Publication: Monitor Volume: 3 Issue: 122

The Moldovan parliament seems set to approve a government program for privatizing the country’s vinicultural sector. (Itar-Tass, June 16) But while Moldova has long been renowned for wines and cognac, efforts to improve the competitiveness of its exports in this sector face an uphill battle against negative trends that began with Soviet leader Mikhail Gorbachev’s anti-alcohol campaign some ten years ago.

There can be no denying viniculture’s importance to the Moldovan economy. Wine production is the country’s largest economic activity, accounting for one third of budget revenues and earning the bulk of Moldovan export revenues. It is not surprising, therefore, that the 60 percent decline in wine production (from 500 million liters in the mid-1980s to 200 million liters in 1995) roughly mirrored the decline in Moldova’s GDP recorded during that time.

The problems began when former Soviet president Mikhail Gorbachev introduced his anti-alcohol campaign in 1988-87. This prohibition both devastated official wine production and pushed much vinicultural activity underground. The subsequent dissolution of the Soviet Union allowed Western and Central European sellers to push Moldovan wineries out of the CIS markets on which some 80 percent of their wine had been sold. As a result, land devoted to viniculture in Moldova declined by some 35 per cent during the past ten years, and the volume of grapes processed fell by two and a half times. The tight monetary policies used to bring inflation down from the 2700 percent level recorded in 1993 (to 15 percent last year) also pushed interest rates to exorbitant levels, and made borrowing for investment purposes nearly impossible.

The government’s program therefore focuses on privatizing Moldova’s vineyards through attracting foreign investment. Some successes in this area have already been achieved: the EBRD provided a $30 million loan last year; and the International Financial Corporation (the World Bank’s private-sector lending arm) offered another $10 million in February to the Incon group, Moldova’s leading fruit and vegetable processor. However, the decision in February by Prime Minister Ion Ciubuc’s new government to cancel a tender in the tobacco industry that had been awarded to the Reemtsma company did not increase investors’ confidence in the government’s privatization program. The stakes are high insofar as Moldova’s foreign debt is now in excess of $1 billion, which is about half of its GDP. In relative terms, that foreign debt is the second largest among the CIS countries, after Tajikistan’s. (Itar-Tass, June 19)

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