Sunday, 13 June 2004


Moldova 13-15 June 2004

Moldova is east of Romania and due north of Istanbul.  It is north-west of the Black Sea.

For aeons the locals have been raped, looted and enslaved by marauding hordes starting with the Roman occupation in AD 105-207 to the traffickers of women in the 21st century.  The Huns, the Ostrogoths, the Turks, Ottomans, Russians, Tartars and Mongols have all overrun the place.

More Aussies would have heard of Molvania than Moldova.  Molvania is the title of a very funny travel guide that has a subtitle “A land untouched by modern dentistry”.

It has a photo of a toothless peasant on the front cover, and, as it is written by Aussies Santo Cilauro, Tom Gleisner, and Rob Sitch, you will not be disappointed by the funnies that follow, page after page.

But Molvania is a fictional country, whereas Moldova is the real thing.  It is a former Soviet republic and it is not funny.  It is the poorest country in Europe.   In 2003 per capita GDP was about US$450.  It is still run by Communists.  The country is split in two.  The main part was once known as Bessarabia; the other part Transnistria.

Transnistria is a breakaway de facto state, recognised by no one.  But it is still a significant part of Moldova. It needs to come back into mainstream Moldovan society. And just to complicate matters even more, and although this will not happen, the entire Moldova should really be part of Romania as it has been for most of its history.  Most Moldovans are Romanians and it makes little sense for Moldova to go it alone.

Moldova has most of the characteristics of a failing state.  In no order of priority, its problems make up a long list.  Corruption is endemic throughout the government.

The judiciary is not independent.  The government has recently nationalised up to 30 businesses including the Dacia Hotel.   It has put some private business out of business (e.g. the withdrawal of the Megadat licence to provide internet services).  Surveys show that 40% of Moldovans would leave the country if they had the choice.  The government regularly intervenes in the private sector often to further the corrupt interest of one of its mates.  It controls most of the mass media.  The ruling Communist party has no commitment to market values, let alone the rule of law.  The business environment discourages entrepreneurial activity.  Businesses are harassed by government inspectors.  Government authorities have no respect for the contractual obligations freely entered into by previous governments.  The government threatens its opponents and cannot be trusted. It has recently introduced some policies that seem to deliberately target and disadvantage small business. The reputation of Moldova for running free elections since independence seems likely to be tarnished, if not irreparably damaged, in the forthcoming elections of 2005.

In the Freedom House ‘Nations in Transit’ 2004 survey Moldova’s ratings worsened in 4 out of 6 categories ranked.  At the EBRD, we publish transition indicators.  In our latest release, Moldova was only one of 2 countries (out of 27) to be downgraded.

Its media was downgraded from ‘partly free’ to ‘not free’ in the Freedom House ‘Media’ survey also in 2004.  The government has recently started to establish quasi-non governmental organisations to mute and counteract the criticism coming from genuine NGOs.  Neither the IMF nor the World Bank is currently willing to extend policy based programmes to Moldova.  Moldova has a recent history of arrears and re-scheduling debt repayments.

I was in Moldova recently with a group of directors and officials from the EBRD. We met the President, the Prime Minister, Ministers, business people and the leading figures from the Opposition parties.  Our spokesman was a gutsy Swiss, who I call ‘renaissance man’, because when I first got to know him he was buying antiquarian books.  He represents a number of central Asian shareholders in the bank so he has had a lot of experience with totalitarian regimes.  He is very polite and cultured, but he is no push over.  He seems to have a knack of politely telling dictators what he thinks of them but without causing undue offence.    

Meeting Mr. Vasile Tarlev the Prime Minister

The meeting with President Vladimir Voronin started when our Swiss spokesman said that the international community hoped that Moldova would protect its reputation for running fair elections. The president was not too pleased and did not hide his irritation.  He asked why a bank such as ours would start by making a political comment. He was told we were a public institution, that his government was a shareholder that had subscribed to our objectives and that our mandate requires us to promote democracy.  He said that the elections would be held in accord with Moldova’s law (not an encouraging reassurance). He said what the Opposition had told us about government control of the media and other policy matters was their problem. And they should not involve international organisations. He said he would not give the opposition the ‘election on a plate’.

The Mayor of Chisinau, the capital of Moldova, is Mr Serafim Urechean. He is also the leader of the Opposition in Moldova. The city council owns the company that supplies the town’s water supply and manages the waste water system. The water company borrowed some money from the EBRD and, as usual, we required the company , the municipality , and the national government to all agree that to promote a better system for water supply the company would introduce a form of ‘user pays’.  The loan was our first project in the municipal sector in Moldova.  It was to be a model for cost recovery and utility corporatisation.  It had good environmental benefits: reduced energy use, reduced water consumption and it ensured less pollution in the Byk and Dniester rivers and the Black Sea.  For consumers the project meant a continuous reliable water supply.  Operational costs would be reduced and fixing old pipes would lower leakages and so cut the need for unnecessary expansion of water production and storage.  We even organised some donor monies to help with the corporatisation and to carry out engineering supervision and hydraulic modelling.  So we both lent and gave them money and set them up with a good deal.  The agreement was ratified by the parliament. The mayor wants to abide by the deal, but the President and his Communist party is now in power and they have refused to allow the water company to put up tariffs for water supply. They have deliberately reneged on the agreement. The EBRD may be repaid in time, but the failure to introduce a user pays scheme is a retrograde policy measure that will undermine the capacity of the water company to provide an important basic service.

The Mayor of Chisinau is Mr Serafim Urechean (seen above with Peter Reith). He is also the leader of the Opposition in Moldova. There is every chance that in the 2005 elections he will be jailed by his political opponent, the president of Moldova.

In our meeting with the President, we told him that the EBRD was ‘disappointed’ that the government had not respected its commitments to introduce a proper system of tariffs. He was also told that this situation prevents us from doing more projects in other municipal areas of need.

He responded with the claim that in this matter we were dealing with ‘a criminal organization.’ He said things will be sorted out “in a very serious way”. To me this was a clear and menacing threat to the opposition.  The opposition leader knows what he is facing because he told us that he expected to be gaoled during or before the forthcoming election.  The President’s charges are clearly trumped up because he did not seem to want to understand that the EBRD is very careful about where its monies go and that this project was subject to the normal checks to ensure that his claim was bogus. To me the threat carried the implication that EBRD was a party, however ignorant, to a scheme that resulted in monies being stolen.

Some of the Directors (from left): Stefan Presura, Susumu Fujimoto, Simon Ray, Mark Sullivan, myself, Georges Heinen.  

It was fascinating to meet President Vladimir Voronin.  It is not every day you get to meet a real life fair dinkum autocrat snap frozen in the cold war 1950’s but dangerously alive in the 21st century.  I was not surprised to hear that the opposition leader expected to be gaoled.

The EBRD still wants to help Moldova.  We are beefing up our efforts in Moldova.  We have provided more staff to our small office, we have new financial instruments to assist the private sector, and we have a stronger policy commitment to help the hard cases like Moldova.  But Moldova has to want to help itself.  If Moldova turns its back on democracy then it is contrary to our mandate to help them.        

I am not without hope for Moldova.  The Moldovans who left Moldova are doing pretty well.  They are keeping the country afloat with their remittances.  The population is Romanian.  The Romanians are soon to join Europe.  Five years ago some people thought that Romania was basically beyond reform, but they are now showing that it can be done.  Romania is becoming more normal politically and, whilst caution is justified, there is genuine optimism for Romania’s future.  Lets hope for Moldova that in a few years time they will have turned the corner and started on the long road to a more prosperous and democratic future.

P.S. Later in 2004, President Voronin was re-elected in a campaign in which he controlled the media. But the Mayor was not thrown in gaol. And because Mr. Voronin’s party did not do so well in the parliamentary election, he has had to be a bit more accommodating of other views. The prospect of EU accession, however unlikely at the moment, is proving to be a powerful factor prompting better behaviour and reform in Moldova. The EBRD’s latest strategy for Moldova, drafted in July 2005, is more optimistic about Moldova than we were before the election. Let’s hope the optimism is justified.

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