Belarus Moldova

COUNTRY REPORT

4th quarter 1997

The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group.

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Contents

3 Summary

Belarus 5 Political structure 6 Economic structure 7 Outlook for 1998-99 10 Review 10 The political scene 15 Economic policy 16 The economy 19 Foreign trade and payments 20 Business news

Moldova 21 Political structure 22 Economic structure 23 Outlook for 1998-99 26 Review 26 The political scene 28 Economic policy 30 The economy 32 Foreign trade and payments 34 Business news

35 Quarterly indicators and trade data

List of tables 10 Belarus: forecast summary 15 Belarus: state budget 17 Belarus: financial performance of state-owned enterprises 18 Belarus: consumer prices 26 Moldova: forecast summary 29 Moldova: government budget 30 Moldova: agricultural output 31 Moldova: consumer prices 33 Moldova: balance of payments, 1997 35 Belarus: quarterly indicators of economic activity 36 Moldova: quarterly indicators of economic activity 37 Belarus: OECD trade 38 Moldova: foreign trade 39 Former Soviet republics: currency status 40 Former Soviet republics: exchange rates

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41 Former Soviet republics: GDP and GDP per head

List of figures 10 Belarus: gross domestic product 18 Belarus: consumer prices 18 Belarus: exchange rate 26 Moldova: gross domestic product 31 Moldova: consumer prices 32 Moldova: stock exchange trade

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November 21st 1997 Summary

4th quarter 1997

Belarus Outlook for 1998-99: An anti-terrorist edict issued by the president in response to the assassination of a close friend in Mogilev, poses further threats to the country’s democracy and civil liberties. Opposition to the president has grown to some extent, but mass support will be difficult to mobilise because of the stranglehold that Mr Lukashenka exerts over the media. The proposed Union Treaty with Russia will stall as a result of a waning Russian enthusiasm. More soft credits will be issued to keep the economy growing. Inflation will accelerate as a result.

The political scene: Pavel Sheremet, a journalist working for the Russian TV station, ORT, was released in from prison in October following pressure from the Russian president, Boris Yeltsin. The assassination of Yevhenii Mikolutsky, the chairman of a local administrative structure in Mogilev and a personal friend of Mr Lukashenka, has prompted a new anti-terrorist edict and a clampdown on law and order. A number of prominent figures have been implicated by the government in an alleged corruption scandal involving a privatised agricultural company, Rasvyet, including the agriculture minister who has been dismissed from his post. Mr Lukashenka has backed a restrictive media law, despite opposition from the upper house of parliament. Opposition politicians, along with Mr Sheremet, have formed a new organisation modelled on a 1970s dissident movement in the former Czechoslovakia.

Economic policy: The draft budget for 1998 has been formulated. The World Bank has delayed the implementation of an earlier agreement, and IMF credits remain suspended. The government has completed the distribution of privatisation vouchers, but there has been relatively little actual privatisation. Admin- istrative price rises have had little effect in curbing inflation.

The economy: GDP continues to grow well, driven by a spectacular revival in industrial production, fuelled by cheap credits. Inflation continues to escalate, further weakening the currency. Wages are barely keeping pace with inflation, and unemployment remains low.

Foreign trade and payments: The trade deficit exceeded $1bn in July, although this appears to have been offset on the current account by an increased surplus on the services balance, which includes barter trade. The government claims that foreign investment is rising.

Business news: Mr Lukashenka has confirmed that tax exemptions for Ford Motor Company of the US would only apply for five years. Free economic zones in Minsk and Gomel have been approved.

Moldova Outlook for 1998-99: The legislative election in February 1998 will once again produce a divided parliament. The pro-presidential Bloc for a Democratic and Prosperous Moldova should pick up support at the expense of the hard left and the divided centre-right. In the meantime, parliament will opt for populist economic policies. Relations with Russia will continue to improve, but this will

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have little impact on the Transdniestr conflict, which remains at an impasse. With the budget deficit set to reach 7.5% of GDP, and the economic position still gloomy, Moldova will face problems with its future plans for accessing the Euromarkets, and there may be some pressure on the currency. Inflation will remain low and tentative economic growth will emerge in 1998.

The political scene: Moldova’s political parties are consolidating into four major blocs for the 1998 elections. At the CIS summit in Chisinau Mr Yeltsin admitted Russian responsibility for the continuing crisis in Transdniestr. The breakaway region’s application to join the CIS, however, has been ignored, and there has been no progress towards a political resolution of the conflict. The sale by Moldova of 21 Russian MiGs to the US has caused uproar in the Mol- dovan parliament. Moldova and Ukraine are close to agreeing on the demarca- tion of their common border.

Economic policy: Parliament has rejected the first draft of the 1998 budget as containing overoptimistic growth projections, and the 1997 budget deficit is growing. Parliament has also suspended administrative energy price rises and has removed penalties for non-payment of tax by companies. The IMF has suspended further credits, and the World Bank has also expressed concern about the deteriorating economic situation. Moldova is likely to have its international credit rating downgraded.

The economy: The harvest, although poor, is an improvement on 1996. Industrial production has started to rise. Inflation continues to fall. Unemploy- ment has risen marginally.

Foreign trade and payments: The trade deficit exceeds $200m, but the current account deficit narrowed in the second quarter of 1997.

Business news: The national telecoms monopoly, Moldtelecom, is expected to be sold shortly.

Editor: Kitty Ussher All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

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Belarus

Political structure

Official name Republic of Belarus

Legal system The constitution adopted in March 1994 was amended by referendum in November 1996 to increase presidential powers and form a bicameral parliament

National legislature Bicameral parliament (National Assembly): upper house, Council of the Republic, with 64 members; lower chamber, the House of Representatives, with 110 members

National elections June 23rd and July 10th 1994 (presidential); May 14th and 28th, November 29th and December 10th 1995 (legislative); next presidential election due by 2002; the date of the next legislative elections to be decided by the president

Head of state President, Alyaksandar Lukashenka, elected with 80% of the popular vote on July 10th 1994

National government The president appoints the Council of Ministers and has strong executive powers

Main political parties The registered parties are: Communist Party of Belarus (CPB) and its ally, the Agrarian Party; parties of left-wing/centrist orientation include the Party of People’s Accord and the Party of All-Belarusian Unity and Accord; parties of pro-reform orientation include the United Civic Party and the Belarusian Social Democratic Union (Gramada); the opposition Popular Front of Belarus (PFB)

Council of Ministers Prime minister Sergei Ling First deputy prime minister Pyotr Prakapovich Deputy prime ministers Vladimir Garkun Vasily Dolgolyov Valery Kokarev Vladimir Zamyatalin

Key ministers Agriculture to be appointed CIS affairs Ivan Bambiza Communications Vladimir Goncharenko Defence Alyaksandar Chumakov Economy Vladimir Shymev Education Vasily Strazhev Enterprise & investment Alyaksandar Sazonev Finance Mikolai Korbut Foreign affairs Ivan Antonovich Fuel & energy Valentin Gerasimev Internal affairs Valentin Agolets Labour Ivan Lyakh Property & privatisation Vasily Novak Social security Olga Dargel

Central bank governor Gennady Aleinikov

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Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996 GDP at market prices BRb bn 914 9,776 17,661 118,522 179,820 GDP at exchange rate $ bn 6.01 3.09 3.80 10.29 13.45 GDP at purchasing power paritya $ bn 47.7 43.8 39.2 36.1 37.7 Real GDP growth % –9.6 –10.6 –12.6 –10.1 2.6 Consumer price inflation (av) % 971 1,190 2,221 709 53 Population (mid-year) m 10.27 10.31 10.36 10.31 10.28 Exports $ m 3,580 1,864 2,510 4,695 5,404 Imports $ m 3,537 2,428 3,066 5,393 6,739 Current-account balance $ m 131 –404 –506 –307 –909 State budget balance % of GDP –2.6 –5.6 –3.5 –2.8 –2.0 Reserves excl gold $ m n/a n/a 101.0 377.0 469.2 Foreign debt $ m 189 969 1,272 1,648 2,000b Exchange rate (annual average) BRb:$ 152 3,160 4,652 11,513 13,368 Exchange rate (annual average) BRb:Rb 0.69 3.39 2.12 2.53 2.61

November 18th 1997 BRb29,910:$1 (Minsk Interbank Currency Exchange); BRb40,000:$1 (Moscow banks).

Origin of gross domestic product 1995c % of total Components of gross domestic product 1995c % of total Agriculture & forestry 21.6 Private consumption 57.7 Industry 43.2 Public consumption 21.9 Construction 5.1 Net fixed investment 25.2 Gas, electricity & water supply 2.7 Increase in stocks 0.0 Services 32.4 Net exports –4.8 Total 100.0 GDP 100.0

Principal exports 1995c % of total Principal imports 1995c % of total Transport equipment & instruments 15.9 Minerals 35.6 Chemicals 13.8 Machinery & equipment 11.1 Machinery & equipment 13.4 Chemicals 9.9 Textiles 13.3 Base metals 9.4 Base metals 6.3 Food 5.5

Main destinations of exports 1996 % of total Main origins of imports 1996 % of total CIS 60.4 CIS 66.0 of which: of which: Russia 41.6 Russia 50.5 Ukraine 14.9 Ukraine 13.2 Non-CIS 39.6 Non-CIS 34.0 of which: of which: Germany 4.1 Germany 8.5 Poland 3.1 Lithuania 3.9 Latvia 1.3 Poland 3.7 a EIU estimates. b Official estimate. c Most recent figures available.

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Outlook for 1998-99

The president will focus A new anti-terrorist edict issued by the president, Alyaksandar Lukashenka, in on the stifling of dissent— October heralds a further deterioration in human rights and the erosion of civil liberties in Belarus. Ostensibly drafted in response to the assassination of a parliamentary deputy and close friend of Mr Lukashenka, Yevhenii Mikolutsky, the edict will tighten up the penalties faced under criminal law for those found to have terrorist connections, as well as other activities including corruption and drug-trafficking. The all-embracing nature of the edict is likely to perpetuate a climate of fear in Belarus. In particular, penalties have been stiffened for individ- uals found guilty of corruption, Mr Lukashenka’s favoured charge against those seen as threatening to his position. This development is particularly worrying for the National Bank of Belarus (the central bank), which is regularly investig- ated on corruption charges. Indeed, a former governor of the central bank, Tamara Vinnikova, who was arrested in January 1997, may face charges under the new law.

—and will continue to One interpretation of the new anti-terrorist edict is that the president is seek the support of the strengthening the power of the security services in anticipation of future Communists opposition. The nationalist opposition in the form of the Popular Front of Belarus (PFB) has never succeeded in posing much of a threat to the president. A more serious source of political opposition could come from the Communist Party of Belarus (CPB), which has the best grass-roots structures and contains a significant faction that opposes Mr Lukashenka’s position as president for the simple reason that it would have preferred the country not to have become independent. Although the Communists are split in this regard, and therefore unlikely to mount an imminent challenge to the president’s position, Mr Lukashenka will continue to court them by, for example, increasing his public sanction of Soviet-era symbols such as portraits of Stalin.

Sporadic dissent will While fear of arrest has silenced many potential critics, many other officials nevertheless appear— remember with concern the arbitrary way in which similar laws operated in Soviet times. For example, the dismissal of the head of an agricultural business, Vasily Starovoitov, in October on corruption charges united heads of other collective farms in protest. More worrying for Mr Lukashenka are possible dis- plays of defiance from the upper house of the National Assembly. Its almost unanimous vote against the new, draconian media law in late October, in contrast to supine approval by the lower house, was the first serious display of parliamentary dissent since the new legislature was set up by the president in November 1996. It was particularly surprising given that all deputies to the upper house had their initial nomination approved by the president personally.

—but mass opposition will For the time being opposition is likely to be confined to the educated middle be difficult to mobilise classes and professionals, and to the independent trade unions, but not to the public as a whole. Although there is some evidence that the president’s popularity has slipped recently, he still commands the support of around half of the electorate, with no other politician coming close. The EIU expects that Mr Lukashenka’s popularity will hold up, given his effective control of practi- cally all media outlets.

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The proposed Union Relations between Belarus and Russia were damaged severely by the Belarusian Treaty with Russia will authorities’ arrest in July of a Belarusian national, Pavel Sheremet, who worked stall as the head of the Minsk bureau of the Russian television station, ORT. Al- though Mr Sheremet was released from prison in October, this was only achieved after pressure was brought to bear on Mr Lukashenka by the Russian president, Boris Yeltsin, following an intensive campaign in the Russian media. The affair has dented support for the union among the Russian population, who had their eyes opened to the potential for human rights abuses in Belarus. Increasingly, commentary in Moscow has also focused on concern that Be- larus’s supposed economic miracle has been funded by the Russian taxpayer.

Mr Lukashenka was initially elected president on a platform of closer economic ties with Russia. In addition, he is acutely aware that the Belarusian economy is increasingly dependent on ever closer economic union with Russia. Facing the prospect that the union proposal may founder, however, it is likely that his official statements will increasingly propound both sides of the argument in order to prevent loss of face. On the one hand, therefore, Mr Lukashenka will seek to show how progress towards union is being made, while on the other hand, it will be emphasised that Belarus is quite capable of existing as an independent state. In this way, he will cover himself in the event of relations with Russia souring further.

A restrictive media law The president’s backing of the new media law ensures that it will be passed, will be passed despite its near-unanimous rejection by the upper house of the National Assembly (parliament). The president will ignore the vote of the upper house on the basis that the lower house, which did support the law, is the core of the legislature. The new law will not only make independent information even more difficult to disseminate in Belarus but will also reduce the news coverage of Belarus by foreign media. It will also provide a vehicle for further conflict between the government and Russian television stations, whose broadcasts are significantly more popular in Belarus than those originating from the one Belarusian television station. The Belarusian authorities will attempt to use the legislation to censor the content of Russian broadcasts, on top of their existing attempts to price the stations out of the country by raising transmission fees. In doing so, Mr Lukashenka will sour relations with Moscow further, given the strong financial hold that Russian media barons are able to exert on Mr Yeltsin.

The economy will The economic revival is expected to continue in Belarus on the back of an continue to grow increased use of soft credits to priority sectors and the central imposition of production targets. Belarusian industry will continue to produce goods to be used in barter trade for imports of gas and other raw materials. A presidential decree on the economic targets for 1998 demands that GDP grow by 8%, industrial production by 9% and agricultural output by 4%. Although we expect positive economic growth to continue in 1998, we do not expect the government’s targets to be obtained given the highly inflationary environment in which economic activity will be conducted. We expect Belarus’s GDP to grow by about 5% in 1998, slightly down on the estimated 7% growth in 1997, with Russia’s economic revival providing an important stimulus. Growth will be driven primarily by an unsustainable increase in industrial production, but agricultural output is also set to grow. By 1999 centrally imposed production

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targets will intensify shortages and put a brake on faster growth. Bringing down inflation will need to be taken more seriously, which will also dampen activity.

Inflation will continue to We forecast that year-end inflation in 1997 will reach 83%, giving an annual rise— average rate of inflation of 66%. The Belarusian authorities have increasingly resorted to imposing largely ineffectual administrative controls on prices. Underlying inflation is being driven by rapid money supply growth as cheap credits are supplied to selected sectors of the economy. The central bank has little political clout with which to override government policy. We thus expect annual average inflation to reach about 130% in 1998. Assuming that the government will at some point realise that it cannot control inflation by price controls, we expect that inflation will not rise significantly beyond this level, with the annual average rate of inflation falling to around 100% in 1999.

—undermining budgetary The 1998 budget is based not only on the premise of optimistic growth figures targets— but also on a month-on-month rate of inflation of 2%. We expect the monthly rate of inflation to be nearer 8% with the result that the government will be unable to meet its budgetary targets. Taxation revenue will be relatively easy to collect as a result of the heavy penalties imposed on non-payment by the government. Expenditure will rise more rapidly than revenue, however, as a result of higher than anticipated inflation. Financing the deficit will not prove easy. The government is anticipating a four-fold increase in the issuance of government securities to help finance the deficit. This will prove extremely expensive in an inflationary environment, given the high yields that will be required to attract investors.

—and exacerbating the Despite claims by the government that real wages have risen by about 9% in price-wage spiral 1997, they appear to have barely kept pace with inflation. In addition, some workers and pensioners have not received payment at all, as state-owned firms have accumulated arrears. With the president’s hold on power dependent on the retention of his popularity, however, we assume that wages and pensions will be raised regularly to offset the increases in prices throughout the forecast period. The same desire to prevent social unrest will prevent a shake-out of the workforce and keep unemployment levels relatively low, at around 3% of the eligible workforce.

The trade deficit will Belarus’s recorded trade deficit will continue to grow, and could reach nearly continue to widen $2bn by the end of the year. However, these figures exclude the increasing amount of trade conducted on the basis of barter. Indeed barter trade with Russia is the primary means that Belarus has at its disposal for the payment of crucial energy imports. Neither import nor export barter transactions are accounted for by the Belarusian authorities in the trade balance, which records only monetary transactions, appearing instead on the services balance of the current account. Belarus has a surplus in barter trade, with the result that movements on the services balance are counterbalancing the widening deficit on the trade balance. We do not expect the current account to widen dramati- cally in the short term. The situation can, however, only continue for as long as Belarus’s trade partners, particularly Russia, are willing to conduct barter

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Belarus: gross domestic product trade, and for as long as the current boom in industrial production can produce % change, year on year enough goods to sustain it. Belarus Eastern Europe excl Russia Belarus: forecast summary 8 6 (% change year on year unless otherwise indicated) a b c c 4 1996 1997 1998 1999 2 Real GDP 2.6 7.0 5.0 3.0 0 Industrial production 3.2 10.0 6.0 4.0 -2 Agricultural production 1.0 6.0 4.0 2.0 -4 -6 Consumer prices -8 Annual average 53 66 130 100 -10 Year-end 39 83 155 60 -12 Exports ($ m) 5,404 5,600 6,000 6,500 1995 96 97(a) 98(b) 99(b) (a) EIU estimates. (b) EIU forecasts. Imports ($ m) 6,739 7,500 8,500 9,500 Sources: EIU; Belarus Economic Trends. Current account ($ m) –909 –1,145 –1,500 –1,800

a Actual. b EIU estimates. c EIU forecasts.

Review

The political scene

An imprisoned Russian TV After intense Russian pressure the Belarus authorities on October 8th released journalist is released— the journalist Pavel Sheremet, arrested in July for allegedly filming on the Belarusian-Lithuanian border without permission (3rd quarter 1997, page 10). Mr Sheremet is a Belarusian national and head of the Minsk bureau of the Russian state-owned television station, ORT. The president, Alyaksandar Lukashenka, personally asked the prosecutor-general to release Mr Sheremet. However, Mr Sheremet still faces trial and has had to give a written under- taking that he will not attempt to leave the country. In addition to the border violation, Mr Sheremet has also been charged with conspiracy and abuse of office. One of Mr Sheremet’s lawyers has had his licence removed and another has been suspended from office. It is likely that when the case comes to trial, Mr Sherement may be defended by a Russian lawyer, which will ensure that the case continues to generate publicity in Moscow.

According to Mr Lukashenka, the factors instrumental in the journalist’s release were personal pleas from the patriarch of the Russian Orthodox Church, Alexei II, and from the head of ORT, Boris Berezovsky, who was at the same time head of Russia’s Security Council. A rather more likely reason for Mr Lukashenka’s change of heart is the intense annoyance expressed by the Russian president, Boris Yeltsin, at the arrest, and the fact that the case seriously threatened to undermine the Belarus-Russia union charter. Mr Sheremet himself announced that he believed his release was due to Mr Yeltsin’s personal intervention.

—but not before The arrest of Mr Sheremet and of a number of other journalists working for Mr Lukashenka is Russian companies in July and August, generated significant negative publicity humiliated by Russia for Mr Lukashenka in Russia. Whereas earlier negative events in Belarus—such as the president’s abuse of the spirit of the Belarus constitution during the

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November 1996 referendum, the legion of human rights violations and harassment of Russian-born correspondents—had not received much attention in Russia, the media’s portrayal of the arrests of ORT journalists resulted in a noticeable dent in Russian support for the proposed union with Belarus. The most humiliating result of the affair for Mr Lukashenka was that he was forced to cancel a trip to the Russian provinces of Yaroslav and Lipetsk after the Russian presidential administration ordered the regional airport authorities to refuse landing permission for his plane.

Mr Lukashenka claimed that the Russian president was overreacting as a result of pressure from Kremlin liberals and financial-industrial groups hostile to the Russia-Belarus Union Treaty. There was a certain theatricality about the inten- sity of Mr Yeltsin’s response, suggesting that he may have been embarrassed about having become too closely involved, through the Union Treaty, with a leader who was increasingly portrayed in Russia as a military figure of fun.

A parliamentary deputy is A parliamentary deputy who was also chairman of the Mogilev region’s state killed by a bomb blast— control committee, Yevhenii Mikolutsky, was assassinated on October 6th by a remote-controlled bomb that exploded outside his apartment. In his capacity as head of the committee, Mr Mikolutsky had substantial powers over local businesses and had presumably made a number of enemies. His wife was also injured in the explosion.

—prompting the president Mr Lukashenka was a personal friend of Mr Mikolutsky and at his funeral made to threaten retaliation— what was interpreted as one of his most sinister threats to date. He was reported as saying that unless “commercial structures” gave up the killers within a week all the local businessmen would come under severe scrutiny. Local businessmen were also given ten days to pay all tax arrears. Critics likened the speech to those given by Stalin prior to officially sanctioned purges of perceived oppo- nents in Soviet times. The president’s office, meanwhile, responded that Mr Lukashenka’s speech had been deliberately misinterpreted, and that the president was simply targeting organised crime in the region.

—and a new anti-terrorist Later in October the president issued an edict to bring in “urgent measures to edict is issued fight terrorism and other dangerous crimes”. He has instructed parliament to speed up passage of a new criminal code, a law giving greater powers to the security services, and to draft legislation on the carrying of weapons, search procedures, and the protection of judges and witnesses. Penalties for such crimes have been increased, and include the use of the death penalty as well as an increase in the maximum effective length of a life imprisonment sentence from 15 to 25 years.

The edict is already in effect. Border security is being tightened to prevent the entry of foreigners from countries defined as having active terrorist groups. In addition a number of towns and regions with high criminal activity will have special law and order measures applied to them. Civil rights groups are concerned that—in the light of Belarus’s political situation—the edict could be a pretext for strengthening the authority of the already powerful state security service and moving Belarus closer to a police state.

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An underground group Belarus has also experienced sporadic bomb explosions carried out by a shad- engages in terrorist owy organisation calling itself the Belarusian Liberation Army. The organis- activity ation’s vaguely populist aims included opposition to both foreign business interests and the president. The group claimed responsibility for a number of explosions in gas installations earlier this year when it was reportedly targeting Russian energy business interests as well as prominent visiting Russian politicians (2nd quarter 1997, page 11). The group’s most recent attack took place in September when it admitted causing an explosion outside a court in Minsk. At the time it issued a list of demands including the release of Mr Sheremet and other political prisoners, as well as the restoration of the 1994 constitution.

A local businessman is In early October the 73-year-old director of the Rasvyet joint-stock agricultural arrested— company, Vasily Starovoitov, was dismissed on charges of stealing state property—including misappropriation of a state agricultural loan—and placed under house arrest. Rasvyet is a former collective farm based in the Mogilev district and is one of Belarus’s most successful agricultural enterprises. Mr Starovoitov’s arrest prompted outbursts from other collective farmers that he had been detained arbitrarily for political reasons, leading to claims of human rights abuses.

—leading to the arrest of On October 23rd the head of both the Belarus Helsinki Committee and the the Helsinki Committee Belarusian Human Rights Convention, Tatyana Protska, was also arrested after leader— visiting Mr Starovoitov in prison. She was released shortly afterwards but has been barred from leaving the country and faces charges of hampering a police investigation against Mr Starovoitov. The motivation behind Ms Protska’s arrest has been widely assumed to be to prevent her from making a planned trip to Geneva, where she was due to make a presentation on the human rights situation in Belarus to a UN conference at the end of October.

—and the agriculture On November 11th the Belarusian agriculture minister, Vasily Leonov, was also minister is dismissed detained in custody and dismissed from his post. The only details that emerged initially were that he had been detained on corruption charges relating to Rasvyet, although later Mr Lukashenka also implicated Mr Leonov in the murder of Mr Mikolutsky. Despite the lack of detail there appear to be three possibilities as to the chain of events that led to his dismissal. The first is that he was in league with Mr Starovoitov to defraud the agriculture ministry, and that their activities have now been uncovered. The second is that he will be used as a scapegoat for a lower than expected harvest, or possibly grain shortages over the winter months, on the grounds that the harvest would have been more successful if the agriculture minister had not been siphoning off ministerial resources into his own pocket. The third, and most likely, possibility is that he had fallen out of favour with the president and that his dismissal is being linked to events in Rasvyet purely out of political convenience. One of the charges against Mr Starovoitov was that he misused a state agricultural loan. If Mr Leonov had been head of the agriculture ministry at the time that the loan was granted, the two events could easily be linked in the public eye. In addition, Mr Leonov was a popular figure with pro-market views and had been critical of Mr Lukashenka’s policies in the past.

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The lower house passes a A new draft media law proposed by the deputy prime minister in charge of restrictive media law— ideology, Vladimir Zamyatalin, was passed by the House of Representatives, the lower house of the National Assembly (parliament) on October 15th. Belarusian media are already heavily censored by international standards and under exten- sive state control, forcing independent and opposition publications to print abroad, usually in Lithuania. The proposed changes would outlaw the dissemi- nation of any printed or recorded material seen to be either defaming the state, state bodies, officials or the president, or harming the country’s economic interests. The ban would affect media of foreign origin, and so provide a tool to keep opposition publications and certain foreign radio and television programmes out of the country. The draft legislation also makes it compulsory for all publications to be officially registered: under the existing legislation, this requirement applies to publications with a circulation of more than 500.

—which is thrown out by In the most significant display of political independence by a parliamentary the upper house— body since the president disbanded the previous parliament at the end of 1996, the Council of the Republic, the National Assembly’s upper house, rejected the new law by 49 votes against and only one in favour on October 29th. The upper house considered that the law would lower the government’s standing locally and internationally, and would further increase Belarus’s isolation. The opposition of the upper house to the government’s proposed legislation is particularly significant given that each member of the Council of the Republic has been personally approved by the president.

—but backed by the The president had initially expressed minor reservations about the wording of president two sections of the legislation, and had simultaneously publicly defended the country’s existing media laws by pointing out that publications of all political hues were available in Belarus. This is technically true, except that the state controls the main printing houses and distributors, and charges excessive fees to independent publishers, on top of problems they can face in the form of personal intimidation and harassment. The president has since hardened his stance and given the new law his full backing. The final outcome is therefore likely to be that the law will be imposed by decree, overriding the view of the upper house of parliament.

Life is made more In a separate development, Belarus is becoming an increasingly difficult envi- difficult for foreign ronment for foreign correspondents to operate in. In July, following the arrest correspondents of Mr Sheremet, all foreign correspondents were required to seek official re- accreditation. By the deadline of September 23rd only a small number of correspondents had succeeded in obtaining accreditation. Those who are permitted to remain in Belarus will no longer be allowed to work simultaneously for local media, so that their opinions cannot be easily accessed by domestic audiences.

The president’s popularity Mr Lukashenka’s popularity has dropped, although he remains the country’s slips— most popular politician. According to a recent opinion poll, 48.7% of the population would vote for Mr Lukashenka as president if he sought re-election. Earlier in the year, similar polls had indicated that Mr Lukashenka’s support was nearer 70%. In 1994 Mr Lukashenka had received nearly 45% of the vote in the first round of the presidential elections and 80% in the second. However,

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 14 Belarus

given Mr Lukashenka’s stranglehold on the media, the popularity of other political figures remains far below that of the president. The exiled leader of the Popular Front of Belarus (PFB), Zyanon Paznyak, an archaeologist, was supported by only 0.3% of the electorate.

—as opposition to his Opposition to the increasingly totalitarian regime in Belarus shows some sign regime continues of increasing. In November a number of prominent politicians, economists and artists established a non-party organisation for democracy entitled Charter 97, modelled on the dissident Charter 77 movement of the former Czechoslovakia. One of the founder members of the organisation is Mr Sheremet, newly released from prison. In addition, the remaining 42 members of the former Supreme Soviet, dissolved in November 1996, continue to meet under the auspices of an unofficial shadow legislature, known as the 13th parliament, which has been invited by the Organisation for Security and Co-operation in Europe (OSCE) to attend its Parliamentary Assembly in February 1998. While dissent is still largely confined to Belarus’s economic and political elite, and to a small nationalist party, the People’s Front of Belarus, there has been increasing general industrial unrest due to unpaid wages as well as to growing restrictions on trade union activity.

The nuclear arms Among the funds frozen by the US is some $40m of financial assistance from reduction treaty is the Nunn-Lugar programme signed in 1992, which aimed to enable the three extended— countries that became nuclear powers alongside Russia after the dissolution of the Soviet Union (Belarus, Ukraine and Kazakhstan) to dismantle their nuclear weaponry. Although Belarus has complied with the terms of the programme, and sent its remaining strategic missiles to Russia in November 1996, it still requires funds to dispose of outstanding nuclear waste, rocket fuel and other nuclear-war facilities and material. Despite the dim view that the US has of political developments in Belarus, on October 22nd Minsk and Washington signed a protocol extending the Nunn-Lagur programme to provide additional funding in 1998.

—and Belarus seeks other Snubbed by the West, Belarus has been seeking to develop relations elsewhere. co-operation agreements It has discussed a defence co-operation agreement with Kazakhstan and signed a military co-operation accord with Turkey. In September Mr Lukashenka vis- ited India and Pakistan to promote investment in Belarus. In the Middle East, Belarusian ministers have started talks with Iran about opening an embassy in Tehran. In late October, following a visit of the Syrian foreign minister to Belarus, the two countries discussed six separate economic co-operation agreements, and—although denied by Belarus—there have been reports of military co-operation between them.

The government reopens The prosecutor-general has reopened the case into the Kuropaty massacres of an inquiry into a 1937-41 when an estimated 250,000 people were murdered and buried in mass communist massacre— graves in the woods near Minsk. In 1989 a commission headed by Mr Paznyak concluded that the massacres were carried out by the Soviet secret police, the NKVD, on Stalin’s orders. The Communist Party of Belarus (CPB), for which this revelation was a profound embarrassment, never accepted the findings of Mr Paznyak and still maintains that the atrocities were carried out by the Nazis

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Belarus 15

in 1941. The fact that the prosecutor-general has reopened the case can be interpreted as a concession to the Communists and could lead to the official discrediting of the findings of Mr Paznyak, who was granted political asylum by the US in 1996.

—and Mr Lukashenka The party itself has also found itself being courted by Mr Lukashenka. woos the Communist party Mr Lukashenka sent a personal message to the CPB’s 34th convention in October, expressing his respect for communism, its ideals and the party, and called for constructive co-operation. The party itself is divided over its support for the president: one half supports Mr Lukashenka and participates in the new National Assembly, while the other participates in the unofficial shadow parliament established in opposition to the Mr Lukashenka’s regime.

Economic policy

The 1998 draft budget is The government’s draft budget for 1998 envisages expenditure of BRb114.5trn published ($3.8bn at the current Minsk rate of exchange), revenue of BRb97.8trn, with the deficit limited to 3.5% of GDP. The deficit is to be covered by credits from the National Bank of Belarus (the central bank) as well as from the issuing of government securities. Social policies, health, education and the emergency budget account for most of the expenditure. The budget forecasts growth and industrial output levels similar to those officially reported for 1997, while inflation is expected to fall to 2% per month. According to the government GDP will grow by 8%, industrial production by 9%, agricultural output by 4% and real wages by 7%. Unemployment will be contained at 2-3% of the workforce. The rise in GDP and industrial output is premised on a fall in energy consumption of 4.7% and materials consumption of 1%.

Belarus: state budget (cumulative BRb bn unless otherwise indicated) 1996 1997 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Jul Revenue 8,708 19,563 34,526 50,669 17,989 44,076 54,132 % of GDP 25.7 27.8 27.4 28.2 29.4 32.6 32.3 Expenditure 9,290 21,009 36,226 54,315 17,509 43,268 53,244 % of GDP 27.4 29.9 28.7 30.2 28.6 32.0 31.8 Budget balancea –582 –1,446 –1,700 –3,646 480 808 –888 % of GDP 1.7 2.1 1.4 2.0 –0.8 –0.6 –0.5 a Including debt-service interest payments.

Source: Belarus Economic Trends.

Privatisation vouchers In September the authorities completed the distribution of privatisation have all been distributed vouchers. Since the programme started in 1994 a total of 4.87m vouchers have been allocated, with a citizen’s entitlement being based on age, years of employment and number of children in the family. The vouchers were designed to be exchanged for shares during the privatisation of state-owned industries, but in fact only a very small proportion—around 632,000 holders—have done so. Part of the reason has been the relatively small number of sell-offs that have actually taken place. For those that have taken place the shares have in many instances have been allocated to management and employees rather than to

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 16 Belarus

the public in exchange for vouchers. Another factor has been that as the standard of living has dropped, holders of vouchers have preferred instead to sell them for cash at less than their face value.

More anti-inflationary The government is manifestly losing the battle against inflation, which measures are decreed reached 71.6% year on year in September (see The economy). In June the government implemented price limits on basic foodstuffs (3rd quarter 1997, page 18). The latest move involves a backtracking on earlier measures to liber- alise energy prices. Heating and utility price rises have been capped, with the domestic household’s share of total rent and utility costs limited to 44%.

Mr Lukashenka claims There have been few developments over Belarus’s outstanding energy bills to Russia is a net debtor to the Russian gas giant Gazprom. However, in an interview on Belarusian radio Belarus in late September, Mr Lukashenka claimed while Belarus owed $200m for gas, Russia itself owed Belarus $1bn. Mr Lukashenka reminded Russia that 60% of its gas and oil and 85% of its freight to Western markets was transported through Belarus, implying that transit charges were due. Mr Lukashenka also claimed that Belarus allowed Russia to use its territory for deploying air de- fences for Moscow, and that Belarus shouldered all the customs burden on their mutual border.

The economy

GDP continues to soar— Belarus’s economy continues to register strong growth according to official figures. According to the Ministry of Statistics and Analysis, GDP in the first nine months of the year grew by 10.1% over the corresponding period in 1996 and by 8% year on year in September. Industrial production in the first nine months rose by 15.8%, agricultural output by 5.4%, housing construction by 38% and investment by 21%. The prime minister, Sergei Ling, noted at a seminar in Minsk in October that the population as a whole was benefiting from this growth, with real wages rising by 9% over the period from January to September, although the underlying figures suggest that wages have only just been keeping up with inflation.

—fuelled by industrial Many sectors of industry recorded exceptional growth. The best performers were growth— the metallurgical sector, where output between January and September rose by 33.5%, building materials (31.5%), and timber, wood manufacturing, pulp, and paper (30.8%). Output of consumer goods increased by 23%. In contrast, production by the fuel industry fell by 10.8%. In September 1997 industrial production increased by 3.8% month on month and 21.6% year on year.

—which is due to new The apparent dramatic turnaround by the Belarusian economy, which started production targets and last year when GDP purportedly grew by 2.6%, has been accompanied by the soft credits adoption of command-style techniques of economic management and by a turning away from market-oriented reforms. Since 1996 many sectors of industry have been set Soviet-style production targets. While much of the increased output initially languished unsold in warehouses, the goods are now being used in barter deals to enable Belarus to pay its gas bills to Russia. The increase in output has been financed by cheap credits from the central bank.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Belarus 17

The construction sector in particular was earmarked for low-cost loans in 1996-97, which accounts for the dramatic rise in both housing construction and in the output of building materials.

Belarus: financial performance of state-owned enterprises

Profits of: No of: profitable loss-making profitable loss-making enterprises enterprises enterprises enterprises (BRb bn) (BRb bn) 1996 Jan 6,024 2,681 1,793 628 Feb 6,029 2,811 3,757 989 Mar 6,428 2,677 5,872 1,244 Apr 6,301 2,831 4,889 1,449 May 6,486 2,662 9,960 1,580 Jun 6,879 2,392 12,829 1,729 Jul 6,930 2,372 15,536 1,863 Aug 7,230 2,087 18,511 1,819 Sep 7,555 1,830 21,876 1,938 Oct 7,595 1,828 25,312 2,147 Nov 7,649 1,806 28,585 2,452 Dec 7,703 1,737 31,791 2,817 1997 Jan 6,459 2,970 3,339 1,368 Feb 6,671 2,983 7,174 2,050 Mar 7,211 2,667 11,758 1,971 Apr 7,297 2,658 17,388 2,253 May 7,519 2,453 22,873 2,540 Jun 8,338 2,203 28,847 2,347 Source: Belarus Economic Trends.

The private sector is far The private sector, which accounted for 37.5% of industrial output in the first more efficient nine months of 1997, has proved markedly more efficient than fully state- owned companies. Press reports indicate that production in the private sector increased by 76.8% from January to September, compared with an increase of 14.9% in the state-owned sector.

Agricultural output has Most sectors of agriculture have also increased production this year according also been healthy to the Ministry of Statistics and Analysis. Total production in the first eight months of the year was up by 3.7% over the corresponding period of 1996, with milk output up by 5%, and cattle and poultry output up by 0.2%. Grain yields were reported to be on average 8% higher in 1997 than in 1996.

Inflation continues to Consumer price inflation has remained high, and well above the official target exceed government of 2-2.5% per month. Month-on-month consumer prices rose by 5% in targets— September and 3.2% in October, equivalent to a year-on-year rise of 72%. In September food prices rose by 4.2% over the previous month, consumer goods 2.8% and services 12.8%. Producer prices rose by 1.7% in August and 2.3% in September, equivalent to 98.2% year on year.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 18 Belarus

Belarus: consumer prices Belarus: consumer prices, 1997 % change, month on month (% change) 14 Month on month Year on year 1996 12 Jan 5.6 160.9 10 Feb 4.0 103.0 Mar 2.0 72.5 8 Maximum government Apr 1.5 53.0 target May 0.6 48.9 6 Jun 2.3 48.6 4 Jul 2.0 44.0 Aug 1.3 41.7 2 Sep 1.3 36.4 Oct 1.3 33.6 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 3.6 33.5 Sources: Belarus Economic Trends; Reuters. Dec 7.7 38.4 1997 Jan 13.3 48.6 Feb 6.0 51.4 Mar 2.3 51.9 Apr 4.3 56.1 May 5.0 64.8 Jun 4.5 68.4 Jul 1.4 67.3 Aug 1.0 66.7 Sep 5.0 72.0 Sources: Belarus Economic Trends; Reuters; EIU calculations.

—as cheap credit boosts Annual average inflation is set to be much higher in 1997 than the 57.3% price the money supply and rise recorded in 1996. This reversal of the trend of gradually falling rates of weakens the rouble inflation has been a major setback for the government which at the start of 1997 forecast an annual average inflation rate of 27% for the year. The prime minister has blamed energy prices, which had risen by 80% in the year to October 1997. There have been various moves by the government to cap prices through administrative decrees (see Economic policy), which have had manifestly little effect. As the central bank pointed out in a letter to the finance and

Belarus: exchange rate economy ministries, the inflationary surge has been due largely to the increase Brb:$ (inverted), Minsk Interbank in soft credits. A total of BRb3trn of soft credits were issued in the first half of Currency Exchange; end-period 1997, compared with a planned total of BRb2trn ($125m) for the whole of the 10,000 12,000 year. Broad money (M3) rose from BRb29.6trn as of end January 1997 to 14,000 BRb46.1trn by the end of August. 16,000 The central bank is concerned that inflation will lead to a further depreciation 18,000 20,000 of the Belarusian rouble. The official rate quoted on the Minsk Interbank 22,000 Currency Exchange had fallen from BRb21,000:$1 at the end of January, to 24,000 BRb29,100:$1 by mid-November 1997, and the bank has warned that it could 26,000 drop to BRb30,000:$1 by the end of the year. On the Moscow currency ex- 28,000 change, where in mid-November the Belarusian rouble was quoted at the much 30,000 Jan Apr Jul Oct Jan Apr Jul Oct lower BRb40,035:$1, the Belarusian currency is likely to fall further following 1996 97 the rises in Russian interest rates from November in response to the worldwide Sources: Belarus Economic Trends; Bloomberg. lack of confidence in emerging markets.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Belarus 19

Wages can barely keep Average nominal wages in the first eight months of the year rose by 71% pace— compared with a year-on-year consumer price rise of 66.5% in August and 71.6% in September. Monthly wages averaged BRb2.361m ($85) in August; the highest-paid employees were customs officers (BRb5.68m) and transit pipeline company workers (BRb5.59m), while the lowest-paid worked in social welfare (BRb1.21m) and culture (BRb1.35m). With rampant inflation, the problem of wage arrears has become particularly acute for those awaiting payment. Arrears totalled BRb486bn ($16.7m) in late September, of which some 70% were owed to collective and state farm employees. The minimum wage, meanwhile, was raised from BRb150,000 to BRb200,000 on September 1st and pensions were raised by an average of 21% as of November 1st, with the minimum monthly pension now at BRb660,000 ($22) and the maximum BRb1,521,600 ($50) per month.

—but unemployment stays The number of people officially registered as unemployed at the beginning of low September was 140,200—a year-on-year fall of 45,000—equivalent to 3.1% of the eligible workforce. Unofficial unemployment has also fallen since 1996, with the number of part-time workers down from 419,000 to 238,000, and that of workers on unpaid leave from 458,100 to 247,600. The eligible workforce has also fallen, from 4.75m or 47% of the population in September 1996 to 4.6m or 45.1% of the population 12 months later.

Foreign trade and payments

The trade deficit exceeds Belarus’s cumulative trade deficit for 1997 reached $1.18bn in August. In $1bn— August exports rose by 16.8% over the same period in 1996 to $4.2bn, while imports increased by 19.7% to $5.4bn. Russia continues to be Belarus’s main trading partner, accounting for 56.1% of trade, followed by Ukraine (9.5%) and Germany (5.9%).

The government has acknowledged that the trade deficit is a weak element in the economy, with the prime minister predicting that it could rise to $1.5bn by the end of the year. Further restrictions on imports have come into play, with registration certificates required for an increased range of consumer foodstuffs, as well as for vehicle tyres. It must be kept in mind, however, that a large proportion of trade took place on barter terms and that this is not being recorded in the merchandise trade account. Barter trade is instead accounted for in the services balance, making up about half the turnover in “services”.

—although the According to the most recent data, for the first quarter of 1997, the current- current-account deficit account deficit was $359m or 12.7% of GDP (3rd quarter 1997, page 19). There may have narrowed are no complete data available for subsequent movements on the current account. The government has announced a surplus on the service account—that includes transport, communications, tourism and construction—of $429.7m for the first half of 1997, up from $112.5m in the first quarter of the year. The trade deficit for the comparable period stood at $919.2m, according to data from the Ministry of Statistics and Analysis. Given that the remaining movements on the current account—net income and transfers—have to date been relatively small, these figures would imply that the current-account deficit narrowed in the second quarter of 1997, to perhaps $130m.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 20 Belarus

An increase in foreign Data on the Belarusian balance of payments for the first quarter of 1997, investment is announced published by the central bank in September, indicated that net foreign direct investment (FDI) was $51.5m over the quarter. This appears to indicate that FDI is increasing. According to the European Bank for Reconstruction and Development’s Transition Report, published in November 1997, total FDI in Belarus from 1989 to 1996 amounted to only $167m, or $16 per head, one of the lowest recorded amounts in the former Soviet Union. According to the Ministry of Statistics and Analysis, Belarus attracted $312.1m in FDI in the first half of 1997, although this figure is likely to include future commitments as well as actual inflows in that period.

The World Bank The World Bank has yet to disburse any credits agreed under a memorandum continues to delay credit— of understanding (MOU) signed in June (3rd quarter 1997, page 15). Under the MOU the bank agreed to grant loans worth up to $200m per year if Belarus implemented a package of reforms that included liberalising currency- exchange regulations, removing trade restrictions and speeding up the privatisation programme. Following a visit in September the Bank concluded that apart from preparing just five companies for privatisation, Minsk had failed to implement any of the agreed reforms. A subsequent visit in November failed to report any further progress.

—and other loans are also The IMF, which suspended credits in May 1996 because of Belarus’s economic on hold policies, has likewise seen little reason to change its position. The Fund decided in mid-1997 not to allocate any further credits for the coming financial year; its position in this regard is unlikely to change. Meanwhile, the EU announced that it would not sign any economic accords with Belarus for 1998 because of the country’s dismal political record.

Business news

A time limit is set on Mr Lukashenka has confirmed that Ford Motor Company of the US will only Ford’s tax exemptions enjoy tax-free status for five years. Ford has a joint venture in a $20m plant near Minsk assembling Escorts and transit vans (3rd quarter 1997, page 20). Although it had initially been reported that Ford would be exempt from tax indefinitely, Mr Lukashenka issued a decree in October confirming that the exemption would in fact be limited. Ford is Belarus’s most significant multi- national investor, and its treatment by the Belarusian government will be carefully monitored by other would-be investors..

Free economic zones are The government has authorised further free economic zones (FEZs) to attract approved foreign investment. The zones, to be in existence for 50 years, offer substantial tax exemptions, and six are envisaged in total. The first one was established at the border town of Brest in December 1996 (1st quarter 1997, page 15). In September a second FEZ was established near Minsk-2 airport, in which Ford’s joint venture is located. The most recent site to obtain approval, in October, was for an FEZ at Gomel, which includes the base of the electronics enterprise, Raton.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Moldova 21

Moldova

Political structure

Official name Republic of Moldova

Legal system A new constitution was adopted on July 28th 1994. The Transdniestr region has declared independence, which is unrecognised. The region inhabited by the Gagauz minority was granted special legal status in December 1994

National legislature Unicameral assembly, the parliament, with 101 members, directly elected by proportional representation

National elections February 27th 1994 (legislative) and November 17th 1996 (presidential); next legislative elections due on March 22nd 1998

Head of state President, Petru Lucinschi, sworn in January 15th 1997

National government Moldova has an executive presidency. The prime minister, Ion Ciubuc, chairs the Council of Ministers; he and his government were approved by parliament on January 24th 1997

Main political parties The Democratic Agrarian Party (ADP) won 56 seats in parliament in the 1994 election but is down to 32 after defections in mid-1995 to two new groups, the Party of Revival and Harmony and the Party of Social Progress of Moldova, and further defections in July 1997. The Moldovan Socialist Party-Unity bloc has 28 seats; the Peasants and Intellectuals bloc 11 seats; and the Christian Democrats-Popular Front of Moldova bloc (which together with the Party of Revival and Harmony forms the Democratic Convention of Moldova) nine seats. Other significant parties are the Communist Party and the Congress of Intellectuals

Council of Ministers Prime minister Ion Ciubuc Deputy prime minister & minister for the economy Ion Gutu Deputy prime minister Valeriu Bulgari

Key ministers Agriculture Gheorghe Lungu Culture Ghenadie Ciobanu Defence Valeriu Pasat Finance Valeriu Chitan Foreign affairs Nicolai Tabacaru Healthcare Mihai Magdei Industry Grigore Triboi Information, computers & telecommunications Ion Casian Internal affairs Mihai Plamadeala Justice Vasile Sturza Labour & social protection Dumitru Nidelcu National security Tudor Botnaru Privatisation Yuri Badir Transport Vasile Iovv

Central bank governor Leonid Talmaci

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 22 Moldova

Economic structure

Latest available figuresa

Economic indicators 1992 1993 1994 1995 1996 GDP at current prices Lei m 192 2,210 5,780 7,636 9,000 GDP at exchange rate $ m 1,260 1,524 1,424 1,701 1,961 GDP at purchasing power parityb $ bn 10.2 10.3 7.2 7.2 6.8 Real GDP growth % –29.0 –1.2 –30.9 –1.9 –8.0 Consumer price inflation (av) % 1,276.5 1,751.0 486.4 29.9 23.5 Population (mid-year) m 4.35 4.36 4.35 4.35 4.34b Exports $ m fob 368.0 392.9 618.5 739.0 801.5 Imports $ m fob 506.0 527.6 672.4 773.1 1,055.6 Current-account balance $ m –152.0 –155.3 –82.0 –115.0 –300.0 Consolidated budget balance % of GDP n/a –6.2 –4.8 –4.9 –10.0 Reserves excl gold $ m 2.5 76.3 179.9 239.8 313.6 External debt $ m 376.6 247.4 183.5 238.1 257.3 Exchange rate (av) Lei:$ 0.152 1.45 4.06 4.49 4.59

November 14th 1997 Lei4.69:$1

Origin of gross domestic product 1995c % of total Components of gross domestic product 1996c % of total Agriculture & forestry 29.8 Private consumption 65.1 Industry 24.4 Public consumption 26.9 Construction 3.6 Gross fixed investment 16.2 Trade 8.1 Increase in stocks 9.1 Transport & communications 3.1 Losses 0.1 Education 4.9 Net exports –17.4 Total incl others 100.0 GDP 100.0

Principal exports 1996 % of total Principal imports 1996 % of total Food industry & beverages 58.2 Mineral products & fuel 35.5 Live animals & animal products 7.1 Machinery & equipment 15.6 Textiles 6.4 Chemicals 6.7 Machinery, equipment & metals 5.4 Textiles 5.3

Main destinations of exports 1996 % of total Main origins of imports 1996 % of total Russia 59.90 Russia 28.0 Ukraine 5.38 Ukraine 23.4 Germany 4.56 Germany 10.9 Romania 4.46 Romania 7.1 CIS 70.30 Belarus 5.7 CIS 58.2 a Includes Transdniestr unless otherwise indicated. b EIU estimates. c Excluding Transdniestr.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Moldova 23

Outlook for 1998-99

March’s election will be a The legislative elections on March 22nd 1998 look set to produce a parliament close run contest— divided as much over personalities as policies. Four main blocs will be compet- ing, the pro-presidential centrist Bloc for a Democratic and Prosperous Mol- dova, the centre-right Democratic Convention which backs the former president, Mircea Snegur, an alliance of centre-right parties around the Party of Democratic Forces, and the left-wingers (see The political scene).

—but the centre-right will The centre-right vote will be split between those who support the more avow- lose ground edly pro-Romanian stance of the Democratic Convention, and those who do not consider Moldova’s relationship with Romania as relevant. The Democratic Convention will obtain substantial support from those who find the policy of “Moldovanisation”—especially the concept that there is a Moldovan language and history distinct from that of Romania—intellectually objectionable. The more moderate centre-right supporters, as well as those who dislike Mr Snegur, will support the alliance led by the Party of Democratic Forces.

The left will be hampered Tension exists between the various left-wing parties, who by mid-November by disunity— had not decided whether or not to campaign as a bloc. The Democratic Agrar- ian Party (ADP) is not expected to do well in the March elections because much of the population holds the former government of Andrei Sangheli responsible for the severe poverty which has accompanied the transition from communism. The communists and socialists traditionally vote together against many of the government’s attempts at economic reform, but will have problems campaigning together because of deep ideological divisions. They still command a significant share of the vote among old-style left-wingers, and their vote would increase substantially in the unlikely event of Transdniestr resi- dents being allowed to take part in the elections. However, both parties have also lost a significant number of senior members and deputies who grew tired of the parties’ obstructive stance.

—but the pro-presidential The Bloc for a Democratic and Prosperous Moldova is campaigning as a party bloc should pick up of pragmatism, and will capitalise on the president’s relative popularity. In support terms of foreign policy, it recognises that Moldova’s interests lie in friendly relations with both Russia and the West, on the grounds that any other attitude would result in divisions within Moldovan society. In economic terms its policies are reasonably pro-reform, and it would be willing to co-operate with Moldova’s multilateral lenders to sustain the reform process.

Relations with Russia look The foreign policy objective of the president, Petru Lucinschi, to maintain positive— healthy relations with Russia is paying off. The Russian president, Boris Yeltsin, admitted at the Commonwealth of Independent States (CIS) summit in October that Russia was responsible for the conflict in Transdniestr, and that he is willing to withdraw Russian troops from the region immediately if Chisi- nau so desires. Russia may at last start exerting pressure on the Transdniestr leadership to attempt to make greater progress in negotiations.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 24 Moldova

—but little progress on Despite the improvements in relations between Chisinau and Moscow, the EIU Transdniestr is envisaged does not foresee a rapid political resolution to the Transdniestr conflict. Through a series of agreements signed during the course of 1997, Transdniestr has extracted as much autonomy as it could expect, short of full independence, including the right to declare independence should Moldova seek reunification with Romania. Transdniestr is unlikely to obtain any further concessions from Chisinau.

There will be little Most economic reforms will remain on hold until after the election. Parlia- economic progress until mentary deputies have shown little inclination to pass legislation which would next year’s elections— be unpopular in the short term, regardless of how essential it is in the longer term. After the election the reform process will continue, regardless of which parties form a government, as a result of pressure from multilateral lenders. Moldova, more than most other former Soviet republics, relies heavily on structural support from the IMF and World Bank to keep its currency stable, as well as to provide a continuous source of funds to keep up-to-date with debt- service payments.

—and the budget deficit is Moldova’s budget deficit is forecast to grow to some 7.5% of GDP by the end of set to grow 1997, compared with an initial target of 4.5%. The government overestimated revenue, particularly from the corporate sector, and privatisation income was also unsatisfactory. The main culprits for the poor fiscal position this year, however, are parliamentary deputies anxious to buy votes for February’s election by cancelling penalties faced by companies for the non-payment of taxes and supporting a loose fiscal stance.

Tentative economic The outlook for the Moldovan economy remains uninspiring. Although there growth may re-emerge was a reported pick-up in industrial output in the first nine months of the year, in 1998 the economy remains dependent on the weather conditions affecting its crucial agricultural sector. The forecast for the coming winter is severe, with the result that sowing may well be delayed. Another major concern is that parliament will stall the passage of economic reforms, causing multilateral lenders to suspend credit. Although the government continues to forecast a GDP rise of 1% in 1997, the EIU believes believe that the economy will in fact have contracted by 2% by the end of 1997. An important factor in this year’s poor performance was Ukraine’s decision at the beginning of the year to impose financial guarantees on goods crossing its borders, which effectively choked off Moldova’s exports to Russia. Nevertheless, this year’s contraction is less severe than last year’s 8% fall in GDP, and is mainly due to a better harvest in 1997.

The government’s prediction of a 6% rise on GDP for 1998 is unrealistic; we expect to see a moderate recovery, with GDP rising by 1% in 1998. Although we do not expect a surge in economic activity in the forecast period, due to the slow pace of reform, the anticipated recovery in Russia will boost exports, leading to GDP growth of around 2% in 1999. With the agricultural sector remaining dominant, however, the final result will depend as much on the weather as on any other factor.

Additional bond issues Moldova tapped the Euromarkets in June 1997 with relative ease, but is going will be problematic to meet problems with future issues. First, investor confidence in emerging

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Moldova 25

markets has fallen in general in the latter half of 1997. Second, Moldova’s relatively high level of external debt is becoming a cause for concern. Third, the country’s rating from an international credit agency, Moody’s, is likely to be downgraded. The initial rating was sub-investment grade, but on a par with that granted to Russia.

Inflation will remain Since 1994 Moldova has maintained a good record in keeping price rises under low— control. Consumer prices actually fell in July and August, driven by an improvement in the agricultural harvest which caused food prices to fall. We have therefore revised our expectation of average inflation in 1997 to 11.7%, compared with annual average inflation of 23.5% in 1996. A number of administrative price rises—such as the removal of energy subsidies—have been postponed until 1998, suggesting that inflation will not fall much further in 1998, with an annual average inflation rate of 11% being recorded.

—although the currency The Moldovan currency, the leu, has been stable since the beginning of 1994, may come under pressure depreciating only marginally in nominal terms, thanks to healthy foreign reserves. However, around $250m or two-thirds of the reserves are IMF credits, highlighting the importance of Moldova maintaining good relations with its multilateral lenders. A stable currency has also enabled Moldova to increase foreign investment in Treasury bills; 70% of government paper is bought by foreign investors. If relations with the IMF deteriorate further, the leu could come under severe pressure. A devaluation would in turn push up the cost of Moldova’s imports, putting upward pressure on inflation.

The trade and The trade deficit narrowed in the second quarter of 1997, coming in at $32m, current-account deficits significantly lower than the $99.3m recorded in the first quarter of 1997. will remain high Nevertheless, the trend is still for import growth to exceed that of exports, and we expect the trade deficit to widen from $254m in 1996 to $275m in 1997. The total volume of trade is expected to continue to rise in subsequent years. The improvement in the Russian economy will create a greater demand for Moldovan exports in 1998, while the improvement in the Moldovan economy will create a greater demand for imports. We thus expect that both the trade and current-account deficits will continue to rise slowly throughout the forecast period. These projections contain a large margin of error, however, given the extent to which Moldovan exports depend on the agricultural harvest, which in turn depends greatly on the weather.

Moldova will continue to finance the current-account deficit primarily by inflows of foreign investment, which are expected to increase in the forecast period, for example, from increased foreign interest in investing in Moldovan privatisation assets. Despite this, Moldova will continue to depend on IMF financing.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 26 Moldova

Moldova: gross domestic product Moldova: forecast summary % change, year on year (% change year on year unless otherwise indicated) Moldova 1996a 1997b 1998c 1999c Eastern Europe excl Russia 6 Real GDP –8.0 –2.0 1.0 2.0 4 Industrial production –8.5 –3.0 1.0 2.5 2 Agricultural production –13.0 –1.5 1.5 1.5 0 Consumer prices

-2 Annual average 23.5 11.7 11.0 7.5 Year-end 15.1 10.4 11.0 5.3 -4 Exports fob ($ m) 802 725 960 1,200 -6 Imports fob ($ m) 1,056 1,000 1,250 1,550 -8 Current account ($ m) –300 –310 –350 –370 -10 1995 96 97(a) 98(b) 99(b) a b c (a) EIU estimates. (b) EIU forecasts. Actual. EIU estimates. EIU forecasts. Sources: EIU; Moldavan Economic Trends.

Review

The political scene

Political groups There was initially some dispute as to when the term of the existing parliament consolidate for the expired, requiring intervention by the Constitutional Court, which ruled on elections November 10th that the legislative’s mandate expires on February 27th 1998. The president later decreed that the elections would be held on March 22nd. Most of Moldova’s political factions have reached electoral agreements to support one of the major blocs, although the elections will be dominated by personalities as much as policies.

Moldova hosts a summit Chisinau hosted a summit of Commonwealth of Independent States (CIS) of CIS members— members in late October. Among the initiatives passed was an agreement by all members except Uzbekistan and Azerbaijan to establish a common agricultural market. Few details are available, but Moldova, with its heavy reliance on agriculture, should be a major beneficiary.

—at which Russia takes One of the summit’s more significant events was an admission by the Russian the blame for the president, Boris Yeltsin, that Russia was responsible for the continuing conflicts Transdniestr conflict— in several regions of the CIS, including Transdniestr, and that Russia was prepared to withdraw its troops from Transdniestr whenever Chisinau wished. Mr Yeltsin made the speech at a news conference with his Moldovan counter- part, Petru Lucinschi, following a closed meeting of CIS heads of state. Mr Yeltsin also admitted that Russia, as chairman of the CIS, was responsible for the structure’s failure to develop into a significant economic and political body.

—and Transdniestr applies Transdniestr sent a letter to the meeting requesting membership of the CIS. for membership The request was not taken seriously. In fact, Mr Yeltsin used the occasion to stress that that Russia recognised only a single, indivisible republic of Moldova. The Transdniestr leader, Igor Smirnov, was invited to the summit by the Moldovan prime minister, Ion Ciubuc, but did not turn up, leading Mr Yeltsin

to remark that Mr Smirnov no doubt considered his birthday celebrations more important than the summit.

Electoral groupings for the Moldovan parliamentary elections

Bloc for a Democratic and Prosperous Moldova: Led by the former deputy speaker Dumitru Diacov, this group includes the Movement for a Democratic and Prosperous Moldova, the Popular Democratic Party and the New Forces and National Youth League. It supports the president, Petru Lucinschi, and his policies. Democratic Convention: This bloc supports the former president Mircea Snegur, and groups the ex-president’s own Party of Revival and Harmony and the nationalist Christian Democrats-Popular Front of Moldova faction. It is seen as pro-Romanian and centre-right. It advocates membership of NATO and other Western structures. Party of Democratic Forces: Led by Valeriu Matei, this grouping supported Mr Snegur in the November 1996 presidential election and was therefore courted by the Democratic Convention but has since quarrelled with Mr Snegur. It has subsequently joined forces with the Moldovan Liberal Party, another group that fell out with Mr Snegur, and the National Peasant Party. The group shares the Democratic Convention’s anti-CIS stance but not its pro-Romanian nationalist aspirations. The left-wing bloc: The main force in the left-wing bloc in the Democratic Agrarian Party (ADP), which won the most seats in the 1994 legislative elections but has since been weakened by numerous defections. There is also a chance that the left-wing bloc may negotiate an electoral alliance with the two successor factions to the Communist Party of Moldova, the Socialist-Yedinstvo bloc and the Moldovan Communist Party, both of which remain implacably opposed to anything resembling free-market economic reform.

Relations between There have been no significant political developments between Chisinau and Chisinau and Tiraspol are Tiraspol since July when mediators from Russia, Ukraine and the Organisation at an impasse— for Security and Co-operation in Europe (OSCE) formulated a draft agreement giving Transdniestr a significant amount of autonomy short of independence (3rd quarter 1997, page 27). Tiraspol then began to maintain that the agreement in fact guaranteed the region’s independence—which it does not—much as it did after signing the June 1996 memorandum of understanding in May 1997 (2nd quarter 1997, pages 25-26). Tripartite talks were held with Russia in September, and in early October negotiators signed a power-sharing in Moscow, which was subsequently rejected by Tiraspol. In a gesture of goodwill, however, the Moldovan prime minister, Ion Ciubuc, and Mr Smirnov signed a minor economic and social co-operation agreement in Chisinau on November 10th.

—and the Russian A major obstacle in the way of any Transdniestr settlement is the Russian parliament gets involved parliament’s refusal to ratify both the Russian-Moldovan treaty of 1990 and a 1994 troop withdrawal agreement. Sections of the Duma (the lower house of the Russian parliament) support Transdniestr’s position which has led to the Duma declaring the region a zone of strategic interest to Russia. The chairman and speaker of the Duma, Genially Seleznev, paid an official visit to Chisinau in late October and suggested the possibility of a new interstate treaty to replace the 1990 document, which was signed before the official break-up of the Soviet Union. The new treaty would reflect the May 1997 memorandum of

understanding, Mr Seleznev added. The Moldovan government would prefer that the original treaties be signed without amendment.

Jet plane sales lead to an A domestic scandal has erupted over the government’s sale of 21 Russian-built uproar MiG-29 fighter planes, capable of carrying nuclear weapons, to the US. Under the sale, which took place in October, Moldova is to receive $40m, half in cash and the rest in surplus military equipment and food. According to the US defence secretary, William Cohen, the MiG-29s were purchased to keep them out of the hands of third nations, specifically Iran, whose earlier interest in the jets prompted Washington to step in. However, news of the deal caused a furore in the Moldovan parliament. A cross-party group of 40 deputies demanded complete details of the transaction; by law the government must provide an answer within a month. A number of deputies have declared that the deal is illegal because sales of any defence property requires the prior approval of parliament.

Meanwhile, Tiraspol noted that while it had no objections to the sale as such, it should have a share in Moldova’s arsenal. It did complain, however, that the planes were sold too cheaply, and that they could instead have gone to Russia in return for a debt write-off.

Moldova and Ukraine are Moldova and Ukraine have resolved virtually all their outstanding border dif- close to demarcating ferences, many of which have been unresolved for a long time as a result of borders Moldova’s complex history that caused its borders to fluctuate. As a result of a meeting in November at the prime ministerial level, Ukraine agreed to give Moldova a 600-metre strip of land along the Danube near Giurgiulesti, on the site of Moldova’s new oil terminal (3rd quarter 1997, page 35). Moldova also received an area of land containing the Basarabeasca railway station, which, although Moldovan property, had remained in Ukrainian territory after the dissolution of the Soviet Union. In return Moldova is to grant Ukraine a 99- year lease on a section of road near Palanka in the south-east which will facilitate customs procedures.

Economic policy

The 1998 budget meets The government is facing severe obstacles in obtaining parliamentary approval parliamentary for the 1998 budget. The original budget envisaged revenue of Lei2.95bn opposition— ($630m) against expenditure of Lei3.43bn, with the deficit equivalent to 4.7% of GDP. Tax revenue was projected to increase by 19.5% over the previous year, while total expenditure was to increase by 23%. Parliament postponed the first reading of the budget on October 31st because deputies considered that the budget premise that GDP would grow by 6% in 1998 was unrealistic. The budget was then formally passed on November 4th but without reference to any figures, which will be negotiated in the second and third readings.

—and the budget deficit Significant monthly deficits were recorded in the implementation of the 1997 for 1997 rises— budget in February, April and July. By July the cumulative budget deficit reached the equivalent of 10% of GDP. Revenue from profit tax was especially disappointing, some 50% down in the first seven months of 1997 compared

with the year-earlier period, because of the poor financial position of many companies. Although the government traditionally gets more income, around 56% of the total, in the second half of the year, there are pressures for expenditure to rise that will counteract the projected increase in revenue. Moldova’s multilateral lenders predict that by the end of 1997, the budget for the year as a whole will be around 7.5% of GDP.

Moldova: government budget (Lei ’000) 1995 1996 1997 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Total revenue 444,236 752,506 422,738 480,265 493,003 657,489 466,155 590,481 of which: profit tax 92,956 120,875 91,191 81,920 80,160 106,330 41,593 45,196 income tax 51,356 67,463 49,626 54,101 50,223 62,970 55,204 65,111 VAT 139,266 224,308 103,887 127,670 154,575 224,145 137,366 198,730 excise duties 48,566 47,428 36,434 42,996 49,112 70,135 52,023 102,540 Total expenditure 485,017 908,462 492,761 635,041 701,749 958,671 556,142 827,458 of which: economic 46,351 29,014 42,612 55,596 68,358 77,050 42,700 n/a social & cultural 251,859 378,366 273,267 328,167 384,198 362,130 316,045 n/a public administration 18,146 23,462 14,546 18,100 22,102 20,937 18,503 n/a capital expenditure 31,349 54,066 25,467 18,127 34,520 58,093 4,947 35,900 Source: Moldovan Economic Trends.

—caused partly by Furthermore, since elections are due in March 1998, parliament has been inca- populist politics pable of resisting populist measures. On July 25th it passed legislation to exempt companies from penalties arising from the late payment of taxes. The president refused to sign the law, but on October 2nd parliament overrode his veto. Earlier in the year the government set about liberalising energy prices to bring them in line with cost-recovery levels and eliminate cross-subsidies from industrial to domestic customers. Tariffs were to be increased in three phases, in March (when they rose by 60%), June and August. However, on October 24th parliament suspended further energy price rises. The increases were un- doubtedly unpopular; parliament’s decision surprised no one.

The IMF postpones In November the IMF announced that it was delaying until 1998 the disburse- payments— ment of a $15.5m tranche from an extended fund facility (EFF). The previous tranche, the third from the SDR135m EFF, was disbursed in July 1997 (3rd quarter 1997, page 30). The IMF cited concern at the rise in the 1997 budget deficit alongside parliament’s decision to write off tax penalties and suspend energy price rises as the reason for its actions, although it also made it clear that it was continuing to work with the government.

—and the World Bank is Following on from the IMF’s decision, the World Bank noted that there would also concerned— be problems in extending the second tranche of a $100m structural adjustment loan (SAL) without an agreement between Moldova and the IMF. The World Bank approved the funds on September 10th on the condition that Moldova improves financial discipline, de-monopolises and privatises the energy sector, speeds up land reform and privatisation, reforms the pension system and com- pletes the privatisation of small enterprises. The World Bank likewise high- lighted parliament’s decision to suspend penalties for late payment of

company taxes as an unhelpful development. Another of its concerns is that Moldova’s fiscal difficulties forced it to use the first $35m tranche of the SAL to cover its budgetary shortfalls rather than to support the implementation of macroeconomic reform.

—although it does extend Outside the structural loan, the World Bank has continued to lend Moldova other funds credits for specific projects. In October it announced that it will be lending $16m for the establishment of a land registry. Following the passage of a law this July allowing for the free sale of agricultural land, an electronic registry is now a priority.

Parliament rejects a The Moldovan Communist Party failed in its attempt to initiate a referendum referendum on land sales on allowing for the free sale of agricultural land. The law, passed by parliament on July 25th (3rd quarter 1997, page 29), was denounced as treason by seven communist deputies, who then managed to collect 240,000 signatures in an attempt to initiate a referendum, comfortably above the 200,000 required. The proposed referendum would also have asked the electorate to vote against reform of the pension system and against a raising of the age of retirement. For the plebiscite to take place, however, it also needed the approval of over half the total parliamentary deputies, or 53 votes in total. In the event parliament rejected the referendum, with 39 voting against and 36 for.

The economy

The harvest is worse than Heavy summer rains and storms in July have caused an estimated Lei500m was hoped— ($108m) of damage to the agricultural sector according to the prime minister, Ion Ciubuc. The grape harvest has been particularly badly affected, with half the expected harvest lost. Other crops have also come in well below forecast; there have been reports that the sunflower harvest will come in 140,000 tonnes below expectations, the vegetable crop 220,000 tonnes below, 3,000 tonnes for tobacco, and 10,000 tonnes for meat.

Moldova: agricultural output (’000 tonnes) 1992 1993 1994 1995 1996a Cereals 2,099.8 3,340.2 1,753.8 2,668.5 1,812.7 Sunflowers 197.2 194.1 149.2 231.6 276.7 Sugarbeet 1,973.4 2,248.7 1,526.7 2,083.6 1,807.1 Potatoes 310.8 725.9 474.7 400.7 343.4 Vegetables 787.5 777.2 598.5 604.7 318.5 Tobacco 45.0 50.2 42.0 27.2 18.6 Fruits 511.3 1,087.8 665.1 609.7 521.2 Grapes 823.8 927.8 670.2 875.5 767.3

a Preliminary, excluding Transdniestr.

Source: Moldovan Economic Trends.

—but is still better than Despite the wet weather, the harvests this year are expected to show a substan- last year tial improvement on 1996, when the weather was particularly bad. Food prices this summer have fallen, reflecting adequate supplies as well as improved prod-

uction methods and investment. Wine production, which is expected to maintain output at the same levels as 1996, has benefited from investment of some Lei1.9m since 1994 according to the EU-funded publication Moldovan Economic Trends.

Industrial production has Industrial production in the first eight months of the year increased for the first risen— time, by 3% over the corresponding period in 1996, to Lei3m. Among the sectors which recorded growth were meat-processing, canning, wine making, bread production and construction materials. In contrast the tobacco, dairy industry, sugar production, cosmetics and furniture-manufacturing sectors remain in recession.

—and inflation remains Moldova’s consistently low rate of inflation ranks as its greatest economic low success. Month-on-month consumer prices fell by 1% in July and 0.8% in August, and rose by 1.2% in September and 0.9% in October. The average monthly rate has been 0.8%, consistent with an annual rate of inflation of 10%. An important factor in this year’s low inflation rate is that food prices have fallen, by 2.9% in July and 1.4% in August because of the improved Moldova: consumer prices harvest. The price of services rose 1.1% because of increased energy prices % change, year on year imposed earlier, but fell 1.4% in August. The overall inflation rate would have 1,800 been marginally higher in September and October had parliament not blocked 1,600 further energy price rises. 1,400

1,200 Moldova: consumer prices

1,000 (% change) Month on month Year on year 800 1996 600 Jan 3.5 24.5 400 Feb 2.5 26.1 200 Mar 1.1 26.6 0 Apr 1.1 26.9 1992 93 94 95 96 97(a) May 0.8 26.5 (a) EIU estimate. Sources: IMF, International Financial Statistics; EIU. Jun 0.1 26.0 Jul 0.1 25.7 Aug –0.3 27.4 Sep 1.5 26.1 Oct 1.6 22.8 Nov 1.4 17.5 Dec 0.8 15.1 1997 Jan 1.9 13.3 Feb 1.4 10.9 Mar 1.0 10.8 Apr 0.8 10.8 May 0.6 11.3 Jun 2.0 13.8 Jul –1.0 12.6 Aug –0.8 10.1 Sep 1.2 9.7 Oct 0.9 10.6 Sources: IMF, International Financial Statistics; Moldovan Economic Trends.

The unemployment rate The number of unemployed at the end of the second quarter 1997 fell to 22,800, rises slightly from 22,900 at the end of the previous quarter. However, as a percentage of the

workforce the rate rose from 1.4% to 1.5% because of a fall in the labour force. Moldova: stock-exchange trade $ '000 Of those officially unemployed in the second quarter, only 5,700 were receiving 9,000 benefit. A further 37,400 were working part-time (compared with 42,400 in the 8,000 first quarter), and 131,800 on unpaid leave, compared with 117,000 three 7,000 months earlier. The largest proportion was employed in agriculture, hunting 6,000 and related services (42%), followed by education (13%), manufacturing ind- 5,000 ustry (13%) and health and social services (8%). 4,000 Trading on the Moldovan over-the-counter electronic stock exchange has 3,000 taken off in 1997. Although the volume of trade is volatile, the value of trans- 2,000 actions remains several orders of magnitude higher than corresponding values 1,000

0 for 1996. From the beginning of the year to November 1st the volume of trade Jan. .Apr. . Jul . .Oct. .Jan. .Apr. . Jul . . 1996 97 reached $28.4m, compared with the $2.5m recorded in 1996 as a whole. The

Source: Moldovan Stock Exchange, published in number of companies listed remains relatively low, but is set to increase with Moldovan Economic Trends. the forthcoming privatisation of electricity supply companies and wine- producing enterprises. The stock exchange itself, however, is facing financial difficulties and is asking its shareholders to approve a plan to move to more modest surroundings than its current premises in Chisinau.

Things are worse in Little economic information filters out from Transdniestr, but anecdotal evi- Transdniestr dence that is available indicates that the level of poverty is substantially worse than in Moldova. Bread from the state shops is still rationed, available only by exchanging coupons, and supplies from the private shops remain expensive. One reason why Tiraspol is keen for the Russian army to remain in the region is that the soldiers provide a valuable contribution to the local economy.

Foreign trade and payments

The trade deficit has Moldova’s trade deficit for the first seven months of the year reached $209m, exceeded $200m— compared with the $181m recorded in the same period of 1996. Exports rose by 1.3% to $446m, while imports increased by 5.4% to $655m. Moldova’s main export partner in the year to July was Russia, accounting for 57% of the total, followed by Romania (5.9%), Ukraine (5%) and Belarus (4.4%). Russia was also the main source of imports, with 27.4% of the total, followed by Ukraine (21.9%), Germany (8.7%), Romania (7.6%) and Bulgaria (4.8%). A large proportion of total imports consists of energy imports from Russia. Some progress appeared to be made in reducing dependence on fuel imports in September: recently released trade figures showed that by the end of September Moldova had substantially reduced its trade deficit with CIS countries by $48m to $20m, due to cutbacks in fuel imports. This situation is likely to be reversed in the winter months however as demand for fuel increases.

—and the economy The Moldovan economy is already one of the most open in the transition becomes more open region. On September 1st further restrictions were lifted on most of the remaining categories of goods that cross the country’s borders. However, licensing will still be required for pharmaceuticals, chemicals, pesticides, gasoline diesel fuel and textile products destined for the EU.

The current-account Moldova’s current-account deficit fell from $100m at the end of the first deficit narrows in the quarter 1997 to $39.9m at the end of the second. The total current-account second quarter deficit for the first half of the year therefore narrowed marginally from the $143m deficit recorded in the first two quarters of 1996. The main reason for the lower current-account deficit in the first half of 1997 was a narrowing of the trade deficit in the second quarter of 1997. The second-quarter trade deficit came in at $32m compared with a $99m deficit recorded in the first quarter of the year. Since the trade deficit began widening once more in July, we expect that the current-account deficit will also have risen in the third quarter of the year. In the second quarter there were also deficits on the balance of services ($18m) and net income ($6m), but a surplus of $16.1m on current transfers.

Moldova: balance of payments, 1997 ($ m) 1 Qtr 2 Qtr Current account –100.25 –39.92 Trade balance –99.28 –32.04 Exports fob 174.49 187.64 Imports fob –273.77 –219.68 of which: energy imports –105.06 –62.13 Services balance –18.18 –18.01 Income balance –0.02 –5.97 Current transfers 17.23 16.10 Capital & financial account 89.61 59.17 Capital account –0.03 0.00 Financial account 89.64 59.17 Direct investment 3.68 6.54 Portfolio investment 13.48 220.21 Other investment assets 17.39 –14.37 Other investment liabilities 55.09 –153.21 Basic balance –10.64 19.25 Errors & omissions –11.73 31.56 Overall balance –22.37 50.81 Financing 22.37 –50.81 IMF credit –3.13 –3.47 Reserves adjustment 25.50 –47.34 Source: National Bank of Moldova, published in Moldovan Economic Trends.

Moody’s are set to Moldova’s immediate worry, according to the finance minister, Valeriu Chitan, downgrade Moldova’s is that the negative reports emanating from multilateral credit agencies will credit rating adversely affect the country’s credit rating prior to a planned Eurobond issue in 1998. In January 1997 Moody’s Investor Services assigned Moldova a Ba2 sub- investment grade rating for its foreign currency debt and a slightly lower Ba3 rating for bank deposits, and in July Merrill Lynch managed the issuing of a successful $75m Moldovan Eurobond. Mr Chitan’s fears appear justified. Moody’s announced on November 3rd that its outlook on Moldova’s ratings was deteriorating, because of the high current-account and fiscal deficits, growing gas-payment arrears and the slowing pace of reform.

Moldova finds a way to The 1997-98 winter is forecast to be harsh according to the Red Cross, which pay part of its gas debt— has launched an appeal for $15m to help children in Moldova as well as in Russia, Ukraine and Belarus. With Moldova continuing to owe significant sums

to the Russian gas monopoly, Gazprom, for energy imports, there is a concern in Chisinau that energy supplies may be cut off in the harshest months, as occurred in the winter of 1996-97. In September Moldova was reported to have owed Gazprom $238.7m, while breakaway Transdniestr owed a further $241.3m. According to Russian press reports, Chisinau has issued $140m of bonds to cover the debt, and reached an agreement with Gazprom under which it would no longer be held be responsible for Transdniestr’s portion of the debt. These reports remain speculative; no official announcement has yet been made. If true, however, the deal would bring Moldova’s outstanding bill down to around $100m. Paying this reduced amount will not be without its difficulties, however. In August Moldova had paid off just 51% of its deliveries since the beginning of 1997, $30m of which was in the form of agricultural products. During talks in October Gazprom once again warned the country that it would only supply Moldova with gas that the country could pay for.

—leaving Transdniestr to By dividing responsibility for the debt between itself and Transdniestr, face some of the debt Chisinau is effectively conceding that the region has at least some economic sovereignty. It is difficult to envisage how Transdniestr, with its bankrupt economy, could to pay its share of the bill. Tiraspol could well argue that if the region is liable for part of the gas debt to Russia, then it should be able to control Moldova’s main electricity-generating plant, situated in the breakaway region. Tiraspol also suggested to Moscow that its energy debts could be written off in return for a share of the large weaponry stockpile that has been stored in Transdniestr since Soviet times. Moscow, however, is not prepared to acknow- ledge that Transdniestr has a claim on the arms, and thus refuses to accept that the region is in a position to sell them to Russia in return for a debt write-off, and has thrown the suggestion out.

Business news

A strategic investor is to Following the botched attempts to privatise the country’s tobacco sector in take a 40% stake in 1996 the government has taken great care to ensure that the forthcoming sale Moldtelecom of the state-owned telecoms monopoly, Moldtelecom, one of the prize assets in the privatisation programme, is conducted according to international standards. The sale, of 40% to a strategic investor with the government retaining the remainder, is being conducted through an international tender, and with N M Rothschild as the adviser. The government is hoping for a bid in excess of $120m, most of which will be invested in the company. A shortlist of two has been drawn up, consisting of the Greek state telecoms company, Hellenic Telecommunications Organisation (OTE), and a consortium between France Télécom and GN Store Nord of Germany.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Quarterly indicators and trade data 35

Quarterly indicators and trade data

Belarus: quarterly indicators of economic activity

1995 1996 1997 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Industrial production Monthly av General index Jan 1994=100 75.1 75.0 79.5 77.8 76.8 80.6 83.4 90.7 93.7 n/a Crude petroleum ’000 tons 161.0 162.3 159.7 155.0 154.3 156.0 154.7 149.7 151.7 156.0a Natural gas m cu metres 22.4 22.3 21.2 21.3 21.0 20.3 20.4 20.5 20.0 20.4a Wages & prices End-Qtr Nominal wagesb BRb ’000 813 880 1,014 1,067 1,187 1,289 1,593 1,733 2,188 n/a Prices Monthly av Consumer prices 1993=100 5,581 6,361 7,085 7,932 8,290 8,729 9,871 12,196 13,344 n/a change year on year % 1,533 616 244 73 49 37 39 54 61 n/a Producer prices, ind 1993=100 3,902 4,408 4,725 4,989 5,233 5,693 6,252 8,789 10,212 n/a Construction Houses completed ’000 1.20 1.47 4.50 0.90 2.57 3.20 5.67 1.60 3.03 n/a Retail trade Sales Jan 1995=100 84.8 91.5 92.8 79.9 91.1 110.4 123.0 98.2 109.0c n/a Money End-Qtr M1 BRb bn 6,964 8,393 10,027 9,870 11,502 13,782 15,708 18,115 22,886 25,913d change year on year % n/a n/a 273.2 106.8 65.2 64.2 56.7 83.5 99.0 n/a Foreign trade Qtrly totals Exports $ m 1,126.1 1,295.0 1,346.8 1,259.2 1,384.0 1,382.7 1,436.8 1,290.3 1,701.6 n/a to CIS “ 647.1 842.9 902.7 862.9 961.5 933.6 888.8 828.9 1,222.8 n/a Imports ” 1,533.3 1,340.7 1,671.3 1,665.4 1,752.4 1,630.7 1,890.8 1,914.7 1,996.4 n/a from CIS “ 1,013.4 891.8 1,115.8 1,080.4 1,143.7 1,073.9 1,272.1 1,345.5 1,289.7 n/a Exchange holdings End-Qtr Foreign exchange $ m 397.9 435.2 372.5 423.7 367.9 410.6 469.0 427.3 376.2 370.4d Exchange rate Official rate BRb:$ 11,500 11,500 11,500 11,500 13,100 14,650 15,500 24,650 26,980 27,430d a July only. b Average monthly. c Average for April-May. d End-August.

Sources: TACIS, Belarus Economic Trends, monthly; OECD, Short-term Economic Indicators; IMF, International Financial Statistics.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 36 Quarterly indicators and trade data

Moldova: quarterly indicators of economic activity

1995 1996 1997 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Industrial production Monthly av General index 1990=100 36.3 48.7 n/a n/a n/a n/a n/a n/a n/a n/a Construction Houses completed ’000 0.17 0.20 1.27 0.20 0.23 0.20 0.53 0.20 0.23 n/a Employment Total ’000 1,740 1,710 1,630 1,600 1,700 1,670 1,630 1,580 1,690 n/a Unemployed, registered ” 22.9 23.3 24.8 26.3 26.6 26.1 24.6 23.2 22.9 n/a Wages & prices Nominal wagesa Lei 127 138 176 157 177 185 232 189 193 196b Consumer prices Jun 1994=100 125 128 144 154 157 159 165 171 176 176c change year on year % n/a 22.4 24.1 25.2 25.6 24.2 14.6 10.9 12.0 n/a Money End-Qtr M1, seasonally adj: Lei m 614.5 673.2 790.2 973.3 1,005.5 893.8 888.0 1,029.8 1,121.4 1,131.3d change year on year % 97 73 69 68 64 33 12 6 12 n/a Foreign trade Qtrly totals Exports $ m 155.6 182.8 270.3 175.5 207.7 187.4 231.0 174.5 190.2 n/a to CIS “ 101.3 115.2 179.6 121.4 149.1 125.9 149.7 124.1 150.4 n/a Imports ” 178.9 202.5 278.1 254.9 259.0 273.0 292.3 273.6 280.6 n/a from CIS “ 124.8 125.7 178.9 175.3 155.6 151.3 181.9 168.9 130.9 n/a Exchange holdings End-Qtr Foreign exchange $ m 165.5 189.0 226.7 243.0 245.9 278.8 305.7 285.8 335.3 358.7 Exchange rate Official rate Leu:$ 4.54 4.53 4.50 4.52 4.65 4.62 4.65 4.54 4.59 4.62 a Average monthly. b July only. c Average for July-August. d End-August.

Sources: OECD, Short-term Indicators; IMF, International Financial Statistics; TACIS, Moldovan Economic Trends.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Quarterly indicators and trade data 37

Belarus: OECD trade ($ ’000) Germany Italy United States Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec 1995 1996 1995 1996 1995 1996 OECD exports fob Food 20,903 30,864 3,364 5,991 14,974 10,439 of which: cereals 4,065 3,835 395 1,178 75 1,096 Chemicals 68,795 88,773 2,575 4,343 4,443 4,167 Textile yarn, cloth & manufactures 23,874 29,916 13,713 14,162 411 827 Iron & steel 5,599 19,977 353 846 18 0 Metal manufactures 11,801 12,514 3,418 5,871 291 46 Machinery & transport equipment 316,816 228,173 34,237 38,541 11,218 15,011 of which: road vehicles 94,908 103,341 1,538 1,665 451 2,111 Clothing & footwear 25,689 24,456 8,690 10,157 806 100 Scientific instruments etc 24,119 21,124 1,423 5,046 4,382 2,809 Total incl others 733,825 620,628 85,292 107,738 47,330 52,836 OECD imports cif Food 14,061 17,386 2,125 1,864 164 448 Wood & cork & manufactures 22,182 20,933 2,971 3,151 105 1,137 Metalliferous ores & scrap 16,486 7,725 31 39 876 1,109 Petroleum & products 452 111 0 0 0 0 Chemicals 75,240 36,578 10,954 588 19,620 6,221 Textile yarn, cloth & manufactures 17,010 11,160 10,317 7,029 1,921 2,789 Non-metallic mineral manufactures 1,593 3,180 151 2 251 536 Non-ferrous metals 98,365 20,662 36 0 0 0 Metal manufactures 7,048 7,963 2,092 1,821 66 52 Machinery & transport equipment 26,336 30,831 2,200 3,909 9,169 8,029 Clothing 37,720 50,268 17,881 18,536 14,400 33,545 Scientific instruments etc 16,438 15,245 209 58 417 777 Total incl others 414,108 259,535 82,443 63,419 49,790 56,677 Source: UN, External Trade Statistics, series D.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 38 Quarterly indicators and trade data

Moldova: foreign trade ($ ’000) Total Russia Ukraine Romania Bulgaria Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports cif 1994 1995 1994 1995 1994 1995 1994 1995 1994 1995 Food 34,477 49,447 3,360 6,620 5,166 10,902 1,913 2,205 459 983 Crude materials 19,141 31,562 5,438 8,188 3,318 8,939 3,023 2,651 217 155 Coal 55,657 50,278 7,390 6,317 47,676 43,485 0 0 0 0 Petroleum & products 132,394 182,568 67,721 63,991 24,345 66,427 15,332 16,281 49 3,045 Chemicals 44,439 77,722 8,482 15,765 6,503 13,433 4,331 5,745 3,239 2,270 Manufactured goods 74,979 120,505 25,895 39,303 14,005 21,888 3,932 10,813 3,491 11,024 of which: paper & manufactures 10,781 26,639 6,970 12,088 640 1,350 218 1,384 576 235 textile yarn, cloth & mnfrs 23,326 28,120 5,050 5,668 1,307 1,428 2,100 2,946 886 218 non-metallic mineral mnfrs 13,928 23,622 2,790 4,291 2,976 4,131 428 3,820 1,837 7,347 Machinery & transport eqpt 84,395 127,877 20,659 27,633 9,081 11,708 7,474 9,729 1,940 3,746 Total incl others 668,951 840,713 319,103 277,995 122,709 228,487 42,553 55,953 10,120 31,876

Total Russia Ukraine Romania Germany Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Exports fob 1994 1995 1994 1995 1994 1995 1994 1995 1994 1995 Food 230,598 295,954 118,144 132,842 27,113 8,886 33,836 63,788 10,851 23,464 of which: fruit, vegetables & preps 105,678 116,279 54,220 56,005 22,040 1,948 1,121 4,604 10,653 23,341 Beverages & tobacco 132,176 174,345 95,204 141,172 13,585 5,911 2,913 3,277 880 203 Manufactured goods 42,327 52,615 12,919 18,905 3,842 7,960 16,428 13,808 1,298 1,866 of which: non-metallic mineral mnfrs 5,640 15,378 1,365 9,319 1,463 2,768 2,504 2,457 0 0 Machinery & transport eqpt 65,148 58,793 36,259 27,607 15,249 14,783 5,777 5,773 313 81 Clothing 14,297 23,315 6,183 5,161 945 226 392 678 1,246 5,902 Total incl others 566,001 745,530 289,703 360,141 68,561 58,894 83,415 103,667 19,678 45,440

Imports ($ m) Exports ($ m) Jan-Dec Jan-Dec Jan-Jul Jan-Jul Jan-Dec Jan-Dec Jan-Jul Jan-Jul 1995 1996 1996 1997 1995 1996 1996 1997 CIS 568.9 653.3 380.2 356.0 466.9 548.3 315.8 335.9 Russia 278.0 289.4 176.3 179.3 360.1 431.5 253.8 285.6 Ukraine 228.5 290.9 163.5 143.7 58.9 48.3 25.2 22.1 Belarus 50.7 61.2 34.0 25.0 26.5 34.3 18.4 19.6 Central & eastern Europe 120.4 179.1 103.5 114.9 158.7 133.2 74.1 46.5 Romania 56.0 72.4 40.3 50.0 103.7 75.1 41.2 26.3 Bulgaria 31.9 57.2 35.8 31.7 21.4 12.9 9.7 5.0 Hungary 8.5 14.2 7.8 10.9 5.7 2.7 2.5 1.2 EU 115.2 164.8 86.4 121.5 86.2 78.4 40.2 43.3 Germany 45.6 67.9 31.9 53.5 45.4 30.0 18.2 15.0 Italy 19.3 33.7 21.1 22.2 15.6 21.1 9.3 11.7 Netherlands 6.6 10.5 6.2 6.4 2.3 8.7 4.3 2.9 Total excl others 840.7 1,071.7 613.6 655.2 745.5 804.2 450.6 446.0 Sources: UN, External Trade Statistics, series D; Moldovan Economic Trends.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Quarterly indicators and trade data 39

Former Soviet republics: currency status Introduction Country Name Status date Remarks Armenia Final currency Dram Sole legal tender Nov 22nd 1993 Azerbaijan Final currency Manat Sole legal tender Jan 1st 1993 Manat became sole legal tender on Jan 1st 1994. Belarus Interim currency Rubel Sole legal tender Jun 1992 Sole legal tender as of Nov 10th 1992. Estonia Final currency Kroon Sole legal tender Jun 20th 1992 Georgia Final currency Lari Sole legal tender Sep 25th 1995 Kazakhstan Final currency Tenge Sole legal tender Nov 15th 1993 Kyrgyz Republic Final currency Som Sole legal tender May 10th 1993 Sole legal tender as of May 15th 1993. Latvia Final currency Lat Sole legal tender Jun 28th 1993 Lat phased in between Mar 1st and Jun 28th 1993. Lithuania Final currency Lit Sole legal tender Jul 20th 1993 Lit phased in between Jun 25th and Jul 20th 1993. Moldova Final currency Leu Sole legal tender Nov 29th 1993 Russia Final currency Rouble Sole legal tender 1993 Soviet roubles issued between 1961 and 1992 withdrawn. Russian 1993 rouble is devoid of Soviet emblems. Tajikistan Interim currency Tajik rouble Sole legal tender 1961, 1993 Tajik rouble replaced the Russian rouble on May 11th 1995. Final currency Somon Delayed No date set Turkmenistan Final currency Manat Nov 1st 1993 Multiple exchange rate system abolished Apr 8th 1996. Ukraine Final currency Hryvnya Sole legal tender Sep 2nd 1996 The hryvnya superseded the karbovanets (introduced Nov 13th 1992). Uzbekistan Interim currency Som Parallel Nov 29th 1993 Introduced as a coupon to circulate in parallel with the rouble as of Nov 29th 1993. Final currency Som Final Jul 1st 1994 Source: EIU.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 40 Quarterly indicators and trade data

Former Soviet republics: exchange rates

Exchange rate per $ Jul 3rd Oct 6th Jan 5th Apr 4th Jul 5th Oct 4th Jan 1st Apr 4th Jul 11th Oct 6th 1995 1995 1996 1996 1996 1996 1997 1997 1997 1997 Outside rouble zone Armenia (Dram) 408 400 402 404 410 412 440 469 505 501 Azerbaijan (Manat) 4,395 4,395 4,440 4,376 4,300 4,304 4,200 4,074 3,968 3,928 Estonia (Kroon) 11.1 11.4 11.6 11.9 12.2a 12.2 12.4b 13.4 14.0 14.2 Georgia (Coupon/Lari) 1,300,000 1.28c 1.17 1.261.25d 1.27 1.29e 1.30f 1.30 1.30 Kazakhstan (Tenge) 63.6 61.4 64.3 66.0 66.9 70.0 72.5 75.4 75.6 75.6 Kyrgyz Republic (Som) 10.6 10.9 11.0 11.5 12.4 13.3 17.0 17.6g 17.3 17.3 Latvia (Lat) 0.51 0.54 0.54 0.54 0.56h 0.55 0.56e 0.58 0.58 0.59 Lithuania (Lit) 4.00 4.00 4.00 4.00 4.00h 4.00 4.00 4.00 4.00 4.00 Moldova (Leu) 4.54 4.54 4.53 4.58 4.65 4.61 4.60 4.57 4.57 4.62 Turkmenistan (Manat) 230 500 2,100 2,500 3,935 4,075 5,000 4,110f 4,165 4,165 Ukraine (Karbovanets/Hryvnya) 142,693 172,000 179,900 189,100 178,900 1.77i 1.83 1.85 1.86 1.87 Uzbekistan (Som) 30.3 33.8 34.6 37.0 37.8 40.0 55.0 58.9j 63.6 75.8 Inside rouble zone (local parallel currencies & Russian rouble) Belarus (Rubel) 11,500 11,500 11,500 12,200 15,500 19,300 20,200 34,200 43,337 27,910 Russia (Rouble) 4,548 4,495 4,674 4,825 5,131a 5,424 5,747b 5,737 5,788 5,865 Tajikistan (Tajikistan rouble)k 51kl n/a 300m 280 280 298 330 n/a 380j 747 a July 9th. b January 7th. c Coupon replaced by Lari. d June 5th. e January 8th. f April 7th. g April 9. h June 10th. i Karbovanets replaced by Hryvnya on September 2nd at the exchange rate of HRN1.0:KRB100,000. j April 11th. k Used the Russian rouble until May 11th 1995, when the Tajik rouble was introduced. l June 16th. m February 2nd.

Sources: OMRI; FT; BBC Monitoring, Summary of World Broadcasts; Reuters; Bloomberg.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Quarterly indicators and trade data 41

Former Soviet republics: GDP and GDP per head (purchasing power parities) 1989 1990 1991 1992 1993 1994 1995 1996 Armenia GDP $ bn 17.6 17.0 16.1 7.9 6.9 7.3 8.0 8.7 per head ($) 5,062 4,804 4,469 2,143 1,853 1,942 2,126 2,301 Azerbaijan GDP $ bn 21.8 20.0 20.7 13.8 10.9 8.7 7.4 7.7 per head ($) 3,076 2,804 2,880 1,889 1,476 1,171 988 1,016 Belarus GDP $ bn 49.5 50.0 51.4 47.8 43.8 39.2 36.1 37.9 per head ($) 4,835 4,876 5,006 4,632 4,228 3,802 3,514 3,699 Estonia GDP $ bn 7.7 7.4 6.9 6.2 5.8 5.8 6.2 6.6 per head ($) 4,917 4,691 4,377 3,959 3,803 3,874 4,182 4,495 Georgia GDP $ bn 23.4 21.4 17.8 10.9 7.7 5.6 5.5 6.2 per head ($) 4,299 3,919 3,251 1,994 1,400 1,031 1,006 1,155 Kazakhstan GDP $ bn 71.9 74.6 72.4 64.7 56.0 43.0 40.1 41.5 per head ($) 4,345 4,477 4,304 3,827 3,316 2,569 2,426 2,510 Kyrgyz Republic GDP $ bn 11.1 11.9 11.2 9.7 8.3 6.3 6.0 6.5 per head ($) 2,555 2,706 2,524 2,164 1,863 1,405 1,339 1,427 Latvia GDP $ bn 14.5 14.6 13.6 9.1 8.0 8.2 8.3 8.8 per head ($) 5,438 5,471 5,119 3,463 3,070 3,212 3,318 3,512 continued

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 42 Quarterly indicators and trade data

1989 1990 1991 1992 1993 1994 1995 1996 Lithuania GDP $ bn 33.7 33.3 30.0 19.2 13.7 14.2 14.9 15.8 per head ($) 9,123 8,964 8,032 5,141 3,681 3,817 4,029 4,270 Moldova GDP $ bn 16.0 16.2 13.9 10.2 10.3 7.3 7.2 6.8 per head ($) 3,667 3,723 3,195 2,336 2,362 1,668 1,659 1,568 Russia GDP $ bn 856.8 875.4 865.1 760.0 711.9 637.1 626.9 609.3 per head ($) 5,815 5,919 5,835 5,124 4,805 4,306 4,232 4,124 Tajikistan GDP $ bn 9.9 10.2 9.7 7.0 5.2 4.5 4.1 3.5 per head ($) 1,915 1,920 1,770 1,248 915 782 694 584 Turkmenistan GDP $ bn 10.0 10.7 10.5 10.2 9.5 7.7 6.8 6.8 per head ($) 2,798 2,903 2,808 2,542 2,195 1,757 1,516 1,485 Ukraine GDP $ bn 216.5 217.6 206.6 191.3 168.4 132.6 119.3 109.9 per head ($) 4,182 4,197 3,978 3,668 3,227 2,554 2,311 2,151 Uzbekistan GDP $ bn 44.6 47.2 48.9 44.6 44.7 43.8 43.9 45.7 per head ($) 2,216 2,312 2,342 2,089 2,048 1,964 1,956 1,994 Sources: IMF; World Bank, Statistical Handbook of States of the Former USSR; UN Economic Commission for Europe, Bulletin for Europe, Vol 44 1992; EIU calculations.