bne IntelliNews – COMMENT: Three decades of achievements and many challenges for Moldova
On August 27 of this year, the Republic of Moldova will celebrate its 30th anniversary. Moldova became an independent state in 1991 (recognized as such by the United Nations in March 1992), following the dissolution of the Soviet Union. The “birth” of this state, based on the declaration of independence adopted by the Moldovan parliament, was an act of historical significance. The development of the newly born state over the past three decades has been eventful, most of which is predictable in the regional geopolitical context and due to the intrinsic characteristics of Moldovan society itself.
Moldovan Declaration of Independence
Source: Moldovan Parliament
In general, it can be said that Moldova quickly succeeded in achieving the crucial characteristics of an independent state. The first, from this point of view, was full membership in the International Monetary Fund (IMF) and the World Bank Group, a remarkable achievement that was made possible with the support of the Netherlands and Romania. . Membership documents were signed in Washington DC at the US State Department by then-Moldovan Prime Minister Andrei Sangheli on August 12, 1992.
Membership of the IMF and the World Bank
Source: Personal collection of the author
Financial support and technical assistance from both the IMF and the World Bank, including the International Finance Corporation (IFC), have been instrumental. These international financial institutions (IFIs), including the European Bank for Reconstruction and Development (EBRD) and later the European Investment Bank, the Black Sea Bank for Trade and Development and other IFIs have played a decisive role in ensuring that Moldova can make its own decisions in the interest of its own people, on the basis of its own strategic programs and of its political and economic interests and without the interference of geopolitical interests, so present in the region from the early days of independence until today.
Another major achievement of Moldova was the introduction of its own currency on November 29, 1993 with the support of the IMF, with the portrait of Saint Stefan the Great as a national symbol.
The first Moldovan leu
Source: The National Bank of Moldova
Soviet-era rubles, Russians, and Moldovan coupons were withdrawn from circulation as official means of payment, and the Moldovan leu was printed with a starting exchange rate of 3.85 lei to the US dollar. . Unfortunately, during its 28 years of existence, the Moldovan leu has suffered a difficult fate, with numerous depreciations due to the global crises (see the case of 1998) and, moreover, due to unprecedented and unprecedented banking frauds which resulted in the bankruptcy of Banca de Economii, Banca Sociala and Unibank in 2016. The “Moldovan laundromat” through which around $ 20 billion of Russian money was laundered by a few Moldovan and Baltic banks also contributed to the woes of the leu , which currently has a rate of MDL21.2684 for the Euro and MDL17.8869 for the US Dollar (the two key currencies in Moldova currently).
The statue of Saint Stefan the Great in Chisinau
Source: Personal collection of the author
In short, during its three decades of existence, Moldova has managed to implement good programs to restructure its Soviet-era “industrial elephants”, fostered the development of rural tourism, improved transport infrastructure (mainly roads), developed the agricultural sector for which the country has excellent conditions, managed to obtain a free visa for its citizens in Europe, managed to maintain an annual influx of remittances from 1.2 billion to 1, 3 billion euros from the Moldovan diaspora working abroad and, perhaps the most important, signed the Deep and Comprehensive Free Trade Area Agreement (CFTA) with the European Union (EU), ratified in July 2016. All these elements deserve to be mentioned on a non-exhaustive checklist of important achievements.
However, by the time Moldova declared independence, the country had 4.33 million inhabitants (including the so-called Transnistrian region on the left bank of the Dniester River). This region alone, with a population of around 0.7 million Moldovans, Russians, Ukrainians and other minorities, declared its own independence with the support of the Russian 14th Army which was (and still is) stationed in Tiraspol. It was one of the first serious challenges for the new “young” state. A separatist war broke out soon after and the population began to feel the consequences of the war. An exodus of Moldovans began despite numerous logistical difficulties, as Moldovans only received free access to Europe in June 2014. Many Moldovans (some estimates put the number at one million) demanded the Romanian nationality which, especially after January 2007, Romania became a member of the EU, helped them to emigrate to Romania, Europe and elsewhere. Apart from the Transnistrian war, the exodus was mainly triggered by the low level of GDP per capita, high unemployment, bank fraud and corruption at the highest level of the political spectrum until 2016-2018. Meanwhile, after starting its transition with zero external debt, Moldova has accumulated a significant level of this indicator at $ 8.25 billion, which represents more than 68% of its GDP, at the end of March 2021. L The obvious impact of this is that it will put pressure on the leu exchange rate and possibly speed up the process of emigration.
According to the most recent data available, Moldova currently has a population of only 2.9 million citizens, of which around 0.3 million live in Transnistria (an estimated total decrease of around 1.5 million citizens). However, it is fair to say that Moldova was not the only state in transition to a market economy with such convoluted dynamics of its population. For example, Romania lost a large part of its 23 million inhabitants at the end of 1989. It is estimated that 5 million Romanians have emigrated since the dramatic events of December 1989. The populations of Ukraine and Poland have also declined over the past three decades of transition. Many other countries in transition have experienced similar developments.
These were fundamental changes in the fabric of Moldovan society, with lasting consequences. Steps to reverse these dire trends are needed more than ever. The recent political changes (new reformist president, new parliament following the elections of July 11 with a good majority for the main party (PAS) and new single-color government in place since August 6) offer a long-awaited mix that should be used to the maximum. to consolidate reforms, eradicate corruption, attract more foreign direct investment (FDI), create the conditions for the development of private SMEs and, finally, improve the standard of living of the local population. The EU and most of the IFIs stand ready to provide support. In a way, one could say that Moldova has never had a better political environment to push the essential reforms and orient the country towards the developed Europe to which it belongs.
Many happy returns, Moldova!
Alexandru M. Tanase is an independent consultant and former associate director, senior banker at the EBRD and former adviser to the IMF. This article represents the personal views of the author and are not those of the EBRD, the IMF or any other institution cited. Assessment and data are based on information as of mid-August 2021.