{Info-Prim Neo interview with Deputy Prime Minister and Minster of Economy Valeriu Lazar of the series “Year 2012 in Moldova’s and Moldovans’ life”, article No.4 of 12, [originally published on December 14]} [– How did the national economy develop in 2012 in the context of objective and subjective external and internal factors?] – The economic growth in 2012 will be rather modest. What is rejoicing is that we go through this crisis much better than in 2008-2009. Now nobody denies that it is a crisis that affected most of the countries to a greater or lesser extent. Having an open economy, Moldova very dependent on foreign factors, especially several areas: exports; foreign direct investment; remittances; foreign assistance for development that is still very important for us. In all these areas, the indexes became worse. Compared with 2009, when the global crisis was the most serious and its effect on Moldova was the 7% reduction in the GDP, in 2012 the economy will grow by les than 1%. When I say the economy, I mean the enterprises first of all, because they determine the economic development. The state enterprises and institutions learned to deal better with the shocks and this is a positive thing. The negative aspect is that we experienced an unprecedented drought, which was more severe than in 2011. Agriculture alone, where the production volume fell by over 20%, generated a minus 2.5% in the economic growth. If we take into account the fact that last year wasn’t the best year for agriculture, this sector contributing only 0.61% to the formation of the GDP, the reduction in the economic growth determined by agriculture only may be estimated at over 3%. It is a harsh, sad lesson from which we should draw conclusions. Regretfully, the droughts hit Moldova almost every year. On the other hand, the EU market, to which 50% of Moldova’s exports are directed, is in recession and this thing is felt. The demand for exports decreases and the volume of exports to this market in the first none month of this year fell by 6%. To the EU, we export mainly products of the light industry and other types of industries that produce and have what to offer. The supply is now weak, but it exists. Our exports to the traditional markets of the CIS consist mainly of agrifood products. Owing to the drought, the supply is reduced and we do not have much to export. We are ‘caught’ between these two factors, one external and one internal, which led to a slowdown in economic growth. [– What levers does not Government have for reducing the impact of the external factor on Moldova’s economy? Which of them turned out to be efficient or less efficient?] – These three years of ruling by the Alliance for European Integrating did not pass in vein. The banking sector became stronger, while the companies reorganized themselves as they realized the necessity of diversifying production and improving competitiveness. There is a certain level of satisfaction that we go through this period of crisis much better. But I think we didn’t make enough structural changes so as to reduce our dependence on shocks. Having such comparatives advantages as access to the EU market, which has over 500 million consumers and has a great purchasing power despite being in recession, and to the developing eastern market, we didn’t manage to promote the idea that being a small and open economy, we must be open indeed and work to eliminate the barriers to foreign trade, exports and imports. There is no business in Moldova that is not connected with the export-import operations. That’s why, all the state institutions must work to improve the mechanisms by which these operations are performed, not only the customs. They said that Minister Lazar becomes involved in the work of other institutions and exceeds his authority. I mean all the institutions, including those who are managed by the Ministry of Economy, which are responsible for the quality infrastructure: standardization, metrology, and certification systems, industrial security. By the way, the Law on Industrial Security took effect in November. We must remove all the barriers to the import of equipment and other parts needed for production. The same is true about exports. We cannot afford a model by which to constrain the work of the economic operators. We must support especially the small and medium-sized companies that adjust themselves to the market requirements very quickly. The pace of the measures taken to remove the barriers is not sufficiently high. The mentality changes very slowly. There is no other solution than to eliminate the barriers and unblock the economic activity. On the other hand, we inherited a narrow budgetary space, but in order to implement the projected structural reforms we need money. The reform of the legal system will cost millions of euros. Let’s speak about quality infrastructure, which is closer to the Ministry of Economy. If we don’t have equipped laboratories and if we don’t implement the European standards at the level of institutions and companies, if we do not have people able to formulate documents in this field, how will we achieve results? We drafted a strategy and assessed the costs needed to reform the quality infrastructure. Not even half of them can be covered from the state budget. However, the fiscal base must be extended not by increasing the fiscal pressure on the economic entities, but by stimulating the appearance of a number o companies that would transfer taxes and contribute to higher budget revenues. Even if we ease the pressure exerted on economic entities and improve the regulations, it will take time to achieve results. The initiated reforms need resources for being continued. We take money from our development partners and foreign donors. But we must convince them that we are determined to do the given reforms and to show that the money is spent efficiently. The farmers for example also need money for being competitive on the EU market. They must purchase equipment and modernize the post-harvest processes. The national economy is too weak to help them appropriately. On a short term, we will need more resources than Moldova’s s budget can offer and will thus have to ask out partners to incase the package of assistance so that we make progress in implementing reforms. [– Why were the restrictive measures to ensure macroeconomic stability, not to allow an excessive increase in the budget deficit and to optimize costs felt by the population and economic entities, while those aimed at reducing the fiscal burden were not?] – It’s not worth taking loans in order to increase the salaries. But we did not cut them either. We increased the pays when it was possible. Optimization measures were taken in education and will not be taken at the road management companies. The number of executive posts was reduced. In the absence of optimization measures, the use of resources is inefficient. Some of the schools were rehabilitated with financing from the Social Investment Fund, which is a World Bank project, but in several years we ascertained that there are by three children in a class in some settlements and teachers who teach physics and also physical education. The quality of the education process must be improved. The state took care to outfit the district schools properly. The roads that go to these schools were repaired from the road fund. Recently, the Government found the possibility of increasing the salaries of school bus drivers. The benefit of this reform must be better educated children and better paid teachers. It’s not easy to do such reforms. We are now discussing with the World Bank the possibility of financing a new project in education, worth US$39 million, for the next stage of the education reform. I will give you an example from the area of which I am in charge – the energy sector. Everybody knows that the wear degree in the thermoelectric system is 80% and the situation worsens year by year as no investments are made. The loans we can take out from banks are not a good solution as the investments are included in the charges paid by the consumers. The only solution is for the World Bank to give us a concessional loan repayable in 40 or 20 years so that the consumers do not feel the effect of tariff rises. We are now preparing a US$20 million project that will be proposed to the World Bank for financing. It includes an investment component that will enable to remove the most critical elements from the work of the thermoelectric plants and the Chisinau heat supplier Termocom. But we must approve real heat charges and the plan for restructuring the centralized heating system so that we have what to discuss with the World Bank. This is the philosophy: If you do reforms, you achieve results and get money as well as benefits, in time. [– The results of the regulatory reform remain far from the expectations of the business community, despite the insistence of the Ministry of Economy in promoting it. Why so and what novelties were prepared for the future strategic planning document within the regulatory reform?] – Over the years, the regulatory reform ended with the exclusion of weak rings from the process of registering and running a business. Today nobody complains that there are related problems in Moldova. In several days, the new strategic planning document within the regulatory reform, which includes state regulations on the entrepreneurial activity, will be posted on the Economy Ministry’s website for public debates. Licensing is the next stage on which we focused. In general, we optimized the licensing system and reduced the licensed kinds of activity by one third. Now we are dealing with electronic licensing. The licensing situation is more or less good. But I saw that when we reduced the number of kinds of licensed businesses, some of the institutions introduced authorizations, notices and other required documents. That’s why we promoted the Framework Law on Authorization that defines the same principles for issuing authorizations as for licensing. The Ministry of Economy drafted a bill that transposes the provisions of this law in all the sector laws. In parallel, there was adopted the Front Office Law. We cooperated with the e-Government Center and will select the first 20 or more institutions that will implement the front office principle. . We must also take into account such international rankings as Doing Business, the Economic Freedom Rankings, and the Global Competitiveness Index. They may not reflect the situation fully, but are like a mirror. When a potential investor wants to adopt an investment decision, they consult these rankings. That’s why a team of the Ministry, with the assistance of the World Bank Competitiveness Enfacement Project analyzed the rankings. We saw where we do good and where we do bad and will work to improve the indexes. For this we need cooperation between institutions. [– The modernization of Moldovan economy and the change of the economic model depend mainly on the attracted investments, the rise in exports and the enhancement of the national products’ competitiveness. What should Moldova do next to become an attractive destination for local capital and for foreign one especially?] – Moldova must do what is written in the policy documents. The modification of the economic development paradigm means creating a better business environment that would attract foreign and national investments, increasing the number of businesses, with emphases on the production of goods and services for export. This is the model. Thus, Moldova must make effort and increase investment attractiveness so that it is among the top 10-15 countries in the World Bank Doing Business and other international and European rankings. I repeat that all the state institutions must work to improve the business and investment environment. [– The Energy Efficiency Agency was created. The framework for the functionality of the Energy Efficiency Fund was worked out. Significant financial resources were budgeted for 2012 and 2013 for energy efficiency projects. Did the officials of the central and local public administration understand that optimizing the use of energy is the only chance for Moldova to reduce its dependence on the imports of energy resources? What about the economic entities, the population?] – In the last meetings of the Government, there were approved all the normative documents needed to run the Energy Efficiency Fund (EEF). Meanwhile, we asked the district to name energy managers, by one in every district and town. These persons were employed, with small exceptions. Training seminars are now held for them. The Energy Efficiency Agency is organizing different information seminars. We thus anticipate the launch of energy efficiency projects that will be financed from the EEF. The 100 million lei allocated to the fund this year will be transferred in 2013 as the EEF is a revolving fund, plus the 160 million lei that will be allocated next year. It is a significant sum. The Energy Efficiency Agency is now collecting projects. Initially, the deadline was November 27, but it will be extended until February. As to the mentality, the private sector is ahead of the public sector because they did not wait for money from the EEF, but applied for energy efficiency programs financed by the EBRD and other donors. Within the €14million Energy and Biomass Project, we equipped a part of the public institutions with biomass-heating systems. The private sector received the signal and bought boilers from their own money, intuiting that the demand will go up. The people started to realize the importance of energy efficiency projects. The EBRD financed a number of energy efficiency projects that can ultimately lead to reductions of 20-30% or even 40% in the energy bills. The objective is to increase production of energy from alternative sources to 20% of consumption by 2020. We hope to obtain another 20% from the implementation of energy efficiency projects. [– What is the economic event of 2012 and what events of the kind expect us in 2013?] – Regretfully, the economic event of 2012 is the devastating drought. But it is important for the lessons that we must learn. The Government, the Ministry of Agriculture and Food Industry and the Academy of Sciences have ideas, but we must cooperate. The international financial organizations will help us. Climate change is a global problem. If we speak about positive events, I would mention the launch of power production from alternative sources. I mean biomass. It can be considered an economic event. [Maria Trifan, pentru Info-Prim Neo]