The Economy - Independence and Privatization

The Economy - Independence and Privatization

Once independence was achieved, Moldova's government undertook measures to begin privatization, which included passing a law mandating privatization and establishing the State Department for Privatization to direct the process. The overall reform policy was guided by "The Draft Economic Reform Program of the Government of Moldova," a 1991 document calling for establishment of a market economy but permitting significant provisions for government intervention.

In late 1992, the government presented Parliament with a more market-oriented policy in its "Program of Activity of the Government of Moldova for 1992-1995." Its goal was to form a new social pact as a basis for a new society and economy for Moldova. The two-part program would first aim at stabilizing the country and then provide for the economy's recovery and growth by such means as agrarian and trade reform, social protection, and a legal framework for a market economy. The direction of the new government was elaborated in the "Program of Activity of the Government of the Republic of Moldova for 1994 to 1997," which was adopted by Parliament and which focuses on restructuring the economy, reorganizing enterprises, privatizing small and mediumsized enterprises, promoting entrepreneurship, decreasing the budget deficit, implementing an efficient fiscal policy, and formulating new mechanisms to create a market economy. Another bill, the "Program for Privatization for 1995-1996," was approved by Parliament in March 1995. It focuses on foreign investment, privatization of agricultural land, the introduction of cash auctions, mass privatization, and the development of capital markets. Over 1,450 state enterprises are to be auctioned off.

During 1992 enterprise privatization committees inventoried assets at each enterprise in the republic; the aggregate result of this inventory became the basis of calculations of Moldova's total industrial wealth. Each citizen was to be provided with vouchers (or Patrimonial Bonds) in 1993, endowing him or her with a share of this total wealth based on years of employment in the economy. Citizens would receive one voucher point per year of work in the republic. Enterprise employees were to be allowed to purchase up to 30 percent of the value of their enterprises at nominal value. By special arrangement, 40 percent of the value of enterprises in the food-processing sector was to be allocated to suppliers. The program was to be completed by the summer of 1995. As of the beginning of 1995, Moldova had 4,400 state and 57,000 private enterprises.

Employees of collective and state farms were also to be provided with vouchers based on the length of their employment in the agricultural sector. In January 1992, Moldova expanded the amount of free land that eligible families would receive from state farms to 0.5 hectare per family, with an additional 0.1 hectare to be added for fourth and subsequent family members up to a maximum of one hectare per family, on the condition that it not be resold before 2001 (although it could be bequeathed).

Collective and state farms were to be converted into jointstock companies first, and the land and property were to be allocated later. In 1993 Moldova had 481 small private farms; by 1995 this number had increased to 13,958. In 1995 1.5 percent of agricultural land in Moldova was held by these small farmers. The reasons for slow privatization of the agricultural sector include slow privatization of large organizations, the use of outmoded production methods and equipment, poor accounting practices, and a shortage of processing facilities.

At the same time that privatization plans were under way, actual reform efforts were halting and relatively ineffectual, and Moldova's economy declined. A number of factors contributed to the decline, including the complicated political situation in the republic (which had seen several changes of leadership in its first years of existence) and the political and military conflict with Transnistria. Substantial industrial capacity is located in Transnistria, and the disruption of traditional economic ties with enterprises there has had a negative effect on the economy of right-bank Moldova.

Further, because Moldova's economy was firmly embedded in the broader economic structures of the former Soviet Union, it also suffered damage from the breakdown in interrepublic trade, abrupt increases in external prices, and inflation resulting from the Russian government's policy of printing large amounts of money. (Moldova retained the Russian ruble as its currency until November 1993.) The consequence of all these factors has been a substantial economic downturn in both industry and agriculture, accompanied by increased unemployment and a decline in labor productivity. In 1991 Moldova's national income was only at 1985 levels. Moldova's industrial output in early 1995 was half of the output of 1990. Moldova's gross domestic product (GDP) declined by 30 percent in 1994 (by 5 percent in 1993 and by 28 percent in 1992), and its industrial output declined by 34 percent (by 12 percent in 1993 and by 27 percent in 1992).

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