for less than 20% of the adult population in Moldova and its inclusion has a correspondingaffect on national estimates. Differences in time period, 1995 versus early 1997, explain some, but not much, of the gap. Since 1995, there have been small increases in forced/unpaidleaves and continuednegative growth in the economy.

8. Sample coverage and differencesin definitions and methodologyexplain most of the difference in reported unemploymentbetween official and survey results. Official data identify two groups who may be considered as unemployed:those who are registered as unemployedand those on forced/unpaidleave. There is no indication whether those on forced/unpaid leaves are actually unemployedor working at secondjobs or at some other type of economic activity. Survey results are more comprehensive. They identify two groups who might be classified as unemployed. Individuals in both groups report working zero hours during the past seven days. The first group is comprised of individuals "with jobs who did not work," and includes those on forced/unpaidleaves, those who are seasonally unemployedand those on leave because of maternity, sickness, strikes or vacation. The second group consists of those "withoutjobs who would like to work." Excluded from both groups are individuals who either are employed (they report positive working hours for the reference period) or are considered out of the labor force (disabled, elderly, homemakers,students, etc.)

9. Survey results estimate that almost 325,000 workers, some 9.7% of Moldova's adult population, declared themselves as "with a job but did not work" during the survey period in February 1997 (Table 1). This is more than twice the level of forced/unpaid leaves reported in official sources. Some of this differenceis due to unemploymentin Transnistria -- about 23,000 individuals. But most is accounted for by the large number of agricultural workers, over 180,000, who declared themselves idle during the previous week. Some of these individuals may be on permanent forced/unpaidleaves similar to many of their counterpartsin industry; others may have chosen not to reveal their work activities to survey enumerators; and, perhaps for the majority, their lack of work activity in the middle of winter may represent seasonal unemployment,typical in farming communitiesyet often not captured in official reporting on unemployment.

10. Another group that lies beyond official reporting of unemploymentis those "withoutjobs who would like to work." They represent 5.9% of the adult population and over one-third of all those unemployed (Table 1). Fewer than one-quarter are household heads. Better than four out of ten are young, mostly male workers, between the ages of 14 and 25, and many are new entrants to the labor force, trying to find employment in a period of no-growth and slack labor markets.

11. Employingthe more inclusive approach of the household survey, 15.6% of the adult population (or a bit more than one out of every four members of the labor force) are identified as

4. In this report, statistics are reported for the country as a whole (Moldova), and separately for the area called the Left Bank or Transnistria, and for the remainder of the territory, called the Right Bank.

3 TechnicalPaper IV unemployed. This is a high amount, especially in an environment where the social protection system is under severe stress and where households have few assets, other than their labor time. Interpreting the level of unemployment revealed by the data, therefore, requires several caveats.

12. First is seasonal unemployment. The survey provides a point estimate of unemployment during the reference period in February. TMuchrural economic activity slows down or comes to a standstill during this time of year. Making the strong assumption that seasonal unemployment averages four months for those engaged in agriculture, the annual unemployment rate based on February data would be reduced by two-thirds for those affected by seasonality. This yields seasonally-adjusted unemployment equal to 9.6% of the adult population and an unemployment rate of 16.7% (Box 1). This estimate gains credibility when considered in a regional context. With an unemployment rate of 16.7%, Moldova would be situated at the upper end of open unemployment rates reported elsewhere in Central and Eastern Europe (Table 2),5 a level in keeping with the pace and nature of Moldova's transition experience relative to this set of countries.

13. Second, the convention in market economies is to define unemployment not only as working zero hours and wanting to work, but also as actively engaged in seeking work. A question on whether one was looking for work was asked of all respondents to the pilot Moldovan Household Survey and only a small fraction of those considered as unemployed answered in the affirmative. This is probably because the notion "looking for work" remains ill- defined in a society accustomed to state provision of employment. Still, some who have been classified as unemployed may be better considered out of the labor force either as discouraged workers -- those who have given up trying to find work -- or those who have opted to pursue other activities in light of prevailing wages. By not including search activity as a criterion for unemployment status, resulting unemployment estimates may be biased upwards.

14. Third, Moldovans may be hesitant to report economic activity, especially in the informal sector, to survey enumerators for fear of reprisals by tax or other regulatory authorities. Similarly, what might be remunerative activity -- even if in-kind and including time spent on private plots or in small-scale trading -- might not be identified as economic activity by survey respondents who continue to associate work with having a formal job. These tendencies also lead to an overestimate of unemployment in the survey findings. The seasonal adjustment presented earlier probably over estimates the amount of seasonal unemployment and should offset some of the bias, working in the opposite direction, of the second and third caveats.

15. Along with open unemployment, under-employment is another indicator of labor utilization. Hours worked often are used as a way to measure the extent of under-employment. Among the employed, almost 10% worked ten or few hours during the previous seven days and

5. Unemployment rates used in this comparison are all derived from labor force surveys. They refer to rates of open unemployment and go well beyond registered unemployment (Figure la). Definitions of unemployment and assumptions about seasonality, however, cannot be assumed the same across all countries. 6. This view is reinforced by data on the househoDldstatus of workers classified as "without job but would like to work." Only one-quarter of this group is a head of household (Table 1). The remainder are secondary workers whose attachment to the labor market may be less than is typical for household heads.

4 Labor and Poverty in the Republic of Moldova over 30% worked fewer than 30 hours (Table 3.) Consistentwith seasonal factors, working fewer than 30 hours per week was more prevalent in agriculture than in other sectors of the economy. Less than full-time employmentfor almost one-third of the employed may reflect voluntary decisions to work part-time. But to the extent it reflects a lack of employment opportunitiesand involuntaryunder-employment, the prevalence of low working hours, coupled with double digit open unemploymentrates, are signs of widespread under-utilizationof labor resources.

B. How High Is Labor Force Participation?

16. Workers who are either employed, under-employedor unemployed are considered participatingin the labor force. Among the adult populationthere are also the elderly, homemakers,students and others who do not work and are considered out of the labor force. Labor force participationrates inform us about the relative size of these two groups. According to the cross-countrydata in Figure lb, Moldova has high participation rates. Closer inspectionof official and survey data reveal, once again, a more complex situation.

17. According to the official data, 37.8% of the adult population was out of the labor force in 1995. The survey data report 42.6%.7 Much of this gap is due to differences in time period, survey design and definition. But several percentage points (almost half of the gap) can be attributed to the inclusion of Transnistriain the survey data. In Transnistria, labor force participationrates, especially for women, are significantly lower than in the Right Bank (Table 4). Lower female participation rates in Transnistriamay reflect the higher concentrationsof industrial employment and both the recent stagnationand a legacy of gender discriminationin employment in such sectors.8

18. The reasons why members of the adult population are out of the labor force are portrayed in Figure 3. For both men and women, the dominant explanation is age. About 50% of men and of women are over official working age, 55 for women and 59 for men, and many receive pensions. Attending school is the main reason for not participatingfor young men and women. Keeping house and caring for families accounts for 15% of all female non-participants and 2% of all males. Chronic diseases and disabilitiesaccount for an estimated 46,000 men under the age of 60, about 10% of all male non-participants. 26,000 women under age 55 are limited by disease and disabilities,accounting for 3% of all female non-participants.

19. The dominance of age in explaining labor force status is critical to interpreting evidence on participation. Labor force participationamong the working age population in Moldova is high relative to elsewhere in the region and to OECD economies. According to the household survey, Moldova's male and female participationrates were 79% and 68%, respectively.9 European members of the OECD average rates of 75% for men and 53% for women. But

7. These values are percentages of the adult population and not conventional labor force participation rates (LFP) as in Figure lb. LFP rates refer to the number employed plus unemployed out of the working age population. 8. For women who are out of the labor force, a higher percentage in Transnistria report "keeping house" as their main activity. 9. Participation rates in Moldova have fallen slightly since the pre-transition period. For 1990, the ILO estimated participation rates of 81%/70% for men/women.

5 TechnicalPaper IV

participation rates out of the working age population do not account for differences in the definition of working ages and in the distiribution of population by age. In Moldova, and elsewhere in the region, official retirement ages are low, leaving 22% of Moldova's adult population over official retirement ages ard, generally, out of the labor force. This imposes a significant burden on those who are employed, a common problem in Central and Eastern Europe and the former Soviet Union. By comparison, in the United States, where male participation rates are 75% and female rates are 60%, less than 17% of the adult population is over the customary retirement age of 65.

20. In addition to low retirement ages, participation rates among older workers, those over 50 for women and over 55 for men, are low (-Figure4.) This is especially true of women in the Right Bank. The main official source of reported income for older individuals who are out of the labor force is pensions. With pension payments frequently in arrears, compensation at times in- kind rather than in-cash,1° and the real value of pensions low, it is surprising that not more workers in these age groups are economically active. This may be a reporting issue, with all workers including older ones, reluctant to inform survey enumerators of informal sector earnings, or it may reflect the difficulties older workers face adjusting to the new economic system. Alternatively, given the slow pace of institutional reforms, the low participation rates of workers in their fifties (and high unemployment among younger workers) may be the result of limited opportunities in the private sector.. Whatever the explanation, increased participation of older workers will be necessary to reduce poverty rates among those over 50, to reduce the fiscal burden of pensions on state finances, and to increase the productive contribution of the nation's labor resources.

C. Dependency: The Burden Supported By The Employed

21. Moldova is utilizing a relatively small percentage of its available labor resources because of high rates of open unemployment and low participation rates of older workers. Supporting those who are not employed -- children, the elderly, the unemployed, and those of working age who are out of the labor force -- puts a heavy burden on those who are employed. On average, every 100 workers in Moldova support themselves plus another 167 people: 62 children, 46 elderly, 20 unemployed and 39 of working age who are out of the labor force."' By comparison, in the United States every 100 workers support themselves and only another 107 people. Comparing the two countries, the burden is greater in Moldova in each category but the gap is especially wide for those above working ages (Table 5). This is because of higher retirement ages and participation rates among older individuals in the United States.

10. For example, during the winter of 1996/97,some pensioners received payment in rice obtained by the government as part of a foreign aid package. Rice is not part of the traditional diet in Moldova and the value of this in-kind payment was deemed low by many recipients. 11. This result assumes the estimated seasonally-adjustedunemployment rate of 16.7% If a lower or higher unemploymentrate is assumed, the dependencyburden would change accordingly.

6 Labor and Poverty in the Republic of Moldova

II. EmploymentOutcomes

22. The high dependencyburden on those who are employedin Moldova is the mirror image of a shortage of productive work opportunities. Economic transition requiresjob destructionin the state sector where bloated and unproductiveenterprises must be closed or, at least, dismiss redundant workers. There is no guarantee that the rate of job creation, primarily in the emerging private sector, will equal the rate of job loss. Rising unemploymentand falling participation rates among older workers result from this mismatchbetween rates of job creation and destruction.

23. In a recent cross-country study of unemploymentand the labor market in Eastern Europe and Russia (Commanderand Coricelli, 1995), Bulgaria,Hungary, Poland, Romania and Slovakia, like Moldova, fit the pattern just described. Job destructionhas outpacedjob creation. The Czech Republic and Russia are two exceptions. The Czech Republic has been unusually successful in navigating the transition process without experiencing high unemploymentor massive declines in real wages, in part, because of relatively strong job creation in the private sector. In Russia, labor market adjustment has occurred more through wage than employment adjustment. However, this may mostly be a sign of slow transition and rising unemployment may have been postponed rather than avoided.

24. Creation of productive employmentopportunities is crucial to poverty alleviation and renewed economic growth in all transitioneconomies. This does not imply that governments should go back to creating employment or sustainingjobs in state enterprises which are not commercially viable. A comparison of the Right Bank and Transnistria is a case in point. Transnistria'slow unemploymentrate comparedto the Right Bank is not evidence of superior economic performance. When low unemploymentis the result of maintaining large numbers of workers in unproductivejobs, social welfare is compromised. In the short run, transfers from abroad or domestic inflationary financing can keep unemploymentrates low, but this is a poor long run strategy for raising standards of living. What is required is to create conditionsfor the expansion of productive employment opportunities. An examination of the current employment situation in Moldova is useful for identifying where such opportunities might exist.

A. In What Sectors Will Employment Grow?

25. Employmentin Moldova remains heavily dependent on agriculture. Both official data and survey results confirm this outcome,especially for the Right Bank (Table 6). According to official data, and using standard industrialclassifications, 46% of employment in 1995 was in agriculture (agriculture, forestry and fishing), 17% in health and education, 12% in industry (manufacturing,mining, water and power), 10% in commerce (wholesale and retail trade, restaurants and hotels) and the remainder spread among construction,transport and other public and private services.

26. Survey data for 1997 confirm this distribution. Employmentshares by economic sector among members of the labor force (the employedplus the unemployed)closely approximate those of the official data. Because the majority of the unemployedreport "with a job but did not work", it is possible to identify these workers with a sector of employment. The distributionof

7 Technical Paper IV those who are employed -- members of the labor force who worked at least one hour during the past seven days -- looks different. Employment in agriculture is eight percentage points lower than survey results for the labor force, indicating the disproportionate amount of unemployment among those engaged in agriculture. The cistribution of employment by sector among employed, non-agricultural workers is virtually identical to that of the non-agricultural labor force. This indicates that, in terms of net job creation and destruction, no sector other than agriculture has disproportionately shed its workers.

27. A comparison of employment by economic sector between the Right Bank and Transnistria reveals the higher industrial concentration in the latter (Table 6). Industry occupies 26% of Transnistria's labor force as compared to 15% in the Right Bank. Transnistria has a much lower percentage employed in agriculture and higher percentages in most other sectors, especially, commerce and state employment in public administration, health and education. Because of relatively low rates of unemployment in Transnistria, the distribution of employment for the labor force is virtually identical to that of employed workers only.

28. The snapshot of employment afforded by official and survey data is consistent. When used in conjunction with data on trends in tlne structure of employment in other transition economies, it suggests where employment is likely to grow in an expanding, more market- oriented Moldovan economy. During transition elsewhere in Eastem Europe, the process of job creation and destruction has led to a decline in industry and a rise in services -- the former having been emphasized during the pre-transition period and the latter repressed. The changing distribution of employment in the Czech Republic between 1991 and 1995 illustrates this process (Figure 5). Relatively large gains in employment shares were recorded in comnmerce. All service sectors, with the exception of health and education, recorded increasing shares of total employment. Declining sectors were disproportionately represented by manufacturing and agriculture. 12

29. Given differences in per capita income and factor endowments between Moldova and the Czech Republic, the share of employment in economic sectors is not expected to be the same. Moldova is poorer and more land abundant, and the distribution of employment will be more concentrated in agriculture than industry. :However, as transition proceeds, Moldova can expect to follow a pattem similar to the Czech Republic. The service sector should expand to occupy significantly more workers. To facilitate thiis process, govemment needs to remove the many obstacles to small scale service activities, especially in commerce.

30. Since Moldova does not have the industrial legacy of the former Czechoslovakia, the net decline of employment in agriculture or m;anufacturing may not be as steep. But what will be required is a change in existing jobs within industry. Job creation in productive lines of activity must replace currently unproductive industrial employment. The combined processes of job destruction and creation should lead to a tumrnoverof jobs in the sector but industry's overall share of total employment may be little changed. Also to be expected, especially as incomes rise,

12. Slovakia displays similar trends, despite having slower growth than the Czech Republic. See Christine Allison and Dena Ringold, "Labor Markets in Transition in Central and Eastern Europe," World Bank Technical Paper No. 352, Social Challenges of Transition Series (World Bank: 1996), pp. 21-22.

8 Labor and Poverty in the Republic of Moldova agriculturewill absorb a smaller share of the work force. But in the near term, agriculture will remain a vital source of employment and income for a plurality of workers.

B. Who Will Create The Jobs?

31. Economic transition involves more than a change in the sectoral compositionof employment. The entire industrial organization of the economy evolves away from dependence on state employment towards greater reliance on private and self-employment;away from the dominance of large employers towards a proliferation of smaller establishments, including household enterprises;and away from primary affiliationwith one employer to an increasein moonlightingand multiplejobs.

32. Moldova does not appear too far along in this process, although the information base upon which to draw this conclusion is limited. Accordingto official data, in 1995, employment in the Right Bank was 34% public, 60% private and 6% joint public/private ventures with foreign participation. Survey data suggest somethingdifferent. About two-thirds of all workers identify their earnings as primarily coming from public sector employment. This huge gap between sources reflects differences in official designations and private perceptions. The governmentclassifies cooperatives and other forms of agriculturalorganization as private whereas individual workers often still perceive these same activities as in the public sphere. Employingthe estimate obtained from the survey data, Moldova's share of private out of total employment remains low when comparedto other economies in the region.13

33. The survey also reports limited amounts of moonlightingand multiplejob holding. Only 6.3% (4.6%) of all employed workers (of the labor force) report working at an irregular or casual job. Another 6% report helping in agriculture or in some other form of household self- employment. Seasonal factors certainly depress these amounts as does any unwillingnessto reveal all economic activities to survey enumerators. But unless these biases are overwhelming, it seems likely that secondary employment opportunitiesremain few -- a potential signal of how slowly Moldova's transition has progressed thus far.

C. Survival Strategies

34. Survey evidence on the share of private employment and the extent of multiplejob holding, along with evidence on high unemploymentand widespread under-employment,paints a picture of an economy with lirmitedopportunities for gainful economic activity. This view is consistent with aggregate data on falling levels of GDP. The labor market consequencesof prolonged declines in output include the loss of jobs and falling returns to work activity.

35. But there is also an expected householdresponse to these events that the survey does not adequately capture. Families must survive. Since the state's social protection system is not

13. Accordingto data presented by Allison and Ringold, ibid., only Bulgaria (35% in 1994) had a share of private out of total employment comparable to Moldova's. The Czech Republic, Hungary, Poland and Romania all reported shares between 50-60%; Croatia and Slovakia had shares slightly lower. However, differences in defining firms as public or private, and in survey methodologies,make these comparisonsspeculative.

9 Technical Paper IV

capable of responding to their needs, households devise strategies for maintaining themselves. In addition to relying on whatever wage income is earned or pensions received, families depend on dacha plots for food to supplement their own consumption and for sale to others. Private vehicles are used to provide informal taxi services. Rooms are rented. Family members leave the country and seek employment as guest workers, in Romania, Russia and elsewhere, more often than not under extra-legal circumstances.14 Their earnings return as remittances. Trips of shorter duration are taken to buy goods for resale in local markets. Competition is fierce and profit margins small in so-called "shuttle-trading", but some additional income is earned. Bribery, extortion, prostitution, theft and other forms of criminal activity are also increasingly resorted to as a means of securing income.

36. If full information on these survival strategies was available, the estimated level of unemployment and under-employment would be lower and of private employment and multiple job holding probably higher (Box 2). But the basic conclusion, that Moldova has a dire shortage of productive employment opportunities, would remain.

III. Wages and the Behavior of the Labor Market

A. How Far Have Real Wages Fallen?

37. In January 1997, the average monthly wage reported by the State Department of Statistics' monthly survey of enterprises ermploying 20 or more workers was 190 lei (US $41). Deflating by Moldova's consumer price indiex yields a real wage of about half of the level prevailing five years earlier, in January 1992. Most of this loss occurred in 1993. Since then, real wages have bee'i stagnant, although there is evidence of a slight upturn in mean earnings during the latter part of 1996 and into 1997. 15

38. The fifty percent fall in real wages reported by official data is subject to a number of qualifications, some of which suggest the decline may be overstated. First, any earnings received in-kind, especially housing, would mitigate the reported decline which only refers to that part of wages paid in cash. Second, enterprises have an incentive to under-report wages in order to avoid certain taxes. A tax equal tO 35% of the wage fund must be paid directly to the Social Fund. If under-reporting of wages has increased over time, the fall in real wages would, correspondingly, be lower. Third, and working in the opposite direction, the enterprise surveys do not take account of those on forced/unpaid leaves. To the extent this number is rising, the decline in remunerations, averaged over both those who are employed and those who are on leave, could be higher. The changing skill],mix of enterprises as a result of forced/unpaid leaves and separations would also affect the pattern of real wage changes.

14. The Ministry of Labor and Social Protection reports, in 1996, approximately, 11,000 Moldovan nationals were officially registered as working abroad, the majority in Russia. Estimates of 15 times that amount have been made for the number of unregistered temporary migration in search of employment. 15. Evidence on real wages is from TACIS, Moldovan Economic Trends, Quarterly Update (February 1997). Data from the Moldova Household Budget Survey, 1997 are not well-suited to report on wage levels or trends.

10 Labor and Poverty in the Republic of Moldova

39. The trend in real earnings for workers in enterprises covered by the State Departmentof Statistics also may be a poor indicator of pay trends in smaller firms, including self-employment, that lie outside the survey's sampling frame. Real wage trends in such activities may be bi- modal, with increasingreal wages for self-employedprofessionals and other occupationsfacing high demand, and stagnant or declining real pay for those engaged in petty trade and unskilled activities.

40. The trend in real earnings, whatever its true rate of decline, remains an imperfect measure of the trend in individual and household income. Given rising unemployment and arrears in wage payments, some households may have experiencedeven more precipitous falls in real income. Alternatively,as households resort to survival strategies, earnings from secondary activities,including in-kind income from dacha plots, offset the fall in enterprise earnings and cushion the blow of declining real wages. Despite the paucity of evidence and the large number of caveats, for most workers, the purchasing power of a days work is probably lower today than it was at the time of Independence. A major goal of policy must be to reverse this trend.

B. Is The Labor Market To Blame?

41. Moldova'sdouble-digit unemploymentand large decline in real wages are serious concerns that warrant the attention of policy makers. These outcomes are problems of the labor market, in the narrow sense, since they are the result of interactions between labor demand and supply. But in a broader sense, there is little evidencethat the operation of the labor market,per se, is to blame.

42. Wages appear flexible as evidenced by the fall in their real value and increasing pay differentials across sectors. In January 1997, averagereported monthly wages in the highest paid sector, the financial sector (704 lei), were four and a half times the level in education (155 lei), one of the lowest paid sectors. In 1992, the ratio was only 2.6:1. An expanding inter-industry earnings structure is expected as the compressedpay structure of the pre-transitionera responds to market forces.

43. The minimum wage, which can limit wage flexibility and the growth of labor demand, is not a binding constraint in Moldova'slabor market. Last set in January of 1994, at 18 lei per month, the legal minimum appears below the market determinedwage for unskilled work. (Average earnings in agriculture in 1995 were reported at over 100 lei per month.) Similarly, excessive payroll taxes can serve as a disincentive to employers for hiring workers. Although employment based tax rates in Moldova are high, at present, these do not seem an important impedimentto job creation. Evasion is widespread and employers find ways of designing employment contracts to avoid payments. Reform of these taxes will be warranted once the economy starts to grow but current labor taxes are not the reason for poor labor outcomes.

44. Other dimensions of the labor market appear to function well. Unemploymentcannot be explained by a mismatch of skills and opportunities. Moldova has a well-educated and experienced labor force. Its skills are in demand abroad as evidenced by the success Moldovans have had landing legal employment contracts in, for example, Israel, and illegal guest work in Russia and neighboring countries. Older workers have experienced structural unemployment,

11 TechnicalPaper IV but this is not the primary explanation for high currents rates of unemployment. 86% of the unemployed are below age 45.

45. Excessive frictional unemployment also does not appear to be a problem. Information about employment opportunities is well disseminated through public and private channels, the latter including newspapers and informal networks. Good information flows and the general well-functioning of the labor market is evident in the case of construction trades. In Chisinau, technical high schools specializing in construction trades report a large percentage of their graduates finding employment in their fields, many of whom earn good wages in self- employment or small-scale private construction firms. Opportunities are lucrative enough that many teachers of construction trades leave their positions and follow their former students into the private sector. Employers come to the technical high schools hoping to attract graduates and the success of those with construction skills has resulted in a surge of applicants to vocational programs. One such institution reports an increase to eight applicants per position. This circular flow of information between employers, workers and prospective new entrants is another sign of a well-functioning labor market.

46. If the operation of the labor market is not a constraint on generating jobs and rewarding workers, the constraints must lie elsewhere. What is needed is a package of macroeconomic, sectoral and institutional reforms that mak:e Moldova an attractive environment for private investment by foreign and domestic inves tors alike.

12 Labor and Poverty in the Republic of Moldova

Part Two: Labor Correlatesof Poverty

47. Weak labor demand and lack of productiveemployment opportunitiesin Moldova have resulted in an increase in the number of people living in poverty. For this analysis, a household is defined as poor if its estimated monthly expendituresper capita fall below a poverty line of 67 lei (US$14) in the Right Bank and of 7,831 rubles (US$ 13) in Transnistria.16 These poverty lines are equivalent to 40% of average monthly expendituresper capita for households surveyed in the two regions, respectively. An individual is defined as poor if s/he is a member of a householdliving below the poverty line. According to the February 1997 estimates of the MoldovaHousehold Budget Survey, 19% of all households, comprising 23% of all Moldovans, lived below these poverty lines.

A. Who Are The Poor?

48. Having identified the poor, labor market correlates of poverty can be determtined.Results from the household survey indicate that poverty in Moldova is not uniquely distinguishedby one or more demographictrait or labor market characteristic. The poor are ubiquitous. They include children and the elderly, residents of urban and rural regions, individuals who depend on agriculture or industry for their main source of income, the unemployed and the working poor.

49. In both developed and developingcountries, children make up a significant fraction of the poor. Moldova is not an exception. Children, defined as boys and girls under the age of 14, constitute 23% of Moldova's populationbut account for 31% of the nation's poor (Figure 6). The working poor, individuals who worked at least one hour during the survey reference period and lived in households below the poverty line, represent another 30% of all poor individuals. The remainder are either unemployed (15%), of working age but out of the labor force (13%) or elderly (11%).17

50. Poverty rates for these various groups are presented in Figure 7.18 Children and the unemployedhave a higher incidence of poverty than the overall population. Just over three out of every ten children are poor. The elderly exhibit a poverty rate of 15%, below the national average of 23% and half as great as that for children. Among those of working ages, the unemployedhave a poverty rate of 30%; the employed a rate of 22%; and those of working age who are out of the labor force a rate of 19%.

51. When the data are disaggregatedby gender and region the diffused nature of poverty is further revealed (Table 7). Poverty among children is widespreadin the Right Bank and Transnistria. Poverty rates for men and women also are generally similar. The one exception is in Transnistriawhere women who are out of the labor force, whether because they are elderly or of working age and not participating,have somewhathigher poverty rates than do their male counterparts.

16. Conversion into US$ is at official lei to dollar and ruble to lei to dollar exchange rates. 17. The elderly are defined as those individuals above official working ages (55 for women, 60 for men) who are out of the labor force. 18. Poverty rates in this context refer to estimates of a Headcount Index.

13 TechnicalPaper IV

52. In the Right Bank. poverty rates for the unemployed are higher than for the employed, but the similarity between rates is striking. In Transnistria, this is not true. Poverty rates among the unemployed are high -- roughly one out of two. For Transnistria's unemployed, poverty rates are almost twice as high as those of the Right Bank's unemployed and almost three times as high as among Transnistria's employed. Povert:y may be common among Transnistria's unemployed, but there are relatively few who are unemrployed.19 The unemployed in Transnistria account for 11% of the region's poor. In the Right Bank, despite a lower poverty rate, the unemployed account for 16% of the poor. The working poor account for 30% of poverty among individuals in both locations.

B. Why Are Individuals Poor?

53. Under the Soviet system a popular notion was that those who could work could not be poor. This probably was a less than accurate accounting of poverty in earlier times and certainly does not explain Moldova's current povertly profile. Poverty in Moldova, like elsewhere, results from the interplay of many factors. A lac:k of assets, including land, physical capital, education and other forrns of human capital, limit individual earning capacity. Age, illness and family circumstances similarly affect the ability to earn a living. Macroeconomic conditions and the processes of job creation and job destruction determine the availability of work and the retums to labor activity.

54. Given the individual heterogeneity with any category of employment status, including whether employed or unemployed, it is not surprising that employment status, alone, is a poor predictor of poverty status. But by lookirng within labor force categories, some insight can be gained as to why labor market experience results in poverty for some individuals but not others. For individuals who are employed but poor, under-employment is associated with a poverty rate of 31% (Table 8). Working 30 or fewer hours per week characterizes almost one-tenth of Moldovans of working age and results in poverty for almost one-third of this group. Fully employed workers, who report over 30 hours during the past seven days, experience a considerably lower poverty rate of 18%.

55. Seasonality explains some of the difference in poverty rates between the under-employed and fully-employed. This is suggested by the slightly higher rate of poverty reported by individuals whose main economic activity is agriculture -- the sector most affected by seasonality. Workers engaged in agriculture have a poverty rate of 23%; those engaged in non- agricultural pursuits report poverty rates of 17%. For those for whom seasonality and, hence, under-employment account for falling below the poverty line, poverty itself may be seasonal. During periods of peak labor demand, longer hours and higher returns per hour may lift the individual out of poverty. Such individuals could be helped by counter-seasonal programs of employment andlor income assistance.

56. Individuals of working age who were out of the labor force, on average, have a poverty rate (19%) lower than those who are employed (22%) or unemployed (30%). Being out of the

19. Because of the relatively small number of unemployed in Transnistria, estimates of poverty for this group are based on a small number of observations and are not as reliable as the other poverty rate estimates.

14 Labor and Poverty in the Republic of Moldova labor force includes a diverse group -- the disabled, homemakers, students and others -- and poverty rates vary among these specific categories (Table 8). The disabled have a poverty rate (18%) below the national average (23%), suggesting the relative effectiveness of public and/or household safety nets. Students have a low poverty rate (13%), consistent with the discretionary nature of school attendance for those 14 and older. Demand for higher levels of schooling tends to be income elastic. To avoid poverty, families send household members c* working ages to work rather than school. The low poverty rate among students is consistent with this type of survival strategy adopted by families. Individuals who reported "keeping house" as their main economic activity have poverty rates (25%) several percent higher than the national average. Most of this group is female. The presence of children in the household may limit their ability to seek work and account for why many have expenditure levels that fall below the poverty line.

57. Poverty among the unemployed raises a number of intriguing questions. Not everyone who is unemployed is poor. Despite having no labor market earnings of their own during the reference period, over two-thirds of Moldova's unemployed lived in households above the poverty line. If most of the unemployed are not poor, who among them is?

58. The profile of those who are both unemployed and poor can be understood by looking at unemployment rates and poverty rates for individuals with particular attributes (Table 9). Overall, 28% of individuals in the labor force report working zero hours during the past seven days and indicate either having ajob or wanting one. But there is considerable deviation from the national unemployment rate depending on where a person lives and on individual characteristics.

59. Unemployment is more prevalent in the Right Bank and in the rural sector of the economy. Household heads are less likely to be unemployed than are a family's secondary workers. Younger workers are more prone to experience unemployment than are prime age adults and older workers. Those with only a secondary education make up two-thirds of the unemployed and have unemployment rates of 39%, well in excess of any other education group.20 Men have slightly higher unemployment rates than women, although this may be more a matter of reporting conventions as female participation rates are lower than those for males.

60. Unemployment rates according to almost all of these various attributes are estimated to vary by at least 10 percentage points and often by much more -- those with a secondary school education had an unemployment rate of 39% as compared to one of 11% for university graduates. The same cannot be said for attribute specific estimates of poverty rates among the unemployed (Table 9). If an individual is unemployed their likelihood *f being poor falls, with few exceptions, in the narrow range of 27% to 33%. By way of an example, unemployment rates for someone with a university education are far less than those for someone with only secondary

20. The relatively low unemployment rate among those with primary or less versus with a secondary school education should be understood in relationship to the small percentage of the former in the labor force. 18% of Moldova's adult population has a primary education or less, but 90% of them are out of the labor force, mostly because they are above official retirement ages. Those with less than a secondary education constitute under 5% of the labor force.

15 Technical Paper IV education. But once unemployed, poverty rates are sirnilar for individuals with these two levels of education.

61. There are two implications of these results. First, unemployment rates, not poverty rates, are key to determining the profile of those who are unemployed and poor. Young workers, those with only secondary schooling and individuals who reside in rural areas have high unemployment rates and represent a sig:rificant percentage of those who are both unemployed and poor. Second, the lack of variance in attribute specific poverty rates for the unemployed reveals something about the labor market. It suggests that the returns to work activity are relatively flat, varying little according to individual attributes. For this reason, unemployed university graduates may not have significantly more resources to fall back upon than unemployed secondary school graduates. Once unemployed, both groups stand a similar chance of falling into poverty. This would be less likely in a fully market-oriented economy where those with less human capital would have a greater chance of falling into poverty because of an adverse event that results in unemploymint.

62. Inspection of poverty rates by labor force status in Moldova reflects what is true in most countries: poverty is diffuse. It is widespread among those in and out of the labor force, and among those employed and unemployed, making it difficult to target the poor based on their attributes. Nevertheless, a lack of employment opportunities, which results either in under- or unemployment, increases the chances of being poor. A focus on expanding productive employment should be a central part of the nation's strategy for alleviating poverty.

C. Conclusion: The Poverty of Households

63. To understand the labor correlates of poverty, the situation of households, as well as of individuals, must be considered. Nowhere is this more evident than when analyzing poverty among children. Children are poor not because of their own actions, but because their parents or guardians are unable to provide sufficient resources for their households to cross the poverty line.21

64. Poverty is associated with house:holds with children. Among families with children, 27% are poor. For families without children, 12% are poor. Families who have children and at least one adult who is unemployed have a slightly higher chance of falling into poverty (32%) than those families with children and no one unemployed (25%). These differences in conditional poverty rates, however, are not large, and mirror the results found on individuals, namely, that the distribution of poverty rates by labor force status is relatively flat.

65. Poverty among the elderly, on an individual basis, is lower than for children and for the population as a whole. These results are reinforced when considered at a household level.

21. Children can also be poor because of an un,equal distribution of household income within the family. Problems of intra-householddistribution can create great hardship for children. This analysis, however, limits the analysis of child poverty to the situation where an equal distribution of household income is assumed. As such, the 31 percent poverty rate for childrenmay be an underestimate.

16 Labor and Poverty in the Republic of Moldova

Survey data report that among the elderly, defined as those above official retirement ages, 27% percent live alone, almost 50% live only with other elderly persons, and the remainder live in households with some individuals under retirement ages. Elderly living alone have a poverty rate of under 9%, those living with other elderly, 14%, and those living in families with non- elderly have poverty rates of 23%. The low poverty rates of single elderly persons stands in contrast to results in other economies.22Low poverty rates among elderly households contradict the impression of the poor conditionsof those beyond retirement age, who face arrears in pension payments and presumably lack the means to generate earnings in the labor market.

66. The situation of the elderly is also reflected in the poverty experience of households without any members in the labor force. These families consist mostly of individuals above official retirement ages and average a poverty rate of only 9%. A large percentage, 29% of all households, reports no one in the labor force and, when combined with the low poverty rate of this group, raises important yet unansweredquestions. If this group's relatively low poverty rate is due to official transfers, than the dependencyburden of those over retirement age on those employed is even greater than suggestedearlier (Table 5). If it is the result of private transfers, inter-generationalexchange, implicitly, subsidizesthe old at the expense of the young. And if it is due to unreported earnings of the elderly, then there is far greater dynamism in the informal sector than revealed by the data.

67. One possible explanation for the differential poverty rates between the elderly and children, relates less to the presence of childrenin a household than to the age of their parents. The cohort of child-bearing age in Moldova today is too young to have been fully vested in the Soviet system. This group may have failed to accumulate the potentially productiveassets that the generation before them did. It is the elderly, not the young, who may have an apartment with an extra room to rent, a convenient Dacha plot, or an automobile that can be leased as a taxi. While the age-cohortof parents of younger children may be too young to have benefited from the previous system, they also may be too old to easily adapt to the demands of transition. Their education may be ill-suited to the realities of today's more market-orientedeconomy and the presence of children may restrain mobility, especially for temporarymigration to seek external employment. A relatively higher incidence of poverty among those with children may be the net result.

68. The evidence on householdpoverty is similar to that on individual poverty. Household poverty is diffused and, with few exceptions,not uniquely concentrated among families with easily identified labor market characteristics. This does not imply that labor market activity has no bearing on poverty. Unemploymentremains associatedwith higher poverty rates. One quarter of all families have a member who is unemployedand 28% of these households are poor. In contrast, 46% of households have no one who is unemployed and at least one person employed. Poverty rates among these households fall to 20%. But this difference in poverty rates is small, suggesting that employment and unemploymentare not the core determinants of a family's falling above or below the poverty line.

22. Surprising evidence also is obtained on poverty rates by age for the elderly. The young elderly (55-64 for women and 60-64 for men) have a poverty rate (16%) virtually indistinguishablefrom the poverty (14%) of the old elderly (65 and over). Poverty rates usually increase with the age of the elderly.

17 TechnicalPaper IV

69. Labor force status may not uniquely predict poverty status, but poverty reduction in Moldova still requires an expansion of productive employment. Increasing the productivity of labor will aid all categories of households identified by this analysis. For poor households without members in the labor force, an overall increase in labor productivity will provide the means for private and public transfer payments to rise to a level sufficient to lift these households above poverty levels. For families with members who are un- and under-employed, an expansion in productive employment will produce material benefits through an expansion in hours worked and an increase in wages per hour. And for the working poor, growth in productive employment will reduce their poverty by increasing returns to their labor hours. Without an expansion of productive employment, no system of public transfers can hope to eliminate the widespread poverty that afflicts the nation.

Box 1: Estimating a Seasonally-Adiusted Unemployment Rate for Moldova The household budget survey reports 9.7% of the adult population as "with a job but did not work," of whom 5.6% are engaged in agriculture (Table 1.) 4.1% are not engaged in agriculture and are assumed not to experience seasonal unemployment. For all others in this group, seasonal unemployment is assumed to last for one-third of the year, that is, for all unemployed workers normally engaged in agriculture. This adds 1.9% (one-third of 5.6%) to the seasonally adjusted estimate of unemployment.

5.9% of the adult population report "without a job but want to work". 57.7% are assumed engaged in agriculture -- the same percentage as in the "with a job but did not work" group -- yielding another 2.5% of the adult population attached to the non-agricultural sector and 3.4% unemployed in agriculture. For the latl.tergroup, seasonal adjustment (one-third of 3.4%) adds another 1.1% of the adult population to the estimate of annual open unemployment.

Added together, 9.6% of the adult population are considered unemployed. In order to express an unemployment rate, it is necessary to determine the number of unemployed as a share of the labor force of working age. The labor -force of working ages is 57.5% of the adult population resulting in an estimate of seasonally-adjusted annual unemployment of 16.7%.

18 Labor and Poverty in the Republic of Moldova

Box 2: Survival Strategies AmongUkrainian Workers A recent study by Johnson, Kaufmann and Ustenko (1995) investigates the survival strategies of workers in Ukraine. A sample of almost 2,000 urban workers was drawn from three cities and a cross-section of primarily industrial activities. The sample contains workers who are still employed as well as those recently separated from their enterprises. Workers/former workers were asked whether they were engaged in five types of survival strategies: a second job, use of a dacha plot to grow food for sale, private taxi service, renting one's apartment or garage, and business trips out of the country.

Seventy percent of the sample engaged in at least one survival strategy. Growing food for sale on dacha plots and trips abroad each engaged about 25% of the sample; higher percentages for those separated from their enterprises. About 10% offered private taxi services and 13% rented apartmentsor garages. Of those employed,20% had a secondjob.

The authors stress that their sample is stratified and does not reflect the labor force as a whole. Their evidence shows how many urban workers have been able to generate incomes on their own despite the loss of state employment. The authors stress that these private sector activities merely offer a way to survive. Further economic reforms are needed to encourage the level of private sector investment capable of generating far more productive and, hence, remunerative private employment.

Source: Simon Johnson, Daniel Kaufmann and Oleg Ustenko, "Formal Employment and Survival Strategies After Communism," processed, World Bank (October 1995).

19

Labor and Poverty in the Republic of Moldova

Figure 1: Labor Utilization in the FSU and Central and Eastern Europe

(a) ReaisteredUnempilovment Rate (%)

I :4

d, 1v ----p-i

(b) ParticipationRate among Working Age Poplulation(%)

1 2~~~~~~~~~~~2

2c~~~~~~~~~~2 Technical Paper IV

Figure 2: Economic Activity of the Adult Populationa

Officialb, 1995 Surveyc, 1997 Registered Unpaid Unpaid Unemploy Leaves Leaves and ed 6.2% Other 0 8% Unemployed Registered

Labor 1.0% Force 37.8%

Em plo erceOu a thed 55.2% Frc 5 5. ~~~~~~~~~~~~~~~~Employed~~~~~~~~~~~~~~41.8%426

Sources: See Appendix, Notes to Figure 2 a. Ages 14 and older b. Excluding left bank regions of the Dniestre and Bender c. Whnle (onilntrv Notes to Figure 2

The distribution of economic activity of the adult population based on "official" data is derived from the Statistical Annual of the Republic of Moldova, 1995, p. 116. Total population, excluding the left bank regions of the Dniestre and Bender, was adjusted by the proportion of population 14 and over from the household budget survey data, to reflect the adult population. The Statistical Annual reports total employment and registered unemployment. The average number of workers on unpaid leaves in 1995, 168,450, is from the State Department of Statistics and Ministry of Labour and Social Protection as reported in Government of Moldova, European Expertise Service, Moldovan Economic Trends (February 1997), Annex Table 9.8. The percent out of the labor force is computed as the residual.

The distribution of economic activity of the adult population based on "survey" data is derived from the State Department of Statistics, Household Budget Survey, 1997. Employed workers are those, in the past seven days, who reported to be working. The unemployed are those who reported zero hours of work and claimed to have a job but did not work or who did not work but wished to. Those out of the labor force reported zero hours of work in the last seven days and included those who were students, attending qualified courses, keeping house, too old to work, pensioners or had chronic diseases.

22 Labor and Poverty in the Republic of Moldova

Figure 3: Reasons Given for Not Participating in the Labor Force

Women Men

Other Other 10% 10%

is%~ ~~~o

Attending

Percentages refer to the whole country's adult population who are out of the labor force, approximately 500 thousand men and 900 women. Source: Moldova Household Budget Survev, 1997

23 Technical Paper IV

Figure 4: Labor Force ParticipaLtion Rates By Age, Gender and Region

100

80 - ,------

.2 60

20~~~~~~~~~~~~ \ +~~~~~~~~~~~~~0RightBank-Men 9 -RightBank-Women Left Bank-Men Left Bank-Women

14-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 >60 Atge

Source: Moldova Household Budget Survey, (1997) Note: ParticipationRates refer to the percentageof a givenage cohort that is eitheremployed or unemployed

24 Labor and Poverty in the Republic of Moldova

Figure 5: EmploymentTransformation During the Transition, Czech Republic, 1991-1995

(a) GrowingSectors (Share of TotalEmployment (%))

Commerce

Construction

FinancialSewvices a| _

Public Administration

OtherServices - _ .

0 5 10 15 20 25 30 35 40 45

(b) DecliningSectors (Share of Total Employment(%))

Industr ......

Agriculture

131991

Health andEducation

Transport

0 5 10 15 20 25 30 35 40 45

Source: Allisonand Ringold, "Labor Markets in Transitionin Centraland EasternEurope, 1989-1995,"(World Bank, 1996)

25 Technical Paper IV

Figure 6: Who are the Poor?

out 01 tne LaDor Force

Unemployed 15%

= S er~~~~~~~~~Elely - 'LZ ~~~~~~11%

Employed 30%

Source: Moldova HouseholdBudget Survey, 1997 a. Refers to non-elderly adults

26 Labor and Poverty in the Republic of Moldova

Figure 7: Poverty Rates

C hildren a

U nent ployed

A li M odovaus ,

Employed.

Out of the Labor Force(a) I

Elderly

0 5 10 15 20 25 30 35 Percentage Poor

Source,. M oldova Household B udget Survey, 1 997 (a) Refers to non-elderly adults

27 Technical Paper IV __ __ _

Table l. The inemployedoout ofthe Adult Populationi jyJobStats andRegon,a 1997

Percent of Each Region's Percent of Whole Country's Adult Population Adult Population

Right Bank Left Bank Right Bank Left Bank Whole Country

With job/Did Not Work 1l. 3.8 9.0 0.7 9.7 Of Whom, Those Who are 4.8 2.2 3.9 0.4 4.3 Household Heads

Of Whom, Those in Agriculture 6.7 0.8 5.5 0.1 5.6

Withouit Toh/Wih to Work 6.8 1.6 s5.6 .3 1B.

Of Whom, Those Who are 2.7 0.0 1.4 0.0 1.4 Household Heads

Of Whom, Those Between 14 - 2.9 1.2 2.4 0.2 2.6 25

All Unemployeda 178 5.4 14,6 10 15.6

a. The corresponding unemployment rate, that is, the number unemployed as a percentage of the labor force of working age equals: Right Bank, 30.8%; Left Bank, 8.49%; Whole Country, 28.0%

Source: Moldova Household Budget Summary, 1997

28 Labor and Poverty in the Republic of Moldova

Table 1 Notes

The Registered UnemploymentRate for the states of the FSU refers to the number of registered unemployed divided by the labor force, where the labor force equals the sum of those employed plus the registered unemployed. The ParticipationRate equals the labor force minus the economicallyactive populationin non- workingages dividedby the workingage population(generally, 14 to 54 for women and 14 to 59 for men.) a Unemploymentand labor force data for Moldovareported in World Bank, StatisticalHandbook 1996, States of the Former Soviet Union, exclude the left bank regions of the Dniestre and Bender. The working age population,however, refers to the wholecountry. The latter amount was adjusted usingdata from the Moldova Living Standards MeasurementSurvey to correspondto the coverage of the unemployment and labor force data. b. 1994 c. Totalunemployment, both registeredand unregistered. d. 1992

Sources: World Bank, Statistical Handbook 1996, States of the Former Soviet Union, (Washington, D.C.: 1996); OECD-CCETLabour Market Database as reported in C. Allison and D. Ringold, "Labor Markets in Transition in Central and Eastern Europe, 1989-1995," World Bank Technical Paper No. 352, Social Challenges of Transition Series (Washington, D.C.: 1996)

The Registered UnemploymentRate for the states of the FSU refers to the number of registeredunemployed divided by the labor force, where the labor force equals the sum of those employed plus the registered unemployed. The ParticipationRate equals the labor force minus the economicallyactive populationin non- workingages divided by the workingage population(generally, 14 to 54 for womenand 14 to 59 for men.) a. Unemploymentand labor force data for Moldovareported in World Bank, StatisticalHandbook 1996, States of the Former Soviet Union, exclude the left bank regions of the Dniestre and Bender. The working age population,however, refers to the whole country. The latter amount was adjustedusing data from the Moldova Living StandardsMeasurement Survey to correspond to the coverageof the unemployment and labor force data. b. 1994

Total unemployment,both registeredand unregistered. d- 1992

Sources: World Bank, Statistical Handbook 1996, States of the Former Soviet Union, (Washington, D.C.: 1996); OECD-CCETLabour Market Database as reported in C. Allison and D. Ringold, "Labor Markets in Transition in Central and Eastern Europe, 1989-1995," World Bank Technical Paper No. 352, Social Challenges of Transition Series (Washington, D.C.: 1996)

29 Technical Paper IV

Table 2: Opn Unemploymenit Rates, Central adEasternk Europe 6)5

Country ______~~~~~OpenUn mplmet Rae %

Bulgariaa 20.0

Moldovab 16.7

Polanda 14.0

Slovakiaa 13.4

Hungary 9.4

Sloveniac 9.4

Romania 8.0

Czech Republic 3.5

a. 1994 b. Seasonally adjusted. c. 1993

Sources: Moldova, see text for derivation. Othler countries are all based on labor force surveys as reported in Allison and Ringold (1996)

Table 3: Under-EmploYmnt;NWeeklyHusWrdbySco

Hours Worked During the Emlye (%)

Past Seven Days __:_____=__

______t} Agn00000egul0_ture Non-ArictWe All Sectors 1-10 7.5 9.2 8.8

11-30 28.2 19.4 21.8

31-50 46.8 56.0 53.4

>50 17.5 15.4 16.0

100.0 100.0 100.0

Source: Moldova Household Budget Survey, 1997

30 Labor and Poverty in the Republic of Moldova

Table 4: Labor Force Participationby Genderand Regiont Labor Force Participation(*)

Region _ -_._._._ Out of Adult Populationa Out of Working Age Populationb Men Women Men Women RightBank 70.0 52.4 79.8 71.0 Left Bank 61.8 38.3 72.3 52.2 WholeCountry 67.2 49.8 78.5 67.7 a. Population14 years and older. b. Workingage populationincludes men, 14 to 59, and women, 14 to 54. Source: Moldova Household Budget Survey, 1997

Table 5: The DependencyBurden of the Employed Number inCategorya Per 100 Workers Populationto Country Children Elderly Unemployed Out of the Labor Fmployed EmploymentRatio Force

Moldovab 62 46 20 39 100 267 UnitedStates 52 23 8 31 100 214

Note: a Children (elderly)refer to thosebelow (above) workingage, 14 (54 for women, 59 for men) in Moldova and 16 (65) in the United States. Those above workingage who are in the labor force are not includedas elderly. Out of the laborforce refers only to the workingage population.

b These values are based on the seasonallyadjusted estimate of open employmentdiscussed in the text.

Sources: MoldovaHousehold Survey, 1997;Bureau of the Census,Statistical Abstract of the UnitedStates, 1996

31 Technical Paper IV

Table 6: Distribution of the Labor Force By Economic Sector

Diswributionof the Labor Force (%)

RightBank Region Left BankRegion

Official, 1995 Survey, 1997 Swrvey, 1997

Economic Sector Labor Force Labor Force Employed Labor Force nEmployed

Agriculture 46 43 35 15 15 Industrv 12 15 16 26 25

Construction 4 3 3 6 5 Commerce 10 8 9 13 14

Transport 4 5 6 4 4

Financial Services 1 4 5 3 3

Public Administration 2 2 3 6 6

Health and Education 17 14 17 19 20

Other Services 4 6 6 8 8

100 100 100 100 100

Source: Official data are from Statistical Annual of the Republic of Moldova (1995), pp. 117-119; Survey data are from Moldova Household Budget Survey, 1997.

32 Labor and Poverty in the Republic of Moldova

Trable7: Poverty Arntk Individuals, By Labor Force Status and Region

Right Bank Left Bank Labor Force Status In Total Population Of the Poor PovertyRate In Total Population Of the Poor Poverty Rate

Out of the Labor Forc_e

Children 24.4 31.8 30.7 16.6 24.1 32.6

Elderly Male 5.2 3.5 15.8 5.6 3.0 12.0

Elderly Female 11.4 7.0 14.4 14.4 10.5 16.5 Working Age Male 5.6 4.4 18.3 8.2 5.2 14.4

Working Age Female 8.6 6.7 18.2 14.8 16.0 24.5

ln the Labor Force

Employed Male 15.4 14.6 22.3 19.0 17.3 20.5 Employed Female 16.0 15.7 22.9 16.8 13.1 17.6

Unemployed Male 7.5 9.2 28.6 3.2 8.0 56.Oa

Unemployed Female 5.9 7.1 28.0 1.3 2.8 48.0a

Total Populatioll 100.0 100.0 23.4 100.0 100.0 22.6 a. Unemployment rates in Tr-ansnistria are well below those in . Sample cell sizes for the unemployed in Transnistria are small and estimated poverty rates may be unreliable.

Source: Moldova Household Budget Survey, 1997

33 Technical Paper IV

i:; 0X00000t000000;\5t.:Table 8: PovertyAmong} ndividualsof Wrin0;gitAges ______LaborLForce Status IniTotal Poplation (%) Of the Poor o RtyRate

,_ _ _ _ 000iS_ _ 0:SX_ i _ _ .i ______:0 00 (%)0 L df (%')ffe All Moldovans 100 100 23

Under-employeda 10 13 31 Fully-employeda 22 17 18

Disabled 2 2 18 Keeping House 4 5 25 Students 8 4 13 a Under-employmentis defined as working between 1 and 30 hours. Full-timeemployment refers to workingmore than 30 hours

Source: MoldovaHousehold Budget Survey, [997

34 Labor and Poverty in the Republic of Moldova

7able 9: Who are te Unemployed And Why Are They Poor? Attributes Of the Unemployed UnemploymentRate PovertyRate Among the (e) (%) Uemmployed

______(% ).I

Region . _ Whole Country 100 28 30 RightBank 94 30 28 Left Bank 6 11 54

Location Urban 32 20 29 Rural 68 33 31 HouseholdStatus HouseholdHead 37 21 27

Secondary Worker 63 33 32 Gender Male 57 30 31 Female [43 24 29 Age YoungWorker 25 41 31 (14-24) Prime Age Worker (25-50) 69 26 29 Older Worker(>50) 6 14 35 Education University 7 11 27 Vo-Tech 26 21 23 Secondary 64 39 33 Primaryor Lower 3 23 32

35 Technical Paper IV

Appndxabl 1 LborUtliaton in the Fs U and

Country0000000000000000 t000000000000000000000000000000Registered em*0plopyent Participation

Moldova' 1.b 79.a8

Armenia 6.8 70.7

Azerbaijan 1.0 67.6

Belarus 2.9 73.2

Georgia 3.4C 51.1 c,d

Kazakstan 1L.oc 77,9c

Kyrgyz Republic 5.7 74.0 Latvia 6.8 n.a

Lithuania 6.2 8 1 .8 d

Russian Federation 7 0 b n.a Tajikistan 1.5 65.5

Ukraine 0.4 n.a

Bulgaria 13.9 72.3

Croatia 12.7 67.9

Czech Republic 2.9 79.3 Hungary 11.1 73.0

Poland 15.9 61.7

Romania 9.3 87.9

Slovakia 15.1 68.5 Slovenia 14.5b 71.2'

36 TECHNICAL PAPER V

HUMAN CAPITAL AND POVERTY IN THE REPUBLIC OF MOLDOVA

by

Robert Ackland Australian National University

The views contained herein are those of the author only, and do not represent the opinions of the World Bank nor of its Board of Directors, nor of any individual country member, nor federal, nor local government.

Human Capital and Poverty in the Republic of Moldova

Human Capital and Poverty in the Republic of Moldova*

Health and education are important components of an individual's quality of life. Health and education are also vital to long-term poverty reduction in that they contribute to an individual's ability to earn and thus to cope with transition. At a macroeconomic level, strong education and health sectors are important for economic growth; the ability of a country to transform into a market-oriented economy is closely linked to maintaining and improving the health and education of the population.

1. EDUCATION

1.1. As with other countries of the Former Soviet Union (FSU), Moldova inherited high coverage (enrolment) rates and a widespread respect of the value of education. With economic transition, contractions in government expenditures resulted in a reduction in real allocations to education. While private education expenditure would be expected to rise in response, thus offsetting part of the fall in government expenditure, this would only be the case for more well-off households. Thus, with economic transition, one would expect a divergence in both quantity and quality of education received by poor and non-poor households.

Recent developmentsin the education system

Table 1.1: Public education expenditures(percentage of GDP) 1991 1992 1993 1994 1995 1996 Right Bank and 8.8 9.4 7.6 7.1 7.4 7.3 Transnistria Right Bank only na na na 8.6 8.9 9.0 Note: Since 1994, the figures for the Right Bank only are more reliable than those containing both the Right Bank and Transnistria; the Transnistrian authorities do not provide any official statistical data to the Moldovan authorities.

1.2. To what extent has the fiscal situation in Moldova impacted on education? Public education expenditure as a share of GDP is the most commonly used measure of the availability of public resources for education. Table 1.1 indicates that there has been some contraction in public education expenditures as a share of GDP since 1991, with public education expenditure accounting for 8.8 percent of GDP in 1991 and 7.3 percent of GDP in 1996. Since 1994 there has been a slight increase in public education expenditure as a share of GDP. However, it should be noted that by only looking at public expenditure as a

Many thanks to Jeanine Braithwaite for helpful comments on an earlier draft.

1 Technical Paper V percentage of GDP, one may not get a true indication of the level of public resources available for education. If the education expenditUreto GDP ratio remains constant, but real GDP declines by, for example, 50 percent, this would mean that education spending is effectively half of what it was in the base year. Thius,a more complete picture is gained by looking at additional measures of education expenditureperformance; a useful additional measure is real per capita education spending (unfortunatelythis informationis not currently available).

1.3. It is to be expected that the decline in public education expenditure has been partly offset by increasingprivate expenditures. Unfortunately,there are no data availableto indicate the extent to which private expendituresin Moldova have risen in response to the fall in public expenditures. However, evidence from the recent Qualitative Study in Moldoval points to rising out-of-pocketcosts of educationand a shift from public to private financingof education. A recent UNDP-sponsoredreport on the access of poor families to education in Moldova2details how schools collect money from parents for the maintenance of buildings and how parents are additionallyexpetewd to contribute 10 lei to their child's teacher on five occasions throughout the academic year (Teachers' Day, New Year, March 8, end of school year and the teacher's birthday). The report also mentions the increase in private educational institutions in Moldova which offer a superior education to state-run schools. It is unlikely that the increase in private expenditure on education has compensatedfully for the fall in public spending, and it is to be expected that it has had negative distributionalconsequences.

1.4. Evidence from the MoldovanNeeds and CapacityAssessment (MNCA)3 suggests that there may be a crisis in education in Moldova. The assessmentfound that schools and pre-school institutions are generally in poor condition, with major repair and constructiona necessity. Lack of heating in schools was found to be a severe problem. In several of the surveyed districts,many schools were closed during winter and this led to overcrowdingin the schools still operating. The poor condition of schools has arisen in part because responsibility for these and other social assets has been transferredto the local authorities in recent years. Finance for maintenancemust, therefore,come from inadequate local budgets. The MNCA also identified a lack of communityownership as a major contributorto the poor state of social assets in Moldova; without this ownership communitieslack a willingness to commit labor, time or money to support the social assets. The Qualitative Study provides additional evidence of the deteriorationin the education system, and suggests that low teacher pay and morale are contributingfactors to this decline. A recent study of the labor market in

l H. G. De Soto and N. Dudwick, "Poverty in Moldova:A Qualitative Study," 1997.

2 p. D. lacovlevici, "Accessof Poor Families to Education in the Republic of Moldova," UNDP-sponsoredreport, 1997. 3 The MNCA was conducted in six districts in Moldovain 1997. The main objectives of the assessment were to "evaluate the urgent social needs in the rural communities,to evaluate the communities' capacity to identify,prepare and carry out micro-projects,and to evaluate the capacity of solving social problems by local administrationauthorities and the citizenry." The MNCA was designed as input into the planned NMoldovaSocial Investment Fund (MSIF), an autonomousinstitution designed to respond to requests from local-level,cormmunity-based organizations for funds to carry out small micro-projects in communitieswith urgent needs. It is planned that the MSIF will fund demand-drivenmicro-projects through providing grants to communities. Proposals for micro-projectfanding may come from community level organizations,local NGOs and local government.

2 Human Capital and Poverty in the Republic of Moldova

Moldova4 confirms that the education sector is one of the lowest paid sectors (in January 1997 average wages in education were 155 lei per month, compared with 704 lei per month in the financial sector).

Education outcomesfor the poor and non-poor

1.5. Table 1.2 presents enrolment rates for children aged 6-16 years (hereafter referred to as general enrolment rates) by gender, type of settlement and poverty status for the Right Bank and Transnistria calculated using the Moldova Pilot Survey Data (MPSD). The overall enrolment rates are basically the same in the Right Bank and Transnistria at around 89 percent. There is no real difference in general enrolment rates for girls and boys (although the enrolment rate for boys is slightly higher in Transnistria). In the Right Bank, general enrolment rates are highest in other cities (92.5 percent), followed by rural areas (88.7 percent) and Chisinau (84.6 percent). In Transnistria, enrolment rates are highest in Tiraspol (100 percent), followed by other cities (88.8 percent) and rural areas (84.2 percent).

Table 1.2: Enrolment rates for 6-16 year olds (percent) RikhtBank Transnistria Poor Non-poor Total Poor Non-poor Total Major city male 60.9* 91.7 87.5 100.0* 100.0* 100.0* female 73.1* 82.5 81.7 100.0* 100.0* 100.0* all 65.7* 87.1 84.6 100.0* 100.0* 100.0 Other cities male 83.5* 91.8 89.7 72.9* 100.0* 88.1 female 83.6* 100.0 95.7 100.0* 83.6* 90.0* all 83.6 95.7 92.5 81.5* 94.1 88.8 Rural male 89.4 89.3 89.3 86.0* 86.5* 86.3 female 84.2 89.7 87.9 80.5* 83.8* 82.5 all 87.0 89.5 88.7 82.8* 85.1 84.2 Total male 86.3 90.3 89.1 82.3 95.0 90.6 female 83.5 90.4 88.5 89.5 87.0 88.0 all 85.1 90.3 88.8 85.7 91.6 89.4 Source: MoldovaPilot Survey Data, February 1997. Note: Asterisk denotes cell size less than 20; estimates may be unreliable.

1.6. The conclusion from the above is that there appears to be significant regional differences in general enrolment rates. However, these differences are not uniform throughout Moldova (i.e. it is not the case that enrolment rates are relatively low in rural areas in both the Right Bank and Transnistria). Of note is the fact that regional variation enrolment rates do not consistently reflect regional poverty rates, and thus it does not appear that variations in enrolment reflect children needing to work to help support the family. What are other

4 Lindauer, D., "Labor and Poverty in the Republic of Moldova," 1997.

5See the poverty profile for details on how poverty status was determined.

3 TechnicalPaper V potential reasons for differences in regionaalenrolment rates? A candidate may be variations in school quality (the MNCA identified problems with school quality in some regions). It will be important to monitor regional enrolmient and develop national strategies to deal with regional variations in coverage, quality and learning outcomes.

1.7. Of great concern is the marked differences in enrolment rates between the poor and non-poor. In both Transnistria and the Right Bank, the general enrolment rate of non-poor children is around 5 percentage points higher than their poor counterparts. In both the Right Bank and Transnistria, the difference in enrolment rates between poor and non-poor can be traced to the enrolment situation in urban areas (enrolment rates for the non-poor are only slightly higher in rural areas). In Chisinau, enrolment rates of poor children are over 20 percentage points lower than those of non-poor children, and in other cities in the Right Bank this difference is around 12 percentage points. In Transnistria, poor children in other cities have an enrolment rate over 10 percentage points lower than their non-poor counterparts.

1.8. One of the reasons for the difference in general enrolment rates between poor and non-poor children is differential rates of pre-school enrolment. Children aged less than 7 years are eligible for pre-school education; however, the UNDP-sponsored education report found that in the 1996-97 school year, ornly55.8 percent of children aged 5 and 6 years attended pre-school. The report also inclicated that children from poor families were less likely to attend pre-school. In order to dLecreaseexpenses, almost half of the pre-schools in Moldova operate on a seasonal work reg.ime and are thus closed during winter. To the extent that these schools are located in areas wi-thhigher incidence of poverty, such closures would impact on the pre-school enrolment rates of poor and non-poor students.

1.9. While the quality of general education is difficult to measure directly, there are some indirect measures available in the Moldova Pilot Survey Data (MPSD), namely, informnation on class size and the receipt of textbooks by students. In contrast to the findings of the MNCA , data from the MPSD suggest that there does not appear to be a problem with over- full classes in Moldova. In the Right BaLnk,average class size (for general education) ranges from 25.5 students in rural areas to 28.7 students in Chisinau while in Transnistria average class size varies from 19.7 students in ru:ral areas to 24.2 students in Tiraspol. Of note is the fact that average class size does not vary significantly between students from poor and non- poor households. Table 1.3: Percentage of children aged 6-16 years attending school and not receiving textbooks Right Bank Transnistria Poor Non-poor Total Poor Non-poor Total Major city 87.9* 24.8 30.7 0.0* 0.0* 0.0 Other cities 29.1 2.8 8.9 13.4* 5.9 8.8 Rural 2.8 1.2 1.7 14.6* 0.0 5.2 Total 11.7 5.8 7.4 10.9 1.7 4.9 Source:Moldova Pilot Survey Data, February ] 997. Note:Asterisk denotes cell sizeless than 20;estimates may be unreliable.

4 Human Capital and Poverty in the Republic of Moldova

1.10. Table 1.3 presents informationon the percentage of students in general education currently not receiving textbooks; these numbers point to the potential existence of differences in the quality of education received by poor and non-poor students in Moldova. In the Right Bank, the incidence of students not receiving textbooks is approximatelytwice as high for poor students as comparedwith non-poor students (11.7 percent compared with 5.8 percent). This differenceis mainly due to the situation in high schools where 13 percent of poor students do not receive textbooks, comparedwith only 5.9 percent of non-poor students (these numbers are not shown in Table 1.3). In Transnistria,the differencesin quality of education are more marked; 10.9 percent of poor students do not receive textbooks, while only 1.7 percent of non-poor students are in this situation. The above suggest that the poor may be receiving lower quality education. The differencesin receipt of textbooks between poor and non-poor may indicate bias in the incidence of public education expenditure. However, this differencein the receipt of textbooks is more likely to be attributableto differences in private expenditurepatterns between these two groups; non-poor parents are more able to buy textbooks for their children, thus ensuring a higher quality of education.6

1.11. One would expect that emergingdifferences in the quantity and quality of general education of poor and non-poor children could translate into differencesin tertiary entrance rates. Anecdotalevidence from the Qualitative Study on the prevalence of bribery with regards to entry and progression within the higher education system would also point to different tertiary enrolment experiences of the poor and non-poor. Table 1.4 shows that in the Right Bank, poor people aged 17-24 years have an enrolment rate of 14.1 percent which is nearly a third of the enrolment rate of their non-poor counterparts (40.1 percent). In Transnistria,the tertiary enrolment rate for the poor is 35.9 percent while for the non-poor this rate is around twice as high (72.5 percent). While it was found that general enrolment rates did not differ significantlybetween girls and boys, enrolment rates for 17-24 year olds are higher for females compared with males (this is not shown in the Table 1.4).

Table 1.4: Enrolment rates for 17-24 year olds (percent) Ri,ht Bank Transnistria Poor Non-poor Total Poor Non-poor Total Major city 0.0* 72.9 68.2 46.5* 89.1 86.2 Othercities 29.1* 37.2 35.7 28.8* 31.8* 30.9 Rural 12.6 23.1 19.8 33.3* 22.4* 25.1 Total 14.1 40.1 34.1 35.9* 72.5 67.5 Source: Moldova Pilot Survey Data, February 1997. Note: Asterisk denotes cell size less than 20; estimates may be unreliable.

1.12. It would be useful to have informationon extended absence from school; in Azerbaijan,it was found that extended absence varied significantlybetween poverty groups and the main reasons for such absence were high education-associatedcosts and children's health.

6 An issue related to the quality of education is how easy it is for students to reach their schools. Evidence in the Qualitative Study suggested that some students are disadvantagedby having to walk to school during winter and this leads to students missing school.

5 Technical Paper V _

The incidence of public education expenjiditures

1.13. Unfortunately, there is no readily available information on the incidence of public spending on education by education level. If it is the case that per student spending in higher education is greater than that for general education, and that this disparity has increased since independence, then this would have a distributional impact (as the poor and non-poor have different tertiary enrolment rates). Since tertiary institutions are located in city areas, any fall in the real value of student stipends will imake it more difficult for students from other regions to attend university. Hence, there may be a future need to adjust the level of student stipends by the place of origin of the student.

Reforms to the education sector

1.14. The legislative acts of the Republic of Moldova provide for access to education for all citizens, regardless of social and financial status. However, increases in education costs and declining public education expenditures have led to a divergence in both the quantity and quality of education received by poor ancdnon-poor households. Education policy must specifically address this divergence and thus ensure access to quality education for the poor.

1.15. With contractions in the level of public education expenditure expected to continue in the future, there is a need to increase the efficiency with which the funds are used. Given that low pay for teachers (resulting in low teacher morale and bribery) has been identified as a major problem in the Qualitative Study, there may be a need to reduce the number of teachers and improve salaries and the morale of those who remain.7 The poor state of school buildings identified in both the MNCA and the Qualitative Study suggests a need to increase allocations to non-wage expenditures.

1.16. The proposed Moldova Social Investment Fund (MSIF) may be an important way of improving the education sector. One of the main objectives of the MSIF is to rehabilitate community-based, small-scale infrastructure such as schools, community health facilities, and local water and sanitation facilities. The MCNA identified restoration of education facilities as the most realistic kind of project for the MSIEFsince the number of beneficiaries will be considerably large, the cost of the projects are realistic and local labor forces can be involved (thus reducing micro-project expenses and generating employment).

1.17. The results from the MPSD suggest that there may be scope for increased private contributions to education, for example through households paying for the textbooks of their children. The pilot survey results indicate that over 70 percent of Right Bank households questioned would be willing to buy textbooks for their children, if this would improve the quality of education. In Transnistria, over 55 percent of households said they would be willing to buy textbooks. The response to the question of willingness to purchase textbooks did not vary uniformly between poor ancdnon-poor households. However, it would be

7Unfortunately, there is not any readily available information on changes in student-teacher ratios since independence. However,evidence from the Qualitative Study and the UNDP-sponsoredreport on education suggests that teachers are already leaving the professionbecause of low salaries..

6 Human Capital and Poverty in the Republic of Moldova necessary to take into account the ability of different households to contribute to cost recovery. The UNDP-sponsoredreport on education suggests that increases in private contributionsto education have resulted in some poorer families transferring their children to lower quality schools that do not charge such fees. There may also be scope to introducefees for extra-curricularcourses in specialized secondaryand tertiary education. However, it would also be necessaryto develop the appropriate accounting,financial and management informationsystems to oversee community financingof education, and to include fee revenues transparentlyin the budget process.

7

Human Capital and Poverty in the Republic of Moldova

2. HEALTH

2.1 The promotion of good health is an important component of government policy for any country. In the context of a transition economy, where a substantial percentage of the population is experiencing poverty and public resources for health care are increasingly scarce, it is particularly important that government health policy is appropriately designed. Poor health status and poverty are mutually reinforcing; ensuring that the poor and vulnerable have access to good basic health care is thus a key component of poverty alleviation and economic recovery.

Recent trends in health indicators

2.2 The health situation in countries of the FSU once compared favourably with countries of similar levels of development. This was a legacy of the centrally-planned national health service model, the key characteristic of which being universal access to health care. However, with independence and economic transition, the impressive achievements in health status of the countries of the FSU are under pressure.

2.3 There is strong evidence to suggest that there has been a decline in health status in Moldova since independence. The crude death rate (death rate per 1,000 persons) increased markedly from 9.7 in 1990 to 11.5 in 1996 (this was less than the peak of 12.2 in 1995); the Central Asian States in 1994 had a crude death rate of less than 10. The infant mortality rate increased from 19.0 per 1,000 live births in 1990 to 20.2 in 1996 (this compares with the decline in infant mortality over the period 1989-94 in all the Central Asian states except Kazakhstan and Tajikistan, where the rate rose by less than 6 percent). The crude birth rate in Moldova declined from 17.7 per 1,000 persons in 1990 to 12 per 1000 persons in 1996. Life expectancy at birth has also fallen from 67.7 years in 1991 to 65.8 years in 1995 (life expectancy for men has fallen from 64.3 to 61.8 years, while for women the fall has been from 71 to 69.7 years).

2.4 The epidemiological situation in Moldova is also a cause of concern. International historical experience suggests that changes in the patterns of disease proceed in two stages.8 The first stage is the demographic transition, when mortality from infectious disease declines, while the second stage is the epidemiological transition, when the population becomes older and non- infectious diseases become the main causes of ill-health. In Central Asia, the pre- epidemiological transition disorders, such as infectious diseases and high infant mortality, have been found to coexist with certain post-epidemiological transition characteristics such as high

See The World Bank, World DevelopmentReport: Investing in Health, Washington, D.C., 1993, Chapter 1.

9 Technical Paper V risk behaviour (unhealthy diet, smoking and alcohol abuse) and associated health problems such as ischemic heart disease, emphysema and motor traffic accidents.9

2.5 It appears that Moldova has a similar epidemiological situation. As mentioned above, infant mortality is high and rising. The incidence of tuberculosis rose from 43.8 cases per 100,000 persons in 1991 to 58.7 in 1996.. The incidence of hepatitis approximately doubled between 1993 and 1995. However, post-epidemiological transition diseases such as circulatory diseases and malignant neoplasms together were the most important cause of death in Moldova in 1995.10 Deaths from car accidents increased from 13.3 per 100,000 persons in 1992 to 18.8 in 1995. A major problem for Moldova is the unprecedented increase in the incidence of syphilis from 20.4 cases per 100,000 persons in 1991 to 200.7 in 1996.

2.6 While there is no information in the MPSD on health status of individuals, a recent UNICEF report on the dietary and nutritional situation of Moldovan children and their mothers" does have some information on health status. The report did not find any regional differences in weight-for-age and weight-for-height of children; however, there were significant differences by household income group. Weight and height at birth were not found to differ significantly by region, type of settlement or education of the mother. However the incidence of low birth weight did vary by household income group (6.4 percent of children from the poorest families had low birth weight, compared with 2.1 percent of children from the richest families).

2.7 The UNICEF survey indicates that more than 25 percent of children aged less than 5 years are anemic. There is also a high incidence of anemia in mothers (19.7 percent), although moderate/serious cases are not frequent. The prevalence of anemia was found to be significantly less for women in families with income greater than 100 Leis/month. The incidence of anemia was higher for both children and mothers in Transnistria, while the incidence was lower in the south. According to the UNICEF report, iodine deficiency is also a serious problem in Moldova.12 Palpable goiter was present in 29.3 percent of the children surveyed and visible goiter was present in 7.4 percent of children. The incidence of goiter was less in the south relative to other parts of Moldova. The report also found the incidence of rickets to be of concern; this incidence was significantly higher in those children whose diet depended on cows' milk rather than artificial milk (the latter generally being enriched in vitamin D).

9 For details, see J. Klugman and G. Schieber,A Survey of Health Reform in Central Asia, World Bank Technical Paper no. 344, Washington, D.C., 1996. 10The incidence of malignant tumors is particularlyhigh in the northern region of Moldova; a major contributor to the rise in oncological diseases in Moldova was the Chemobyl catastrophe in 1986. "' Chauliac, M., "The Dietary and Nutritional Situation of Moldovan Mothers and Children," UNICEF consultant's report, , 1996. This report presents results from three different surveys: a survey measuringthe general health status of 792 children aged less than 5 years and their mothers; a survey of 3,313 children aged 8-10 years focusing on the presence of iodine deficiencyand goiter; and a survey of 200 children aged less than 24 months focusing on the presence of rickets. The study presents results by region (north, center, south and Transnistria) and type of settlement (rural or urban). The findings in the report are also based on observationsof the functioning of the health system, and discussionswith health representatives in Moldova.

12 The UNICEF report suggest that the lack of iodine in the Moldovan diet is apparently due to the fact that the majority of edible salt comes from Ukraine, where there is no systematic iodization of salt.

10 Human Capital and Poverty in the Republic of Moldova

2.8 What factors account for this apparent decline in health status in Moldova? An obvious factor is the decline in public health spending. Table 2.1 indicates that public health expenditure as a share of GDP has been constant at around 5 percent of GDP over the period 1991 to 1996. However, with a shrinking GDP base, the real level of public health resources may have still contracted over this period. A recent studyof the healthcareindustry in Moldova13 confirms this, indicating that the real level of public health expendituresin 1996 was 50 percent of the 1990 level.

Table 2.1: Public health expenditures(percentage of GDP) 1991 1992 1993 1994 1995 1996 Right Bank and 5.3 3.6 4.8 5.1 4.9 5.2 Transnistria RightBank only na na na 6.2 5.9 6.4 Note: see note to table 1.1

2.9 It is to be expected that the decline in public health expenditure has been partly offset by increasingprivate expenditures. Unfortunately,there are no data available to indicate the extent to which private expendituresin Moldova have risen in response to the fall in public expenditures. Survey data from the Kyrgyz Republic and Kazakhstan indicate that out-of-pocket payments by households for pharmaceuticalsand for many in-patient services have increased significantly. Evidence from the Qualitative Study suggests that this has also happened in Moldova.

2.10 The rise in the incidence of poverty is likely to have led to a fall in nutritional standards as households reduce expenditureson food (the decline in nutrition would be most marked for the urban poor who do not have access to private plots). The UNICEF survey on mothers and children indicated significant differencesin the frequency of meat or fish consumptionby family income group. Children under 6 months consumedmeat or fish more frequentlyin the south and in Transnistria comparedwith the north and central regions. While mothers seemed to be aware of the dietary importance of meat and fish, they found it difficult to purchase these foods regularly. An absence of dietary data for earlier time periods meant that quantitative analysis of dietary evolution could not be made; however,the report concluded that the diets of many families appear to be worsening.

2.11 The rise in the cost of health care in recent years would also lead to a decline in the use of health services by all individuals (especiallythe poor). What has caused this rise in the cost of health care? Results from the QualitativeStudy suggest that salaries in the health sector are very low, with doctors receiving only 130-220 lei per month (in contrast, the average monthlywage reported by the State Department of Statistics' monthly survey of enterprises employing20 or more workers was 190 lei in January 1997). Low wages in the health sector would be expected to lead to an informal policy of charging excessive amounts for health services.

13D. V. Tintiuk, "Accessibilityof Healthcare for the Poor," UNDP-sponsoredreport, 1997.

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2.12 Evidence from the MNCA also points to a worsening health situation in Moldova due to environmental risk factors. There was aLproblem with a lack of potable water in all six districts surveyed in the assessment. The water purifying systems were found to be in poor condition, with the local authorities (who have officially been given responsibility for the systems) often lacking the finances or technical knowledge for such maintenance. The assessment pointed to a high rate of disease experienced by those communities lacking potable water. The MNCA also identified that hospitals, clinics and othe:r curative units are in disrepair and/or lack basic heating and water systems.

Recent developments in the health system

2.13 Despite the fall in real government expenditure on health, there is not strong evidence to suggest that the supply of medical services has changed significantly since 1990. The number of doctors (including dentists and interns) per 1,000 persons has remained constant over the period 1990 to 1996 at around 4. This is higher than the 1994 average of 3.3 doctors per 1,000 persons found for the Central Asia countries and Azerbaijan. It is also higher than the OECD average of 2.5. Over the period 1990 to 1996, the number of middle-level medical personnel (e.g. nurses and midwives) per 1,000 persons declined from 11.9 to 10.0.

2.14 Over the period 1990 to 1995, the stock of hospitals remained roughly constant at approximately 7 hospitals per 100,000 persons. The number of inpatient beds did decline slightly over this period from 12.6 to 11.6 per 1,000 persons. However, the rate for 1995 is higher than the average found in 1994 for Azerbaijan and the Central Asian countries of 10.2 beds per 1,000 persons, and is higher than the OECD average of 8.4.

2.15 The above suggests that there has not been a large reduction in the supply of medical services in Moldova since independence. This, combined with the fact that there has most probably been a recent decline in demand for health services, suggests low capacity utilization of the existing health facilities and medical personnel. Unfortunately, there is not a great deal of information on health care utilization available for Moldova. An indication of excess capacity in hospitals is the fact that in 1996 the average length of stay in Moldova was 18.1 days; this compares with the 1994 average for the (C-entralAsian states and Azerbaijan of 15.7 days and an OECD average of 14.4 days.

Table 2.2: Private health care expenditures (percent) Rgit Bank Transnistria Poor Non- Total Poor Non- Total poor poor Asashareoftotal 1.1 3.1 2.7 0.8 2.6 2.2 household expenditures As a share of total 7.5 8.1 8.0 4.2 8.1 7.5 non-food expenditures As a share of 12.0 100.0 83.4 14.5 100.0 84.5 expenditure of the "non-poor" Source: MoldovaPilot Survey Data, February 1997.

12 Human Capital and Poverty in the Republic of Moldova

Private expenditures on health care

2.16 As mentioned above, the decline in government expenditures on health has most probably been offset by rising private expenditures. Table 2.2 presents information from the MPSD showing how health expenditures vary between households of differing poverty status. In the Right Bank, the average level of health expenditures for poor households is only 12 percent of that spent by non-poor households, while in Transnistria the corresponding percentage is 14.5 percent. In both the Right Bank and Transnistria, the share of total expenditure of poor households devoted to health care is around a third of that of non-poor households (with regards to the share of non-food expenditures, there is only a marked difference between poor and non- poor households in Transnistria). The above is strong evidence that in Moldova, the poor have found it necessary to economize on the purchase of health services (this supports the findings of the Qualitative Study).

Utilisationof health services by the poor and non-poor

2.17 As a result of increases in out-of-pocket costs and declining availability and quality of health services, it is to be expected that utilisation of health services has decreased for all income groups. The poor and other vulnerable groups are likely to have suffered the most in telms of access to health care and this would have impacted on their health status. The information presented in Table 2.3 below suggests that in Moldova, the poor are not disadvantaged with regards to location of health services; health facilities do not appear to be located further from poor households than non-poor.

Table 2.3: Health services -- access and utilization RiRht Bank Transnistria Poor Non- Total Poor Non- Total poor poor Distance toprimary 1.6 1.5 1.5 2.1 2.6 2.5 health care center (km) Distance to hospital 3.7 4.8 4.6 3.9 4.9 4.7 (kin) Number of times 1.0 1.6 1.5 1.2 1.2 1.2 primary health care center visited last month Number of times 0.7 0.7 0.7 0.4 0.3 0.3 hospital visited last month Source: Moldova Pilot Survey Data, February 1997.

2.18 However, a health service may still be inaccessible because of cost even if it is easy for the poor to reach it. The Qualitative Study presented evidence suggesting that many poor individuals had stopped consulting doctors, except in cases of acute or life-threatening illness. However, the data from the MPSD do not conclusively show that non-poor households use health services more than their poor counterparts. While the non-poor in the Right Bank visited

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primary health care centres an average cf 1.6 times in the last month, compared with an average of 1 visit for poor households, usage of primary health care centres was the same for the poor and the non-poor in Transnistria.14 Further, usage rates for hospitals were almost identical between poor and non-poor households.

Reforms to the health sector

2.19 Improvements in health status in Moldova will depend on a number of factors. Income growth and its distribution will probably be the key influences on health status in the long-run. Increased incomes will allow households to purchase better living and housing conditions and more health care. Economic growth will increase government revenue, thus expanding the opportunity for public provision of preventative and curative health services and the construction and maintenance of potable water and sanitation systems. There is a strong link between parental education and child health status; government policy should therefore aim to maintain education achievements, especially of women. Health programs such as cost-effective interventions, health promotion and improvements in water and sanitation will play a critical role in improving the health of the population of Moldova.

2.20 The goals of health sector reform are to improve the health status of the population, assure equity and access, improve efficiency, improve clinical effectiveness, and assure quality and consumer satisfaction. A key aim of reform in the health sector will be to make effective the principal of universal access to basic health care. Since poor individuals are less able to afford private medical care, improvements in the general system of medical care will tend to benefit the poor more than proportionally.

2.21 There is still probably too much emphasis in government policies on tertiary over primary health care. However, there are indications that primary health care has become more important in recent years in Moldova; the percentage of health expenditures devoted to hospital-based health care has decreased each year since 1993. Similarly, over the period 1993 to 1996, the percentage of public health expenditures used for 'public health activities' increased from 11 to 20 percent. Focus on primary care can be implemented through down-sizing and consolidation of hospitals and greater reliance on polyclinics providing out-patient care. In Azerbaijan, the MOH and UNICEF have undertaken a pi]ot district health reform program in the Kuba raion which includes a reduction in the numbe:r of hospital beds and a reorganization of primary care around community health centres.

2.22 In addition to structural change in the health sector, improved access to medical care by the poor can be gained through additional financial resources being used to raise salaries of health workers. There will also probably need to be a reduction in the number of doctors and a concurrent increase in the number of midldle-level medical personnel (e.g. nursing staff). An increase in salaries for medical personnel will help to reduce the informal charges that are being levied for health care and also improve quality. The survey results indicate a level of private spending sufficient to develop a co-paym,ent system aimed at those able to pay. One reform

14 However, one would need to have usage rates which are adjusted for the incidence of sickness to conclusivelyshow whether non-poor households use health services more than their poor counterparts.

14 Human Capital and Poverty in the Republic of Moldova would therefore be to legitimize out-of-pocketpayments for some services; this would create additional financial resources that can be used to improve access by those who are not able to pay.

2.23 Improvementsin primary health care may also be gained via health-related micro-projects funded by the proposed MSIF. The MNCA identified the installation and maintenanceof potable water aqueducts as viable micro-projectsthat would greatly improve the health situation in Moldova. Such projects could be carried out in conjunction with installation and maintenanceof technical water aqueducts which are designedto provide water for irrigation and industrialneeds (reparation of technical water aqueducts would avoid the use of more expensive potable water for agriculturalor industrial purposes). The MNCA also identified the maintenance of health care structures such as hospitals and clinics as viable micro-projectsthat could be funded by the MSIF.

2.24 The exact elements of the basic package of health services will most likely be determined by fiscal conditions, but this package should also reflect analysis of the burden of disease or mortality and an assessment of the most cost-effectiveinterventions. Such analysis conducted for other transition countries recently has concluded that emphasis should be placed on preventive care and health and safety promotion. Such recommended measures include'5 : (a) nutritional food fortification and fluoridation of communitywater supplies; (b) accident prevention (includinglegislation, education and enforcement of seat belt usage, road speed and use of helmets by motorcycle and bicycle riders); (c) anti-smokinglegislation including taxation of cigarettes, limits on advertising,health hazard warnings, and limitations on smokingin public places; (d) health education in schools; and (e) discouragementof alcohol abuse through taxation and enforcement of legislation on drunk driving. Revenue raised through taxation of cigarettes and alcohol could be used to finance improvementsin health education and health services.

2.25 The UNICEF report on the dietary and nutritionalsituation of Moldovan children and their mothers made the followingrecommendations/goals aimed at improving nutrition in Moldova: eliminate rickets through providing systematic vitamin D supplements to children from birth to 4 years of age; eliminate iodine deficiency by regulatingthe salt trade; reduce the prevalence of anemia by the provision of iron supplementsto pregnant women and children under 3 years; promote the exclusive and more prolonged use of breastfeeding, a corollaryof this being a reduction in the early introductionof cow's milk to the child's diet; create a commission charged with the direction and coordinationof diverse programs aimed at improvingmothers' and children's diet and nutrition; establish a working party to propose an efficient system of ensuring dietary and nutritional supervisionof the population,and particularly of mothers and children; conduct a detailed study of the nutritional and dietary structure in Moldova, and of the socio-familialand economic factors which influence a child's dietary situation; reinforce the awareness and training of health professionalsin the nutrition field, with an emphasis on public health; reinforce national capacities in public health nutrition and clinical nutrition, particularlyat a high level; encourageinternational exchanges.

15 The followingis taken from the World Bank Poverty Assessmentfor Azerbaijan.

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2.26 Improvements in the allocation of health resources may be gained by the decentralization of management and financing of health care to the local level. The most important advantage of decentralizationin the health sector is that local providers will be more responsive to the needs of the local community. However, an associatedrisk with decentralizationis that local financial responsibilityfor the provision of health seirvicescould imply unacceptable disparities in the level of service provision within the country. To the extent that there are regional disparitiesin health and income, there may be a role for redistributivetransfers across regions.

2.27 A move toward decentralizationwould necessitate a movement away from budgeting based on input norms (e.g. per bed) to capitation-basedbudgeting (this has already been achieved in the Kyrgyz Republic and in Azerbaijan,the governmenthas agreed to move this way). In such a system,partial funding on a per capita basis would come from the central government (with per capita amounts based on national average expenditureson health, adjusted for regional health conditions). Additional finance would come from local sources, probably using both local health insurance and fees for medical services (that are provided in addition to the universal health care package).

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