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Moldova: Can Any Government Solve The Country's Economic Problems? -- An Analysis

By Michael Wyzan

Chisinau, Moldova; 9 February 1999 (RFE/RL) - When Moldovan Prime Minister Ion Ciubuc resigned at the start of the month, he said he was stepping down because his government would not be able to solve the country's economic problems.

The question remains, though, whether any government can resolve problems that are essentially outside official control.

Last year, the economy contracted a full 10 percent largely because of the unforeseen economic crisis in neighboring Russia.

It was the second year in three that positive economic growth was forecast but failed to materialize because of unpredictable events. In 1996, a poor harvest contributed to a fall in the gross domestic product of almost 8 percent.

Moldova's economic problems reflect both its geopolitical position and a recent retreat from reformist economic policy. Early achievements of the policy, prior to 1997, included relatively low inflation and a stable currency. Consumer prices increased by about 24 percent in 1995, the lowest inflation among the former Soviet republics.

That stability was undermined by the Russian crisis. While consumer prices actually fell by 2 percent through August last year, they rose more than 8 percent in November (after the crisis) and increased about 10 percent for the year. At the same time, the currency, the leu, plummeted in value. To prop up the currency, the national bank saw its international reserves fall from 365 million dollars at the end of 1997 to $150 million at the close of last year.

As the Russian economy collapsed, so did Moldovan exports. Total exports were 23 percent lower in January-November 1998 than in the same period in 1997, with big declines in the export of food, beverages, and tobacco. The trade deficit rose to more than $360 million through November, compared with about $285 million the previous year.

There is one positive indicator. Relations with the IMF and World Bank are back on track. In mid-1997, the IMF had halted disbursements under a $190 million loan approved in May 1996 owing to concern over a growing budget deficit, slow privatization, and the failure to raise energy prices.

Last month, the IMF announced the resumption of lending to Moldova, agreeing to disburse a $35 million tranche. The World Bank is providing the same amount in support of privatization and structural reform. The IMF was pleased by both the passage of an austere 1999 budget and with the parliament's approval in December of plans to sell some important state-owned companies.

(Michael Wyzan is a research scholar at the International Institute for Applied Systems Analysis in Laxenburg, Austria.)