What Troubles Moldova
By Ana Porumbrica
Aug 11, 2004
iven the favorable circumstances Moldova enjoys, many wonder why our country is so poor. The population has a 99.1% literacy rate; we have a very high number of medical doctors per capita; most of our people have a college degree and many have post-graduate degrees, we have a very advanced high school curricula – with no electives and a total of 13 classes per year. If we are so smart, why are we so poor? Maybe it is true that every people get the government it deserves, but I know Moldova can do better.The Republic of Moldova is a small country and it would be relatively easy to manage and implement reforms. Still, after 13 years of independence, we are at the bottom of the charts among other European countries. The Baltic states, which were approximately at the same level as Moldova at the collapse of the Soviet Union have reached a level of economic development on par with the other European states and have joined the European Union.So what is the trouble with Moldova?At the core of all the problems is the economy. Unlike other new democracies from the former USSR, we have accepted a gradual approach to reform, not a rapid transition, so it takes longer and it is actually more painful for society to change. The privatization process in Moldova was very messy. The Government issued National Patrimonial Bonds for all Moldovan citizens, including children; according to their age and how many years they have worked. Every individual was able to privatize land or any other kind of property they wanted. A lot of the people that were working in firms and stores gathered the bonds of their relatives and friends and privatized that certain entity. My family gathered together our bonds and claimed ownership of a bakery in a village outside of the capital city of Chisinau where we live. Unfortunately, along with the property came the debts that the formerly state owned bakery still owed to other formerly state owed businesses, like the flour mill. The debts proved too much and eventually the business failed. During this time throughout Moldova, there was no new initiative or investment coming in, no fresh entrepreneurial spirit, just failed state run businesses changing ownership to private citizens. Nothing really changed until the past couple of years when, by the force of competition, some businesses started to become profitable.The legal system is very complicated and does not favor the development of small enterprises. To register a new business one has to go to many offices and organizations that are supposed to help you start a business. All of them are rife with corruption and expect applicants to bribe them for any document they have to issue. In the US you can register a firm in a couple of days, but in Moldova that process takes several months or even years. Once a business is established legally, an entrepreneur can expect to get several tax inspections per year, which becomes a constant distraction from running their business. This is why many firms choose to have 2 sets of accounting records – the real one and another for the tax collectors. This has contributed to the growth of a black market economy in Moldova. If a business actually pays all the taxes that are required, there is no way to survive in the market. This is why tax reforms are urgently needed. A flat tax system, similar to the system in Estonia and Russia, would encourage investment and growth.Programs and policies should be developed to help our newly graduated young people use their talents and education to start businesses in Moldova instead of leaving the country for better opportunities. New policies encouraging foreign investment are needed. I have personally met investors that wanted to bring capital into Moldova, but left the country because of the bureaucracy and corruption they encountered. The government should allow people to trade freely and to be able to purchase and own private property, and create a rule of law that allows them to do so easily.It seems like a vicious circle, anything you want to reform in the country is connected to some other important issue. But the politicians have to start somewhere and do their best to bring up the standard of living in Moldova. Many say that Moldova is poor due to the fact that it lacks natural resources like oil or coal, but there are examples of many other countries that have scarce resources and are yet highly developed economically – like Japan or Taiwan. Our best assets are our land and our people. We have one of the most fertile soils in Europe called chernoziom, but the old Soviet methods of farming have depleted the soil and damaged the farmland. Agriculture is not reaching a level of yield to at least supply our own needs, let alone exporting crops. We do, however have some great vineyards and very good wine. Beyond economic issues, Moldova is not stable politically. There is currently a conflict on the east bank of the Nistru River. The powerful Russian 14th army has occupied that region since World War II. They still have large supplies of ammunition that they were supposed to return to Russia. An international peace committee was specially formed to solve this problem, but the committee has failed thus far. The Russians always sign the treaties and agree to get rid of the weapons, but never comply with their promises. The conflict worsened in 1992 when people were killed and the original Moldovan inhabitants became refugees. They continue to threaten and provoke the Moldovan government. Of course, in such a tense environment, any businessman would be afraid to invest.Our currency – the Moldovan Lei (MDL) has devalued from 4 lei to the US dollar in 1994 to 11 lei to the dollar in 2004. The Russian monetary crisis in 1998 contributed to this devaluation and demonstrates how dependent our economy still is on the former soviet republics. Because of the political situation the local banks are unwilling to lend money on any terms longer than 3 years, there is no such thing as 30-year mortgage or even a 5-year car loan. People use dollars or euros for big purchases, which weaken the lei even more.Moldova is the only country in the world that has democratically elected a communist government and president. This says a lot about our society. People are afraid of change and many of the older generations have nostalgia for the old regime where everything was provided by the state. Politicians are aware of this and play on these emotions. They promise the retired people, the most active voters, low prices and free health care so that they gain more popularity.
Many of our people are stuck in this old mentality – which, in my opinion, is the biggest impediment to our development and becoming a prosperous country. Many of the older Moldovan citizens feel comfortable being ruled from above and being told what to do, wear and eat. We still have an inferiority complex; we lack confidence and the entrepreneurial spirit that a nation needs to prosper. Some of the people don’t have that driving force and passion a successful business requires. During in the communist era, low wages were paid to everyone regardless of individual effort or results. People didn’t have to try very hard to do better because they were paid the same low wages anyway. The shop assistants didn’t have to be nice and help you choose something to buy, the clerks didn’t strive to offer better service, the producers didn’t come up with new ideas or improvements for their products, etc.These problems are not unsolvable and I know the problems are not as bad as what some other countries face. Although, it can be frustrating to see other countries that were in a similar situation as Moldova make progress while we do not, my hope is that the new generations will be a force of change and solve these problems. My generation is anxious to learn more from the Western world as we try to build a market economy and a free society. Despite my criticisms of Moldova, I love my country and I am excited about its future.
Ana will be a senior at the Academy of Economics Studies of Moldova this fall and is currently traveling in the United States. You can contact Ana by e-mail at AnaPorumbrica@yahoo.com..
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