Rethink Moldova

EUobserver / [Comment] Rethink Moldova
BY STEFAN FUELE AND PHILIPPE LE HOUEROU
23.03.2010 @ 15:00 CET
EUOBSERVER / COMMENT - With an average yearly income of only €1,100, Moldovans have seen their country steadily grow in the past decade only to run into the headwinds of the global economic crisis.

The crisis has taken a toll on many countries in Europe but Moldova has suffered more than most. The country's output, which grew at 6 percent between 2004 and 2008, shrank by an estimated 6.5 percent last year. The country's poverty fight stalled and foreign investment was at risk of being reversed, while a lengthy electoral process and difficult political transition left the public finances in crisis and delayed the necessary reforms.

Chisinau - The average yearly income for Moldovans is €1,100 (Photo: Ministry of Culture and Tourism

Today, though, Moldova is coming back thanks to an ambitious reform programme. During the past eight months, a new government in Chisinau has moved decisively to tackle its political and economic legacies and lay the foundation for a more competitive economy and more transparent state. The country is also firmly anchored in the EU's Neighbourhood Policy and its regional platform, the Eastern Partnership.

The Moldova Partnership Forum, jointly hosted by the European Commission and World Bank, on 24 March 2010 in Brussels, aims to coordinate international assistance in support of Moldova's reform efforts.

Since October 2009, Moldova's economic reforms have been anchored on an economic stabilization and recovery programme. This programme has included difficult spending cuts and increased tariffs (including for energy and heating) but also significant increases in targeted social assistance to soften the effect on the poor, and efforts to improve the efficiency and quality of public spending. These fiscal measures have been flanked with an effort to deregulate and de-monopolize the economy and create new jobs.

Moldova has made further progress in reforming governance. The public administration is undergoing a review to reduce duplication of functions and lay the basis for the creation of a professional civil service. Public financial management is being upgraded and key elements of the system, including public procurement and internal and external audit are being reformed in line with European standards.

Moldova's crisis was precipitated by a difficult domestic political situation and the onset of the global economic and financial crisis. However, as in many other countries in the region, Moldova's vulnerability to external shocks was made worse by an economic growth model heavily reliant on remittance-financed domestic consumption.

Beyond managing the current crisis, the challenge for Moldova's leadership is to develop a new strategy of sustainable and more balanced economic growth. To do this, the government, supported by a multi-party coalition in parliament, has chosen integration and harmonization with the EU as the anchors for its strategy. The EU-Moldova Action Plan and Partnership and Cooperation Agreement (PCA), the Eastern Partnership and, when in place, the EU-Moldova Association Agreement, will help to guide these integration and harmonization efforts.

Moldova's leaders know that fulfilling the commitments under these programmes, e.g. reforming the justice sector, liberalizing the economy, fighting corruption, does not offer a short-cut to prosperity and they have demonstrated that through their early commitment to decisive reform actions. They have adeptly used the moment of crisis to launch a deep social, economic and governance reform process.

For their part, Moldova's international partners are supporting these efforts. The Moldova Partnership Forum taking place later this week in Brussels will ensure that the financial assistance available from International Financial Institutions as well as Moldova's multilateral and bilateral partners will be aligned with the government's reform programme. New donors such as China and Russia have also been invited.

Such broad support should be a reassurance and an incentive to deliver. A sustained reform effort will allow Moldova to steadily close the gap between the standard of living of its citizens and those of its European neighbours. The authorities in Chisinau need international support to move ahead with their ambitious reform plans.

The writers are, respectively, EU Commissioner for Enlargement and European Neighbourhood Policy and World Bank Vice-President for Europe and Central Asia.