KUCHMA SAYS NATO MUST RESPECT UKRAINIAN, RUSSIAN INTERESTS. Speaking at a 15 December press conference following his meeting with visiting Greek President Konstantinos Stephanopoulos, President Leonid Kuchma said "it is necessary to take into account the interests of all sides, including Ukraine and Russia as NATO expands," ITAR-TASS reported. Kuchma said the alliance must act in ways that do "not divide Europe into two camps." PG
UKRAINIAN TRADE RISES WITH GREECE, FALLS WITH CHINA. Ukraine's trade with Greece is likely to rise from its current $110 million a year if Greece follows through on its pledge to purchase ships built in Ukrainian yards, Kyiv media reported on 15 December. But trade between Ukraine and China fell 20 percent over the past year, amounting to only $365 million in the first 10 months of 1997, ITAR-TASS reported on 15 December. Moreover, Ukraine's trade deficit with China now exceeds $200 million annually. PG
Since the breakup of the Soviet Union, Moldova has more consistently pursued sound macroeconomic policies and political democratization than most CIS states. Freedom House in 1997 gave it the third-highest ranking in the CIS (behind Russia and Kyrgyzstan and tied with Armenia) on economic reforms. Those reforms have resulted in low inflation and a stable currency.
Nonetheless, the economy has declined longer and further than many others in the CIS. Moldova remains dependent on an agricultural sector vulnerable to weather patterns and to hindrances to its foreign trade arising from the dispute with the breakaway Transdniester region. Relations between the country and international financial institutions have worsened lately, as the parliament has balked at passing legislation to accelerate structural reform.
Moldova was displaying favorable economic indicators by 1994. Retail prices rose by 105 percent from the end of 1993 to the end of the following year; within the CIS, only Kyrgyzstan had lower inflation. In 1995, Moldovan retail prices increased by 24 percent, the lowest inflation of all 15 former Soviet republics.
Another early indicator of sound policy-making was the stability of the leu against the dollar. The currency unit fell from 4.06 to the U.S. dollar in April 1994 to only 4.27 at the end of that year and to 4.53 at the end of 1995. That stability posed a potential threat to exports, since inflation was faster than the leu's decline against Western currencies.
Still, such stability under a floating exchange rate regime indicated confidence in fiscal and monetary policy and expectations of low inflation. Fiscal deficits have been modest by CIS standards, with the consolidated budget showing deficits of 5.9 percent of gross domestic product (GDP) in both 1994 and 1995.
Despite those achievements, the economy has been slow to turn around. GDP fell by 8 percent in 1996, making for a cumulative decline of 64 percent from 1991 to 1996, one of the largest falls in the CIS. Aggregate production appears sensitive to weather-driven agricultural performance, with years of large GDP declines--1994 and 1996--characterized by meager grain, vegetable, and fruit harvests.
However, TACIS experts argue that the apparent GDP fall in 1996 may be only temporary--the result of a surge in imports and the failure to record a significant volume of exports, especially to the CIS. Such exports typically transit the Transdniester region, and Chisinau cannot record them at Moldova's border with Ukraine. GDP is reportedly declining again this year, while industrial output was down 12 percent from January to June compared with the same period last year.
Other economic indicators have been stagnating or even deteriorating. Disinflation is slow: the 15 percent inflation rate in 1996 was bettered by all three Transcaucasian states, which started reforming later. In November, the National Bank of Moldova raised its 1997 inflation estimate to 13 percent. The budget deficit, which reached 10 percent of GDP in 1996, is about 7 percent of GDP, compared with an IMF-agreed target of 4.5 percent.
The trade regime has been fairly liberal since the end of 1993, and the parliament further liberalized it in late June. A Generalized System of Preferences scheme--which provides a duty-free regime for "non-sensitive" goods--is in force with the EU. Moldova is the only CIS state whose textile exports to the EU are not subject to quotas.
Even so, Moldova's external relations are troubled. Moldova owes Gazprom $500 million, of which $332 million is owed by the Tiraspol authorities. Gazprom warned early this month of a cut-off in supplies unless that debt is settled.
Ukraine applies country-of-destination rules to its tariffs and excise duties, as sanctioned by the World Trade Organization. Consistent with such rules, and out of concern that goods supposedly transiting Ukraine's territory may illegally be sold there, Kyiv imposes tax deposits on transit exports. This has caused problems for Moldovan exporters; at mid-year, trade with the CIS was down on 1996 levels. Furthermore, the EU treats Moldova's all-important exports of wine and fresh fruit and vegetables as "sensitive" sectors subject to tariffs.
In earlier years, the IMF supported Moldova's reform efforts, providing $71 million in 1994, $65 million in 1995, and $41 million in 1996. However, the IMF postponed from June until July the release of a $21 million tranche under a three-year $195 million loan agreed to in May 1996; the fund cited unfulfilled conditions, especially on privatization. And in November, it delayed until early 1998 the next tranche release out of concern over the parliament's suspension of energy-price hikes and the growing budget deficit.
Despite those setbacks, Moldova remains one of the most reform-minded CIS states. Accordingly, its failure so far to resume economic growth is worrisome.