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TITLE:  MOLDOVA ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE

                             MOLDOVA

                     Key Economic Indicators
                (Millions of rubles unless noted)

                                  1991      1992      1993

Income, Production,
 and Employment

Real GDP                            n/a       n/a       n/a
Real GDP Growth (pct.)             -18       -21       -15
GDP (at current prices)            24,800   226,700     n/a
By Sector (pct. GNP):
  Agriculture                      41.7      47.2       n/a
  Energy and Water                  n/a       n/a       n/a
  Manufacturing                     n/a       n/a       n/a
  Construction                      n/a       n/a       n/a
  Rents                             n/a       n/a       n/a
  Financial Services                n/a       n/a       n/a
  Other Services                    n/a       n/a       n/a
  Government, Health                n/a       n/a       n/a
   and Education                   14.7      25.8       n/a
Net Exports of Goods
  and Services                      n/a       n/a       n/a
Real per capita GNP (US$)           2,170     1,260     n/a
Labor Force (000's)                 2,463     2,460     n/a
Unemployment Rate (pct.) /1         n/a       10        11


Money and Prices
(annual percentage growth)

Money Supply (M2)                   n/a       n/a       n/a
Base Interest Rate                  n/a       n/a       n/a
Personal Saving Rate                n/a       n/a       n/a
Retail Inflation (pct.) /2          162     1,300       n/a /2
Wholesale Price Inflation           n/a       n/a       n/a
Consumer Price Index                n/a       n/a       n/a
Exchange Rate ($/ruble)
 Official                           1:1.8     n/a       n/a
 Parallel                           n/a       n/a       n/a


Balance of Payments and Trade
(million U.S. dollars)

Total Exports (FOB)  /3             155.1     118.8     108.0
  Exports to U.S.  /3                 8.7       0.1       0.8
Total Imports (CIF) /3              603.5     163.7     145.4
  Imports from U.S. /3              n/a        29.9      11.5
Aid from U.S.                       n/a        20.0      10.0
Aid from Other Countries             10.0      40.3      87.0
External Public Debt                n/a       n/a       n/a
Debt Service Payments (owed) /4     n/a     3,300       n/a
Gold and FOREX Reserves             n/a        -2.4     -31.6
Trade Balance  /5                     3.5     -36.9    -218.8
  Balance with U.S.                 n/a       n/a       n/a


Notes:

1/  Registered unemployment is very low (below one percent of
the labor force), but growing numbers of industrial workers are
on unpaid leave or working just a few hours per week.
2/  Figures are actual, average annual inflation rates, not
changes in them.  Retail inflation averaged 25 percent per
month for the first six months of 1993, but subsequently was
higher.
3/  1993 Figures are for first three quarters.
4/  Debt is owed but none was paid.
5/  In millions of rubles for 1991.  Figures for 1992-93 are
current account deficit as percent of gdp.



1.  General Policy Framework

    Moldova is a former Soviet Union republic that now has a
transitional economy.  Since the break-up of the former Soviet
Union, Moldova has suffered a sharp decline in its terms of
trade.  Moldova does not have any domestic sources of fossil
fuels, and must now purchase its fuel at prices that approach
world levels.  This will result in a financing gap of an
estimated $150 million in the coming year.  The World Bank
estimates that GDP per capita has declined more than 35 percent
since 1990 to $1,260 in 1992.

    The Moldovan government has developed a strong consensus in
support of market economic reform, and has taken the steps
necessary to secure an IMF Systemic Transformation Facility
(approved September 16, 1993) and World Bank rehabilitation loan
(approved October 25, 1993), with good prospects for an IMF
Standby Arrangement before the end of 1993.  In 1993, Moldova
began small-scale privatization, limited its government deficit
by reducing subsidies and ending non-budgetary government
credits, and introduced a national currency (the leu).  (Note: 
the leu will be introduced before December 31, 1993.)  The
National Bank of Moldova was created on June 11, 1991.  By
statute it is subordinate to parliament and has an extensive set
of monetary policy instruments.

    The budget deficit for 1992 was 21 percent of GDP, financed
largely by the central bank.  In 1993 the budget adopted by
parliament called for the deficit to be limited to six percent
of GDP, and issuance of the Moldovan coupon has been
restrained.  Social transfers (including education and child
benefits) and the government's involvement in production place
a considerable strain on the budget.


2.  Exchange Rate Policy

    In September 1992, Moldova adopted a unified market
exchange rate for the ruble and reduced the surrender
requirements for hard currency earnings from 50 to 35 percent. 
In principle, a foreign exchange auction was introduced at the
same time, but lack of sufficient hard currency to offer has
kept it from operating regularly.  Moldova also adopted the
inter-bank interest rates set on the Moscow inter-bank credit
market.

    Since July 1993 when the Central Bank of Russia recalled
Soviet rubles, the Moldovan ruble (coupon, issued since June
1992) has been distinct from the Russian ruble.  Official
currency transfers via banks in Moscow have been very
difficult, with the Moldovan ruble steeply discounted and
Moscow banks holding the funds for months while the Russian
banks lend the money and its value depreciates.  In practice,
large sums of Moldovan currency cannot be converted into
hard currency.


3.  Structural Policies

    Remaining government price controls and subsidies were
lifted on September 1, with the exception only of some types of
bread and dairy products when sold in state stores.  Some items
continue to be purchased from enterprises by the state at
"contract prices", when the goods might otherwise be
unsalable.  As energy prices rise, Moldovan products are
pricing themselves out of their old former Soviet markets.
Prices for competing goods are freely set by the market. 
Moldovans have found imports from the United States to be very
competitive because they are a better value than similar
European products.  

    Tax policies are burdensome and a disincentive to
production in Moldova.  The effective tax rate on profits can
exceed 100 percent depending on what order taxes are applied
in.  Legislative changes are needed in the tax regime, but
these are not expected to be possible until after new
parliamentary elections scheduled for February 27, 1993.


4.  Debt Management Policies

    Moldova in October 1993 signed the zero option agreement
with Russia renouncing both its claim to a share of Soviet
Union assets and its liability for any Soviet debt.  Because of
its lack of foreign exchange income with which to service new
debt, Moldova has not contracted much, but has a growing
liability to Russia for energy supplies.  Current energy
credits from Russia are on much less favorable terms than
previously, with unliquidated barter balances slated to convert
to dollar-denominated debt.  A 27 million ECU credit from the
EC is on very unfavorable terms.


5.  Significant Barriers to U.S. Exports

    The most significant barrier to U.S. exports is that
Moldova has not accumulated sufficient hard currency to pay for
them.  Moldova has few products that can be competitive on
western markets because of low quality and poor packaging, and
in the near term much of its trade must be oriented toward the
former Soviet Union.  The Moldovan government currently has
several large commercial arrearages to U.S. firms.

    Moldova has signed a Bilateral Investment Treaty with the
United States, which awaits ratification by the Moldovan
Parliament.  Moldova is beginning a privatization program, and
some properties are being auctioned for cash.  Most state
property will be auctioned to the population using
non-transferrable vouchers, but the stocks in privatized
enterprises obtained in this way will be immediately tradeable
on a stock exchange.  Moldova is planning to have its stock
exchange in operation by the beginning of 1994.  By the end of
1994, 35 percent of the value of state assets is to be
privatized.  Investment barriers exist in the territory on the
left bank of the Dniester river, which is not under the
effective control of the Moldovan government.  Separatist
leaders in that area restrict access to existing enterprises,
and require the enterprises to clear contacts with westerners
through the separatist leaders.  The U.S. Embassy is not able
to offer normal business facilitation services in this area of
Moldova.

    Export taxes were abolished and a new low, fairly uniform
import tariff schedule and a value-added tax (VAT) for
non-former-Soviet-Union imports were adopted in September
1993.  The legal status of services barriers is unclear, but
Moldova in practice has declined to accept branches of foreign
banks in Moldova.  Moldova is unable to transfer dollar
receipts for any travel or ticketing services out of the
country so no local vendors are authorized to sell tickets on
behalf of western firms.


6.  Export Subsidies Policies

    Moldova does not explicitly subsidize exports.  Energy
costs to producers are charged at the cost of the energy to the
Moldovan government.


7.  Protection of U.S. Intellectual Property

    Laws are those of the former Soviet Union, which commit
Moldova to some protection of intellectual property rights. 
Enforcement is poor because Moldova never had its own
enforcement capability.  Because Moldova is a very small
country, the overall level of infringement is relatively low.

8.  Worker Rights

    a.   Right of Association

    The 1990 Soviet Law on Trade Unions, which was endorsed by
Moldova's then Supreme Soviet and is still in effect, provides
for independent trade unions.  Moldovan parliamentary decisions
in 1989 and 1991, which give citizens the right to form all
kinds of social organizations, also provide a legal basis for
the formation of independent unions.  However, there have been
no known attempts to establish alternate trade union structures
independent of the successor to the previously existing official
organizations which were part of the Soviet trade union system.

    The successor organization, which at the republic level is
called the Federation of Independent Trade Unions of Moldova
(FITU) broke with the Moscow-based General Confederation of
Trade Unions in 1992.  FITU's continuing role in managing the
state insurance system and its retention of previously existing
official union headquarters and tourist facilities provide an
inherent advantage over any newcomers who might wish to form a
union outside its structure.  However, its industrial, or
branch unions are developing as more independent entities,
maintaining that their membership in FITU is voluntary and that
they can withdraw if they wish.  Several threatened to withdraw
in 1992 to block the election of a former Communist Party
secretary to its presidency; they succeeded.

    FITU has insisted on the right to have union
representatives involved in the negotiations to set the minimum
wage.  FITU has opposed government measures to raise prices
before back salaries were paid.  In these matters, it has begun
to leave behind its role as accessory of the Communist Party
and to work on securing better treatment for workers.

    Unions may affiliate and maintain contacts with
international organizations.  Moldova is a member of the ILO.

    b.   Right to Organize and Bargain Collectively

    Moldovan labor law, which is still based on former Soviet
legislation, provides for collective bargaining rights, but
collective bargaining is just beginning in practice.  There are
no known cases of major strikes or collective bargaining
agreements in 1993.

    There were no reports of actions taken against union
members for union activities.  The 1990 Soviet Law on Trade
Unions provides that union leaders may not be fired from their
jobs while in leadership positions or for a period after they
leave those positions.  This law has not been tested in Moldova.

    c.   Prohibition of Forced or Compulsory Labor

    Forced or compulsory labor is not specifically prohibited;
there were no such cases reported.

    d.   Minimum Age for Employment of Children

    The minimum age for employment under unrestricted
conditions is 18.  Employment of those aged 16 to 18 is
permitted under special conditions, including shorter workdays,
no night shifts, and longer vacations.  The Ministry of Labor
and Social Protection is primarily responsible for enforcing
these restrictions, and the Ministry of Health also has a
role.  In the countryside, children assist in farm work.

    e.   Acceptable Conditions of Work

    The minimum wage did not keep pace with inflation in 1993
and does not provide a decent standard of living for a worker
and family.  The minimum wage was raised in 1993 from 3000
rubles per month to 7,500 rubles per month (equivalent in
September to about $3.75.)

    The state is required to set and check safety standards in
the work place.  The unions within the FITU also have
inspection personnel who have a right to stop work in the
factory or fine the enterprise if safety standards are not
met.  In practice, however, the declining economic situation has 
led enterprises to economize on safety equipment and generally to 
show less concern for worker safety issues.

    f.   Rights in Sectors with U.S. Investment

    To date there is no U.S. direct investment in Moldova.

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