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COUNTRY PROFILE 2001

Belarus

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EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001

Comparative economic indicators, 2000

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© The Economist Intelligence Unit Limited 2001 EIU Country Profile 2001

Contents

Belarus

4 Basic data5 Political background5 Historical background6 Constitution and institutions7 Political forces

10 International relations and defence13 Resources and infrastructure13 Population14 Education14 Health15 Natural resources and the environment15 Transport and communications16 Energy provision17 The economy17 Economic structure18 Economic policy20 Economic performance21 Economic sectors21 Agriculture22 Mining and semi-processing22 Manufacturing22 Construction23 Financial services23 Other services24 The external sector24 Trade in goods25 Invisibles and the current account26 Capital flows and foreign debt26 Foreign reserves and exchange rates28 Appendices28 Regional organisations29 Sources of information31 Reference tables31 Population31 Employment by sector32 National energy statistics32 General government operations33 Money supply and interest rates33 Gross domestic product33 Gross domestic product by expenditure34 Gross domestic product by sector34 Prices and earnings35 Agricultural production

2 Belarus


35 Livestock numbers35 Industrial production36 Banking sector indicators36 Exports to the CIS36 Imports from the CIS37 Exports to non-CIS countries37 Imports from non-CIS countries38 Direction and composition of trade, 199838 Main trading partners39 Balance of payments, IMF series40 External debt, World Bank series40 Foreign reserves40 Exchange rates

Moldova

41 Basic data42 Political background42 Historical background45 Constitution and institutions46 Political forces48 International relations and defence50 Resources and infrastructure50 Population50 Education and health52 Resources and infrastructure52 Transport and communications53 Energy provision54 The economy54 Economic structure55 Economic policy57 Economic performance59 Economic sectors59 Agriculture, forestry and fishing60 Mining and semi-processing60 Manufacturing61 Construction62 Financial services63 Other services63 The external sector63 Trade in goods65 Invisibles and the current account66 Capital flows and foreign debt67 Foreign reserves and the exchange rate68 Appendices68 Regional organisations70 Sources of information

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71 Reference tables71 Population72 Employment by sector72 Consolidated government finances73 Money supply and interest rates73 Gross domestic product73 Gross domestic product by expenditure73 Gross domestic product by sector74 Prices and earnings74 Agricultural sector indicators75 Industrial production75 Banking statistics76 Stockmarket indicators76 Exports fob76 Imports fob77 Main trading partners77 Direction and composition of trade, 199878 Balance of payments, IMF series79 Balance of payments, national series79 External debt, World Bank series80 Foreign reserves80 Exchange rates

4 Belarus


Belarus

Basic data

207,600 sq km

10.02m (mid-2000)

Population in ‘000 (Jan 1996)

Minsk (capital) 1,672 Gomel 501 Mogilev 367 Vitebsk 356 Grodno 302

Continental

Belarusian and Russian are the official national languages

Metric system

Belarusian rubel (BRb), introduced in May 1992, redenominated at a rate of1,000 old rubels=1 new rubel on January 1st 2000. BRb1=100 kopeks. Averageexchange rate in 2000 (new rubels; EIU estimate): BRb720:US$1. The marketrate on April 27th 2001 was (new rubels) BRb1,323:US$1. All Belarusian rubelvalues are expressed in redenominated terms unless otherwise indicated

Two hours ahead of GMT

Calendar year

January 1st (New Year’s Day), January 7th (Orthodox Christmas), March 8th(International Women’s Day), April 13th-16th (Easter), May 1st (Labour Day),May 9th (Victory Day), June 3rd (Holy Trinity), July 3rd (Independence Day),November 7th (October Revolution Day), December 25th (Christmas)

Land area

Population

Main towns

Climate

Languages

Weights and measures

Currency

Time

Fiscal year

Public holidays, 2001

Belarus 5


Political background

The Republic of Belarus is a titular democracy with near-autocratic powervested in the presidency. Alyaksandar Lukashenka has served as the presidentof Belarus since July 1994 and has increasingly concentrated power in thepresidency (see Constitution and institutions).

Historical background

Belarus has been caught for centuries between the competing claims andinfluences of Russia and Poland, its more powerful neighbours. Prior to thebreak-up of the Soviet Union, the only modern period of independence forBelarus (then known as Belorussia) was between March 1918 and January 1919.After that, the Soviet leadership incorporated its eastern part into the SovietUnion as the Belorussian Soviet Socialist Republic (BSSR). The western partremained under Polish control until it was absorbed into the BSSR inSeptember 1939. Unlike its Baltic neighbours, therefore, Belarus did notexperience a viable and prolonged independent statehood during the inter-warperiod. Moreover, Belarusian national identity remained underdeveloped as aresult of a successful Russification campaign in the eastern half of present-dayBelarus and the suppression of Belarusian cultural institutions by Polishauthorities in western Belarus.

Two of the most important events of modern Belarusian history were thesecond world war (when Belarus lost 80% of its infrastructure) and post-warindustrialisation, which brought rapid urbanisation and a sharp rise in livingstandards. The experience of the Nazi occupation, which ended with thewestward advance of the Soviet army in 1944, and the rapid modernisationthat followed reinforced a belief in Belarus that the survival and prosperity ofthe Belarusian people depended on continued close ties with other Sovietrepublics, particularly Russia. The Russian language remained a symbol ofmodernity and sophistication, with Belarusian spoken mostly in rural areas.

Belarus enjoyed one of the highest living standards among the Soviet republicsuntil the mid-1980s, when it felt the effects of the rapid deterioration of theSoviet economy. Environmental degradation also emerged as a major problemduring this period, with more than 70% of radioactive fallout from theexplosion at the Chernobyl nuclear power plant in neighbouring Ukraine inApril 1986 falling on Belarusian territory. The consequences of this nucleardisaster became a focus for political dissent, which led two years later to theformation of Belarus’s first independent political movement, the BelarusianPopular Front (BPF). Even though the Belarusian nationalist opposition neverenjoyed the level of popular support witnessed in the neighbouring Balticrepublics, owing to a general lack of nationalist sentiment, Soviet authoritieswere unable to suppress the nationalist movement. In 1990 BPF candidates wonapproximately 10% of the 300 seats available in the election to the BelarusianSupreme Soviet. In 1991 the parliament appointed Stanislau Shushkevich, a

National identity hasgradually eroded

Independence came withthe Soviet Union’s break-up

6 Belarus


BPF-backed moderate reformist and former professor of theoretical physics, asspeaker of the Supreme Soviet. With the final dissolution of the Soviet Union atthe end of 1991, the country was renamed the Republic of Belarus.

Important recent events

July 1994: Alyaksandar Lukashenka, the head of the anti-corruptioncommittee, is elected president by popular vote.

May-December 1995: Belarus holds its first legislative election sinceindependence, alongside a referendum that approves closer ties with Russia.

April 1996: Belarus signs its first Union Treaty with Russia, following areferendum approving ever closer political and economic ties and eventualmonetary union.

November 1996: A further referendum dramatically increases the president’spowers, at the expense of parliament.

May 1997: Belarus and Russia sign a Union Charter, designed to foster greaterintegration.

December 1998: Belarus signs a declaration on further unification with Russia.

December 1999: A second Union Treaty with Russia is signed.

October 2000: The legislature remains overwhelmingly pro-Lukashenka,following a parliamentary election.

Constitution and institutions

The president, Alyaksandar Lukashenka, enjoys sweeping powers as a result ofconstitutional amendments introduced in 1996. Under the terms of theamended constitution, the president appoints half of the members of theConstitutional Court; the chairman of the National Bank of Belarus (NBB, thecentral bank); the state prosecutor-general; the heads of the supreme, economicand constitutional courts; and the head of the Central Electoral Commission.The constitution invests executive power in a government (Council ofMinisters) controlled by the president, who appoints the prime minister withthe consent of the House of Representatives, the lower house of the NationalAssembly. Although local government comprises a system of councils whosemembers are elected for four-year terms by popular vote, the heads of these localcouncils and other regional administrations are appointed by the president.

In addition to increasing the powers invested in the presidency, the 1996referendum also paved the way for the dissolution of the Supreme Soviet(parliament) and its replacement with a bicameral National Assembly. Thelower house of this new parliament, the House of Representatives, comprises110 members, all of whom had been elected to the previous legislature in 1995.The upper house, the Senate, also known as the Council of the Republic,consists of 60 members, six of whom the president appoints directly, with theremainder elected by popular vote.

Belarus 7


The bicameral legislature has limited powers and does little more than rubber-stamp presidential decrees. A vocal but powerless shadow parliament(consisting of members of the Supreme Soviet disbanded by the president afterthe disputed referendum of 1996) operates outside the official politicalstructure. The regime has progressively limited the political participation ofopposition parties, which are not represented in legislative bodies. Althoughthe opposition represents a broad spectrum of political opinion, little exists inthe way of an institutionalised party political system.

The Supreme Court is the highest court in the country. Other senior courtsinclude the Economic Court and the Constitutional Court, which for a whileacted as the main centre of opposition to Mr Lukashenka. However, sinceNovember 1996 the judiciary on the whole has proved neither independentnor objective by international standards. Independent lawyers were barredfrom practising in 1997.

Political forces

Belarus witnessed the emergence of numerous political parties and movementsin the years immediately following independence. The Communists, Russiannationalists and pan-Slavists occupy one end of the political spectrum, withBelarusian nationalists, market reformers and moderate social democrats at theother end. In Belarus the critical demarcation is between those who supportthe Lukashenka regime and its pro-Russian policies, and those who favourBelarusian independence, market reforms and a pro-Western orientation. Mostpolitical parties are small and poorly organised, and offer vague andimplausible programmes. They lack any real political experience, and sufferfrom the government’s use of intimidation and oppression to stifle any dissent.

With the dissolution of the Supreme Soviet in November 1996, a majority ofdeputies moved to the new National Assembly. However, a group ofapproximately 70 deputies declined to join the new body and formed ashadow parliament defined by its opposition to Mr Lukashenka’s regime. InJanuary 1999, in an effort to consolidate their activities, opposition partiesconvened a congress of democratic forces and called for a presidential electionto be held in May 1999, as stipulated in the abrogated 1994 constitution.However, Belarusian officials, who seek to characterise the opposition ascriminals plotting against the legitimate government with the support offoreign powers, ignored its demand for a presidential election.

The parliamentary election held in October 2000 reinforced the existingantagonism between the opposition and the Lukashenka administration. Inthe run-up to the election the opposition was denied access to thegovernment-controlled electronic media, following unsuccessful efforts by theOrganisation for Security and Co-operation in Europe (OSCE) to negotiate acompromise over media access. Faced with little possibility of campaigningeffectively, democratic and nationalist opposition parties decided to boycottthe election—although some of the leading opposition figures stoodunsuccessfully for seats in the legislature as independent candidates. The 2000

Most political partiesare weak

The judiciary

8 Belarus


election, therefore, changed little in the relationship between the presidencyand the legislature. None of the newly elected deputies is affiliated with amajor opposition party, and most have no party affiliation at all. The 2000election, therefore, served to reinforce a pattern whereby party membership isnot a requirement to participate in the institutionalised political process.Although nominally independent, deputies are not professional politicians andare subordinated to the state either directly, as employees of governmentagencies, or indirectly, as managers of enterprises under government control.

Election to the House of Representatives, Oct 2000

Party Seats won

Communist Party of Belarus 6

Agrarian Party of Belarus 5

Republican Party of Labour & Justice 2

Liberal Democratic Party 1

Party of People’s Accord 1

Social & Sporting Party 1

Independent deputies 81

Vacant 13

Total 110

Source: http://www.agora.stm.it/elections/election/belarus.htm

Belarusian Popular Front (BPF): The BPF was founded by ZyanonPaznyak in 1988 as the republic’s first political opposition movement. It is anationalist party committed to Belarus’s independence and national revival.Prior to the 1995 legislative election it acted as the main opposition to thepresident and government, but subsequently failed to win any seats. Althoughsuccessful in mobilising demonstrations against both the president and theUnion Treaty with Russia (see International relations and defence), its supportremains largely confined to the urban intelligentsia. Following Mr Paznyak’sexile in 1996, the BPF has experienced a decline in its political prominence andmounting tensions within its leadership.

In October 1999 these tensions culminated in a split between the staunchlynationalist supporters of Mr Paznyak, who until the split headed the BPF fromabroad, and a more pragmatic wing of the party. The nationalists founded theConservative Christian Party of the BPF, with Mr Paznyak as leader. Theremaining part of the BPF, which retained the original name, is now headed byVintsuk Viachorka, a former deputy chairman of the party and a veterannationalist politician. Under Mr Viachorka’s leadership the BPF is rapidlyregaining its status as the main opposition force, at the same time as becomingmore open to co-operation and compromise with other opposition parties.Whereas the BPF now seems to put equal emphasis on democratic trans-formation and national revival, the Conservative Christian Party of the BPFretains nationalism as its first priority. The degree of co-operation between thetwo parties is still unclear.

United Civic Party: Founded in 1995 by the former chairman of the centralbank, Stanislau Bahdankevich, this party supports democratic political

Main political parties

Belarus 9


transformation and market reforms. Among its prominent members was ViktarHanchar, the deputy chairman and former head of the Central ElectoralCommission. Mr Hanchar, a vocal and articulate critic of the president,disappeared under mysterious circumstances in September 1999 and no traceof him has been found.

Party of People’s Accord: Established in 1992, the party was the largestfaction in the Supreme Soviet by the time of its dissolution in 1996, owing toits success in attracting the allegiance of a number of independent deputies.However, after the death in May 1999 of its popular chairman, HenadzKarpenka, the party has been losing influence.

Charter 1997: A human rights movement modelled on the CzechoslovakCharter 77, it includes many opposition parties and leading artists.

Agrarian Party: Founded in 1994 to represent rural interests (mostly thoseof collective and state farm workers) and headed by Syamon Sharetski, theparty supported the Communists in the 1995 legislature. Today the party,whose current chairman, Mikhail Shymanski, is chief editor of the pro-government newspaper Narodnaya Gazeta (People’s Newspaper), voices strongsupport for the president, Mr Lukashenka.

Communist Party of Belarus (CPB): Banned in 1991, the CPB waslegalised again in 1993. It won the largest number of votes in the 1995 electionto the Supreme Soviet and six seats in the 2000 parliamentary election.Although a number of members oppose Mr Lukashenka, because they preferfull union with Russia, others in the party approve of his economic and foreignpolicies. Mr Lukashenka actively seeks to keep the CPB on his side.

Main political figures

Alyaksandar Lukashenka: Formerly a sovkhoz (state farm) director,Mr Lukashenka rose to prominence as the leader of the Communists forDemocracy, a faction that broke away from the Communist Party in June 1991.He became head of the Supreme Soviet’s anti-corruption committee, a positionthat he exploited at the expense of his opponents. Since his election as Belarus’sfirst post-independence president in July 1994, he has increased his powerthrough referendums held in May 1995 and November 1996. Aided by the biasedand heavily censored media and a manufactured personality cult, Mr Lukashenkais known locally as the “tsar” and remains the country’s most popular politicalfigure. However, his administration’s rejection of meaningful political reformsand poor human rights record have brought increasing international isolation.

Zyanon Paznyak: As the founder of Belarus’s first opposition party in 1988,the Belarusian Popular Front (BPF), Mr Paznyak launched a controversialdebate in the late Soviet period with the uncovering of the mass graves of morethan 10,000 victims purportedly dating back to a previously unknown episodeof Stalinist mass murders between 1937 and 1941. He continues to be one ofthe most outspoken and persistent critics of the Lukashenka regime. Followingthe issuing of a warrant for his arrest, he successfully sought asylum in the USin mid-1996. In late 1999 Mr Paznyak’s faction broke from the BPF and created

10 Belarus


the Conservative Christian Party of the BPF, a new nationalist political partyheaded by Mr Paznyak.

Mikhail Chihir: Mr Chihir is one of possible contenders in the presidentialelection to be held in 2001. Although not formally affiliated with any politicalparty, he has broad support among the opposition leaders. Following anuneventful tenure as a prime minister in one of the early Lukashenkagovernments, Mr Chihir spent several years in Moscow working for a Russianprivate company. He returned to Belarus in 1999 to participate in thealternative presidential election organised by the opposition. He was promptlyplaced in pre-trial detention on charges of embezzlement, and released onlyafter spending seven months in jail and receiving a three-year suspendedsentence. Belarus’s Supreme Court has overturned the sentence and has sentthe case back to the prosecutor’s office for further investigation.

Siamion Domash: A former chairman of the executive committee (localgovernment) of the Hrodna region and a deputy in the parliament disbandedby Mr Lukashenka after the controversial 1996 referendum, Mr Domash wasrelatively unknown outside Hrodna until late 2000, when he announced hiscandidacy for the nomination as the joint opposition’s challenger in the 2001presidential election. Mr Domash does not belong to any political party, buthas extensive personal contacts among the opposition leadership. Although hehas gained considerable support among opposition groups and small non-government organisations since declaring his candidacy, it is unclear whetherthis will suffice to overcome his lack of nation-wide prominence.

Vintsuk Viachorka: A veteran politician, Mr Viachorka organised the firststreet protests by nationalist university students in the mid-1980s. He wasamong the founding members of the BPF and, throughout the 1990s, one of itsprincipal leaders. When the strongly nationalist wing of the BPF split from theparty in October 1999, Mr Viachorka became chairman of the remainingfaction (which retained the BPF name). Mr Viachorka has generally provedopen to innovative ideas and has been willing to co-operate with otheropposition parties. Under his leadership the BPF has regained its status as themain opposition force in Belarus.

Syamon Sharetski: Head of the Agrarian Party and speaker of the SupremeSoviet from the end of 1995 until its dissolution in November 1996,Mr Sharetski initially attempted to mediate in the conflict between theparliament and the president. He then became an outspoken critic of thepresident. After the failed presidential election organised by the opposition inMay 1999, he emigrated to Lithuania and declared himself the only legitimatehead of state.

International relations and defence

Belarus helped found the Commonwealth of Independent States (CIS) at thetime of independence in 1991 and since then has remained stronglysupportive of measures to reintegrate the post-Soviet space. This foreign policyfocus on Russia became even more pronounced after Mr Lukashenka’s election

Foreign policy is focusedoverwhelmingly on Russia

Belarus 11


to the presidency in 1994 and culminated in the 1999 Union Treaty withRussia. This treaty envisages the creation of a union-state with a supranationallegislative body, and close co-ordination of defence, economic and monetarypolicies. Russia’s interests are served by the defence provisions of the treaty,which allow it to make use of Belarus’s extensive military infrastructure andstation Russian forces on NATO’s new eastern border. In return, theLukashenka administration benefits from easy access to the Russian market forBelarusian manufactured goods, low energy import prices and the politicalsupport needed to ease its international isolation. The treaty does not providefor the full incorporation of Belarus into Russia, but instead unambiguouslyreconfirms the continued sovereignty of both states.

The 1999 Belarus-Russia Union Treaty

The 1999 Union Treaty is the latest in a series of steps towards the greaterintegration of Belarus and Russia. These steps began in February 1995 when thethen Russian president, Boris Yeltsin, and Belarus’s president, AlyaksandarLukashenka, signed a treaty on friendship and co-operation. Treatiescommitting Belarus and Russia to still closer co-operation followed in 1996 and1998. The current treaty envisages the most comprehensive integration amongthe post-Soviet states, although it stops short of surrendering Belarus’ssovereignty to the newly created supranational bodies.

These bodies will include the Supreme State Council, made up of leadersfrom both countries, a joint Council of Ministers and a bicameral unionparliament, comprising the House of the Union and the House ofRepresentatives. Delegates from the Russian and Belarusian legislativebodies will form the House of the Union, whereas delegates to the House ofRepresentatives will be directly elected. The Supreme State Council forms theunion’s executive bodies, and approves its budget and internationalagreements. Each country will have a right of veto and each will take turns tochair the Council.

The Council of Ministers includes prime ministers, foreign ministers, andministers of economics and finance from the governments of both countries. It ischarged with the co-ordination of foreign and defence policy, and with thecreation of a joint economic space, including the harmonisation of fiscal,monetary and credit policy. Full harmonisation of customs tariffs is notenvisaged until 2005. Unification of monetary systems, which is likely to meanadoption of the Russian rouble by Belarus, is expected in the next five to six years.

According to the treaty, both Russia and Belarus retain sovereignty andnational identity, and will remain separate entities in the UN and otherinternational bodies. Military co-operation includes the creation of a jointmilitary doctrine, a joint armament programme and a regional group ofRussian and Belarusian troops. Unification beyond the limits stipulated in thetreaty is unlikely, at least before the implementation of some articles of thetreaty, which is scheduled for as late as 2005.

12 Belarus


Belarus’s tense relations with international organisations since 1996 reflect theLukashenka administration’s poor human rights record and aversion tomeaningful democratic reforms. The OSCE has refused to recognise the resultsof the 1996 referendum that increased presidential powers and extendedMr Lukashenka’s term of office to 2001. The US has similarly refused to acceptthe legitimacy of the post-1996 legislature and has severely limited its contactwith the Lukashenka administration. The EU has proved less vocal in its callingfor Mr Lukashenka’s isolation, but maintains only limited economic andpolitical ties with Belarus. In response, Mr Lukashenka has adopted anincreasingly antagonistic stance towards the West, frustrated by attacks on hisregime’s legitimacy, and the support that Western governments and inter-national human rights organisations continue to offer to opposition groups.

One of the lowest points of relations with the West came in June 1998, whenthe US and EU ambassadors were evicted from their residences on the personalorders of Mr Lukashenka. Although the ambassadors, who left Belarus inprotest over their eviction, eventually returned, Belarus’s relations with theWest have not significantly improved. Mr Lukashenka has shown little interestin thawing relations, notwithstanding occasional half-hearted calls forincreased contact with the West and periodic conciliatory statements by theforeign minister, Mikhail Khvostov, who was appointed in late 2000. In early2001 Mr Lukashenka’s frequently expressed displeasure with the support thatthe opposition receives from the West culminated in attempts to imposegovernment controls on the distribution of foreign aid in Belarus. Using ananti-spy campaign reminiscent of the Brezhnev era to justify his actions, MrLukashenka issued a decree in March 2001 banning foreign financial assistancefor activities related to electoral campaigns and “other forms of masspropaganda among the population”. The decree stipulates that all foreign aidmust be registered with the presidential administration, which under MrLukashenka has become the least transparent and accountable branch ofgovernment.

Belarus briefly became a nuclear power in its own right with the collapse of theSoviet Union. However, all tactical nuclear weapons were withdrawn to Russiain the wake of the formation of the CIS, and the constitution now definesBelarus as a non-aligned, non-nuclear country. In February 1993 the Belarusianparliament ratified the Strategic Arms Reduction Treaty (START-1), the NuclearNon-Proliferation Treaty and the 1992 Lisbon Protocol. Under the LisbonProtocol, Belarus, among others, pledged to become a non-nuclear state and toadhere to the former Soviet Union’s START-1 obligations.

Belarus’s armed forces totalled 83,100 in 2000, including an army of 43,500and an air force of 22,500. In addition, there is a reserve force of almost300,000. The Ministry of Internal Affairs has control over an additional force of23,000, including 11,000 of its own troops and 12,000 border guards. Thedefence budget in 2000 is reported to have equalled BRb74bn, or aroundUS$100m, down sharply from over US$200m in 1998.

Belarus remains anon-nuclear power

Relations with the Westremain cool

Belarus 13


Military co-operation between Russia and Belarus was already relatively welldeveloped before the 1999 Union Treaty. It has steadily increased since thenand remains the most prominent feature of the integration process.Mr Lukashenka views Belarus as Russia’s first line of defence against an attackfrom the West, and has fostered close co-ordination between the two countries’air defence forces. Russian strategic missile forces operate a newly constructed,sophisticated early warning radar located near the city of Baranovichi, some140 km from the Polish border. Russian armed forces are allowed to useBelarusian military infrastructure, including an extensive network of airfields,roads, communication centres and storage facilities. This Soviet-era network iswell in excess of Belarus’s current military needs, but is maintained at Belarus’sexpense and guarded by Belarusian armed forces. In September 2000 Russianstrategic bombers and long-range cruise missile carriers of the sort based inBelarus prior to the collapse of the Soviet Union returned to Belarusian airbasesin Baranovichi and Machulischi.

Even though a joint Russo-Belarusian military doctrine is being devised, theloose co-operation between Belarus’s armed forces and Russian troops stationedin western Russia still falls short of Mr Lukashenka’s vision of a 300,000-strongregional military group. As with other aspects of co-operation between the twocountries, military co-operation is conducted on Russia’s terms. At present, theRussian president, Vladimir Putin, does not seem to prioritise close co-operationbetween the two countries’ land forces, nor has he shown any intention to useBelarusian territory for the deployment, storage or shipping of nuclear weapons.

Resources and infrastructure

Population

Belarus lost one-quarter of its population in the second world war, but regainedits pre-war population levels in the 1970s, partly as a result of immigration byRussians attracted to the republic’s relative prosperity. However, death rateshave exceeded birth rates since 1993, so that the population declined slightlyfrom 10.4m in 1993 to 10m in mid-2000. Population density is 49.2 per sq km,compared with 83.7 per sq km in neighbouring Ukraine and 8.6 per sq km inRussia. Significant urbanisation in Belarus over the past 30 years brought thepercentage of rural inhabitants down from 57% of the population in 1970 to30% by 1999 (for historical population and employment data, see Referencetables 1 and 2).

According to the last Soviet-era census, Belarusians made up 78% of thepopulation and Russians 13% in 1989. More than 2m Belarusians are estimatedto live in other former Soviet republics, in addition to a substantial Belarusianpopulation located in eastern Poland. Some 70% of the population is registeredas Russian Orthodox and 20% as Roman Catholic. The small Tartar populationis Muslim, and there are also small Jewish communities.

Defence policy is closelyco-ordinated with Russia

14 Belarus


Like many countries in Europe, Belarus has an ageing population, whichpresents a challenge to future pension provision. The population of less thanworking age is falling as a proportion of the total, and now stands at around21%, roughly equal to the percentage of the population over working age.

Population by nationality, 1989 census(%)

Belarusian 77.9

Russian 13.2

Polish 4.1

Ukrainian 2.9

Others 1.9

Total 100.0

Source: National statistics.

Education

Primary and secondary education remains compulsory and free of chargebetween the ages of six and 17. The UN Development Programme (UNDP)reports over 40 public and private higher education institutions. Educationtook place predominantly in Russian until the early 1990s, when education inBelarusian became available. Expenditure on education as a proportion of totalbudget spending increased steadily following independence, but fell fromaround 16% in 1997 to 13% in 1999.

Health

Living standards in Belarus traditionally exceeded those in other parts of theSoviet Union. Since 1990, however, all major health indicators such as lifeexpectancy and infant mortality have worsened. As seen elsewhere in theregion, male life expectancy has fallen more rapidly than female lifeexpectancy, attributable partly to an increased incidence of alcoholism amongmen. According to data from the UN Development Programme (UNDP), malelife expectancy at birth stood at around 62 years in 1999, down from 66 in1990 (see Reference table 1 for historical population data).

In 1985 the explosion of the Chernobyl nuclear reactor in neighbouring Ukraineseriously affected Belarus, in particular the towns of Gomel and Mogilev:reported cases of thyroid cancer among children rose from two new cases in 1987to over 50 new cases each year by 1991, and more than 90 new cases in 1995.

Health spending as a proportion of general government expenditure had fallento 10% by 1999. The number of hospital beds per 10,000 inhabitants droppedfrom 133 in 1989 to 124 in 1999. Healthcare expenditure as a percentage ofGDP, at 4.9% in 1999, is higher than in neighbouring Ukraine and comparablewith Poland, but is not necessarily efficiently allocated. Doctors, for example,are in oversupply at more than 450 per 100,000 population in 1999 (comparedwith 300-400 in western Europe).

Education spending hasfallen in recent years

Health has deterioratedsince independence

Belarus 15


Natural resources and the environment

Belarus covers an area of 207,600 sq km, more than Lithuania to the north-west, but less than neighbouring Ukraine or Poland. The terrain of thislandlocked country is predominantly flat, and includes many lakes andmarshlands, such as the extensive Pripet marshes in the south. Forest coversapproximately one-third of the country. The Belavezhskaja Pushcha, on thePolish border, is the largest primeval forest in Europe and is home to thecontinent’s largest population of European bison. The climate is continental,and coldest in the north-east. Average temperatures in Minsk range fromminus 5°C in January to 19°C in July.

Transport and communications

Belarus has around 55,000 km of road and lies at an important crossroads ineastern Europe, intersected by three major highways: the M1, which connectsthe town of Brest on the Polish border to Moscow; the M20, which runs in anorth-south direction linking Riga, Vitebsk, Mogilev and Kiev; and the M13,which runs along the southern border from Brest to Russia. The number ofmotorised vehicles per 100 people rose from 5.7 in 1990 to 13.1 in 1999. Belarushas approximately 5,500 km of railway. It also has regional airports in each ofthe six oblasts (regions), as well as international airports in Minsk and Brest.

The telephone network is undergoing modernisation, including the instal-lation of automatic exchanges, but facilities such as rapid data transmission arerare. Mr Lukashenka has reiterated that the government has no plans toprivatise Beltelecom, the state telephony monopoly. The number of telephonelines per 100 citizens reached 22.6 in 1997, compared with,28.3 in Lithuania,19.4 in Poland and 18.6 in Ukraine. The number of telephones per 100 familiesin Belarus rose from 37 in 1990 to an estimated 64 in 1998.

One cellular phone service, BelCel, has operated in Belarus since 1993 and atend-2000 had 17,000 subscribers. A second provider, with around 27,000subscribers, began operations in 1999. Belarus was the last east European stateto introduce a global system for mobile communications (GSM) cellular digitalsystem. Two Belarusian companies own a controlling share of this provider, theMobile Digital Communications consortium, with a Swiss company,SB-Telecom, owning the remaining 49% of shares. In April 2001 thegovernment announced a tender for a second GSM licence. The new provider,in which the government will retain a 51% ownership share, will enter intooperation in 2002. Although the government projects that the number ofcellular phone subscribers will rise to 250,000 by 2005, it remains extremelyexpensive in relative terms in Belarus, with high call tariffs and a connectioncharge equivalent to 1-2 months’ average wages.

The state has maintained firm control over the media since independence andfunds many publications of its own. The government tightened censorshipconsiderably from 1994 onwards, and in 1997 closed down the main opposition

Road, rail and air

Telecommunications

Media

16 Belarus


publication, the twice-weekly Svaboda (Freedom). The pro-governmentnewspaper with the largest circulation is Sovyetskaya Belorussiya (SovietBelorussia). The population’s declining income since independence has spurred asharp decrease in newspaper readership, with newspaper copies per 100 peoplefalling from 29 at the end of the Soviet era to 11 in 1999. Television ownership hasgenerally stayed unchanged since the early 1990s at around 31 per 100 people.Belarusian Television and Belarusian Radio are the state-owned broadcastingchannels. The Russian stations ORT and NTV also broadcast into the country.

Energy provision

Belarus has relatively few indigenous resources, apart from wood and limitedoil and natural gas deposits. These deposits are difficult to extract and currentlysupply just over 10% of the country’s final consumption of oil and gas. Belarusalso imports 100% of its coal (for historical national data on energy, seeReference table 3). Electricity is imported from Russia and from Lithuania. InMarch 1999 Belarus postponed for at least ten years any plans to beginconstruction of its own nuclear power station, originally slated for 2005. Russiaalso serves as the main supplier of oil and gas, for which Belarus has regularlyreceived preferential treatment.

Energy balance, 2000(m tonnes of oil equivalent; provisional data)

Elec- Oil Gas Coal tricity Other Total

Primary production 1.8 0.2 0.0 0.0 1.4 3.4

Imports 13.5 14.3 0.4 2.6a 0.0 30.8

Exports –3.3 0.0 0.0 –0.7a 0.0 –4.0

Primary supply 12.0 14.5 0.4 1.9a 1.4 30.2

Losses & transfers –3.3 –5.3 0.0 –2.3 –0.3 –11.2

Transformation output 0.0 0.0 0.0 3.1b 0.0 3.1

Final consumption 8.7 9.2 0.4 2.7b 1.1 22.1

a Input basis. b Output basis.

Source: Energy Data Associates.

Although the Russian gas monopoly, Gazprom, regularly threatens to cutsupplies, Russia has generally taken a soft stance on Belarus’s energy paymentproblems and accepts periodic write-offs or refinancing of Belarus’s energydebts. Russia’s leniency towards Belarus on energy issues, relative to its policiestowards other members of the Commonwealth of Independent States (CIS),has played a major role in supporting Alyaksandar Lukashenka’s growth-oriented industrial policy, and has allowed Belarus to avoid economicrestructuring for as long as it has. In 2000 and early 2001 Belarus made someprogress towards reducing its outstanding energy payment obligations, whichstood at over US$250m in early 2000. Through a combination of payments,offsets and write-offs, Belarus’s gas debt to Russia is reported to have fallen tobelow US$80m by the second quarter of 2001.

Belarus lacks naturalenergy resources

Problematic debts to Russia

Belarus 17


The economy

Economic structure

Main economic indicators, 2000

Real GDP growth (%) 6.0

Producer price inflation (av; %) 185.6

Consumer price inflation (av; %) 168.6

Current-account balance (US$ bn) –190a

Exchange rate (av; BRb:US$) 720a

Exchange rate (end-period; BRb:US$) 1,180

Population (m) 10.0

a Estimate.

Sources: EIU; Belarus Economic Trends; IMF, International Financial Statistics.

With Alyaksandar Lukashenka’s administration unwilling to accept anyfundamental reforms to the Belarusian economy, the large industrialenterprises inherited from the Soviet period remain under government controland continue to account for the bulk of the country’s industrial output. Evenwhere privatisation has resulted in the emergence of “non-state” enterprises(including commercial banks), these continue to be controlled by thegovernment, which either remains a major stockholder or else has appointedveto-wielding employees to the boards of joint-stock companies. In agriculture,state and collective farms continue to dominate. Privatisation of theagricultural sector is still non-existent, with no private land ownership rightsyet established and less than 1% of arable land in the hands of private farmers.


Moldova Romania Ukraine Belarus Russia

GDP (US$ bn) 1.3 36.7 32.1 11.4 246.9

GDP per head (US$) 299 1,637 638 1,141 1,700

GDP per head (US$; at PPP) 1,744 4,721 2,511 5,629 5,167

Consumer price inflation (av; %) 31.3 45.6 28.2 168.6 20.8

Current-account balance (US$ bn) –0.1 –1.4 1.5 –0.2 46.3 % of GDP –10.5 –3.8 4.6 –1.7 18.8

Exports of goods (US$ bn) 0.5 10.4 15.7 7.4 105.6

Imports of goods (US$ bn) 0.8 12.1 14.9 8.3 44.9

External debt (US$ bn) 1.0 9.8 12.1 1.2 163.0

Debt-service ratio, paid (%) 11.0 19.2 17.0 2.8 9.9

Sources: EIU, CountryData; Country Risk Service.

The government’s emphasis on full employment and aversion to large-scaleprivatisation, therefore, has blocked the enterprise-level restructuring andgrowth of non-traditional sectors required for more sustainable economicstability. The consequences of this are readily apparent. Economic growth has

A Soviet-style economicstructure is preserved

18 Belarus


already shown signs of faltering, inflation remains high, and investment andforeign-currency inflows are anaemic. Even full employment, a keyLukashenka promise, is proving increasingly impossible to achieve. Althoughthe official rate of unemployment has been close to 2% for the past two years,official figures are highly distorted. Given that there is little incentive for theunemployed to register for the paltry benefits available, and the large numberof workers on forced leave or part-time schedules, actual unemployment as apercentage of the working-age population is likely to be in double digits.

Economic policy

The “Belarusian economic model” trumpeted by Alyaksandar Lukashenka isdesigned to perpetuate his administration’s tight control over the country’spolitical and economic space, and prevent the destabilising social unrest thathe feels has marred the transition in other post-Soviet countries. By ensuringhigh employment levels, widespread subsidies and rising real wages, he hasretained considerable popular support. However, the Belarusian economicmodel has prevented economic collapse only by ensuring a ready supply ofcheap credit to agriculture, the construction industry and selectedmanufacturing industries. This was achieved by infringing on theindependence of the National Bank of Belarus (NBB, the central bank) and byforcing commercial banks to provide soft loans—at the cost of spirallinginflation, widespread shortages and the collapse of the currency.

The high inflation that has accompanied Mr Lukashenka’s tenure is thereforedirectly related to the expansionary monetary policies needed to keepoutmoded and inefficient economic structures in place. Although admin-istration officials are acutely aware of the dangers of inflation and theconsequences of insufficient foreign-currency inflows, they have beenunwilling to abandon the economic model that underpins their politicalcontrol and continued legitimacy. This stance has consistently blocked theresumption of any financing by the IMF. While government officials arewilling to accept some of the IMF’s demands in the hope that this will sufficeto unlock desperately needed financing inflows, the limited reform measuresintroduced so far have not been accompanied by any shift in theadministration’s underlying economic philosophy. Since the start of 2000 thegovernment has grudgingly accepted the need to unify the currency’s variousexchange rates, has replaced all quasi-fiscal operations by the central bank withsubsidies through the government budget and has promised to curb pressureon the commercial banks to credit key sectors.

It is unlikely that the government will deepen these initial steps sufficiently tosecure a sustained IMF lending programme. Nevertheless, recent liberalisationefforts have at least temporarily improved the macroeconomic environmentmarginally by reducing credit expansion, increasing currency stability andcontaining inflation. Moreover, the limited reforms introduced since the startof 2000 have also improved the low level of fiscal transparency seen in the past(for historical budget data, see Reference table 4). Belarus has maintained low

Credit policies have beenexcessively loose

Budget deficit isrelatively low

Belarus 19


consolidated budget deficits (by regional comparison) of between 1% and 3%of GDP in recent years, partly as a result of relatively high tax collection andperiodic expenditure cuts, but mainly through quasi-fiscal operations andsizeable extrabudgetary deficits. The government’s low budget deficits,therefore, present a deceptive picture of the real fiscal situation.

Assessing the government’s fiscal stance

Since 1998 the government has improved fiscal transparency by includingseveral extrabudgetary funds in the consolidated budget. These now operatethrough the Treasury system, and ended 2000 with both revenue andexpenditure equal to around 6% of GDP (or around 15-20% of total revenueand expenditure). Nevertheless, the government continues to rely on a numberof special funds managed by branch ministries, and still maintains an extra-budgetary social protection fund (SPF) that remains outside the Treasurysystem. This is used to pay pensions and social allowances, and is financedthrough an insurance premium paid by both enterprises and individuals. As aresult of government efforts to raise real levels of social protection, both SPFexpenditure and revenue in recent years have increased as a percentage of GDP,from 7.9% and 7.3% in 1995, to 11.5% and 9.9%, respectively, in 1999.

Moreover, a significant part of the government’s operations have beenconducted through quasi-fiscal activities undertaken by the banking system,which are not captured by budget data. Until 2000 both the National Bank ofBelarus (NBB, the central bank) and commercial banks provided subsidisedcredits to priority sectors such as agriculture and construction. Agriculturalenterprises paid largely symbolic interest rates on these credits and regularlybenefited from special resolutions that permitted them to delay repayment.

Budget transparency improved moderately in 2000, following a decision to bringback on budget all directed crediting by the NBB. However, until recently thegovernment continued to instruct commercial banks to provide directed creditson privileged terms to the agriculture and construction sectors. These quasi-fiscaloperations amounted to 1.7% of GDP in 2000, which increased the total fiscaldeficit to around 2.3% of GDP. Although still significant, this nonethelessrepresented a reduction in the scope of quasi-fiscal operations, which are estimatedby the IMF to have amounted to 3.3% of GDP in 1999. In April 2001 the govern-ment committed itself to reducing quasi-fiscal operations further by refrainingfrom issuing directives to commercial banks to extend credit to priority sectors.

The government’s efforts to drive up growth through increased exports toRussia (which include a high percentage of barter sales) have perpetuated anacute shortage of hard currency and brought consistent pressure on theBelarusian currency. The central bank has long relied on mandatory foreign-currency sales by exporters to bolster its reserves, but was forced to tightencontrols further at the time of the Russian financial crisis in August 1998. In anattempt to control the foreign-exchange market further, the central bank relieduntil 2000 on a complicated system of multiple exchange rates, all to someextent controlled by the government and all deviating significantly from themarket rate.

Currency exchange controlshave long been in place

20 Belarus


The central bank’s lack of foreign-currency reserves rendered this system largelyunworkable by 2000, when the NBB was forced to announce the unification of itsmultiple exchange rates and bring the unified rate in line with the market valueof the Belarusian rubel. The announcement was accompanied by an easing ofsome restrictions on rubel transactions with foreign economic entities and adecision to stop retail trade in foreign currency. As a further stabilisation measure,the NBB linked the national currency to the Russian rouble by means of acrawling-peg exchange-rate system as of January 2001. According to the NBB, theBelarusian rubel will be allowed to depreciate against the Russian rouble at amonthly rate of 2.5-3%. Although this move was made possible by the promise ofa US$160m stabilisation loan from Russia, Belarus’s low foreign-currency reservesand the political necessity of supporting the ailing agricultural sector are likely toforce the NBB to accept greater than envisioned nominal currency depreciation.

Economic performance

Although official sources report that annual real GDP growth averaged over 7%in 1997-2000, this is not the result of far-reaching economic restructuring.Instead, Alyaksandar Lukashenka’s administration has ensured high levels ofrecorded economic growth through expansionary monetary policies andfavourable trade arrangements with Russia—and by mobilising the sparecapacity created by the sharp 1991-95 downturn, in which there was acumulative drop in industrial output of almost 40%. Industrial production hasgrown consistently faster than GDP since 1997, owing to the poor performanceof the collectivised agriculture sector—which only reversed its steep downwardslide in 2000 because of favourable weather conditions and an exceedingly lowbase period. Belarus’s growth has therefore yet to achieve a broad or sustainablefoundation. Even the high levels of industrial output needed to sustain econ-omic growth appear increasingly untenable—given signs of growing stocks ofunsold goods in 2000 and an annual decline in fixed investment of 3-5% yearon year in 1999-2000. (For historical GDP data, see Reference tables 6-8).

Gross domestic product(% real change)

Annual average2000 1996-2000

GDP 6.0 6.4

Sources: TACIS, Belarus Economic Trends; EIU.

The Lukashenka administration’s emphasis on economic ties with Russia hasreinforced the country’s extreme dependence on Russia’s willingness and abilityto absorb Belarus’s generally uncompetitive manufactured exports. This in turnhas increased the volatility of Belarus’s macroeconomic environment, as seen inthe wake of the collapse of the Russian rouble in August 1998, as a result ofwhich Russia’s enterprises were unable to absorb industrial imports and real GDPgrowth in Belarus dipped sharply. Conversely, Russia’s surging economic growthand import demand in 2000 spurred a steep recovery in Belarus, including 8%year-on-year industrial growth and a 6% year-on-year increase in real GDP.

Real GDP growth has beenrobust since 1997

NBB announces a peg to theRussian rouble in 2001

Belarus 21


Persistently high inflation has been a prominent feature of the Belarusianeconomy throughout the past decade (for historical inflation data, see Referencetable 9). After a chaotic disengagement from the crumbling Soviet monetarysystem in the years following the dissolution of the Soviet Union in 1991, Belarusexperienced a bout of hyperinflation in 1994, triple-digit annual inflation ratesin 1995 and a return to soaring inflation rates in 1998-99. Although inflation inBelarus in 2000 eased moderately from the exceedingly high levels recorded inlate 1999, it still remained high (even by the standards of the Commonwealth ofIndependent States) at a monthly average of more than 6%.

Inflation(% change)


Consumer prices 168.6 114.8

Sources: IMF, International Financial Statistics; EIU.

The relative decline in inflation rates since the start of 2000 is not attributableto a fundamental shift in monetary and credit policies. Monetary emission in2000 continued unabated, resulting in a 220% increase in money supply, whilethe National Bank of Belarus (the central bank) kept refinancing rates close toits own optimistic inflation forecasts, thereby keeping baseline real interestrates either unsustainably low or negative. (For historical data on moneysupply and interest rates, see Reference table 5.) The real factor contributing tothe decline in the inflation rate from over 250% year on year in 1999 to justover 100% in 2000 was Russia’s strong economic recovery, which broughtrenewed demand for Belarusian manufactured goods and rendered Belarus’sindustrial enterprises less dependent on government subsidies.

Economic sectors

Agriculture

During the Soviet era Belarusian agriculture specialised in producing meat anddairy products for urban centres in north-western Russia. This specialisationdepended on imports of fodder (particularly grain) from other Soviet republics.After the collapse of the Soviet Union and the breakdown of centrallycontrolled supply chains, Belarus’s large-scale agricultural enterprises provedunviable. Attempts to produce fodder grain locally to attain self-sufficiency didnot succeed in preventing the reduction in livestock numbers. As a result,agricultural output dropped steadily throughout the 1990s to around 65% of1989 levels by the end of the decade (see Reference tables 10 and 11 forhistorical data on agricultural production and livestock numbers).

Although the sector recorded 9% growth in 2000, this is unlikely to represent alasting turnaround in the absence of significant investment in the sector orrestructuring. The structure of property rights remains unchanged since the

Agricultural output is at65% of 1989 levels

Inflation has eased butremains a chronic concern

Agricultural markets aredistorted

22 Belarus


Soviet period, and has preserved state land ownership and government-controlled collective and state farms. These farms are inefficient and have to besubsidised by the state to enable them to cover costs. It is mainly the anti-market agricultural policy of the government, rather than adverse weatherconditions, that is to blame for the dismal performance of Belarusianagriculture. Neighbouring countries, such as Poland and Lithuania, are subjectto the same weather conditions, but have managed to avoid bad harvestsduring the past decade. Private farming in Belarus is almost non-existent, withprivately owned agricultural enterprises occupying (but not owning) only 0.6%of the total agricultural land.

Mining and semi-processing

Belarus has small deposits of oil, oil shale and coal. All of them have little or noeconomic significance. The construction industry can draw on indigenoussupplies of chalk and gypsum. Deposits of potassium salt supply the domesticfertiliser industry, which has substantial export potential.

Manufacturing

Belarus did not possess a viable industrial sector until after the second worldwar, when it experienced rapid Soviet-style industrialisation centred on largeindustrial enterprises fully integrated into the centrally planned economicsystem. Belarus became a significant producer of goods such as heavy trucks,agricultural machinery and machine tools, using supplies of raw materials andcomponent parts from other Soviet republics as inputs, and supplying finishedproducts in return. When these supply chains collapsed in the early 1990sBelarus’s industry suffered a rapid decline (see Reference table 12 for historicalindustrial production data). The large size of industrial enterprises maderestructuring difficult, while products designed for Soviet customers wereuncompetitive on world markets. As Russian prices for raw materials andenergy converged with world levels, real industrial output in Belarus fellsharply between 1992 and 1994. The industrial sector only began to revive inthe second half of the 1990s with the restoration of Soviet supply chains,which was prompted by active government policy in Belarus and the parlousstate of Russian enterprises unable to afford Western imports and eager toreturn to familiar Belarusian suppliers.

Construction

The deep recession of the early 1990s greatly affected the construction industry,which only began to recover in 1996, once the government turned to a policyof cheap credit for the sector. The recovery continued in subsequent years,mostly because the government subsidised ambitious construction projects bymeans of cheap credit (often at negative real interest rates). The government’s

Construction has benefitedfrom generous subsidies

Manufacturing is closelytied to the Russian market

Belarus 23


support for the construction industry is in keeping with its general economicpolicy of maintaining high growth rates and low unemployment.

Financial services

In 1991 Belarus moved away from the Soviet-style government monopoly inbanking and created an independent banking structure. The former Belarusianbranch of Gosbank (the Soviet central bank) became the National Bank ofBelarus, an independent central bank. In subsequent years Belarus licensed alarge number of private banks, including 52 new banks in 1994, and also soldoff some of its holdings in state-owned banks. A tightening of capital adequacyrequirements to US$2.3m in 1997 led to closures and mergers of less liquidinstitutions. In early 2001 about 27 commercial banks remained in operation.In 1998 the government tightened its control over the banking system and thecentral bank, with the appointment of Piotr Prakapovich, a former first deputyprime minister, as its head. Since then the NBB has been reduced to a conduitfor the government’s economic policy. Similarly, commercial banks, althoughnominally independent, have also frequently been pressured by thegovernment into providing loss-making loans to selected industries andpurchasing government-issued securities. Although the government hasassured the IMF that it would end this practice, pressure on commercial banksto finance the agricultural sector continued in the first quarter of 2001. (Forhistorical banking sector indicators, see Reference table 13.)

Government Treasury bills (GKOs) and short-term commercial papers (Kos)issued by the central bank offer the only significant tradable securities.US dollar-denominated bills with a fixed yield of 6% were introduced inMarch 2000. The Belarus Stock Exchange merged with the Minsk CurrencyExchange in 1999 and is now the Belarus Currency and Stock Exchange(BCSE). It lists ten stocks, mainly banks, and also trades currencies.

Other services

Services related to trade and transport have posted some growth in recentyears, owing to increased trade with Russia, and Belarus’s location as a transitcorridor between Russia and Europe. Services such as tourism and retail traderemain underdeveloped in Belarus. The government retains tight control overthe partly privatised retail sector through price regulation, the role that it playsin supplying basic consumer goods, and the power that it derives from itscontrol over operating licences. Although there are some Western-style shopsselling imported goods, the only other alternative for consumers is the thrivingblack market. Tourism for international visitors centres mainly on largegovernment-owned hotels, but a number of private travel agencies havedeveloped to service domestic demand for international travel.

Banking is tightlycontrolled

The securities market isunderdeveloped

24 Belarus


The external sector

Trade in goods

Before independence more than 80% of Belarus’s trade involved other con-stituent Soviet republics. In the past decade Belarus’s foreign trade has remainedoverwhelmingly focused on the Commonwealth of Independent States (CIS),particularly Russia, which accounted for more than half of export revenue in2000 and almost two-thirds of import expenditure. By re-establishing its closehistoric ties with other former Soviet republics, Alyaksandar Lukashenka’sadministration has managed to postpone the reforms otherwise needed topenetrate the more competitive non-traditional markets, but has left theBelarusian economy at the mercy of the vagaries of Russian demand. In 1999,for example, Belarus’s foreign trade turnover dropped by almost 20% year onyear in US dollar terms as a result of the sharp downturn in Russia. However,trade turnover expanded by 26% in 2000 as a result of buoyant Russian growth(for historical trade data, see Reference tables 14-19).

Russian-Belarusian trade

Russia remains of paramount importance as both a ready market for Belarusiangoods and a source of industrial sector inputs (primarily raw materials). Afteralmost a decade of independence Belarus’s trade links with Russia remain fartighter than was originally predicted, owing to cultural and geographicalproximity and to the much slower transition progress in Belarus than wasexpected in the mid-1990s. In coming years regional trends could deepen theselinks further, through the economic integration foreseen by the Union Treatywith Russia, or through the diversion of trade caused by EU enlargement.

Although a switch in Russian demand towards higher-quality imports remainsa concern to Belarusian producers, it is likely that Belarus will still have accessto a niche market for low- or middle-quality products as long as regional andincome disparities in Russia persist. In the absence of progress in large-scaleprivatisation, restructuring or private-sector growth, Belarusian producers willfind it much easier to switch from one Russian region to another than to breakinto more competitive non-traditional markets.

The 1998 financial crisis underlined the possible dangers of this excessivereliance on the Russian markets. Since 1997 Belarus has seen a decrease in therelative importance of the Russian market, owing to depressed demand forBelarusian durable goods. Although Belarusian exporters have retained asizeable market share in Russia, owing to their ability to compete not only onprice but also on terms, they have not capitalised fully on Russia’s recentrecovery. Russia’s declining share of total exports has coincided with a sharpincrease in expenditure on Russian imports, which has resulted in a sizeablebilateral trade deficit for Belarus. Import growth is attributable not only to therise in prices of mineral products (primarily energy resources), but also to theincrease in quality and variety of Russian goods and (in 2000) to distortionsstemming from the customs union between the two countries. As a result of

Foreign trade is orientedtowards Russia

Belarus 25


the union, exporters in third countries increasingly choose to gain access to theBelarusian market via Russia, in order to benefit from the greater ease withwhich Russian customs clearance procedures can be circumvented.

Foreign trade, 2000

ExportsTotal (US$ m) 7,379.7 % change, year on year 24.9To CIS 4,453.4 % change, year on year 23.0To non-CIS 2,926.3 % change, year on year 28.0

ImportsTotal (US$ m) 8,476.8 % change, year on year 27.0From CIS 6,000.9 % change, year on year 39.9From non-CIS 2,475.9 % change, year on year 3.8

Source: TACIS, Belarus Economic Trends.

The collapse of the Soviet Union resulted in a significant reduction in trade inthe early 1990s. Although trade turnover has increased since then, importgrowth has outstripped that of exports, resulting in a widening trade deficit.Import suppression and export promotion contributed to a modest decline inthe trade deficit in 1999, but have generally proved unsuccessful—as seen bythe increase in the trade deficit to 8% of GDP in 2000, up from 5% in 1999.This reflects predominantly a 27% rise in import expenditure, which outpacedexport growth, despite the buoyancy of Russian import demand.

Invisibles and the current account

Current account(US$ m)

20001999 Jan-Sep

Exports of goods fob 5,949 5,078

Imports of goods fob –6,543 –5,722

Trade balance –596 –644

Services credit 734 728

Services debit –436 –312

Services balance 298 416

Income credit 29 21

Income debit –94 –40

Income balance –65 –19

Current transfers credit 136 132

Current transfers debit –28 –15

Current transfers balance 108 118

Current-account balance –257 –129

Source: IMF, International Financial Statistics.

The trade deficitremains large

26 Belarus


The widening of Belarus’s trade deficit between 1995 and 1998 drove thesteady increase in the current-account deficit over this period (for historicalbalance-of-payments data, see Reference table 20.) The severe import com-pression necessitated by the collapse of the Belarusian rubel in 1998 reversedthis trend in 1999, when the current-account deficit contracted to just over 2%of GDP. Since 1996, increased transport earnings have permitted a significantservices surplus equivalent to around 3-4% of GDP, which has played a majorrole in preventing greater current-account imbalances.

Capital flows and foreign debt

Foreign direct investment (FDI) still plays only a limited role in the economy,with foreign-owned firms employing less than 2% of the workforce andaccounting for only 9% of industrial output. According to informationprovided by Belarus’s foreign ministry (which is also responsible for foreigneconomic contacts), as of February 2001 cumulative FDI in Belarus sinceindependence amounted to only US$290m. Germany accounted for 12% ofthe total, followed by the Netherlands with 10%. Although Russia is the fifthlargest inward investor in Belarus, its share in the total is likely to be farhigher—given that investments from Cyprus amounted to 6% of total FDI andare likely to consist mainly of offshore Russian capital. Although Germany isthe leading foreign investor in Belarus, Western companies on the whole haveproved far more reluctant than their Russian counterparts to enter theBelarusian market, given unreformed property right structures, an opaque legalsystem and the poor business environment.

After rising from under US$200m in 1992 to US$1.7bn by 1996, Belarus’sexternal debt fell below US$1.2bn by the end of 1999, owing to limited officialfinancing inflows and the country’s lack of access to commercial capitalmarkets (for historical data on external debt, see Reference table 21). Althoughthe government has hoped to gain access to greater multilateral financing, ithas so far not secured any significant multilateral inflows since 1995, becauseof its reluctance to implement economic reforms. In addition, a number ofcountries, including the US, have suspended aid and credits because of thecountry’s deteriorating human rights situation.

Foreign reserves and exchange rates

Belarus first issued the Belarusian rubel in 1992 as a coupon currency on parwith the Russian rouble, before making it official legal tender following aredenomination in January 1995. In 1995 the authorities pegged the rubel to theUS dollar to strengthen the currency in readiness for a planned monetary unionwith Russia. In January 1996 a currency corridor replaced the fixed exchangerate, but this proved unsustainable and was abandoned by February 1997.

The currency slid precipitously in 1997-98, accompanied by a sharp wideningof the gap between the official and black-market rates and unsuccessful efforts

Foreign direct investmentis low

Exchange-rate instabilityhas been chronic

The current-account deficithas widened

External debt decreases

Belarus 27


by the government to slow the currency’s decline (for historical data onexchange rates, see Reference table 23). The government’s restriction offoreign-currency exchange and the withdrawal of the Belarusian rubel from awide range of transactions further exacerbated the currency’s depreciation byreducing demand for the national currency. The Belarusian rubel’s difficultiesaccelerated further in March 1998, when the loss of confidence in the rubelspurred a currency crisis that was then further exacerbated by the collapse ofthe Russian rouble in August of that year. The response of the National Bank ofBelarus (NBB, the central bank) to restrict currency operations further onceagain exacerbated the rapid depreciation of the rubel by dampening demand.

Despite having only temporarily slowed the nominal decline of the currencythroughout much of 1999, the government proceeded nevertheless with plansto redenominate the rubel in January 2000 at a ratio of 1,000:1. As this was notaccompanied by any exchange-rate liberalisation or significant tightening ofmonetary policy, the NBB proved unable to prop up the newly denominatedcurrency and agreed to unify its various exchange rates. This required a rapiddepreciation of the official rate between May and September 2000 in order tobring it in line with the market rate. The unification of the exchange rate,combined with eased currency controls and tighter monetary policy resulted infar more moderated depreciation between October 2000 and early 2001. This isin line with the NBB’s policy, announced in January 2001, to peg the Belarusiancurrency to the Russian rouble by means of a crawling peg system, with amonthly nominal depreciation target of 2.5-3% against the Russian rouble.

The NBB’s chronically low level of official foreign-currency reserves, however,places the viability of the crawling peg into question. Although foreign reservesrose in the immediate post-independence years, they have remained at lowlevels in terms of import cover, which has yet to exceed 1 month of goods andservices imports (for historical reserves data, see Reference table 22). Thispersistent pressure on reserves reflects the suspension of multilateral credits and,paradoxically, the policy of forcing enterprises to sell their hard currency atartificially low rates, which de facto discourages exports to hard-currency areas.

In real terms the sharp fall of the rubel in 1998-2000 prompted a 40% declineagainst the US dollar, despite significant inflation differentials and therelatively slower nominal weakening of the rubel in 1999 (compared with1998). More important from the perspective of trade, however, the rubel’s realexchange-rate trend against the Russian currency has been less favourable forBelarusian exporters. In 1999 Belarus’s terms of trade worsened as a result ofsteady real appreciation against the Russian currency, while in 2000 a return toreal depreciation brought the real Russian-Belarusian exchange rate only backto the level that prevailed in 1997 and the first half of 1998. Given therelatively higher inflation rates expected as a result of the policies ofAlyaksandar Lukashenka’s administration, the Belarusian rubel is likely onceagain to appreciate in real terms in 2001-02 as long as the crawling peg to theRussian rouble is maintained.

Unified exchange rate ispegged to rouble in 2001

Sharp real decline againstthe US dollar since 1998

Foreign reserves are low

28 Belarus


Appendices

Regional organisations

The Commonwealth of Independent States (CIS) was established onDecember 8th 1991 by the Minsk Agreement signed by the heads of state ofthe Republic of Belarus, the Russian Federation and the Republic of Ukraine.The agreement between the three republics sealed the end of the Soviet Union.The formal clause stating the dissolution of the Soviet Union was included inthe subsequent treaty signed in Almaty, Kazakhstan, by all former Sovietrepublics except the Baltic states and Georgia. Azerbaijan initially refused toratify the treaty, but by December 1993 both Georgia and Azerbaijan hadjoined the CIS. The CIS therefore includes all the former Soviet republicsexcept the Baltic states.

The CIS sought to fill the institutional vacuum resulting from thedisintegration of the Soviet Union. The main organ of the CIS is the Council ofthe Heads of State, the supreme body of the organisation; it is convened no lessthan twice a year. The Council co-ordinates the co-operation of the executiveauthorities of the states in economic, social and other spheres. The activities ofthe CIS are logistically supported by the Executive Committee, which acts as asecretariat and has its seat in Minsk, Belarus. The organisation also has anInter-parliamentary Assembly. The perception of the CIS and its role variesconsiderably among the participating states. Those that have an alternative toRussian leadership and prospects for economic independence tend to favour aloose framework. States that are reliant on Russia are more inclined to want theCIS to be a close alliance. Belarus, as an exceptional case, follows a policy ofcloser integration with Russia, which is intended to lead eventually to areunification of the two states.

The CIS introduced a certain order into post-Soviet affairs. It has also served asa useful forum for discussion and “networking” of the former Soviet elites.However, the overall record of the CIS has been disappointing. Integration andlevels of co-operation have lagged behind initial expectations. Many membersremain wary that a closer union could become the instrument of Russia’s post-imperial ambitions. Moreover, Russia has been reluctant and incapable ofbearing the costs of a more ambitious reintegration process. The CIS has alsobeen unable either to prevent or resolve numerous regional conflicts. On theeconomic front, the CIS has also fallen short of the expectations of many of itsmembers. After almost ten years of existence, it has not implemented acustoms union or a free-trade area covering all member states. In 1995 Belarus,Kazakhstan, the Kyrgyz Republic and Russia formed a Customs Union, whichwas joined by Tajikistan in 1999. A treaty on the setting up of a EurasianEconomic Community was signed by the five countries in October 2000.

Initially a non-institutionalised multilateral forum for cold war East-Westdialogue, the Conference for Security and Co-operation in Europe (CSCE)gradually expanded in aim and strengthened its organisational structure in the

Commonwealth ofIndependent States

Organisation for Securityand Co-operation in Europe

Belarus 29


1990s. Established in 1972, the CSCE served for almost 20 years as aconvenient and flexible arrangement for easing cold war tensions. After theend of the cold war the role of the CSCE started to change quickly, and inDecember 1994 the conference was officially renamed the Organisation forSecurity and Co-operation in Europe (OSCE). With 55 member states, theOSCE is the only inclusive pan-European security organisation. Canada andthe US are also members of the organisation.

The OSCE has played a key role in conflict prevention and resolution, as wellas post-conflict reconstruction in Europe. Its activities embrace threedimensions: security, economy and human rights. The OSCE is engaged inpreventive diplomacy, arms control and confidence-building activities. Itundertakes fact-finding and conciliation missions, and crisis management. TheOSCE is a component of the European security architecture. It is a “regionalarrangement” in the sense of Chapter VIII of the UN Charter, which gives itauthority to try to resolve a conflict in the region before referring it to the UNSecurity Council. In the course of the 1990s the OSCE has been heavilyinvolved in the Balkans and the Transcaucasus.

The activities of the OSCE are performed by a web of specialised agencies. TheOffice of the High Commissioner on National Minorities, based in The Hague,is the primary source of “early warning”, with responsibility for identifyingethnic tensions that might endanger peace. The Office for DemocraticInstitutions and Human Rights (ODIHR), based in Warsaw, focuses onpromoting human rights, democracy and the rule of law. It monitors elections,assists at developing national electoral and legal institutions, promotes thedevelopment of non-governmental organisations (NGOs) and civil society,conducts meetings, seminars and special projects. The Office of theRepresentative on Freedom of the Media, based in Vienna, assesses theimplementation of the member states’ commitments concerning freedom ofjournalism, broadcasting and access to information.

Sources of information

Given the general climate of censorship, national sources of information arepoor and not readily available in English, although the Russian-language BankBulletin Magazine occasionally publishes useful data on macroeconomicindicators and banking sector assets. By far the most comprehensiveinformation is available in Belarus Economic Trends, funded by the EuropeanCommission’s TACIS initiative, which publishes monthly and quarterly reports(http://www.bettacis.minsk.by). The Ministry of Statistics and Analysis provideseconomic data at http://www.president.gov.by/Minstat/en/main.html.

Energy Data Associates, Bishops Walk House, 19-23 High Street, Pinner,Middlesex HA5 5PJ, for national energy balances

IMF, Direction of Trade Statistics, quarterly and annually. Publishes data onvalues of imports and exports for more than 150 countries

IMF, International Financial Statistics, monthly

National statistical sources

International sources

30 Belarus


IMF Staff Country Report, Republic of Belarus—Recent Economic Developments,October 1998 and November 2000

International Institute for Strategic Studies, The Military Balance

World Bank, Belarus: Prices, Markets and Enterprise Reform, A Country EconomicMemorandum, April 30th 1997

The British Helsinki Human Rights Group, an independent non-governmentalorganisation dedicated to monitoring the progress of democracy and humanrights in member states of the Organisation for Security and Co-operation inEurope, produces, inter alia, a damning critique of the Belarusian constitutionon its website, although the information appears to be up to date only to 1997:http://www.bhhrg.org

The European Public 7Health Information Network for Eastern Europe(Euphin), a joint project between the World Health Organisation’s Europeoffice, the European Commission and individual east European countries,provides some useful data on health on a map basis at its website, althoughdata coverage is patchy in some cases: http://www.euphin.dk

The Interstate Statistical Committee of the Commonwealth of IndependentStates provides a limited range of fairly up-to-date statistics on Belarus andother members of the CIS. There is no commentary on the figures.http://www.unece.org/stats/cisstat/mainpage.htm

Ryna van Berlimoes et al, Russia, Ukraine & Belarus: a travel survival kit, LonelyPlanet, London, 1996. Belarus commands less than 60 pages out of over 1,190,but there are nevertheless comprehensive features on history, culture,sightseeing and travel around the country

David R. Marples, Belarus: A Denationalized Nation, Harwood AcademicPublishers, Amsterdam and Atlanta, Georgia, 1999

Andrew Savchenko, Rationality, Nationalism and post-Communist MarketTransformations: A Comparative Analysis of Belarus, Poland, and the Baltic States,Ashgate Publishing Ltd, Aldershot, 2000

Jan Zaprudnik, Belarus at a Cross-roads in History, Westview Press, Boulder,Colorado and Oxford, 1993

Select bibliography andwebsites

Belarus 31


Reference tables

These reference tables provide the most up-to-date statistics available at the timeof publication.

Reference table 1

Population(% of total unless otherwise indicated)

1995 1996 1997 1998 1999

Total (‘000) 10,264 10,236 10,204 10,045 10,019 Male 4,791 4,778 4,761 4,718 4,703 Female 5,473 5,458 5,443 5,327 5,316

Age profileUnder working age 23.1 22.6 22.0 21.2 20.6 Working age 55.8 56.2 56.7 57.3 58.0 Over working age 21.1 21.3 21.3 21.5 21.4

LocationRural 68.9 69.3 69.8 69.3 69.7 Urban 31.1 30.7 30.2 30.7 30.3

Life expectancy at birth (years) 68.6 68.6 68.5 68.4 67.9 Men 62.9 63.0 62.9 62.7 62.2 Women 74.3 74.3 74.3 74.4 73.9

Birth rate (per 1,000 inhabitants) 11.3 9.8 9.3 8.8 8.6a

Mortality rate (per 1,000 inhabitants) 12.6 13.0 13.0 13.4 13.5a

Infant mortality (per 1,000 live births) 13.2 13.3 12.5 12.4 12.4a

a Estimate from Belarus Economic Trends.

Sources: IMF, International Financial Statistics; TACIS, Belarus Economic Trends; UN Development Programme, Human DevelopmentReport, 2000.

Reference table 2

Employment by sector(‘000 unless otherwise indicated; monthly average)

1995 1996 1997 1998 1999

Total employment 4,410 4,365 4,370 4,417 4,442 of which: agriculture 803 759 738 698 646 industry 1,160 1,081 1,072 1,073 1,084 construction 278 248 253 265 263 services 1,572 1,597 1,645 1,702 1,752

Unemployed (end-period) 131 183 126 106 95

Unemployment rate (%) 2.7 3.9 2.8 2.3 2.1

Economically active population 4,721 4,537 4,528 4,528 4,542

Labour force participation (%) 45.9 44.3 44.3 44.4 45.3

Share of women in labour force (%) 54.5 51.7 51.7 51.8 52.4

Share of women in unemployed (%) 64.3 63.8 66.6 66.7 64.2

Source: IMF, Republic of Belarus—Recent Economic Developments, 2000.

32 Belarus


Reference table 3

National energy statistics

1995 1996 1997 1998 1999

Crude oil (‘000 tonnes)Domestic crude oil production 1,932 1,860 1,822 1,830 1,840Domestic crude oil consumption n/a n/a 11,788 11,456 11,488Crude oil exports 200 300 400 382 300Crude oil imports 12,000a 11,000a 10,461 10,055 9,900Change in stocks –25 250 –95 –47 48

Natural gas (m cu metres)Domestic gas production 266 249 246 252 256Domestic gas consumption 13,840 14,587 16,597 16,278 16,827Gas exports 0 0 0 0 0Gas imports 13,531 14,345 16,241 16,004 16,565Change in stocks 43 –7 110 22 6

Electricity (m kwh)Domestic production 24,918 23,728 26,057 23,492 26,516Domestic consumption 22,018 21,136 33,677 34,166 33,680Exports 2,907 2,601 2,688 2,073 3,029Imports 10,066 11,144 10,308 12,747 10,192

a EIU estimate.

Source: Ministry of Statistics and Analysis, cited in IMF, Republic of Belarus—Recent Economic Developments, 2000.

Reference table 4

General government operations(BRb m unless otherwise indicated; % of total in brackets)

1995 1996 1997 1998 1999

Revenuea 48,300 74,199 159,896 304,164 1,322,558 Tax revenue 45,322 68,707 150,038 280,691 1,231,549 Income, profits & capital gains (25.7) (18.5) (18.8) (19.9) (19.1) Social security contributions (22.1) (23.0) (21.1) (21.9) (21.3) Domestic taxes on goods & services (37.7) (42.6) (44.1) (44.1) (47.7) Other (14.5) (15.9) (16.0) (14.1) (11.8) Non-tax revenue 2,223 5,833 8,325 20,454 91,009 Capital revenue 756 660 1,533 3,019 9,546

Expenditure & net lending 51,559 78,654 164,312 307,632 1,385,002 Expenditure 51,559 78,688 162,532 307,808 1,382,258 Wages & salaries (14.0) (19.4) (17.5) (17.7) (16.0) Goods & services (39.0) (23.7) (22.6) (22.1) (19.0) Interest payments (0.6) (1.6) (1.5) (1.7) (1.4) Subsidies (4.4) (9.9) (10.4) (12.1) (14.1) Transfers to households (24.5) (27.6) (28.2) (26.6) (25.4) Capital expenditure (15.9) (17.5) (19.9) (19.3) (23.4) Other (1.6) (0.3) (0.0) (0.5) (0.8) Net lending – –34 1,780 –176 2,744

General government balance –3,259 –4,114 –5,949 –6,487 –62,444 % of GDP –2.7 –2.2 –1.7 –1.0 –2.2

a Excluding extrabudgetary funds.

Sources: IMF, Republic of Belarus—Recent Economic Developments, 1999 and 2000.

Belarus 33


Reference table 5

Money supply and interest rates(BRb bn unless otherwise indicated; end-period unless otherwise indicated)

1996 1997 1998 1999 2000

Currency in circulation 6.2 12.3 27.1 86.9 238.8

Money supply (M1) 15.7 33.9 80.9 233.4 508.4 M1 growth (%) 56.7 115.5 139.1 188.4 117.8

Quasi-money 11.6 23.9 136.3 272.0 1,105.3

Money supply (M2) 27.3 57.8 217.3 505.4 1,613.7 M2 growth (%) 52.4 111.4 276.0 132.7 219.3

Refinancing rate (%) 8.3 8.9 9.6 23.4 80.0

Deposit rate (%; av) 32.4 15.6 14.3 23.8 37.6

Lending rate (%; av) 62.3 31.8 27.0 51.0 67.7Source: IMF, International Financial Statistics.

Reference table 6

Gross domestic product

1995 1996 1997 1998 1999

TotalAt current prices (BRb m) 119.8 184.2 356.1 675.2 2,890.3At current prices (US$ m) 10.4 13.9 13.7 14.6 11.5Real change (%) 10.4 2.8 11.4 8.4 3.4

Sources: IMF, Republic of Belarus—Recent Economic Developments, 2000; EIU.

Reference table 7

Gross domestic product by expenditure(BRb m at current prices unless otherwise indicated)

1995 1996 1997 1998 1999

Private consumption 72,356 109,603 202,875 399,844 1,685,800 % real change, year on year –12.3 4.5 10.0 11.8 5.0

Government consumption 23,157 36,627 72,441 139,142 581,868 % real change, year on year n/a – 8.4 5.7 2.1

Gross fixed investment 29,984 40,438 92,555 182,103 740,550 % real change, year on year –29.6 –3.1 21.7 10.1 –5.4

Stockbuilding 63 4,681 5,891 5,458 –47,667

Exports of goods & services 59,890 88,876 217,574 415,224 1,786,830

Imports of goods & services –65,637 –96,050 –239,974 –449,248 –1,869,660

GDP 119,813 184,174 356,079a 675,159a2,890,320a

% real change, year on year –10.4 2.8 11.4 8.4 3.4

a Does not sum in source.

Sources: IMF, International Financial Statistics.

34 Belarus


Reference table 8

Gross domestic product by sector(BRb m at current prices unless otherwise indicated)

1995 1996 1997 1998 1999

Industry 33,922 56,519 110,727 200,680 855,049 % of GDP 31.4 34.6 35.8 34.4 34.3

Agriculture & forestry 19,104 26,074 45,537 79,459 322,299 % of GDP 17.7 16.0 14.7 13.6 12.9

Construction 6,563 8,943 20,275 40,922 178,767 % of GDP 6.1 5.5 6.6 7.0 7.2

Transport & communications 14,867 21,046 37,546 69,474 298,048 % of GDP 13.8 12.9 12.1 11.9 11.9

Trade & catering 9,191 14,336 26,401 60,164 285,976 % of GDP 8.5 8.8 8.5 10.3 11.5

Material supply & procurement 3,714 2,766 5,422 10,423 43,718 % of GDP 3.4 1.7 1.8 1.8 1.8

Housing & public utilities 4,701 7,208 13,723 25,230 93,069 % of GDP 4.4 4.4 4.4 4.3 3.7

Healthcare 3,584 5,695 11,523 21,678 96,401 % of GDP 3.3 3.5 3.7 3.7 3.9

Education, culture & science 5,708 9,909 18,840 37,642 156,655 % of GDP 5.3 6.1 6.1 6.5 6.3

Other 6,684 10,855 19,332 37,850 165,065 % of GDP 6.2 6.6 6.2 6.5 6.6

Total GDPa 119.8 184.2 356.1 675.2 2,890.3

a Do not sum in source. Brb bn.

Source: IMF, Republic of Belarus—Recent Economic Developments, 2000.

Reference table 9

Prices and earnings(% change, year on year)

1996 1997 1998 1999 2000

Year-endConsumer prices 39.3 63.4 181.7 252.2 108.0Producer prices 29.3 90.9 200.5 245.0 n/aReal wages n/a n/a –13.3 24.0 21.0

Annual averageConsumer prices 52.7 63.9 72.9 293.7 168.6Producer prices 33.6 88.0 72.0 355.8 185.6Nominal wages 56.0 105.7 144.4 335.5 n/a

Sources: TACIS, Belarus Economic Trends; IMF, International Financial Statistics.

Belarus 35


Reference table 10

Agricultural production(‘000 tonnes unless otherwise indicated)

1995 1996 1997 1998 1999

Grain 5,502 5,792 6,420 4,831 3,645 % change, year on year –9.7 5.3 10.8 –24.8 –24.5

Sugarbeet 1,172 1,011 1,262 1,428 1,186 % change, year on year 8.7 –13.7 24.8 13.2 –16.9

Potatoes 9,504 10,881 6,942 7,574 7,491 % change, year on year 15.3 14.5 –36.2 9.1 –1.1

Flax 60 49 26 36 21 % change, year on year 22.4 –18.3 –46.9 38.5 –41.7

Meat 995 937 941 981 949 % change, year on year –12.6 –5.8 0.4 4.3 –3.3

Milk 5,070 4,908 5,133 5,232 4,741 % change, year on year –8.0 –3.2 4.6 1.9 –9.4

Eggs (m) 3,373 3,403 3,459 3,481 3,395 % change, year on year –0.8 0.9 1.6 0.6 –2.5


Reference table 11

Livestock numbers(‘000 unless otherwise indicated)

1995 1996 1997 1998 1999

Cattle 5,054 4,855 4,802 4,686 4,326 % change, year on year –6.5 –3.9 –1.1 –2.4 –7.7

Pigs 3,895 3,715 3,686 3,698 3,566 % change, year on year –2.7 –4.6 –0.8 0.3 –3.6

Sheep 204 155 127 106 92 % change, year on year –11.3 –24.0 –18.1 –16.5 –13.2

Horses 229 232 233 229 221 % change, year on year 4.1 1.3 0.4 –1.7 –3.5


Reference table 12

Industrial production(real % change, year on year)

1995 1996 1997 1998 1999

Power generation –15.8 –1.6 5.6 –7.4 5.4

Refining 12.3 –5.5 –1.0 0.7 1.9

Chemicals & petrochemicals 8.9 7.2 19.4 7.7 7.0

Ferrous metallurgy –1.4 23.4 35.1 14.9 n/a

Machinery & metalworking –20.5 1.6 25.7 15.5 16.2

Wood & paper –9.6 14.2 34.7 21.7 16.0

Construction materials –21.2 –4.0 26.1 15.2 1.5

Light industry –34.1 11.9 27.1 22.8 10.8

Food industry –12.7 5.5 21.0 19.2 14.4

All industry –11.7 3.5 18.8 12.4 10.3


36 Belarus


Reference table 13

Banking sector indicators(BRb m; at current prices; year-end)

1996 1997 1998 1999 2000

Reserves 5,693 11,889 35,688 92,002 158,118

Foreign assets 5,111 11,370 67,886 107,816 389,506

Claims on central government 2,273 6,084 21,956 53,796 176,938

Claims on local government 4 22 143 358 815

Claims on public enterprises 9,232 18,565 84,059 170,553 677,713

Claims on private sector 12,303 30,292 112,999 279,701 802,505

Claims on non-bank financial institutions 302 498 480 1,278 1,310


Reference table 14

Exports to the CIS(BRb m; at current prices)

1995 1996 1997 1998 1999

Industry 33,294 45,368a 140,215 249,864 931,395 Power generation 6 4 1 6 29 Refinery products 4,739 5,545 11,504 15,146 41,146 Metallurgy 550 3,105 10,109 20,167 45,844 Chemicals & petrochemicals 5,596 8,086 22,054 45,012 159,117 Machine-building & metal processing 14,239 18,054 54,230 89,535 401,128 Wood & paper 2,143 3,193 11,332 19,769 66,853 Construction & materials 1,072 1,458 4,143 6,369 30,182 Light industry 1,859 3,127 12,120 21,037 86,689 Food-processing 2,883 5,438 13,955 30,264 96,400 Other 209 658 767 2,560 4,006

Agriculture 244 676 2,368 2,593 24,360

Other 21 30 1 3,207 12,323

Total 33,559 49,777a 142,583 255,664 968,077



Reference table 15

Imports from the CIS(BRb m; at current prices)

1995 1996 1997 1998 1999

Industry 41,376 58,036a 148,830 261,910 1,078,346 Power generation 1,104 1,556 3,192 5,719 30,472 Refinery products 20,588 25,262 54,622 84,757 24,459 Metallurgy 4,451 8,667 21,896 44,511 161,726 Chemicals & petrochemicals 5,469 8,062 20,378 37,876 478,757 Machine-building & metal processing 5,109 7,366 26,231 50,880 196,181 Wood & paper 577 1,206 3,616 7,295 33,204 Construction materials 365 535 2,888 2,723 25,762 Light industry 613 916 4,855 7,441 33,080 Food-processing 2,732 3,131 9,533 14,211 84,692 Other 367 859 1,619 6,496 10,014

continued

Belarus 37


1995 1996 1997 1998 1999

Agriculture 702 3,363 5,000 7,253 44,934

Other 29 37 1 5,259 21,202

Total 42,106 61,430 153,830 274,422 1,144,481



Reference table 16

Exports to non-CIS countries(BRb m; current prices)

1995 1996 1997 1998 1999

Industry 20,209a 24,565 49,596 106,542 603,813 Power generation – – 69 – 1 Refinery products 1,562 3,397 4,308 3,086 90,984 Metallurgy 2,040 2,049 5,366 11,282 60,174 Chemicals & petrochemicals 277 8,877 18,385 34,753 194,768 Machine-building & metal processing 3,490 5,597 10,727 22,956 133,586 Wood & paper 856 1,062 2,399 5,942 36,712 Construction materials 324 296 666 1,468 10,618 Light industry 1,947 2,680 6,170 14,005 61,149 Food-processing 1,002 210 644 1,409 13,814 Other industry 213 397 861 11,642 2,011

Agriculture 258 797 905 2,052 2,747

Other 10 13 0 2 63

Total 20,477 25,375b 50,501 108,596 606,623

a Does not sum in original. b EIU estimate.


Reference table 17

Imports from non-CIS countries(BRb m; current prices)

1995 1996 1997 1998 1999

Industry 20,680a 30,199 72,997 154,281a 632,172a

Power generation 310 857 1,322 5,646 5,498 Refinery products 283 311 676 1,115 8,200 Metallurgy 1,722 1,922 5,896 11,285 57,235 Chemicals & petrochemicals 4,516 7,232 18,425 33,079 127,448 Machine-building & metal processing 8,532 10,188 23,703 56,806 217,246 Wood & paper 840 1,173 2,820 6,027 21,028 Construction materials 261 318 883 2,483 9,130 Light industry 1,575 2,719 5,729 11,036 63,311 Food-processing 3,377 5,046 12,561 19,506 90,849 Other industry 264 427 983 1,804 2,030

Agriculture 954 1,209 3,466 5,046 28,437

Other 13 19 – 448 1,760

Total 21,647 31,421 76,463a 154,281a 632,172a



38 Belarus


Reference table 18

Direction and composition of trade, 1998(US$ m)

Imports cif Russia Germany Ukraine Poland Total

Food, beverages & tobacco 239.1 23.5 72.4 68.0 845.4Chemicalsa 360.9 164.3 90.3 40.6 962.5Textile fibres, yarn, cloth & manufactures 93.3 30.1 5.3 11.0 347.4Iron & steel & manufacturesb 489.8 59.6 244.3 6.7 842.6Other metals & manufacturesb 116.9 21.8 23.7 11.3 218.2Machinery & transport equipment 793.3 337.3 152.8 77.1 1,880.4 of which: road vehicles & tractors 258.7 110.4 29.7 12.0 480.4Clothing & footwear 23.9 14.8 3.2 9.9 89.7Scientific instruments etc 45.3 33.9 11.1 3.0 169.0Total incl others 4,661.2 757.7 718.6 274.4 8,451.2

Exports fob Russia Ukraine Germany Poland TotalFood, beverages & tobacco 529.1 3.3 14.1 10.2 585.7Wood & paper & manufactures 138.5 16.9 30.2 13.3 264.8Chemicalsa 439.2 39.8 10.8 52.0 967.6Rubber & manufactures 180.0 21.6 1.4 1.5 232.0Textile fibres, yarn, cloth & manufactures 289.2 65.0 17.2 22.0 514.5Non-metallic mineral manufactures 129.6 5.6 6.7 1.7 173.0Iron & steel & manufacturesb 338.1 26.5 17.9 0.5 573.0Other metals & manufacturesb 59.4 3.1 2.4 0.2 72.2Machinery & transport equipment 1,540.2 148.9 13.1 10.6 2,005.2 of which: road vehicles & tractors 847.6 82.8 7.9 4.1 1,098.4Clothing & footwear 232.6 3.3 41.4 28.5 444.2Scientific instruments etc 60.4 4.5 22.5 0.4 101.0Furniture, lighting, prefabricated buildings 195.2 2.6 7.4 0.5 218.8Total incl others 4,608.1 386.9 199.6 184.9 7,069.7

a Including crude fertilisers and manufactures of plastics. b Including scrap.

Source: UN, External Trade Statistics, series D.

Reference table 19

Main trading partners(US$ m)

1995 1996 1997 1998 1999

Exports, total 4,803 5,652 7,301 7,070 5,909 To CIS countries 3,027 3,764 5,379 5,160 3,622 of which: Russia 2,185 3,024 4,730 4,608 3,222 Ukraine 607 478 425 387 281 Kazakhstan 76 85 53 48 28 To non-CIS countries 1,776 1,888 1,922 1,910 2,287 of which: Germany 268 198 217 200 215 Poland 271 338 245 185 208

continued

Belarus 39


1995 1996 1997 1998 1999

Imports, total 5,564 6,939 8,689 8,549 6,674 From CIS countries 3,677 4,570 5,817 5,554 4,289 of which: Russia 1,965 3,522 4,673 4,670 3,767 Ukraine 509 889 968 740 416 Kazakhstan 56 59 39 36 13 From non-CIS countries 1,887 2,369 2,872 2,995 2,385 of which: Germany 424 601 691 758 693 Poland 197 195 250 283 213

Note. Totals include barter transactions.


Reference table 20

Balance of payments, IMF series(US$ m)

1995 1996 1997 1998 1999

Goods: exports fob 4,803 5,790 7,383 7,138 5,949

Goods: imports fob –5,469 –6,939 –8,718 –8,488 –6,548

Trade balance –666 –1,149 –1,335 –1,350 –599

Services: credit 466 908 919 925 734

Services: debit –284 –336 –365 –443 –436

Income: credit 2 74 31 27 29

Income: debit –53 –105 –116 –120 –94

Transfers: credit 107 136 106 121 136

Transfers: debit –31 –44 –28 –25 –28

Current-account balance –458 –516 –788 –866 –257

Direct investment abroad n/a n/a –2 –2 –1

Direct investment in Belarus 15 73 200 149 225

Portfolio investment assets n/a –18 –62 28 –14

Portfolio investment liabilities n/a 3 42 –13 –18

Other investment assets –155 –132 50 199 –33

Other investment liabilities 345 420 359 –60 90

Financial account balance 204 347 586 301 249

Capital account, net 7 101 133 170 60

Net errors & omissions 169 –146 133 75 34

Overall balance –78 –214 65 –319 87

FinancingReserves assets –284 –79 75 55 35Use of IMF credit 178 n/a n/a 4 –58Exceptional financing 184 293 –140 289 –64


40 Belarus


Reference table 21

External debt, World Bank series(US$ m unless otherwise indicated; debt stocks as at year-end)

1995 1996 1997 1998 1999

Public medium- & long-term 1,100 1,255 690 652 748

Private medium- & long-term 1 20 30 23 18

Total medium- & long-term debt 1,100 1,275 720 675 766 Official creditors 718 769 361 384 488 Bilateral 545 582 142 125 205 Multilateral 173 188 219 259 283 Private creditors 382 505 359 291 278

Short-term debt 70 110 102 230 111 of which: interest arrears 15 18 10 1 5

Use of IMF credit 102 283 274 257 243

Total external debt 1,272 1,667 1,096 1,162 1,120

Principal repayments 88 108 65 75 92

Interest payments 31 72 56 75 65 of which: short-term debt 4 4 4 9 9

Total debt service 119 180 121 150 157

Ratios (%)Total external debt/GNP 12.2 12.0 8.0 8.0 9.7Debt-service ratio, paida 5.4 2.8 1.4 1.8 2.3Short-term debt/total external debt 5.5 6.6 9.3 19.8 9.9Concessional long-term debt/total long-term debt 28.6 7.8 7.4 7.7 7.5

Note. Long-term debt is defined as having original maturity of more than one year.a Debt service as percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

Reference table 22

Foreign reserves(US$ m unless otherwise indicated; end-period)

1996 1997 1998 1999 2000

Foreign exchange 469.0 393.7 338.4 293.8 350.3

SDRs 0.1 0.0 0.4 0.4 0.2

Reserve position in the IMF 0.0 0.0 0.0 0.0 0.0

Total reserves excl gold 469.2 393.7 338.8 294.3 350.5


Reference table 23

Exchange rates(redenominated BRb at official rate of exchange per unit of currency; annual averages)

1996 1997 1998 1999 2000a

US$ 13.3 26.0 46.4 251.0 720.0

a EIU estimate.

Sources: IMF, International Financial Statistics; TACIS, Belarus Economic Trends.

Moldova 41


Moldova

Basic data

33,700 sq km

4.29m (incl Transdniestr; Jan 2000 estimate)

Population in ‘000

Chisinau (capital) 656 (1994) Tiraspol 186 (1992) Balti 159 (1992) Teghina 133 (1992)

Continental

Moldovan, a dialect of Romanian and the only Romance language in theformer Soviet Union. Between 1941 and 1989 it was written in the Cyrillicalphabet, which is still used in the separatist region of Transdniestr. Russian isalso widely spoken

Metric system

Moldovan leu (plural lei), introduced in November 1993 to replace the interimcurrency, the ban, at the rate 1 leu=100 bani. Average exchange rate in 2000:Lei 12.43:US$1. Exchange rate on May 8th 2001: Lei13.04:US$1

Two hours ahead of GMT (three hours in Transdniestr)

Calendar year

January 1st (New Year’s Day), January 7th-8th (non-Greek OrthodoxChristmas), March 8th (International Women’s Day), April 15-16th (OrthodoxEaster), May 1st (Labour Day), May 9th (Victory Day), August 27th(Independence Day), August 31st (National Language Day)

Land area

Population

Main towns

Climate

Languages

Weights and measures

Currency

Time

Fiscal year

Public holidays, 2001

42 Moldova


Political background

Moldova is a young parliamentary democracy with a unicameral parliamentand a president who, following constitutional amendments introduced in2000, is elected directly by parliament. Centrist and right-wing parties formeda loose coalition to keep the Communist Party of Moldova (CPM) out of powerbetween 1998 and 2000, but failed to prevent a CPM majority from formingfollowing the February 2001 parliamentary election. The CPM used its new-found strength to elect its leader, Vladimir Voronin, as president in April 2001.The prime minister, Vasile Tarlev, heads a government that is supported by theCPM but includes several members of the previous, technocratic government.

Historical background

Modern Moldova consists of the former territory of Bessarabia between the Prutand Dniestr rivers, which belonged to Romania for much of the 19th and early20th centuries, and the Transdniestr region, which tsarist Russia claimed in theearly 19th century. The two regions merged to form the Moldavian SovietSocialist Republic (SSR) in 1940, following the Nazi-Soviet non-aggression pactthat ceded a substantial portion of Romanian territory to the Soviet Union. Inthe 20th century “Russification” proved exceptionally far-reaching, even bySoviet standards, as the Soviet leaders attempted to wipe out all historical andcultural links with Romania. The Cyrillic script replaced the Latin alphabet,and the name of the language was changed from Romanian to Moldavian.Soviet authorities also relied on heavy immigration into Moldavia from theRussian and Ukrainian SSRs to distinguish further the republic from Romania.

The policy of glasnost (openness) introduced in 1986 by the Soviet leader,Mikhail Gorbachev, fostered the emergence of independent political groupsseeking national and cultural independence. In September 1989 the CPMyielded to popular pressure by reintroducing the Latin script and re-establishingMoldovan as the official language in place of Russian. Following an election inFebruary 1990, deputies sympathetic to the nationalist cause began to dominatethe Supreme Soviet (parliament). In April 1990 it elected as its chairman MirceaSnegur, a deputy backed by the country’s largest pro-independence group, thePopular Front of Moldova. The reform process accelerated a month later withthe appointment of a reformist prime minister, Mircea Druc. Full independencewas achieved on August 27th 1991, soon after the failed coup in Moscow. InDecember 1991 Moldovans elected Mr Snegur as the republic’s first president.

The Transdniestr region, with its large population of ethnic Russians andUkrainians, regarded Moldovan independence as an ominous first step towardsreunification with Romania, and voted for autonomy from Moldova inSeptember 1990—and for independence in late 1991. The central governmentrefused to recognise the region’s aspirations, however, and civil war erupted inJanuary 1992. The Russian 14th Army stationed in the region played a leadingrole in supplying arms to Transdniestr’s separatists, while Moldova received

Moldova divided betweenRussia and Romania

Moldova gainsindependence in 1991

Civil war in Transdniestr

Moldova 43


support from Romania. By the time a ceasefire emerged in July 1992 with theassistance of Ukraine and Russia, the separatists had won control over thewhole region and the west bank town of Bendery (now Teghina).

Since 1992 Transdniestr has pursued its own policies under the tight rule of itspresident, Igor Smirnov. It has enjoyed quasi-independence, including its owncurrency, central bank and customs posts, and continues to adhere to theCyrillic alphabet. As Moldova is unable to solve the conflict militarily, it isunlikely to be resolved quickly. Diplomatic efforts have achieved little, giventhat the Transdniestr leadership sees no incentive to relinquish its well-entrenched and lucrative control on power. Russia remains the key to anysettlement, owing to its extensive political and economic leverage over bothsides in the conflict. However, it has generally seen little reason to force an endto the stand-off, as this might require it to hasten its own troop withdrawalfrom a region that it deems strategically important. Although Russia hascommitted to the Organisation for Security and Co-operation in Europe(OSCE) to withdrawal all personnel and armaments from Transdniestr by 2002,it has so far made almost no progress towards meeting this deadline.

In February 1994 the Agrarian Democratic Party, a centre-left grouprepresenting agro-industrial interests, won the largest number of seats inMoldova’s first multiparty election. In March 1994 the electorate voted over-whelmingly to confirm Moldova’s independence in a national referendum, afact subsequently enshrined in a new constitution passed by parliament in Julyof that year. Despite the plebiscite, Mr Snegur, a pro-Romanian, made severalfailed attempts at “Romanianisation”, including replacing Moldovan byRomanian as the official language in the constitution. He was replaced aspresident by Petru Lucinschi, the former head of the Communist Party in theSoviet era, in December 1996. Unlike his predecessor, Mr Lucinschi maintaineda neutral stance on the issue of nationality, but relations with parliamentdisintegrated during his term of office. In 1997 the IMF suspended lending as aresult of concern over political instability.

The CPM won the largest number of seats in the 1998 legislative election butfell short of a working majority. The three centrist and right-wing groups inparliament, the Democratic Convention (DCM), the Bloc for a Democratic andProsperous Moldova (BDPM), and the Party of Democratic Forces (PDF), setaside their differences sufficiently to back a centre-right coalition government,the Alliance for Democracy and Reforms (ADR). However, inter-coalitionrivalries and the presidential administration’s lacklustre commitment to reformconsistently undermined political effectiveness and blocked many crucialreforms. In August 1998 Russia’s financial collapse sparked an economic crisisin Moldova and hastened the resignation of the ADR’s first prime minister, IonCiubuc, in February 1999. Despite his success in stabilising the economy, thereform-minded prime minister who followed, Ion Sturza, was also forced out ofoffice shortly before the end of 1999 because of in-fighting within the coalitionand the withdrawal of the presidential administration’s support. Followingrepeated attempts in November and December 1999 by various parliamentaryfactions to form yet another cabinet, parliament narrowly avoided its own

Political leaders fight whileeconomy declines

The governmentremains weak

44 Moldova


dissolution by approving a technocratic government led by Dumitru Braghis.Although Mr Braghis succeeded in tightening fiscal policy and secured aresumption in multilateral financing, he lacked the solid parliamentarysupport needed to improve legislative efficacy and accelerate reforms.

The political scene in this period was at times dominated by Mr Lucinschi’sconcerted push to amend the constitution in order to strengthen the role ofthe presidential administration at the expense of the legislature. Despitebuilding up considerable momentum and popular support, Mr Lucinschi wasultimately outmanoeuvred by the parliamentary parties, who demonstratedsufficient unity in mid-2000 to defeat his plans. In July 2000 parliamentapproved constitutional amendments granting it the right to elect thepresident directly and reducing presidential powers. This scupperedMr Lucinschi’s agenda and ended his plans to win re-election through apopular vote at the end of 2000. Parliament’s new-found unity, however, didnot last long. In late 2000 it failed to secure the three-fifths majority needed toelect a new president, thereby sparking its own dissolution and a pre-termelection in February 2001. The CPM, which mobilised the support ofMoldova’s increasingly impoverished electorate, won more than 50% of thevote and an overwhelming parliamentary majority.

Important recent events

December 1996: Petru Lucinschi wins the presidential election.

May 1997: Moldova and Transdniestr sign a Memorandum of Understandingunder international auspices.

March 1998: A legislative election reduces the number of parliamentaryparties to four and gives 40% of seats to the Communist Party of Moldova(CPM). The divided centre-right succeeds in forming a loose alliance to keepthe CPM out of power.

February 1999: Ion Ciubuc resigns as prime minister.

March 1999: Ion Sturza, the reformist minister of economics and reform,takes over as prime minister following the resignation of Mr Ciubuc.

November 1999: Russia agrees at the summit of the Organisation for Securityand Co-operation in Europe (OSCE) in Istanbul to withdraw all weapons andtroops from Transdniestr by end-2002. The resignation of Mr Sturza’s govern-ment and parliament’s refusal to approve the privatisation of the tobacco andwine industries prompt the IMF and World Bank to suspend lending.

December 1999: Following Mr Sturza’s resignation, Dumitru Braghis takesover at the head of a largely technocratic cabinet.

July 2000: Parliament votes by an overwhelming majority to transformMoldova into a parliamentary republic, and gains the right to elect thepresident directly.

January 2001: The Constitutional Court dissolves parliament, following itsfailure to elect a president.

The CPM comes to power

Moldova 45


February 2001: The CPM wins an overall majority in the pre-term election.

April 2001: Parliament elects the CPM leader, Vladimir Voronin, as president.

Constitution and institutions

A new constitution was approved by referendum and ratified by parliament onJuly 28th 1994. According to the constitution, Moldova exists as anindependent and neutral republic, with Moldovan as the official language. TheCPM, which gained power in 2001, has now promised to elevate Russian to thestatus of a second official language. The 101 members of the single-chamberparliament are elected every four years from party lists on a proportionalrepresentation basis, with parties requiring 6% of the popular vote to gainparliamentary seats. The July 2000 constitutional amendments established amore parliamentary republic by granting parliament the right to elect thepresident directly and reducing the powers of the executive branch.

Until 1999 Moldova was divided administratively into ten towns and40 districts. Reforms to the system in 1999 divided the country into 11 judets(counties), Chisinau municipality and two autonomous regions, Transdniestrand Gagauz Yeri.

Judicial independence was enshrined in the 1994 constitution. Moldova’ssubsequent legal reforms generally conform to west European standards andare respected nationally. Moldova’s court system includes a Court of Appealand a Supreme Court. Administrative courts adjudicate in issues of humanrights, while the Court of Accounts oversees the administration and expen-diture of public funds. The president appoints judges on the recommendationof the Higher Magistrates’ Council. Parliament appoints the prosecutor-general.The Constitutional Court enjoys sole authority over constitutional issues,including referendums and the legitimacy of presidential decrees.

The region of Transdniestr, which proclaimed its independence in December1995 after a regional referendum, has not yet agreed on its status with thecentral Moldovan government and continues to run its own affairs. Itslegislature consists of the directly elected Supreme Soviet, which is headed by adirectly elected president, currently Igor Smirnov. In June 2000 the SupremeSoviet voted to transform the region from a parliamentary to a presidentialrepublic and to abolish the upper chamber.

Gagauz Yeri—populated by approximately 150,000 Turkic Christians—wasgranted the status of an autonomous territorial unit within the Republic ofMoldova in January 1995. In the event of a change to Moldova’s status, GagauzYeri has the right to full self-determination, a measure designed to protect theregion should Moldova ever seek greater integration with Romania. GagauzYeri’s legislature is the Popular Assembly, elected directly every four years. Thechief executive authority resides in the directly elected bashkan (governor),currently Dumitru Croitoru, and the Bakannik Komitesi (executive committee).

Local government

The judiciary

Gagauz Yeri

Constitution andinstitutions

Transdniestr

46 Moldova


Political forces

Centrist and right-of-centre parties in post-independence Moldova have had achequered history. Unification with Romania, the ideological bedrock for theleading right-wing parties in the early 1990s, became increasingly less attractivein the course of Romania’s dismal economic performance. From the mid-1990sonwards prominent politicians increasingly formed their own politicalgroupings, thereby increasing the fluidity and instability of the centre-rightpolitical party scene. By contrast, the CPM built on its inherited discipline tobecome the only credible left-of-centre party. While the centre-right continues toenjoy the support of the educated and professional elite, its political in-fightingat the expense of the economy hastened the CPM’s return to power in 2001.

Parliamentary election, Feb 2001

% of vote No. of parliamentary seats

Communist Party of Moldova (CPM) 50.1 71

Braghis Alliance 13.4 19

Christian Democratic Popular Party (CDPP) 8.2 11

Party for Revival & Harmony 5.8 0

Democratic Party 5.0 0

National Liberal Party 2.8 0

Social Democratic Party of Moldova 2.5 0

National Peasants Christian Democratic Party 1.7 0

Electoral bloc “Plai Natal” 1.6 0

“For Order & Justice” 1.5 0

Party for Democratic Forces 1.2 0

Other 6.2 0

Source: International Foundation for Election Systems (IFES).

Banned after independence, Moldova’s Communist Party was re-legalised asthe CPM only after the 1994 parliamentary election. Under the leadership ofVladimir Voronin, within a year it had won the largest number of seats in theGagauz local elections, and in 1998 it repeated its success in the nationallegislative election. However, without a working majority it was kept out ofgovernment by a centre-right coalition. In the February 2001 election the CPMobtained more than 50% of the votes, making Moldova the first former Sovietrepublic to return a communist party to power. The CPM has generallyopposed privatisation, land reform and other economic liberalisation. Inforeign policy it calls for closer relations with Russia and membership of theRussian-Belarusian union. The CPM’s membership includes young business-people who counterbalance Soviet-era die-hards, but ultimately Mr Voroninhas control of most policymaking.

The Braghis Alliance is a relatively recent political formation supported byMr Lucinschi and based around Dumitru Braghis, who headed the cabinetbetween December 1999 and April 2001. The Braghis Alliance includes anumber of small, centrist political organisations and was hastily assembled inadvance of the 2001 election. Despite the support of both the presidency and

Main political parties

Moldova 47


the government, the Braghis Alliance performed worse than expected at theelection, and now presents little threat to the CPM’s control of parliament.

The Christian Democratic Popular Party (CDPP), led by Iure Rosca, is adescendant of the Popular Front of Moldova of 1989. Mr Rosca’s party brokeaway in 1992 to pursue, as the Christian Democratic Popular Front (CDPF), amore radical, pro-Romanian policy. As the issue of unification with Romaniadecreased in salience, the CDPF was forced to join forces with other groups toshare power. It participated in parliament in 1998 as part of the DemocraticConvention (DCM), a coalition with the Party of Revival and Harmony(PRH) and several smaller groups. In 1998-99 it formed part of the governingright-of-centre Alliance for Democracy and Reforms (ADR) coalition. However,the CDPF (since renamed Christian Democratic Popular Party) proved anunreliable and opportunistic partner. It voted at times with the CPM, despiteits considerable ideological differences, and helped to bring down theADR-supported government in late 1999. Because of its single-issue, nationaliststance, it is able to count on the votes of those favouring unification withRomania, and became the only right-wing group to breach the 6% thresholdnecessary for parliamentary representation in the 2001 election. It has themost pro-Western stance of the three political parties currently in parliament,with NATO membership high on the agenda, but is not a reliable proponent ofpolitical and economic reforms.

All other right-of-centre parties failed to win parliamentary representation inthe 2001 election, including the Party for Revival and Harmony (PRH),which was established as a personal political vehicle in 1995 by the formerpresident Mr Snegur, and the Party of Democratic Forces, founded in thesame year by Valeriu Matei to promote liberal economic policies. TheDemocratic Party, despite being led in the election by the relatively popularformer prime minister Ion Sturza, won only 5% of the vote.

Main political figures

Vladimir Voronin: An engineer, economist and lawyer, Mr Voronin was aprominent politician in the Soviet era. He successfully rebuilt the CommunistParty of Moldova (CPM) as its first secretary after it was re-legalised in 1994,finally spearheading it to a large enough victory in the 2001 parliamentaryelection to govern without coalition partners. In April 2001, under a new votingsystem, he was elected president of Moldova, a post that the CPM had alwaysvowed to abolish. While in opposition, Mr Voronin argued that Moldova’s pro-Western leanings were unrealistic, given its geography, trade patterns anddismal economic performance. Given his pro-Russian stance, Mr Voronin istherefore likely to diminish the pro-Western emphasis seen in Moldovanforeign policy in recent years. With his strong grip on the party, he, rather thanthe CPM, will set the tone for government policies in the coming years.

Vasile Tarlev: Appointed by Mr Voronin as prime minister in April 2001,Mr Tarlev was director-general of the Bucuria confectionery company and amember of both the president’s and the government’s economic councils—butwas otherwise relatively unknown in political circles. By proposing a young,politically unaffiliated candidate for the post, Mr Voronin hoped to appease

48 Moldova


Western investors concerned about the CPM’s grip on power. Domestically,Mr Voronin hoped that the appointment of Mr Tarlev would preclude theemergence of any competing power base, and that Mr Tarlev would be viewedas an energetic, tough and successful figure, based on his proven track recordin increasing efficiency and output at the country’s largest confectioneryfactory. Although Mr Tarlev has pledged to co-operate with multilateralinstitutions, much of his new government’s programme is at odds withexisting commitments.

Petru Lucinschi: A former historian and leader of the CPM in 1989-90,Mr Lucinschi was elected speaker of Moldova’s first freely elected post-independence parliament in 1994, and then president of the republic inDecember 1996. His attempts to strengthen the presidential system at theexpense of parliament destabilised the political scene and ultimately backfired.Mr Lucinschi was forced to resign at the end of 2000. He is still assumed tomaintain continued influence through the Braghis Alliance, the larger of thetwo opposition parties in parliament, but has alienated too many deputies toensure an early comeback.

Dumitru Braghis: An electrical engineer by training, Mr Braghis workedbetween 1995 and 1999 as director-general of the foreign economic relationsdepartment within the economics and reform ministry under successivegovernments. In December 1999 he formed a technocratic government that,despite limited political support, remained in power until the April 2001election and successfully deepened macroeconomic stability. Mr Braghiscurrently heads the second largest parliamentary faction in parliament, backedby Mr Lucinschi and a number of small, centrist political groups.

Yuri Rosca: Mr Rosca was a founding member in 1989 of the Popular Front ofMoldova and, in 1992, of its radical offshoot, the Christian Democratic PopularFront. In 1994 Mr Rosca became president of the party and a parliamentarydeputy. His party, since renamed the Christian Democratic Popular Party,survived the internecine splits afflicting other centre-right groups and was theonly one to enter parliament after the 2001 election. In the previousparliament Mr Rosca cut deals with the CPM when it suited him, but he hasalready indicated that he will refuse to work with the CPM in the newparliament. With an eye to the next election, Mr Rosca will instead adopt anisolated posture designed to highlight his party’s position as the sole right-wingand overtly anti-Russian party represented at the national level.

International relations and defence

Until the CPM won control of both the executive and legislative branches in2001, Moldova had participated less than enthusiastically in theCommonwealth of Independent States (CIS). Although Moldova signed theAlmaty Agreement establishing a wider CIS in December 1991 and aneconomic union treaty in September 1993, parliament did not ratify thecountry’s membership of the CIS until April 1994. Nor did Moldova participatein any discussions on monetary integration or any collective security

Until 2001 Moldova was areluctant CIS member

Moldova 49


arrangements. Instead, it joined GUUAM alongside Georgia, Ukraine,Uzbekistan and Azerbaijan—an initiative set up as an alternative to theRussian-dominated CIS. Since assuming power the CPM has indicated thatMoldova might leave GUUAM and would seek inclusion in the Russian-Belarusian union state, although initially only as an observer. WhileMr Voronin has not rejected the previous government’s emphasis on closer tieswith the EU and goal of eventual EU integration, he has suggested that EUmembership would only come in conjunction with the accession of otherwestern members of the CIS. His rejection of NATO membership was moreabsolute, a stance that Mr Voronin has justified on the basis that Moldova isconstitutionally defined as a neutral state.

During the civil war in 1992 Russian troops from the 14th Army stationed inTransdniestr actively supported their fellow Slavs against the Moldovangovernment. However, the commander-in-chief of the 14th Army, AleksandrLebed, became increasingly hostile towards the Transdniestr leadershipfollowing the ceasefire in July 1992. On October 21st 1994 Russia and Moldovasigned an agreement for the withdrawal of Russian troops, effective three yearsfrom ratification, which the Russian parliament has still not ratified. The maintask of the Russian troops now is to destroy or remove the large cache of armsdumped in the Transdniestr region after the dismantling of the Warsaw Pact,and to protect the weapons from the Transdniestr authorities, which claimownership. Peacekeeping in the region is conducted under the joint auspices ofRussia, Moldova, Ukraine, and the Organisation for Security and Co-operationin Europe (OSCE).

In November 1999, at the OSCE summit in Istanbul, the then Russianpresident, Boris Yeltsin, promised to remove all weapons from the region by2001 and all troops by 2002. His successor, Vladimir Putin, appointed theformer Russian prime minister Yevgeny Primakov to head a special commissionfor resolving the conflict. Mr Primakov has drawn up a “common state” planthat would give Transdniestr substantial autonomy and influence within theChisinau legislature itself. The Tiraspol leadership, which has needed to adopta more accommodating negotiating stance since the CPM came to power, hasstarted to promote Mr Primakov’s plan as the most acceptable alternative tofull independence. Mr Voronin has intimated that Russia may have to remainlonger than initially envisaged in Transdniestr, possibly replacing the existingmultiparty body as the sole peacekeeping contingent.

Reunification with Romania did not present an attractive option for Moldovaduring the reign of the Romanian dictator, Nicolae Ceaucescu, but becamepopular among the Moldovan intelligentsia after the execution ofMr Ceaucescu in December 1989. During the presidency of Ion Iliescu(1990-96), Romania did not treat Moldova’s independence seriously. However,his successor, Emil Constantinescu, conducted foreign relations on the basis oftwo equal states, a policy continued by Mr Iliescu when he regained theRomanian presidency. In 2000 the two countries initialled a basic treaty thatwould upgrade relations to that of a privileged partnership, althoughratification has been delayed by political upheavals in both countries.

Russian troops remainin Transdniestr

Relations with Romaniahave improved

50 Moldova


Moldova’s constitution reaffirms its status as a neutral country. It became amember of NATO’s Partnership for Peace programme in 1994 but claims not toseek full NATO membership. The Moldovan armed forces numbered 9,500 in2000 (8,500 in the army, 1,000 in the air force), with an additional reserve forcetotalling 66,000. The Ministry of the Interior controls a paramilitary internalforce of 2,500. Transdniestr’s forces are estimated at between 5,000 and 10,000.Defence expenditure in 2000 was 0.4% of GDP, with a similar proportionplanned for 2001, which is relatively low compared with NATO members.


Population

With an estimated population of 4.3m, Moldova ranks as the second smallestof the member republics of the Commonwealth of Independent States (CIS)(after Armenia). Population density, however, is the highest in the formerSoviet Union, at 129.1 per sq km in 1994. Unlike many other countries in theregion, Moldova’s birth rate kept ahead of the death rate throughout the 1990s,although the natural increase had fallen into negative numbers by 1998-99.The population has also declined marginally since 1991 because of netemigration, with nearly 15% of the population aged over 15 years nowworking abroad. Some 54% of the population live in rural regions and 46% inurban areas. Transdniestr’s population is estimated at around 650,000 (forhistorical population and employment data, see Reference tables 1 and 2).

Population by ethnic group, 1989(%)

Moldova Transdniestr

Moldovan 64.5 39.9

Ukrainian 13.8 28.3

Russian 13.0 25.4

Gagauz 3.5 0.5

Bulgarian 2.0 1.9

Other 3.2 4.0

Source: IMF, Moldova: Economic Review.

Education and health

Education in Moldova is compulsory from the age of six to 15. Children are atprimary school until aged ten, followed by five years of lower secondaryeducation and either two years of general secondary education or three years ata lyceum. Tertiary education is provided by universities, academies andinstitutes. The number of students studying for vocational qualifications hasdeclined substantially as the courses have proved increasingly outdated, whileenrolment in universities has increased. University courses, with instruction in

Defence focuseson neutrality

Health and education sufferfrom spending cutbacks

Moldova 51


either Moldovan or Russian, last for between four and six years. In Transdniestrthe use of the Moldovan/Romanian language as well as the Latin alphabet arestrongly discouraged.

Expenditure on education declined from 25% of total budget spending in 1997to 17% in 2000. The main effects of this reduction in educational expenditureinclude a steep fall in the number of kindergartens—with the number ofchildren receiving pre-school education down from 336,500 in 1990 to126,000 in 1999, and high wage arrears for those employed in the educationsector. The rise in the number of universities, from nine in 1990 to 43 in 1999is largely attributable to a rapid increase in private institutions, although thepublic sector still educates three-quarters of undergraduates.

Selected education indicators(total number; enrolment rate per 10,000 of population in brackets)

1990 1996 1997 1998 1999

Kindergartens 2,322 1,584 1,480 1,397 1,390

Schools 1,635 1,540 1,554 1,556 1,565 (1,703) (1,813) (1,796) (1,789) (1,770)

Vocational schools 114 81 80 87 81 (136) (94) (89) (89) (63)

Colleges 50 51 53 56 57 (1125) (93) (90) (81) (49)

Universities 9 24 28 38 43 (125) (162) (180) (199) (212)

Source: TACIS, Moldovan Economic Trends.

During the Soviet era Moldova operated a highly centralised and specialisedsystem of healthcare that has proved unsustainable during the transitionperiod. Following independence many health indicators visibly deteriorated.The infant mortality rate rose from 19 per 1,000 live births in 1990 to 23 in1994; since then it has declined, to 18 by 1999. The rate nevertheless is aroundfour times the EU average. Congenital disorders have risen significantly overthe decade as a result of increased alcohol intake and other factors related toparental poverty. Owing to the breakdown of communal services aftertransition, Moldova experienced a number of epidemics of communicablediseases, including outbreaks of dysentery in 1994, cholera and diphtheria in1995, and mumps in 1997, the latter as a result of the suspension ofvaccination the previous year.

Although Moldova, by regional standards, retains a relatively high level ofprovision of healthcare personnel, they are among the worst paid in the labourforce. There has been a substantial decline in the number of nurses andmidwives over the decade. In 1997 the government adopted a healthcarereform strategy shifting provision from hospitals and specialised clinicstowards primary care. At the same time budgetary expenditure on health fellfrom 6% of GDP in 1997 to 2.9% in 2000.

52 Moldova


Selected healthcare indicators(per 100,000 population unless otherwise indicated)

1990 1995 1996 1997 1998

Physicians 355.0 355.5 356.8 347.1 350.5

Dentists 44.7 44.3 42.6 41.9 41.2

Nurses 978.4 940.1 904.9 901.8 874.0

Midwives 129.2 101.3 101.2 101.5 87.1

Hospital beds 1,315 1,221 1,214 1,126 1,084

Source: Office of the World Health Organisation, Moldova.


Moldova covers a total area of 33,700 sq km. Rolling hills dominate thelandscape of this small, landlocked country, with rivers and ravines runningfrom north to south. Around three-quarters of the land area is undercultivation. The climate is continental, with temperatures in the capital,Chisinau, ranging from an average of 4°C in January to 21°C in July. Rainfall isirregular, and is lowest in the south of the country. Agricultural exploitation ofland has long taken priority over environmental concerns, such that much ofthe originally diverse fauna has disappeared. However, Moldova’s environmentcompares favourably with other east European countries. It did not suffergreatly from the accident at the Chernobyl nuclear power plant inneighbouring Ukraine in 1986 and, according to the UN Human DevelopmentReport, its carbon dioxide emissions are low by east European standards.

Transport and communications

As Moldova is a landlocked country, its international trade depends heavily onrailway and road networks. The railway network, which is of reasonable qualityas a result of Soviet planning priorities, includes 1,140 km of tracks, and formsthe principal means of transporting cargo. Railway freight carriage totalled8.3m tonnes in 2000, up from 6.6m in 1999. The country’s 10,500 km of roadsaccount for most local transport movement and 80% of passenger travel. Roadsin town centres tend to be potholed, but the route from Chisinau to the airportis fairly well maintained. The two major rivers, the Dniestr and the Prut, areused for the transport of local goods and pleasure cruising. Air traffic is servedby three domestic airlines: the state carrier, Air Moldova, which has 49%German participation, Moldovan Airlines and Air Moldova International, aswell as international carriers.

Moldova’s major newspapers include the Moldovan-language Moldova suverana(Sovereign Moldova) and the Russian-language Nezavisimaya Moldova(Independent Moldova), both publicly funded, and the Moldovan edition ofthe independent Komsomolskaya Pravda. The circulation of all publications hasdeclined since the 1998 economic crisis; subscription costs are also inflated by

Rail, road and air

The media remainconstrained

Moldova 53


the monopolistic post office distribution system. The Russian ORT station isthe most watched television channel, more so than the state-ownedChannel 1, which broadcasts in both Russian and Moldovan. TV Romania 1 isalso available. A 1999 law demanding that 65% of all television programmes bein the national language and 50% of all content locally originated has provedunworkable. Efforts to promote a truly free press are being made by theIndependent Journalism Centre in Chisinau. However, restrictive laws do exist,such as a law that parliament enacted in 1995 outlawing “defamation of thestate”. There have been some negative developments since the CommunistParty of Moldova assumed power in 2001, including the exclusion ofopposition press representatives from the presidential inauguration and thesacking of the heads of national television and radio. In Transdniestr,censorship is exceptionally heavy (as it is in Gagauz), owing to the role of thelocal media as an extension of the government’s propaganda machine,although some independent print and television media have survived.

Moldova has a telephone density of around 18 lines per 100 inhabitants,although provision in rural areas remains poor. In May 1997 the governmentawarded the first global system for mobile communications (GSM) mobilephone licence to the Start consortium, which consists of Moldtelecom, FranceTélécom, Moldovan Mobile Company, Romania Mobil Rom and most recentlyDenmark’s GN Store Nord. This service, Voxtel, started operations in February1998, and had some 47,000 subscribers as of the end of 2000. A second licencewas awarded in November 1999 to Moldcell, a Turkish-Moldovan jointventure, which had 20,000 subscribers by the end of 2000. The statetelecommunications company, Moldtelecom, is to be privatised in 2001,following a failed attempt at privatisation in 1998 involving the Greek OTEtelecommunications company. As of mid-2000, according to the Geneva-basedInternational Telecommunication Union (ITU), Moldova had 15,000 Internetusers, or 0.34% of the population, compared with 2.7% in Romania and 2.6%in Bulgaria. Moldova had 16 Internet service providers (ISPs) as of late 1999.

Energy provision

With few exploitable indigenous energy resources, Moldova has dependedoverwhelmingly on energy imports. In 2000 domestic sources accounted foronly 2% of primary supply. Brown coal deposits have been discovered in thesouth but have yet to be exploited. Since 1995 the US company Redeco hasbeen prospecting local oil and gas deposits, estimated at 10m tonnes and25bn cubic metres respectively, but these have yet to come on stream. Moldovaobtains most of its electricity from Ukraine and Romania, and from Curiugani,the main gas generating station in Transdniestr. Of its three domestic powerplants, only one is capable of generating electricity in appreciable amounts.Over the years Moldova has accumulated large debts to its primary suppliers,suffering regular power outages in consequence.

Telecommunications

Energy imports lead tohigh debts

54 Moldova


Although most domestic consumers settle their bills in cash, there is anendemic culture of non-payment among the numerous intermediaries, as wellas rampant electricity theft and wastage. The electricity sector has beenrestructured and split up into two generators and five distributor companies. Inearly 2000 Moldova completed the first round of electricity privatisation byselling three of the distributors to Union Fenosa (Spain). Although it has facedconsiderable criticism, Union Fenosa has been far more successful than stateowners at cutting off non-paying corporate customers and maintaining steadyelectricity supplies. Moldova has also been forced to cede stakes in some of itsenergy companies in return for debt write-offs: in 2000 the Russian companyGazprom added the government’s 36% stake in the gas distributor MoldovaGasto its existing 51% shareholding.

Energy balance, 2000(m tonnes of oil equivalent; provisional data)

Elec- Oil Gas Coal tricitya Other Total

Primary production 0.0 0.0 0.0 0.1b 0.1 0.2

Imports 0.8 1.5 0.3 0.5b 0.0 3.1

Exports 0.0 0.0 0.0 0.0 0.0 0.0

Primary supply 0.8 1.5 0.3 0.6b 0.1 3.3

Losses & transfersc –0.2 –0.6 –0.2 –0.8 0.0 –1.8

Transformation output 0.0 0.0 0.0 0.5d 0.0 0.5

Final consumption 0.6 0.9 0.1 0.3d 0.1 2.0

a Primary electricity output and imports/exports of electricity are expressed as input equivalents, onan assumed generating efficiency of 33%. b Input basis. c Comprises input to transformationprocesses, plus energy industry fuel and losses. d Output basis.

Source: Energy Data Associates.

The economy

Economic structure

Main economic indicators, 2000

Real GDP growth (%) 1.9

Consumer price inflation (year-end; %) 18.4

Current-account balance (US$ m) –129

Exchange rate (av; Lei:US$) 12.43

Populationa (mid-year; m) 4.3

a Including Transdniestr.


Electricity privatisationimproves supplies

Moldova 55


As a result of Moldova’s role as a regional supplier of fruit and vegetables duringthe Soviet era, agriculture dominates Moldova’s economy. The stand-off withTransdniestr has further narrowed Moldova’s economy, as Transdniestr is hometo most of the country’s heavy industry. Agriculture still accounted for around28% of GDP in 2000, down from approximately 31% of GDP in 1993 (forhistorical GDP data, see Reference tables 5-7). Industry, which used to generatethe largest amount of GDP by sector, is now the second largest contributor toGDP, accounting for around 20% in 2000, compared with 39% in 1993. Foodproduction dominates the sector.

According to a World Bank-financed study by the Agency for Restructuring andEnterprises Assistance, the private sector’s share of the economy is around 60%,and it accounted for 67% of total output in 1999. In the services sector thisrises to more than 80%. The private sector’s share of employment ranges from96% in agriculture to 54% in services, which includes public-sectoremployment such as education and health.


Moldova Romania Ukraine Belarus Russia

GDP (US$ bn) 1.3 36.7 32.1 11.4 246.9

GDP per head (US$) 299 1,637 638 1,141 1,700

GDP per head (US$; at PPP) 1,744 4,721 2,511 5,629 5,167

Consumer price inflation (av; %) 31.3 45.6 28.2 168.6 20.8

Current-account balance (US$ bn) –0.1 –1.4 1.5 –0.2 46.3 % of GDP –10.5 –3.8 4.6 –1.7 18.8

Exports of goods (US$ bn) 0.5 10.4 15.7 7.4 105.6

Imports of goods (US$ bn) 0.8 12.1 14.9 8.3 44.9

External debt (US$ bn) 1.0 9.8 12.1 1.2 163.0

Debt-service ratio, paid (%) 11.0 19.2 17.0 2.8 9.9

Sources EIU, CountryData; Country Risk Service.

Economic policy

The government’s consolidated fiscal deficits between 1993 and 1997 averagedover 7% of GDP as a result of uncontrolled expenditure and poor budgetplanning. Spurred on by IMF demands for fiscal tightening and a diminishedability to raise funds through government securities or international capitalmarkets, Moldova succeeded in reducing its consolidated budget deficit sharplyto an annual average of 2.5% of GDP in 1998-2000 by reducing or delayinggovernment expenditure (see Reference table 3 for historical data ongovernment finances). Dumitru Braghis’s government achieved a remarkablefiscal adjustment in 2000 through improved tax collection, better targeting ofprivileges, reduced netting-out operations and the elimination of a number ofcostly exemptions. This permitted the government to contain its deficit whilestill eliminating the vast majority of pension arrears and reducing the scale ofwage arrears inherited from its predecessors.

Budget planning improves

Agriculture dominatesthe economy

56 Moldova


Consolidated budget

2000a 2001b

Lei m % of total Lei m % of total

Revenue 4,064.2 100.0 4,440.0 100.0 of which: tax revenue 3,065.8 75.4 3,700.8 83.4 of which: profit tax 275.2 6.8 348.4 7.8 income tax 264.6 6.5 271.0 6.1 value-added tax 1,332.6 32.8 1,627.0 36.6 excises 657.6 16.2 834.0 18.8 external economic activity 222.4 5.5 263.0 5.9 non-tax revenue 866.0 5.5 739.0 5.9

Expenditure excl lending 4,257.7 100.0 4,732.2 100.0 General public services 305.4 7.2 272.2 5.8 Defence 63.6 1.5 76.9 1.6 Public order & safety 254.1 6.0 290.6 6.1 Education 719.3 16.9 959.4 20.3 Health 463.7 10.9 538.9 11.4 Social security 613.8 14.4 511.0 10.8 Recreation, culture & religion 80.4 1.9 89.2 1.9 Fuel & energy 13.5 0.3 0.7 0.0 Agriculture & related 157.6 3.7 98.3 2.1 Manufacturing & construction 6.3 0.1 5.8 0.1 Transport & communications 97.8 2.3 97.1 2.1 Other economic expenditure 25.0 0.6 22.9 0.5 Debt servicing 1,020.6 24.0 1,242.0 26.2 Capital investment 175.1 4.1 103.5 2.2 Other expenditure 261.5 6.1 423.7 9.0

Budget balance −193.5 – −292.2 – % of GDP 1.2 – 1.5 –

a Preliminary. b Planned.


Between 1992 and 1995 the government relied on internal borrowing from theNational Bank of Moldova (the central bank) to finance its budget deficits.Starting in 1995, however, the government turned increasingly to sellinggovernment securities, which proved popular with foreign portfolio investors,who accounted for up to 40% of purchases by 1997. However, this non-inflationary means of financing largely disappeared with increasing emerging-market turbulence in late 1997, despite an increase in the annualised yield of thethree-month bills from approximately 20% in September 1997 to over 30% byJune 1998 and even to 40% following Russia’s financial turmoil in August 1998.Sales of all types of Treasury bills plunged dramatically at the end of August 1998and remained depressed in 1999, which helped force greater fiscal tightening bythe cash-strapped government. Although Moldova received no externalfinancing in 2000, an influx of hitherto non-existent privatisation revenue,mainly from the sale of three electricity distributors, amounted to almost 2% ofGDP in that year and was the major source of budget financing. Although thegovernment’s budget for 2001 calls for privatisation receipts to fund the largestportion of the deficit in that year, this could be jeopardised by the hostility ofthe Communist Party of Moldova (CPM) towards large-scale privatisation.

Financing has provedincreasingly difficult

Moldova 57


Moldova privatised most small and medium-sized businesses in the early post-independence period, through a mass privatisation programme based onvouchers known as national patrimonial bonds. Although riddled with abuses,the programme did at least create the groundwork for a small and medium-sized enterprise sector. However, the sale of larger enterprises has proved moredifficult. The government developed a poor reputation with investors afterannulling tenders for cement and tobacco companies, and earned theequivalent of only around US$30m in privatisation proceeds between 1997and 1999. Large-scale privatisation received a boost in 2000 when thegovernment earned US$25m through the sale of three electricity distributors toUnion Fenosa (Spain), which also committed to additional investments ofUS$60m. However, the sale of the two remaining distributors was delayedbecause of a shortage of willing buyers, while the sale of 51% of Moldtelecomhas yet to be accomplished—following a failed attempt in 1998 when the onlyoffer fell well below expectations.

Because of the agriculture sector’s dominance in the economy, the privatisationof Moldova’s wine and tobacco industries remains highly politicised. The IMFregards privatisation as an essential part of structural reform and has madethese particular sales a condition of further lending. However, there arepowerful vested interests both inside and outside parliament that want toretain control of these sectors. After repeated attempts, including one that ledto the downfall of Ion Sturza’s government in 1999, parliament finallyapproved the privatisation of these sectors in October 2000. However, theCPM, which has consistently opposed these privatisations, has asked theConstitutional Court to examine the legality of parliament’s decision.

Economic performance

Moldova’s dismal economic performance since independence has included asteady fall in real output every year since 1992, except in 1997, when theagricultural sector benefited from favourable weather conditions, and 2000,when the recovery of the food-processing sector allowed moderate real GDPgrowth of 1.9% (see Reference table 5 for historical GDP data). Recorded outputhas declined in cumulative terms by almost 60% since independence in 1991,as a result of the breakdown of Soviet-era trade and supply links, severe priceshocks and the dislocation caused by the loss of the breakaway region ofTransdniestr. As Transdniestr is home to the majority of Moldova’s heavyindustry, the secession of the region left Moldova with an undiversifiedeconomy reliant almost solely on agriculture and food-processing. Moldova’seconomic recovery has been further delayed by slow restructuring of the energysector and chronic political instability—which has precluded the wide-rangingeconomic restructuring needed to ensure sustainable economic growth.

Privatisation hassuffered setbacks

Wine and tobacco sectorsstill not privatised

Real output fell steadilyuntil 2000

58 Moldova


Gross domestic product(% real change)


GDP 1.9 –2.5

Sources: TACIS, Moldovan Economic Trends; EIU.

Markets in the Commonwealth of Independent States (CIS) have traditionallyaccounted for two-thirds of Moldova’s total export revenue sinceindependence, with Russia alone accounting for almost 50% of export sales.The consequences of Moldova’s inability to diversify its exports successfullybecame readily apparent in the second half of 1998, when the collapse of theRussian market contributed to a 6.5% decline in real GDP for the year as awhole. Moldova recovered only slowly from this shock, with industrial andagricultural output falling by a further 9% and 8%, respectively in 1999. Onlywith the sharp recovery in Russian demand and greater macroeconomicstability in 2000 was the economy able to register real GDP growth—despiterising world oil prices and a severe drought in the agricultural sector.

The slow pace of economic restructuring and limited coverage of the govern-ment’s data is reflected in the only gradual rise in unemployment from 1.8% ofthe workforce in 1996 to 2% in 2000. However, this is unrepresentative of actualunemployment levels, and reflects the fact that most of those unemployed donot bother to register for the paltry benefits available. According to datacalculated using International Labour Organisation (ILO) definitions,unemployment in Moldova probably exceeded 7% of the population in thethird quarter of 2000, and averaged around 9% for the year as a whole,compared with around 13% in the aftermath of the 1998 regional financialcrisis. However, even the ILO data fail to take into account the fact that 10-15%of the workforce are working only part time or are on unpaid leave.

Total private- and public-sector wage arrears, which peaked at over Lei635m(US$51m) in August 1999, diminished only gradually to reach Lei443m atend-2000 and Lei383m at end-January 2001. The government has made onlyslow progress in paying back public-sector wage arrears. These are down by lessthan half since the start of 2000, which indicates the government’s continuedreliance on the build-up of domestic arrears to finance its deficit in the absenceof external financing sources. The previous government was more successful atreducing pension arrears, albeit at the cost in early 2001 of a build-up inexternal arrears as a result of unpaid energy bills. Over the course of 2000pension arrears fell from Lei338m to Lei31m, and in advance of theparliamentary election fell to only Lei8m by the beginning of February 2001.Nevertheless, the basic pension in 2000 remained low, at a monthly average ofaround Lei85.

Until Russia’s financial turmoil intensified in August 1998, relative price andexchange-rate stability were among Moldova’s most significant economicpolicy achievements, largely attributable to the relatively tight monetary policy

The economy is heavilydependent on Russia

Official unemployment hasstayed misleadingly low

Control of inflation suffersa reversal

Wage and pension arrearsare down

Moldova 59


of the independent National Bank of Moldova (NBM, the central bank). Thispolicy emerged in reaction to an earlier bout of hyperinflation in 1993-94,when annual consumer price inflation averaged over 1,000% as a result of softcredits and government subsidies to industry and agriculture. By ending creditemissions and targeting currency stability, the NBM achieved average annualinflation of 22% in 1995-97 and 8% average inflation in 1998 (see Referencetable 8 for historical prices and earnings data). However, the NBM provedunable to contain the inflationary effects of the sharp collapse of the leu in thewake of Russia’s financial crisis during the second half of 1998. Combined withlingering currency instability in 1999 and the collapse of the governmentsecurities market, which forced the central bank to increase credits to thegovernment, inflation surged again in 1999. Only in the second half of 2000did a combination of real currency appreciation, greater domestic confidenceand somewhat tighter monetary policy bring inflation back down to levelsseen in 1996-97. (For historical data on money supply and interest rates, seeReference table 4.)

Inflation(% change)


Consumer prices 31.3 20.8


Economic sectors

Agriculture, forestry and fishing

Before independence Moldova acted as the Soviet Union’s market garden,supplying 30% of its tobacco, 20% of grapes and wine, 13% of fruit, and 10%of vegetables. Some 2.5m ha, or three-quarters of the country’s territory, isagricultural land, of which 75% consists of highly fertile soil (chernozem),although decades of intensive cultivation have severely depleted the soil. Themain crops are cereals, sugarbeet, sunflowers, potatoes, vegetables and fruits,particularly grapes. Since the mid-1990s more land has been devoted tocultivating low-input staples such as cereals, sunflowers and potatoes, whilelack of investment has prevented diversification into high-value products suchas walnuts, for which the Moldovan climate is ideally suited. Yields for allcrops have decreased since 1990, most significantly for vegetables (by 64%), ofwhich the country is now a net importer, and sugarbeet (by 44%). Grapes areMoldova’s most important value-added crop. In the more capital-intensivemeat sector the decline in production has been even steeper than in crops,with pig numbers in 2000 down by 61% since 1990, cattle by 55%, and sheepand goats by 30%. (For historical agricultural data, see Reference table 9.)Moldova is a landlocked country, with little forest. The contribution of forestryand fishing to the economy is therefore negligible.

Agriculture underpinsthe economy

60 Moldova


The privatisation of the farming sector has been one of the few success storiesof the Moldovan economy since independence. Initiated in 1996, the Pamintor National Land Reform programme broke up the 961 kolkhoz or largecollective farms into more than 1m private holdings. In 1999 a law on farmdebt provided an important incentive for collectives by linking debtforgiveness to their voluntary dissolution. The programme, financed by theWorld Bank and the US Agency for International Development (USAID),included the establishment of a land register of titles and an extensiveeducation programme explaining to individual farmers their legal rights andmarket options should they wish to leave agriculture. The first phase of theland programme was completed in October 2000, by which time nearly 100%of farming was in the private sector. The second phase, also financed by theWorld Bank and USAID, will last for three years, and aims to introduceagricultural servicing units and other centres for marketing produce. However,the sale of agricultural land, which is crucial to the success of the second phasein order to develop efficiencies of scale, faces strong opposition from theCommunist Party of Moldova on ideological grounds. Since coming to powerthe party has hinted at plans to reconsolidate land holdings in order to restorethe sector’s former efficiencies. Its main supporters in the countryside willinclude the 61,000 rural workers who refused to take part in the landprogramme and consequently have no land title.

Mining and semi-processing

Moldova has few indigenous raw minerals, with the exception of someconstruction materials such as gypsum, limestone, sand and gravel.

Manufacturing

The food-processing and beverages sector dominates the manufacturing sector,especially as the secession of Transdniestr has deprived Moldova of much of itsheavy industrial base. In 2000 food and drinks accounted for around 50% oftotal industrial output. The most important products in terms of sales value arewine, which accounted for 18% of overall manufacturing sales in 2000,processed fruits and vegetables (6%), and sugar (5%). The wine industry isorganised around 150 wineries, with an annual capacity of 370m litres andsome 150,000 ha of vines under cultivation. It produces a wide range of redwine, white wine, sparkling wines and brandies, of which 95% are exported tothe Commonwealth of Independent States (CIS). Although 90% of the wineriesare privately owned, the largest and best-known brands are in state hands.Under a law passed in October 2000, all of the state’s holdings are to beprivatised, with 20% going to employees.

The same law passed in October 2000 also legalised the privatisation of thetobacco industry. The sector had previously been restructured into the ChisinauTobacco Factory, which produced 8.7bn cigarettes in 1999, and a number ofdehydration and fermentation plants. Although Moldova used to supply around

Land reform is now in itssecond stage

Agro-industry dominatesthe manufacturing sector

Moldova 61


40% of the former Soviet Union’s cigarettes, exports have declined as a result inthe change in taste away from fermented tobacco to US-style brands, and thedomestic market now accounts for most sales. The sugar industry has sufferedfrom old technology and declining sugarbeet production. Around one-third ofproduction comes from five companies in which Südzucker (Germany),Europe’s largest sugar producer, acquired majority stakes.

The industrial sector’s reliance on agricultural inputs has left it exceptionallyvulnerable to inclement weather, such as the droughts seen in three of the pastfive years. The continued dependency on Russia and the CIS has provedsimilarly destabilising. Industrial production slumped by 15% year on year in1998, largely as a result of the Russian financial turmoil, and by a further 14%in 1999—almost entirely because of the continued crisis in the food-processingsector. Moldova’s first year of industrial output growth came only in 2000,when output increased by 7% as a result of Russia’s economic revival and thegradual reform progress. Light industry has become the most importantindustrial exporter after food-processing, because of the increase in exports toWestern markets. The textiles and clothing sector, the most importantcomponent of light industry, only accounts for 2% of total production but isMoldova’s second largest exporter. A labour-intensive industry based on theassembly of imported materials, it has attracted significant foreign investmentbecause of Moldova’s low wages. In 1999 and 2000 it increased output by 14%and 29% respectively. (For historical data on industrial production, seeReference table 10).

Transdniestr was historically the centre of Moldova's heavy industry. Its mostimportant industrial unit is the Moldovan Metallurgical Works (MMZ), whichproduced 905,000 tonnes of steel in 2000 and accounted for more than 40% ofthe region’s industrial output that year. Itera Group, the Florida-registeredRussian company and major regional gas supplier, acquired a 75% stake in theplant in 1998 and, following an extensive overhaul, turned it into one of themost efficient mini-mills in central and eastern Europe. MMZ exports around95% of its production, and in the process has drawn anti-dumping chargesfrom the US and Canada.

Construction

In the immediate post-independence years, the construction sector sufferedboth from the government’s decision to divert limited investment elsewhereand from the de facto secession of Transdniestr, which had accounted for mostof Moldova’s cement production. IMF data reveal that output of constructionmaterials contracted by more than 20% year on year in value terms in 1993,and a continued decline thereafter. A brief recovery in 1996 proved short-lived,with further steep annual declines in the ensuing years. Since 1998 budgetarycuts have included the scaling back of public works projects, causing furtherproblems for the industry. There is no shortage of demand for accommodation;the housing shortfall was estimated at 140,000 dwellings in 1999. Since 1999there have been a few building projects financed through mortgages.

Industry is vulnerable toexternal shocks

Transdniestr is a majorsteel producer

62 Moldova


Financial services

The National Bank of Moldova (NBM) was established in 1991 as anindependent central bank responsible for monetary policy and bankingsupervision. Since 1995 it has generally proved relatively successful atcontrolling inflation and ensuring nominal exchange-rate stability, with theexception of a year-long period of currency weakness and higher inflationsparked by the regional financial crisis in the fourth quarter of 1998. Thebanking system consists of 20 commercial banks, including three foreign banksubsidiaries. Of these, two have a general banking Type A licence, 11 have aType B licence entitling them to deal in foreign exchange and seven haveType C licences enabling them to deal in government securities. Despite thefinancial problems that followed Russia’s financial crisis in 1998, including therapid depreciation of the currency, a collapse in the Treasuries market and anacute liquidity shortage, the Moldovan banking sector has proved relativelyrobust. Although there was some rationalisation in 1998, with three smallerinstitutions closed down, the sector is still overbanked, with the five largestbanks accounting for around 65% of assets and deposits. The NBM hasprogressively raised minimum capital requirements, as their value has beeneroded by inflation. By the end of 2000 these had risen to the leu equivalent of€2.5m (US$2.4m) for Licence A banks, €5m for B banks and €7.5m for C banks;this measure is expected to force some of the smaller banks to merge or be takenover. (For historical banking sector indicators, see Reference table 11.)

Insurance is a growing but still undeveloped sector. The market was opened upto foreign competition in mid-1999 following the removal of the stipulationthat companies have a minimum 51% Moldovan shareholding. Asito, theformer state-owned company, is by far the largest of the companies operating inthe local market, of which there are about 40, with more than 50% of allcommercial business and 90% of personal insurance. In 1999 the Australiancompany QBE acquired a majority stake in Asito for US$5m.

The Moldovan Stock Exchange (MSE) was established in June 1995 as anelectronic, screen-based, order-driven system. A new trading system was intro-duced in June 1998. Only 20 of Moldova’s registered joint-stock companies, ofwhich there are around 1,000, are listed, in three tiers, the rest trading asunregistered shares. In January 2000 the exchange introduced the CNVM-32index of most heavily traded shares. The volume of shares traded climbedrapidly from US$2.5m in 1996 to US$52.6m in 1998, before declining back toaround US$23.9m in 2000 in line with depressed sentiment throughout eastEuropean emerging markets (see Reference table 12 for historical stockmarketindicators). The MSE’s chief competitor, the unregulated over-the-countermarket, accounted for nearly half of the share transactions by 1999, but wasabolished in 2000 by the National Commission for the Securities Market.

The banking sector hasproved resilient

Insurance remainsundeveloped

Stock exchange nowcontrols share trading

Moldova 63


Other services

The capital, Chisinau, shows signs of developing a varied services sector,including Western-style shops and restaurants. Outside the capital, options arefar more limited. Moreover, although a wide range of imported goods areavailable for purchase at kiosks even outside the capital, high prices make themlargely unavailable for the majority of the population. Tourism is under-developed, with only a few Soviet-era hotels in the capital and little effort sofar by the government to encourage foreign visitors. The local softwareindustry has some small companies with an international reputation, althoughfurther growth requires improvements in the domestic telephone network.

The external sector

Trade in goods

During the Soviet era Moldova’s trade relied predominantly on agriculturalexports and enjoyed significant subsidies, including artificially low prices forenergy supplies. Since independence, Moldova has maintained its dependenceon agricultural exports, with food, beverages and tobacco accounting foraround 42% of export revenue in 1999 and 2000. Nevertheless, this is downfrom well over 50% in the mid-1990s, mostly because of the rise in textileexports, which now account for around 18% of all export revenue. The textilesector has steadily increased its share of exports since the mid-1990s as a resultof extensive subcontracting by foreign firms.

Composition of trade, 2000

% change,US$ m % of total year on year

ExportsFood products 200 41.9 1.3 Vegetable products 66 13.8 –2.8 Textiles 84 17.6 29.7 Machinery & equipment 26 5.4 –12.2 Live animals & animal products 23 4.8 –22.1 Metals 12 2.5 –28.9 Other 64 13.3 14.6 Mineral products 3 0.7 166.7 Total 477 100 3.3

ImportsMineral products 250 31.5 17.1 Machinery & equipment 97 12.3 39.6 Textiles 78 9.8 16.7 Chemicals 75 9.4 63.0 Vegetable products 23 2.9 208.0 Metals & metal products 32 4.0 27.3 Other 239 30.1 70.2 Total 793 100.0 39.6


Trade is vulnerable toreal depreciation

64 Moldova


Imports are dominated by energy supplies, which, because of high oil prices,still accounted for around one-third of all imports in US dollar terms in 2000,despite a drop in gas import volumes. As Moldova updated its Soviet-eramanufacturing capabilities in the mid-1990s, imports of machinery andequipment made up an increasing share of imports in value terms, from justover 5% in 1993 to nearly 20% in 1998. However, this category of imports,which is crucial for boosting the competitiveness of the export sector, was oneof the major casualties of the depreciation of the leu in 1998-99. Withenterprises unable to purchase Western equipment, expenditure on machineryimports dropped by almost two-thirds year on year in US dollar terms in 1999.Despite a solid recovery in 2000, expenditure on machinery imports that yearwas still only half of the level recorded in 1998 (for historical data on trade bycommodity, see Reference tables 13, 14 and 16).

A further negative trend in the pattern of trade is the continued over-relianceon export markets in the former Soviet Union. Between 1995 and 1998,60-70% of Moldova’s export revenue came from markets in theCommonwealth of Independent States (CIS), whereas the share of the EUstagnated at between 9% and 13% (conversely, the share of EU imports rosefrom approximately 14% to 27% over this period in line with a rise inpurchases of machinery and equipment). In 1999-2000 the EU’s share ofexports surged to 21%, although this primarily reflects a sharp decline inexports to the CIS rather than any significant improvement in penetrating newWestern markets. Moldova, therefore, has not matched the success of many ofits central European neighbours in adapting to the EU market, primarilybecause of its exceedingly narrow export base that puts it in competition withproducers in Mediterranean EU member states. The low proportion of sales tothe EU reflects not only Moldova’s difficulty in penetrating the protected EUfood market, but also its slow progress in raising the quality of its foodproducts to Western standards and its poor marketing ability. Moldova’s specialrelationship with Romania has also failed to increase export dividends. In 2000exports to Romania totalled US$39m, only 37% of the level of 1995 (forhistorical data on trade by country see Reference tables 15 and 16).

Main trading partners, 2000(US$ m; preliminary data)

Exports to: Imports from:

Russia 212.5 Romania 129.3

Romania 39.1 Ukraine 112.4

Italy 36.6 Russia 104.6

Ukraine 36.5 Germany 85.4

Germany 36.3 Italy 45.1

Belarus 21.8 Belarus 32.7

Hungary 4.8 Hungary 15.3

Total incl others 477.4 Total incl others 792.8


Trade remains toodependent on the CIS

Moldova 65


Government figures on the trade deficit (which rely on customs data) differslightly from those provided by the National Bank of Moldova (NBM, thecentral bank), which adjust for unrecorded trade. However, both series record asimilar trend towards large trade deficits. In particular, a surge in consumergoods and machinery imports in 1996-98 led to annual merchandise tradedeficits of between 15% and 23% of GDP. Only through a sharp compressionof these imports (by over 55% year on year) did Moldova bring its trade deficitdown to just over 10% of GDP in 1999. This adjustment, however, provedunsustainable in the absence of significant improvement in the terms of tradeor an improvement in the quality and marketing of Moldova’s export products.Gradual real currency appreciation, improved liquidity and moderateeconomic growth once again pushed up demand for consumer goods andmachinery in 2000. Combined with high oil prices and the increased vegetableimports necessitated by a severe drought, this pushed the trade deficit to arecord high of over 25% of GDP that year.

Moldova has established a relatively open trade regime by the standards ofother former Soviet republics, and as a result was admitted into the WorldTrade Organisation (WTO) in May 2001. It abolished grain export quotas inDecember 1995 and lifted most import tariffs by 1996. The reintroduction of anumber of tariffs in 1997 raised the average tariff (excluding alcohol, tobaccoand vehicles) from 6.3% to 11.6%, before renewed trade liberalisation in 1998reduced tariffs on many items and abolished a number of export licences, bansand other restrictions. The average tariff rate in 2001 stood at 7.5%. APartnership and Co-operation Agreement between Moldova and the EU cameinto force in March 1996.

Invisibles and the current account

Moldova’s chronically high current-account deficits are almost entirely areflection of the merchandise trade imbalances. Its relatively small services,income and transfers balances have consistently combined to show a smallpositive balance since 1996, helped by sizeable remittances from expatriateworkers. Between 1996 and 2000 the current-account deficit averaged almost 12%of GDP, having risen as high as 19% of GDP in 1998 as a consequence ofplummeting import demand in markets of the Commonwealth of IndependentStates (CIS) at the height of the agricultural harvest season. Although the current-account deficit in 1999 was relatively low at 3.8% of GDP, this reflected Moldova’sinability to import rather than any structural improvements in the external sector.

Moldova’s options for financing its current-account deficit have narrowedgreatly since 1998. Overseas borrowing, previously the main source of financing,has been restricted to multilateral loans, now that international capital marketsare closed to all but the best emerging-market credits. Moldova can also nolonger rely on portfolio investment, which has dried up almost completely. Thescale of foreign direct investment increased sizeably in 2000 as a result of the saleof three electricity distributors to the Spanish company Union Fenosa (forhistorical data on the balance of payments see Reference tables 17-18).

The current accountdeficit remains high

An open trade regimebrings WTO membership

The trade deficitremains large

66 Moldova


Balance of payments, Jan-Sep 2000(US$ m)

Exports of goods 321.8

Imports of goods –547.0

Trade balance –225.3

Exports of services 128.3

Imports of services –145.7

Services balance –17.4

Income credit 118.0

Income debit –67.2

Income balance 50.8

Current transfers balance 119.4

Current-account balance –72.6

Capital account balance 0.1

Financial account balance 63.3 of which: direct investment (net) 95.1 portfolio investment 4.0

Other investment –17.8

Capital & financial account balance 63.4

Errors & omissions 9.2

Source: National Bank of Moldova

Capital flows and foreign debt

According to World Bank data, Moldova’s foreign debt rose from US$39m in1992 to US$943m by the end of 1999. Although this predominantly reflectsloans from multilateral and other official lenders, it also includes a US$75mfive-year Eurobond placed in June 1997 at a time of considerable demand foreast European securities. However, sentiment changed quickly after the Asianturmoil in 1997 and Russia’s default in 1998, and Moldova has had topostpone indefinitely its return to commercial debt markets. AlthoughMoldova managed to continue servicing its Eurobond obligations in difficultcircumstances, and has avoided a default, private investors are expected toshare some of the restructuring burden should Moldova succeed inrescheduling its external debt in 2001-02. The EIU estimates that total debthad risen to around US$980m by the end of 2000. Multilateral creditors, ofwhich the IMF is the largest, accounted for around 40% of total debt. Thelargest bilateral creditor is Russia. (For historical data on external debt, seeReference table 19.).

Moldova has attracted a disappointingly small number of foreign investors,and cumulative foreign direct investment (FDI) inflows between 1989 and1999 totalled only US$339m. At US$79 per head, only Belarus and Russiaamong the former Soviet republics (excluding Central Asia) posted a worserecord of FDI per head. Inflows in 2000 were boosted significantly with thestart of privatisation of the electricity sector.

External debt hasgrown quickly

Foreign investment hasproved disappointing

Moldova 67


Net foreign direct investment(US$ m)

1995 1996 1997 1998 1999

Foreign direct investment 25.4 23.1 74.2 82.1 33.6


Foreign reserves and the exchange rate

In June 1992 Moldova introduced a coupon currency that circulated in parallelwith the Russian rouble before becoming the sole legal tender in July 1993,following Russia’s decision to freeze all pre-1993 roubles. In November 1993Moldova introduced the leu, a new currency backed by foreign-exchangereserves and some US$250m of IMF loans. Until November 1998 the MoldovanInterbank Foreign Currency Exchange determined the exchange rate of the leu,with periodic interventions by the National Bank of Moldova (NBM, thecentral bank). During this period the leu showed remarkable stability againstmajor currencies and appreciated in real terms between 1994 and 1997 (forhistorical data on foreign reserves and the exchange rate see Reference tables20 and 21).

However, the leu came under intense speculative pressure after the devaluationof the Russian rouble in August 1998 and the outflow of foreign portfolioinvestment. In November 1998 the central bank stopped supporting thecurrency, and has since determined the leu’s exchange rate according to aweighted daily average of commercial banks’ foreign-exchange transactions. Asa result the leu dropped precipitously, from a level of Lei6.4:US$1 onNovember 1st 1998 to Lei9.7:US$1 by the beginning of December 1998. Itstroubles continued in 1999, when the leu suffered from continued regionalcurrency instability and excessive monetary emissions, depreciating by afurther 49% in nominal terms and almost 20% in real effective terms. SinceFebruary 2000, however, the leu has proved far more resilient. With greaterregional currency stability, higher capital requirements for commercial banksand increased local-currency demand as a result of the strengthening economy,the leu appreciated slightly in both nominal and real effective terms over thecourse of 2000.

After reaching a year-end level of US$366m, equivalent to 3 months of importcover in 1997, the NBM’s foreign-currency reserves plunged sharply in 1998following unsuccessful attempts to defend the leu from the effects of theRussian devaluation in August of that year. By end-1998 they had fallen toonly around 6 weeks of import cover. A resumption in IMF and World Banklending in 1999, and a sharp decline in imports, enabled the NBM to bringreserves back to almost 3 months of import cover. However, a renewedsuspension in multilateral financing in late 1999 and a rapid recovery inimport levels prevented any improvement in foreign-currency reserves(measured in terms of import cover).

Reserves came underpressure

Currency stability restoredsince Russia’s devaluation

68 Moldova


Appendices

Regional organisations

The Commonwealth of Independent States (CIS) was established onDecember 8th 1991 by the Minsk Agreement signed by the heads of state ofthe Republic of Belarus, the Russian Federation and the Republic of Ukraine.The agreement between the three republics sealed the end of the Soviet Union.The formal clause stating the dissolution of the Soviet Union was included inthe subsequent treaty signed in Almaty, Kazakhstan, by all former Sovietrepublics except the Baltic states and Georgia. Azerbaijan initially refused toratify the treaty, but by December 1993 both Georgia and Azerbaijan hadjoined the CIS. The CIS therefore includes all the former Soviet republicsexcept the Baltic states.

The CIS sought to fill the institutional vacuum resulting from thedisintegration of the Soviet Union. The main organ of the CIS is the Council ofthe Heads of State, the supreme body of the organisation; it is convened no lessthan twice a year. The Council co-ordinates the co-operation of the executiveauthorities of the states in economic, social and other spheres. The activities ofthe CIS are logistically supported by the Executive Committee, which acts as asecretariat and has its seat in Minsk, Belarus. The organisation also has anInter-parliamentary Assembly. The perception of the CIS and its role variesconsiderably among the participating states. Those that have an alternative toRussian leadership and prospects for economic independence tend to favour aloose framework. States that are reliant on Russia are more inclined to want theCIS to be a close alliance. Belarus, as an exceptional case, follows a policy ofcloser integration with Russia, which is intended to lead eventually to areunification of the two states.

The CIS introduced a certain order into post-Soviet affairs. It has also served asa useful forum for discussion and “networking” of the former Soviet elites.However, the overall record of the CIS has been disappointing. Integration andlevels of co-operation have lagged behind initial expectations. Many membersremain wary that a closer union could become the instrument of Russia’s post-imperial ambitions. Moreover, Russia has been reluctant and incapable ofbearing the costs of a more ambitious reintegration process. The CIS has alsobeen unable either to prevent or resolve numerous regional conflicts. On theeconomic front, the CIS has also fallen short of the expectations of many of itsmembers. After almost ten years of existence, it has not implemented acustoms union or a free-trade area covering all member states. In 1995 Belarus,Kazakhstan, the Kyrgyz Republic and Russia formed a Customs Union, whichwas joined by Tajikistan in 1999. A treaty on the setting up of a EurasianEconomic Community was signed by the five countries in October 2000.

This loose regional organisation groups together the five members of the CIS(Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova) that have traditionallybeen most wary of Russia’s strong influence in the region. GUUAM was

GUUAM

Commonwealth ofIndependent States

Moldova 69


established with US encouragement in 1997 (with Uzbekistan joining in 1999),with the unstated aim of excluding Russia from the exploitation and transportof Caspian Sea oil. The group hopes to establish an east-west trade corridor andenergy transportation routes, deepen political co-operation, and foster closerties with NATO.

However, GUUAM’s significance has remained limited. GUUAM has served atmost as an important consultative forum, but has met only infrequently andhas no formal structures. Although GUUAM heads of state agreed in September2000 to deepen economic co-operation and to meet at least once a year, theoutlook for further integration among the member states is not promising.GUUAM members lack a broad-based convergence of interests and even differin their stance towards Russia—especially given the communists’ recent returnto power in Moldova and Uzbekistan’s growing dependence on Russianmilitary co-operation. All of the GUUAM states are constrained by theirconsiderable economic dependence on Russia. Russia remains the principalenergy supplier in the region, as well as a dominant export market and, inmost cases, a sizeable creditor.

The Organisation of the Black Sea Economic Co-operation (BSEC) began operatingin 1999, several years after regional leaders established a framework for co-operation at a summit in 1992. The organisation’s supreme body is the PresidentialSummit, which comprises the heads of state and government of the member states(Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania,Russia, Turkey and Ukraine). The main decisions in the BSEC are taken by theCouncil of Ministers of Foreign Affairs, which meets on an annual basis.

The BSEC was formed with the goal of extending economic co-operation byfacilitating contacts between businesses and eliminating barriers to trade. BSECmember states have set up a number of bodies to meet these goals, althoughresults to date have been limited. The Black Sea Trade and Development Bankwas set up in 1998 to finance and implement joint regional projects. A BSECCo-ordination Centre was established in Ankara to promote the exchange ofstatistical data, and the Istanbul-based BSEC Business Council is charged withidentifying private and public investment projects.

Initially a non-institutionalised multilateral forum for cold war East-Westdialogue, the Conference for Security and Co-operation in Europe (CSCE)gradually expanded in aim and strengthened its organisational structure in the1990s. Established in 1972, the CSCE served for almost 20 years as aconvenient and flexible arrangement for easing cold war tensions. After theend of the cold war the role of the CSCE started to change quickly, and inDecember 1994 the conference was officially renamed the Organisation forSecurity and Co-operation in Europe (OSCE). With 55 member states, theOSCE is the only inclusive pan-European security organisation. Canada andthe US are also members of the organisation.

The OSCE has played a key role in conflict prevention and resolution, as wellas post-conflict reconstruction in Europe. Its activities embrace threedimensions: security, economy and human rights. The OSCE is engaged in

Organisation of the BlackSea Economic Co-operation

Organisation for Securityand Co-operation in Europe

70 Moldova


preventive diplomacy, arms control and confidence-building activities. Itundertakes fact-finding and conciliation missions, and crisis management. TheOSCE is a component of the European security architecture. It is a “regionalarrangement” in the sense of Chapter VIII of the UN Charter, which gives itauthority to try to resolve a conflict in the region before referring it to the UNSecurity Council. In the course of the 1990s the OSCE has been heavilyinvolved in the Balkans and the Transcaucasus.

The activities of the OSCE are performed by a web of specialised agencies. TheOffice of the High Commissioner on National Minorities, based in The Hague,is the primary source of “early warning”, with responsibility for identifyingethnic tensions that might endanger peace. The Office for DemocraticInstitutions and Human Rights (ODIHR), based in Warsaw, focuses onpromoting human rights, democracy and the rule of law. It monitors elections,assists at developing national electoral and legal institutions, promotes thedevelopment of non-governmental organisations (NGOs) and civil society,conducts meetings, seminars and special projects. The Office of theRepresentative on Freedom of the Media, based in Vienna, assesses theimplementation of the member states’ commitments concerning freedom ofjournalism, broadcasting and access to information.

Sources of information

The Moldovan authorities produce little in the way of national statistics,although the National Bank of Moldova (the central bank) occasionallypublishes leaflets containing macroeconomic data. Comparative data are alsocomplicated by the de facto secession of Transdniestr, and from 1993 onwardsofficial statistics exclude the region. By far the best information on economicdevelopments is Moldovan Economic Trends, funded by the EU’s TACISprogramme, which publishes quarterly issues with monthly updates. The USDepartment of Commerce’s BISNIS resource centre is one of the few sources ofeconomic information on Transdniestr.

Energy Data Associates, Bishops Walk House, 19-23 High Street, Pinner,Middlesex, HA5 5PS, for national energy balances

IMF, Direction of Trade Statistics, quarterly and annually. Publishes data onvalues of imports and exports for over 150 countries

IMF, International Financial Statistics, monthly

IMF Staff Country Report, Republic of Moldova—Recent Economic Developments,September 1999 and January 2001

The British Helsinki Human Rights Group, Minority Rights in Moldova, Oxford,1997; The Moldovan Parliamentary Elections February 27th 1994, Oxford, 1997

Donald D Dyer (ed.), Studies in Moldovan: the history, culture, language andcontemporary politics of the people of Moldova, East European Monographs,Columbia University Press, New York, 1996

National statistical sources

International statisticalsources

Select bibliography andwebsites

Moldova 71


Tony Hawks, Playing the Moldovans at Tennis, Ebury Press, London, 2000

D Karen and B Parrott, Democratic changes and authoritarian reactions in Russia,Ukraine, Belarus and Moldova, Cambridge University Press, Cambridge, 1997

Charles King, Post-Soviet Moldova, Royal Institute of International Affairs,London, 1995

Nicola Williams and Kim Wildman, Lonely Planet: Romania and Moldova, LonelyPlanet, London, 2001

Daily news from Moldova has news and archives, chosen by an association ofindependent journalists, in English, Moldovan/Romanian:http://news.ournet.md

The National Bank of Moldova’s site has some data and commentary but is notkept up to date: http://www.bnm.org

The Moldovan Stock Exchange provides up-to-date financial data, although thecommentary is dated: http://www.moldse.md

Moldovan Economic Trends, funded by the EU TACIS initiative, provides by farthe most comprehensive information: http://www.moldova.md/ECONOMY/Tacis/met.htm

BISNIS, the US Department of Commerce’s resource centre on the NewlyIndependent States, has country reports, tenders and other businessinformation on Moldova, as well as periodic reports on Transdniestr:http://www.bisnis.doc.gov

The Official Web Page of the Republic of Moldova is in the process of being setup and has little information at present: http://www.moldova.md

Reference tables

These reference tables provide the most up-to-date statistics available at the timeof publication.

Reference table 1

Population

1995 1996 1997 1998 1999

Total population (m; Jan 1st) 4.35 4.33 4.32 4.30 4.29 of which: Transdniestr 0.74 0.74 0.67 0.66 0.65Female 2.27 2.26 2.26 2.25 2.24Male 2.08 2.07 2.06 2.06 2.05

Population (% change, year on year) –0.1 –0.3 –0.3 –0.4 –0.3

Crude birth rate per ‘000 13.0 12.0 11.9 10.9 10.6

Crude death rate per ‘000 12.2 11.5 11.9 11.1 11.3

Natural increase per ‘000 0.8 0.5 0.0 0.2 –0.7

Source: Department of Statistical and Sociological Analysis, published in TACIS, Moldovan Economic Trends.

72 Moldova


Reference table 2

Employment by sector(‘000 unless otherwise indicated; excl Transdniestr)

1996 1997 1998 1999 2000

Agriculture, hunting & related 523 474 411 283 193 % of total 43.3 42.1 39.8 33.3 27.0

Manufacturing 158 141 125 109 97 % of total 13.1 12.5 12.1 12.8 13.6

Electricity, gas & water 22 20 23 22 18 % of total 1.6 1.8 2.2 2.6 2.5

Construction 42 35 30 26 22 % of total 3.5 3.1 2.9 3.0 3.0

Wholesale & retail trade 57 49 41 37 36 % of total 4.7 4.3 3.9 4.4 5.0

Real estate 32 27 28 28 26 % of total 2.2 2.4 2.7 3.2 3.7

State administration 29 48 52 49 50 % of total 2.4 4.3 5 5.8 6.9

Education 147 145 143 134 125 % of total 12.1 12.9 13.8 15.7 17.6

Health & social services 91 89 87 79 69 % of total 7.5 7.9 8.4 9.3 9.7

Total incl others 1,210 1,127 1,033 849 714

Unemployed 23 28 32 35 n/a

Unemployment rate (%) 1.8 1.5 1.9 2.0 2.0


Reference table 3

Consolidated government finances(Lei m unless otherwise indicated; at current prices; excl Transdniestr)

1996 1997 1998 1999 2000

Total revenue 2,074.2 2,941.7 2,721.9 3,100.3 4,064.2 of which: profit tax 358.6 244.1 178.6 233.4 275.2 income tax 219.1 281.9 234.0 218.7 264.6 value-added tax 613.9 948.9 1,124.0 940.2 1,332.6 excise duties 196.5 401.1 374.6 444.5 657.6

Total revenue (% of GDP) 26.6 33.0 29.8 25.2 25.4

Total expenditure 2,827.0 3,578.0 2,996.9 3,424.2 4,257.7 of which: general state services n/a 141.3 146.3 223.4 305.4 public order & national security 225.2 234.4 203.7 209.3 254.1 education 798.9 889.7 640.9 574.5 719.3 health 520.7 537.1 392.6 357.6 463.7 social security 165.5 455.2 361.2 466.5 613.8 public debt service 242.8 377.0 421.2 866.9 1,020.6 capital expenditure 148.6 234.2 205.7 110.6 175.1

Total expenditure incl lending 2,827.0 3,608.5 3,027.2 3,495.3 4,225.7

Total expenditure incl lending (% of GDP) 36.3 40.5 33.2 28.4 26.4

Budget balance –752.8 –666.8 –305.3 –395.0 –161.5 % of GDP –9.7 –7.5 –3.2 –3.0 –1.0


Moldova 73


Reference table 4

Money supply and interest rates(Lei m unless otherwise indicated; year-end unless otherwise indicated)

1996 1997 1998 1999 2000

Currency in circulation 731 972 855 1,122 1,469

Demand deposits 263 326 210 358 554

Money supply (M1) 995 1,299 1,065 1,480 2,023 M1 growth (%) 12.4 30.6 –18.0 38.9 36.7

Quasi-money 436 624 698 1,040 1,548

Money supply (M2) 1,430 1,923 1,764 2,520 3,571 M2 growth (%) 14.8 34.5 –8.3 42.9 41.7

Treasury-bill rate (%; av) 39.0 23.6 30.5 28.5 22.2

Deposit rate (%; av) 25.4 23.5 21.7 27.5 24.9

Lending rate (%; av) 36.7 33.3 30.8 35.5 33.8


Reference table 5

Gross domestic product(at current prices unless otherwise indicated; excl Transdniestr)

1996 1997 1998 1999 2000

Total GDP (Lei m) 7,798 8,917 9,122 12,322 15,980 % real change, year on year –5.9 1.6 –6.5 –3.4 1.9

GDP per head (Lei) 2,167 2,440 2,500 3,380 4,394


Reference table 6

Gross domestic product by expenditure(Lei m at current prices; excl Transdniestr)

1996 1997 1998 1999 2000

Private consumption 5,243 6,017 6,876 9,137 13,134

Government consumption 2,113 2,663 2,327 1,954 2,513

Gross fixed investment 1,540 1,774 2,012 2,272 2,909

Stockbuilding 351 349 349 548 648

Exports of goods & services 4,314 4,744 4,107 6,446 8,365

Imports of goods & services –5,763 –6,631 –6,548 –8,035 –11,590

GDP 7,798 8,917 9,122 12,322 15,980


Reference table 7

Gross domestic product by sector(% of total unless otherwise indicated; excl Transdniestr)

1996 1997 1998 1999 2000

Agriculture 31.4 30.2 30.5 27.9 28.0

Industry 26.4 23.5 19.7 19.0 20.0

Construction 4.4 5.5 3.7 3.7 3.0

GDP at current prices (Lei m; at factor cost) 6,826 7,665 7,719 10,999 14,003


74 Moldova


Reference table 8

Prices and earnings

1996 1997 1998 1999 2000

Consumer price index (Dec 1994=100) 135.7 151.7 163.3 227.5 298.7 Annual average 23.5 11.8 7.7 39.3 31.3 Year-end 15.1 11.1 18.2 43.8 18.4

Nominal monthly wage (Lei) 187.1 219.8 250.4 303.4 407.0 % change, year on year –30.7 –17.5 –13.9 –21.2 –34.1

Real monthly wage (Dec 1994=100) 137.9 144.9 153.3 133.4 136.3 % change, year on year –5.8 5.1 5.8 –13.0 2.2

Sources: TACIS, Moldovan Economic Trends; EIU.

Reference table 9

Agricultural sector indicators

1996 1997 1998 1999 2000

Cereals Area harvested (‘000 ha) 863.5 1,015.8 879.4 874.6 860.8 Yield (‘000 hg/ha) 22.9 34.3 27.1 24.5 23.5 Production (‘000 t) 1,976.2 3,486.7 2,384.6 2,138.3 2,021.3

Fruit excl melons Area harvested (‘000 ha) 343.7 318.2 301.8 284.5 302.4 Yield (‘000 hg/ha) 39.7 41.9 23.3 20.9 24.8 Production (‘000 t) 1,362.7 1,331.9 701.8 595.5 748.8

Grapes Area harvested (‘000 ha) 174.7 171.1 157.5 147.4 154.0 Yield (‘000 hg/ha) 45.2 18.1 21.8 31.5 29.2 Production (‘000 t) 789.4 309.8 342.7 464.9 450.0

Potatoes Area harvested (‘000 ha) 67.6 69.7 61.9 66.5 70.0 Yield (‘000 hg/ha) 56.6 63.2 60.1 49.6 48.9 Production (‘000 t) 382.6 440.4 371.9 329.5 342.0

Sugarbeet Area harvested (‘000 ha) 84.0 76.3 71.5 61.1 65.0 Yield (‘000 hg/ha) 228.3 246.5 203.1 165.1 276.9 Production (‘000 t) 1,917.3 1,880.0 1,451.9 1,008.8 1,800.0

Sunflower seed Area harvested (‘000 ha) 225.2 173.7 204.3 216.7 220.0 Yield (‘000 hg/ha) 14.0 11.6 9.8 13.2 12.7 Production (‘000 t) 316.1 201.4 199.4 285.6 280.0

Tobacco leaves Area harvested (‘000 ha) 26.4 17.3 21.8 18.6 18.6 Yield (‘000 hg/ha) 7.4 13.7 11.2 12.0 12.0 Production (‘000 t) 19.4 23.8 24.4 22.4 22.4

Vegetables Area harvested (‘000 ha) 10.0 10.0 10.3 9.8 6.0 Yield (‘000 hg/ha) 14.7 17.0 13.0 13.3 56.7 Production (‘000 t) 14.7 17.0 13.3 13.1 34.0

Source: UN Food and Agriculture Organisation (FAO).

Moldova 75


Reference table 10

Industrial production(% change year on year unless otherwise indicated; excl Transdniestr)

2000 1996 1997 1998 1999 % change % of total

Food & beverages –9.4 –2.0 –19.7 –21.9 10.9 50.8 of which: wine –6.8 9.0 –24.9 –15.2 34.0 17.6 sugar 13.4 –16.4 –17.4 –36.5 2.7 5.3 processed & canned meat –3.7 –20.0 –36.2 12.7 –3.4 4.0 processed & canned fruit & vegetables –20.8 48.0 –29.7 –19.2 2.1 6.0 milk products –13.8 –16.0 24.1 –15.3 21.6 4.8 bread 13.2 –5.6 –15.5 –23.7 –6.5 5.2

Tobacco 12.1 –6.0 –7.2 20.5 –6.3 7.3

Textiles 1.3 –17.0 –21.2 14.1 29.1 2.1

Clothing & furs –0.6 –8.1 3.6 9.2 24.2 1.9

Chemicals –28.8 –19.0 26.0 86.8 –3.4 1.3

Other non-metallic mineral products 19.8 17.3 –8.9 –15.1 81.9 9.4

Furniture –20.0 –21.0 –26.3 –0.4 5.8 0.9

Extraction –17.0 5.4 –13.4 –10.1 –3.9 0.9

Electricity, gas & water 4.2 0.1 –9.0 –4.9 –31.2 17.1

Total incl others –6.5 0.0 –15.0 –13.6 6.9 100.0


Reference table 11

Banking statistics(Lei m; at current prices)

1996 1997 1998 1999 2000

Reserves 36.5 52.1 200.7 360.9 465.2

Foreign assets 200.8 153.9 297.7 645.0 896.2

Claims on central government 13.7 67.6 184.5 267.8 335.3

Claims on local government 13.2 23.7 33.0 15.0 17.2

Claims on non-financial public enterprises 852.3 1,120.8 144.2 146.3 230.7

Claims on private sector 600.9 617.1 1,265.7 1,453.2 2,025.3

Claims on non-bank financial institutions 0.0 0.0 23.1 37.3 28.4

Demand deposits 263.1 326.5 210.0 357.8 553.8

Time, savings & foreign-currency deposits 435.6 624.0 698.5 1,040.2 1,548.3

Money market instruments 0.0 0.0 1.2 2.1 0.2

Foreign liabilities 244.2 293.7 623.2 522.9 621.9

Central government deposits 27.8 33.5 13.5 44.7 57.1

Credit from monetary authorities 368.1 285.9 229.8 130.3 106.4

Liabilities to non-bank financial institutions 0.0 0.0 0.8 1.5 2.2

Capital accounts 731.4 839.3 756.2 1,242.8 1,692.0

Other items (net) –352.9 –367.8 –384.6 –416.8 –583.6


76 Moldova


Reference table 12

Stockmarket indicators1996 1997 1998 1999 2000

No. of shares traded (m) 3.5 22.4 74.9 66.8 87.4

Volume of trade (Lei m) 11.5 178.1 437.5 371.1 288.5

Volume of trade (US$ m) 2.5 38.1 52.6 36.0 23.9

Source: Moldovan Stock Exchange.

Reference table 13

Exports fob(US$ m unless otherwise indicated)

1996 1997 1998 1999 2000a

Food, beverages & tobacco 455.4 479.0 350.2 197.5 200.1

% change, year on year 19.1 5.2 –26.9 –43.6 1.3

Vegetable products 67.9 75.3 71.6 68.0 66.1

% change, year on year –11.0 10.9 –4.9 –5.0 –2.8

Animals & animal products 60.1 75.4 34.1 29.4 22.9


Machinery & equipment 42.5 45.7 40.9 29.5 25.9


Textiles 49.5 58.2 61.7 64.7 83.9

% change, year on year 41.0 17.6 6.0 4.9 29.7

Metals & metal products 13.9 8.6 9.2 16.6 11.8

% change, year on year –57.1 –38.1 7.0 80.4 –28.9

Mineral products 2.6 3.2 2.4 1.2 3.2

% change, year on year –68.7 23.1 –25.0 –50.0 166.7

Other 103.1 128.7 62.0 55.4 63.5


Total 795.0 874.1 632.1 462.3 477.4


Note. Data differ slightly from the National Bank of Moldova data (also used by the IMF) that adjustfor unrecorded trade.a Preliminary.

Sources: TACIS, Moldovan Economic Trends; Ministry for Economy.

Reference table 14

Imports fob(US$ m unless otherwise indicated)

1996 1997 1998 1999 2000a

Mineral products 397.2 414.0 325.0 213.1 249.5 % change, year on year 1.7 4.2 –21.5 –34.4 17.1

Machinery & equipment 156.1 150.8 195.5 69.7 97.3 % change, year on year 49.5 –3.4 29.6 –64.3 39.6

Chemicals 71.6 112.7 92.7 45.9 74.8 % change, year on year 9.0 57.4 –17.7 –50.5 63.0

Textiles 54.8 61.7 63.0 66.4 77.5 % change, year on year 32.0 12.6 2.1 5.4 16.7

Vegetable products 39.5 37.3 14.1 7.5 23.1 % change, year on year 15.8 –5.6 –62.2 –46.8 208.0

continued

Moldova 77


1996 1997 1998 1999 2000a

Metals & metal products 51.0 51.8 41.3 24.9 31.7 % change, year on year 50.9 1.6 –20.3 –39.7 27.3

Other 302.1 342.9 292.1 140.4 238.9 % change, year on year 77.2 13.5 –14.8 –51.9 70.2

Total 1,072.3 1,171.2 1,023.7 567.9 792.8 % change, year on year 27.5 9.2 –12.6 –44.5 39.6

Note. Data differ slightly from the National Bank of Moldova data (also used by the IMF) that adjustfor unrecorded trade. Totals may not sum owing to rounding.a Preliminary.


Reference table 15

Main trading partners(US$ m)

1996 1997 1998 1999 2000a

Exports 795.0 874.1 632.1 462.3 477.4 of which: Russia 428.9 508.8 336.8 191.8 212.5 Romania 72.2 58.8 60.8 42.1 39.1 Italy 21.0 23.9 22.3 25.9 36.6 Ukraine 46.5 49.4 48.7 35.2 36.5 Germany 29.8 32.4 23.9 36.6 36.3 CIS 543.1 608.3 429.1 256.3 279.7 EU 78.1 89.9 82.9 98.4 103.3 CEE 129.2 95.7 80.5 82.8 65.1

Imports 1,072.3 1,171.2 1,023.7 573.1 792.8 of which: Romania 65.9 101.3 112.9 90.1 129.3 Ukraine 261.9 211.2 151.6 78.0 112.4 Russia 321.4 333.2 233 118.8 104.6 Germany 76.3 94.6 91.9 66.2 85.4 Italy 36.7 48.6 65.1 34.2 45.1 CIS 652.7 604.6 440.2 221.9 252.7 EU 177.2 233.8 281.2 156.4 209.4 CEE 139.0 217.7 214.8 143.1 205.2

a Preliminary.

Source: State Department of Statistics, published in Moldovan Economic Trends.

Reference table 16

Direction and composition of trade, 1998(US$ ‘000)

Exports fob Russia Romania Ukraine Belarus Total

Food 89,706 38,222 7,833 20,175 197,950 of which: fruit, vegetables & preparations 49,441 2,200 1,704 7,699 99,697Beverages & tobacco 211,571 4,737 17,836 4,020 241,331Machinery & transport equipment 20,838 5,543 14,510 2,824 56,768Clothing 658 331 12 0 50,734Total incl others 339,246 58,679 47,566 31,154 632,119

continued

78 Moldova


Imports cif Russia Ukraine Romania Germany Total

Food 7,080 1,963 3,545 5,122 54,542Beverages & tobacco 116 6,411 9,377 144 29,425Mineral fuels 143,696 88,026 62,363 1,854 319,194Chemicalsa 8,993 10,659 10,076 13,573 110,060Paper & manufactures 10,296 5,789 2,760 2,164 41,044Textile fibres, yarn, cloth & manufactures incl clothing 5,405 765 3,624 8,692 62,944Non-metallic mineral manufacturesb 2,207 3,460 6,473 284 35,087Metals & manufacturesc 9,415 10,523 1,946 4,021 38,745Machinery & transport equipment 24,964 14,158 3,906 41,409 244,602Total incl others 228,033 148,555 110,151 88,365 1,023,709

a Including crude fertilisers and manufactures of plastics. b Including precious metals and jewellery. c Including scrap.

Source: UN, External Trade Statistics, series D.

Reference table 17

Balance of payments, IMF series(US$ m)

1995 1996 1997 1998 1999

Goods: exports fob 738.9 822.9 889.6 643.6 469.3

Goods: imports fob –809.2 –1,082.5 –1,237.6 –1,031.7 –597.3

Trade balance –70.2 –259.7 –348.0 –388.1 –128.0

Services: credit 144.5 106.0 167.8 148.2 136.1

Services: debit –196.3 –166.4 –196.0 –188.2 –158.5

Income: credit 14.2 99.3 132.7 136.8 120.4

Income: debit –32.4 –44.2 –85.3 –101.6 –86.4

Current transfers: credit 66.6 72.9 104.1 110.9 114.7

Current transfers: debit –14.1 –2.8 –50.0 –45.5 –42.9

Current-account balance –87.8 –194.8 –274.7 –327.5 –44.7

Direct investment abroad –0.5 –0.6 –0.5 0.7 0.0

Direct investment in Moldova 25.9 23.7 74.7 81.4 33.6

Portfolio investment assets 0.0 0.0 0.0 0.0 0.0

Portfolio investment liabilities –0.5 30.8 18.6 –58.5 –7.3

Other investment assets –116.4 –51.4 4.9 –105.0 –162.8

Other investment liabilities 22.7 74.0 –2.1 73.8 42.6

Financial account balance –68.8 76.6 95.7 –7.6 –93.9

Capital account nie credit 0.0 0.1 0.1 2.1 0.2

Capital account nie debit –0.4 –0.1 –0.3 –2.5 –0.4

Capital account nie balance –0.4 –0.1 –0.2 –0.4 –0.2

Net errors & omissions –18.4 15.5 –3.5 –11.0 12.2

Overall balance –175.4 –102.7 –182.8 –346.4 –126.6

Financing (– indicates inflow) 175.4 102.7 182.8 346.4 126.6 Movement of reserves –76.7 –56.9 –52.5 222.6 –53.2 Use of IMF credit & loans 64.8 25.2 0.8 –64.4 4.0 Exceptional financing 187.0 134.4 234.6 188.2 175.7


Moldova 79


Reference table 18

Balance of payments, national series(US$ m)

1996 1997 1998 1999

Exports of goods fob 822.9 889.6 643.6 469.3

Imports of goods fob –1,082.5 –1,237.6 –1,031.7 –597.3

Trade balance –259.7 –348.0 –388.1 –128.0

Services balance –60.4 –51.3 –40.1 –22.4

Income balance 55.1 47.4 35.2 34

Transfers balance 73.1 77.1 65.4 82.5

Current-account balance –191.8 –274.8 –327.5 –34.0

Direct investment, net 23.2 74.3 82.2 33.5

Portfolio investment, net 60.8 233.6 –58.5 –140.3

Other investment, net 149.3 22.9 91.9 67.0 Assets –51.4 4.9 –105.3 –162.8 Liabilities 200.6 18 196.9 229.8

Movement of reserves –56.6 –52.1 222.6 –53.2

Financial account balance 176.7 278.7 338.1 –93.0

Capital account balance –0.1 –0.2 0.3 115.4

Errors & omissions 15.2 –3.6 –11.0 11.6

Source: National Bank of Moldova.

Reference table 19

External debt, World Bank series(US$ m unless otherwise indicated; debt stocks as at year-end)

1995 1996 1997 1998 1999

Public medium- & long-term 450 555 801 801 722

Private medium- & long-term 0 0 0 11 14

Total medium- & long-term debt 450 554 801 801 722 Official creditors 430 456 480 525 595 Bilateral 214 203 191 193 203 Multilateral 217 253 289 332 393 Private creditors 19 99 322 276 126

Short-term debt 6 27 21 32 33 of which: interest arrears 5 1 0 14 17

Use of IMF credit 230 248 233 177 175

Total external debt 686 829 1,056 1,021 943

continued

80 Moldova


1995 1996 1997 1998 1999

Principal repayments 39 45 69 123 122

Interest payments 29 35 51 54 53 of which: short-term debt 0 1 1 1 1

Total debt service 68 81 119 187 175

Ratios (%)Total external debt/GNP 22.4 47.4 53.4 58.7 78.9Debt-service ratio, paida 7.6 7.8 10.3 20.7 24.9Short-term debt/total external debt 0.9 3.2 2.9 3.2 3.5Concessional long-term debt/total long-term debt 23.4 20 18 20 24.7Variable interest long-term debt/total long-term debt 83.6 79.1 51.3 48.8 56.4

Note. Long-term debt is defined as having original maturity of more than one year.a Debt service as average of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

Reference table 20

Foreign reserves(US$ m unless otherwise indicated; end-period)

1996 1997 1998 1999 2000

Foreign exchange 304.1 364.8 142.9 185.4 229.8

SDRs 7.8 1.2 0.7 0.3 0.3

Reserve position in the IMF 0.0 0.0 0.0 0.0 0.0

Total reserves 312.0 366.0 143.6 185.7 230.2


Reference table 21

Exchange rates(Lei per unit of currency unless otherwise indicated; annual averages)

1996 1997 1998 1999 2000

US$ 4.60 4.62 5.37 10.51 12.43

Rb 0.90 0.80 0.63 0.42 0.44

€ 5.77 5.23 6.08 11.19 11.50


Editors: Stuart Hensel (editor); Dafne Ter-Sakarian (consulting editor)Editorial closing date: May 31st 2001

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

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