Publication: Monitor Volume: 6 Issue: 109

According to preliminary data recently released by the CIS Statistical Committee, key sectors of the Moldovan economy are growing this year following precipitous declines throughout much of the country’s post-Soviet transition. In the first quarter of 2000, industrial output grew by 3.3 percent, while the volume of freight carried was up 2.0 percent compared to the same period in 1999. (www.unece.org). In 1999, industrial output fell by 10.0 percent, while freight transport dropped by 20.0 percent. Growth in these sectors, which account for roughly one-third of total GDP in Moldova, indicates that the sharp declines in GDP in 1998 and 1999 may be bottoming out this year, though much depends on agricultural output, which accounts for another third of GDP; the CIS does not publish quarterly agricultural data. Prospects for growth in agriculture this year are deteriorating rapidly, however, due to severe drought conditions this spring.

Moldova’s economic collapse in 1998 and 1999 was triggered by the Russian crisis: Falling exports to Russia, which account for roughly half of Moldova’s exports, resulted in a massive drop in output, while an ensuing balance-of-payments crisis ignited inflation, causing real wages and domestic demand to plummet. Russia’s recovering economy, which began in the fourth quarter of 1999, has increased demand for import and is now driving Moldova’s nascent, fragile, economic growth. Exports to the CIS, largely wine and food exports to Russia, surged by 43.0 percent in the first two months of 2000 (www.unece.org). Unfortunately, such gains–for the most part–reflect growth from an exceptionally low base in 1999. As a result, growth will likely slow quickly by the fourth quarter. Whether Moldova can sustain growth after these base effects evaporate remains in doubt.

In light of the political uncertainty currently gripping Moldova, the country’s difficulties in servicing its foreign debt, and the drought, the economic outlook is unpromising despite these few positive signs. The government’s and parliament’s unwillingness to implement economic reforms required for assistance from the IMF and World Bank has resulted in the indefinite suspension of foreign multilateral financing of Moldova’s budget and current account deficits. Unable to finance imports of raw materials and capital goods, growth in gross industrial output and transportation activity will likely falter if IMF and World Bank credits are not forthcoming. Without foreign financing, the risk of default on Moldova’s US$100 million in debt servicing payments due this year increases substantially. Default would likely trigger another round of currency depreciation, accelerating inflation, and derail the incipient recovery.

The Monitor is a publication of the Jamestown Foundation. It is researched and written under the direction of senior analysts Jonas Bernstein, Vladimir Socor, Stephen Foye, and analysts Ilya Malyakin, Oleg Varfolomeyev and Ilias Bogatyrev. If you have any questions regarding the content of the Monitor, please contact the foundation. If you would like information on subscribing to the Monitor, or have any comments, suggestions or questions, please contact us by e-mail at [email protected], by fax at 301-562-8021, or by postal mail at The Jamestown Foundation, 4516 43rd Street NW, Washington DC 20016. Unauthorized reproduction or redistribution of the Monitor is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation Site Maintenance by Johnny Flash Productions