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Moldova: Privatization Promises Resumption Of International Aid

  • Tony Wesolowsky

Moldova's parliament recently voted to privatize the important wine and tobacco industries. The move marks a key step toward the country's goal of convincing international financial institutions to resume loans.

Prague, 25 October 2000 (RFE/RL) -- At first glance, small and impoverished Moldova hardly seems a shining example of successful economic transition in the former Soviet bloc.

Sandwiched between much larger Ukraine and Romania, the country has seen its economy shrink to about a third of its size in 1989. Today's average monthly salary is the equivalent of about $16. Joblessness stands at 15 percent. Wage and pension arrears stretch back for months. And on top of all that, there is an active separatist movement in the predominantly Russian-speaking area of Transdniestr.

But according to Carlos Elbirt, the World Bank representative in Moldova, the future may be brighter because the country has made some good economic decisions. He says a decision to privatize energy was especially positive:

"The privatization of the distribution of energy has already started, it's already operational, the companies operating them -- this is an example for the region because not many have done that."

Moldova launched a mass privatization drive in 1993. Three years later, some 3 million Moldovans were shareholders in about 2,000 privatized firms. Moldovan officials say that during 1997 and 1998 the sales of several enterprises brought the state some $57.5 million. Elbirt says the biggest privatization success so far has been the almost total transfer of land to local farmers.

But the proposed privatization of the country' important wine and tobacco industries stirred considerable controversy. The two industries -- especially wine -- are considered the crown jewels of what little Moldovan industry actually exists. That's because what Moldova lacks in natural resources, it more than makes up with fertile soil -- some of the richest arable land in the region. In the past, Moldova's wines, fruits, and vegetables were exported throughout the former Soviet Union.

Major multilateral lending agencies -- including the International Monetary Fund, or IMF, and the World Bank -- halted loan programs last year after the Moldovan parliament failed to privatize the wine and tobacco industries, as the institutions had recommended. All told, some $125 million in international loans were put on hold.

But last week (Oct 19) the Moldovan parliament finally voted to privatize the two industries. Moldovan President Petru Lucinschi welcomed the result and expressed the hope it would lead to a quick resumption of IMF and World Bank loans.

A high IMF official dealing with eastern Europe, John Odling-Smee, says the fund could resume its lending to Moldova if the parliament passes the 2001 budget by December 1. Meanwhile, World Bank Regional Director Roger Grove is due in Chisinau today for talks with the government on resuming his institution's loans.

Moldova's communists, who make up some 40 percent of the parliament, opposed the two key state asset sales and walked out in protest the day after the vote. Communist Party Chairman Vladimir Voronin accused the parliament of caving in to pressure from the IMF and World Bank.

That accusation is flatly rejected by the World Bank's Elbirt -- with a qualification.

"Of course, the country has the right to keep the thing [the winery business]. They have the right, but also we have the right not to lend. This is a bilateral business."

Elbirt also says that while Moldovan wine may have done brisk business in the former Soviet world, privatization was the only hope for breaking into Western markets.

"If you want to export to Western Europe, particularly you need quality control, you need stability control, you need presentation proper according to the market demand. That was not the case, [and] now has to start to be the case."

Elbirt suggests bringing in a Western partner to root out the widespread corruption in Moldova's wine industry. Britain's Economist Intelligence Unit recently pointed out that much of the parliamentary opposition to privatizing both the wine and tobacco industries was partly a result of what it called "vested interests eager to maintain the status quo in these important sectors."