Moldova’s economic crisis, which stems largely from the previous administration’s abandoning reforms, is being aggravated by Russia’s financial crisis. This threatens a social collapse in the approaching winter and puts the country’s political independence at risk.
More than 60 percent of this agricultural country’s exports go to Russia–the result of inability to reorient exports in the seven years since 1991. Wine and processed tobacco lead the export list. Moldova used to account for approximately one-third of the USSR’s internal supply of wine and tobacco. With Russia now insolvent, Moldova’s export is coming to a standstill. Production may follow suit. Cigarette production stopped altogether last month according to sector managers. Wineries, when not idle, are working at a fraction of their annual processing capacity of 1.8 million tons of grape. The wineries have placed purchase orders of only 110,000 tons this season, out of an expected commercial harvest of just 200,000 tons, also according to sector managers. Another significant export, raw sugar, lost CIS export markets some time ago and is now being blocked as well by neighboring Romania through a protective surcharge.
The loss of the Russian market means that Moldova can not repay arrears for past deliveries of Russian gas. It may even be unable to cover current payments as winter sets in. Gazprom has cut gas deliveries to Moldova by 50 percent since July. Gazprom is ready with a solution: taking over–jointly with Transdniester–the control of Moldova’s gas supply system. This solution could expose Moldova to political pressure, adding to the Russian leverage represented by Transdniester and the Russian troops stationed there.
The collapse of exports and other consequences of Russia’s crisis threaten Moldova’s currency and its budget. The Moldovan leu, hitherto stable owing to monetarist policies, has started sliding (from 4.5 to almost 6 to the dollar in the last few weeks). Foreign currency reserves have, in the space a few weeks, declined from three months’ worth of critical imports to two months worth. The country has no resources for covering a budget deficit which threatens to balloon.
Budget corrections passed before the August eruption of the Russian crisis are now being nullified by the effects of that crisis, necessitating deeper cuts in expenditures. The government is divided. Pro-reform ministers, mainly representing the pro-presidential Bloc for a Democratic and Prosperous Moldova, are being stymied by the majority of ministers. According to the IMF’s resident representative, Mark Horton, deep differences within the government paralyze reforms, creating equally deep differences between Moldova and the IMF. The IMF had only recently resumed lending, on the strength of the government’s stated commitment to resume reforms. But in an unprecedented step last week, Horton warned publicly and bluntly that the IMF will again hold lending in abeyance unless the government and parliament stop prevaricating on reforms. Apparently referring to ministers and party leaders who resist the necessary measures, Horton spoke of “duplicity,” “ideological and group interests being placed above national interests,” a strategy of “one step forward, two steps backward,” and an overall “aimlessness” in recent years with regard to reforms (Flux, October 8, 9, 12; Basapress, October 10).
Even if the reformers prevail and take the overdue measures, those measures will not ease the population’s plight this coming winter. It threatens to be a cold, dark and hungry one. Some in government may be tempted to alleviate that plight–and save their own political careers–through the shortterm expedient of placing Gazprom’s hand on the country’s jugular.
UKRAINE: RIGHT WING TO REDEFINE PRIORITIES.