2008 saw stability in results and stagnation in structural reforms. Economic analysis by Info-Prim Neo

In figures, 2008 for the Moldovan economy is a year of an unanticipated growth of 7.6% after nine months, but with uncertain prospects, of a rate of inflation of 7.5% after 11 months - the first single-digit inflation rate after 2003, of a large foreign direct investment inflow. But, not taking into account the statistics, it is a year of stagnation of the structural reforms. The world crisis caused yet an uncertain yearend and is expected to hit the Moldovan economy from next year. The authorities also admit that the effects started to be felt. These are only several of the events that marked the economy of Moldova in 2008. Not only the oil market, which set a record high in midsummer and shrank rapidly in the second half of the year, experienced a drama in two acts, but also the economy in general. At end-May, the inflation was 16.9%, the highest rate in the past few years. In November, it fell to the lowest level after 2003, of 7.5%. The industry, which started to recover in the first half of the year after two years of decline, in November saw the most severe decline in the past few years, of 5.1%. The steps taken by the National Bank with the aim of curbing inflation had a major effect on the economy. In a move to temper the inflationist expectations, the central bank raised the norm of mandatory reserves attracted in Moldovan lei and freely convertible currency from 16% to 22%, which is the highest rise. Consequently, hundreds of millions of lei have been “immobilized”. In order to maintain the liquidity, the banks became more generous, raising the interest rates on deposits to maximum levels of 24-25%. On the other hand, the banks became more exigent when releasing loans. In addition, many clients have been announced that the rates will be reviewed. The central bank’s data in October showed that the volume of loans granted in economy fell by 642.6 million lei. A new decrease happened in November, when the volume of loans dropped by 26.2%. The National Bank achieved its goal. The yearly rate of inflation fell over two times, but lending was affected. As a result, consumption and the development prospects have been also affected. Therefore, in November the central bank decreased the norm of mandatory reserves two times. Accordingly, the National Bank restored liquidity of over 800 million lei belonging to the banking system. The immunity of the Moldovan economy, especially of the financial-banking sector, to the world crisis was probably the most impressive ‘event’ of the year. This invulnerability was also noted by experts of such financial institutions as the International Monetary Fund and the World Bank. But, the effects of the crisis started to be felt in the last quarter, mainly in the construction sector and light industry. Apartment prices in August and September fell by 4.5%, while in October stagnated. The Ministry of Construction and Territorial Development does not exclude that the prices of real estate could decrease by up to 20% during the next months. On the other hand, even if Moldova was ranked third in Southeastern Europe by textile exports, alongside Macedonia and Bosnia and Herzegovina, in an IMF report, production of textiles fell by 6.7% over nine months. In 2007, it rose by 13.7%. The last months’ decrease in industrial production and the fall in remittances during the last three months are among the other effects of the crisis. These are just the first signs though nobody tries to make forecasts for more than 3-4 months. It becomes clear that Moldova would not be bypassed by the crisis. The Government did not make public an anti-crisis program, though it spoke about the elements of a possible anti-crisis plan aimed first of all at supporting the producers and at launching infrastructure-related projects. The Ministry of Economy and Trade put the 7.6% economic growth for nine months among the greatest accomplishments of the year. Economists and the Government had forecast a growth of 6.5-7%. The growth stemmed from the 23.8% rise in the gross value added in agriculture. The gross formation of fixed capital saw a growth of 9.3%. But it seems that under the influence of the world crisis, the economy entered a zone of uncertainty in the fourth quarter so that the growth will slow down. Another accomplishment of the Moldovan economy is the fact that exports to the EU market in 2008 rose at a higher rate than to other markets, making up over 52% of the total exports. During the past four-five years, exports to the EU have increased, but the rise became more prominent after the Autonomous Trade Preference on the export to the EU market took effect on March 1, 2008. The producers used the export quotas on wine and sugar offered by the EU, but did not use the quotas on animal products because Moldova was not included in the list of third countries for trade in meat, meat products, eggs and other products. 2008 saw the launch of third generation mobile phone services, the Moldovan wines returned to the Russian market, while the leu was one of the most stable currencies in the region. The Moldovan leu was recognized as the second currency in the world, after the Czech crown, by its appreciation against the US dollar and euro. During the first 11 months of 2008, the leu has gained 9.1% against the dollar and 24.4% against the European common currency. But the latest developments showed that the exchange rate is venerable when it depends on only one currency, the US dollar. These significant fluctuations in the exchange rate cannot be tempered by the National Bank because it cannot influence the relation between the two currencies. As a result, the currency risk is high. The reform of the system that regulates entrepreneurship was another accomplishment of 2008. About 100 legislative and normative documents have been amended. But their implementation and the examination of the draft Code on Customs Procedure and the draft Code on Fiscal Procedure, which form part of the package of laws, is belated. Though Moldova has good laws, they are poorly implemented so that they produce effects with delay. 2008 was the year of development and stability for the national economy. This fact is confirmed by the statistical data. But this year is also contradictory as, after entering a zone of uncertainty, the questions that appear cannot be answered.