Moldova
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| Objective |
SO Number |
FY 2004 |
FY 2005 |
FY 2006 |
| Private Enterprise Development |
117-0131 |
12,728 |
6,231 |
6,656 |
| Democratic Transition |
117-0230 |
2,320 |
5,582 |
5,314 |
| Social Transition |
117-0340 |
3,929 |
2,722 |
1,690 |
| Transfers |
|
3,566 |
2,815 |
3,340 |
| Total (in thousands of dollars) |
22,543 |
17,350 |
17,000 |
|
The Development Challenge:
The dismal economic condition of Moldova inherited from the former Soviet Union worsened with the loss of traditional markets in the East and a painful economic transition during the 1990s. The reform process, which proceeded slowly throughout the 1990s, has imposed hardships on the Moldovan people, and there is a general perception that the process was tainted with corruption and has unjustly benefited a well-positioned elite. After the 2001 parliamentary election, the reform process saw some setbacks and some progress. At that time, members of the Communist Party of Moldova (CPM) were elected to office in what most observers considered to be a reasonably free and fair process. The election of the CPM resulted from the perception that the previous "reform" government was corrupt, unaccountable, and not proactive in helping improve the economic and social conditions within the country.
Nearly 50% of Moldovan gross domestic product (GDP), 40% of employment, and 65% of exports are related to agriculture (agribusiness included). More than half the country's population lives in rural areas and makes its living from agricultural activities. According to the European Bank for Reconstruction and Development (EBRD), GDP per capita is $448. According to a 2002 household survey, more than 40% of Moldovans live in absolute poverty. More than 70% of the poor live in rural areas, and 8% in large cities. According to the Moldovan Security Service, between 600,000 and 1,000,000 Moldovan citizens (approximately 25% of the population) work abroad, many illegally. In some villages, half the population has migrated. Some of those who seek legitimate employment abroad do succeed in finding it. Others, primarily young women, are not as lucky and are lured into forced prostitution. The International Organization for Migration (IOM) estimates that every year approximately 10,000 women go abroad in search of work. Although no official statistics exist, IOM estimates that the majority of women trafficked come from rural areas.
Although the GOM has not denounced the pro-democratic, economic and social reform initiatives that were introduced during the 1990s, they have been selective in their support of some reform measures and have worked hard to reverse or derail others. USAID and the U.S. Embassy have worked to maintain a strong working relationship with the GOM, despite initial concerns about Communist Party rhetoric, and a number of anti-reform measures taken by it. However, for the past two years, the GOM's commitment to economic and market reforms has been questionable. The International Monetary Fund (IMF) does not have an active program in Moldova. The World Bank (WB) program is proceeding extremely cautiously. Though the GOM continues to issue statements about its commitment to the reform process, its actions often speak otherwise.
In 2004, the Parliament passed a law on production cooperatives to facilitate the return to the old style Soviet collective farms. The GOM also established a requirement that grain transactions be registered with the Universal Commodity Exchange, and set export prices for grains with the apparent intention of hindering grain exports and maintaining artificially low bread prices. Bureaucratic restrictions continue to impede the import of U.S. poultry in an apparent attempt to promote the establishment of state-affiliated poultry operations. On a more positive note, the GOM has established a national working group (with private sector participation) to promote regulatory reform in business activity.
Currently, the GOM's commitment to reform is uncertain, being influenced by politics surrounding the March 2005 elections, and the breakdown in negotiations over a new federal constitution, which would reintegrate the breakaway republic of Transnistria with Moldova. The limited polling conducted in Moldova points to another win for the Moldovan Communist Party in the upcoming elections. President Voronin remains the single most popular political personality in Moldova.
Important foreign investors have left the country, while others have faced substantial levels of intervention from the authorities. Corruption remains a serious problem. Other factors that have adversely affected the situation in Moldova include the reduction in trade with its historically largest trading partner, Russia, and the economic dislocations caused by the breakaway of the Transnistria region, which has the majority of Moldova's heavy industry.
The key challenge to achieving economic growth, accountable government, and improved social conditions is the GOM's apparent lack of commitment to reform. The Parliament has not acted on many of the laws that have been recommended by USAID and other donors. The GOM's heavy handed approach to privatization and lack of transparency in the energy sector has resulted in setbacks in energy privatization. The environment for investment was soured by the GOM harassment of Union Fenosa, a foreign investor in the energy sector. The energy regulatory agency is not an independent agency inasmuch as it is constantly under pressure from the highest levels of government not to increase tariffs and not to investigate questionable transactions. During FY 2004, all USAID energy sector activities (with the exception of a few minor activities managed by USAID in Washington) were phased out. This early phase-out from the energy sector sent a strong message to the GOM with regard to its lack of commitment to the reform process.
The CPM is trying to reassert control at the national and local levels. The international community observed procedural irregularities and expressed concern about the GOM's abuse of power. The GOM intimidated key political opposition members with a series of investigations and arrests on questionable charges, reversed local government reform intended to devolve power from the central authorities; and increased manipulation of the media. The competing interests of the Parliament and the Presidency have resulted in weak governmental institutions.
The USAID Program:
The principal beneficiaries of the USAID strategic assistance for Moldova are the unemployed and the working poor, who constitute the majority of the population, particularly in rural areas. USAID's strategy concentrates on job creation, income generation, and economic opportunity in rural areas. USAID encourages growth through investment in agribusiness and improving the environment for private enterprise. It also focuses on developing effective, responsive and accountable democratic institutions by strengthening local government autonomy, and civil society; and helping to assist Moldova's most vulnerable citizens.
Other Program Elements:
The Farmer-to Farmer Agribusiness Volunteer Program (Citizens Network for Foreign Affairs) is managed by the USAID Bureau for Europe and Eurasia. This program fielded 18 volunteers during FY 2004, who assisted farmers' cooperatives and associations and provided technical advice to milk receiving stations, credit associations, farm service centers, and farm stores.
The USAID Bureau for Economic Growth, Agriculture, and Trade manages the Micro and Small Enterprise Development (MSED) and Development Credit Authority (DCA) Loan Portfolio Guarantee (LPG) Projects. Through these projects, USAID helped the Moldovan banking sector to increase its lending activity with SMEs and agriculture entrepreneurs. Seven banking and non-bank financial institutions are participating. Over 1,000 beneficiaries have received loans totaling more than $13 million. Agroindbank's new program targeting start-up SMEs and agriculture businesses is an example of the new interest of banking institutions to these sectors is Moldova.
Other Donors:
Donor coordination is maintained through frequent meetings with all bilateral and multilateral donors. Until recently, the U.S. was the only major bilateral donor. However, Sweden is now the largest bilateral donor. Germany, the Netherlands, Japan, and Great Britain also have bilateral programs. The Soros Foundation and private organizations run development programs in Moldova. In addition to U.S. bilateral assistance, there are multilateral donors: the IMF (economic policy); the World Bank (economic policy, social investment fund, micro-projects at the village level and energy); the EU Technical Assistance to the Commonwealth of Independent States (agricultural sector); and the International Fund for Agriculture Development (agriculture sector). The United Nations Development Program also provides support.
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