Moldova is one of the best-performing countries among over a dozen of the EU’s neighbours that participate in the European Neighbourhood Policy (ENP) ⁽¹⁾ This young state (independent from the USSR since 1991) between Ukraine and Romania has recently been praised by the European Commission for its “strong political will to advance further” in cooperation with the Union (see Europolitics3503). In order to reward Chisinau for its good performance in 2007, the EU decided to “start, on the basis of sustained progress, a reflection on the targeted deepening of relations” with Moldova. In practice, it means that if Moldova continues with its reforms, the EU is due to open soon negotiations with Chisinau on a new enhanced agreement “going beyond the current [decade-old] Partnership and Cooperation Agreement,” which is due to expire this year. The new accord is expected to further strengthen political and economic cooperation between the EU and Moldova. It is, however, unlikely to endorse Moldova’s European aspirations. Although EU accession has been Chisinau ‘s “firm intention” since 2002, the EU insists Moldova should concentrate on essential reforms and work within the ENP instead of focusing on membership. The EU’s cautious approach is partly due to Moldova’s Communist Party-led government’s poor track record in actual implementation of reforms adopted by the parliament in Chisinau.

STUDIOUS PUPIL

According to the Commission’s latest report, in 2007 Moldova made “good progress in most areas” covered by the action plan [an agreement between Moldova and the EU through which the ENP is implemented]. Chisinau was praised, in particular, for “substantial” progress in improving the intuitional framework and procedures on control and certification of origin, which allowed the EU to grant Moldova additional autonomous trade preferences (duty and quota-free access to EU markets for almost all products originating from Moldova, see Europolitics3414). The country also adopted numerous reforms in the field of justice, freedom and security, which resulted, inter alia, in signing agreements on visa facilitation and readmission with the EU (both entered into force on 1 January 2008). The EU was satisfied with Moldova’s “positive cooperation” with the EU Border Assistance Mission (see separate article) and on issues related to Transnistria settlement efforts (see separate article). The report noted also Moldova’s “robust” economic growth (8%) in the first half of 2007, which was, however, undermined by negative effects of external shocks, including the severe draught (as a whole, the growth rate is likely to be around 3% in 2007).

IMPLEMENTATION A KEY

The impressive stock of reforms adopted by Moldova in 2007 does not mean much without ‘due and effective’ implementation. The Commission therefore asked Chisinau to step up efforts to put into practice all commitments undertaken through the adoption of certain legislation in the course of 2007. Such an increased determination is necessary, according to the Commission, in the area of judicial reform and the fight against corruption (Moldova ranks 111th among 179 countries on Transparency International’s Corruption Perception Index 2007). Further efforts are also needed to ensure media freedom and improve the business and investment climate, the Commission’s report said. Due to the heavy and sometimes arbitrary administrative requirements and controls imposed on investors, “there are still barriers to establishment in Moldova” (foreign direct investment barely reached US$200 million last year, compared with US$6.4 billion in Romania, according to the Heritage Foundation’s latest Index of Economic Freedom). Foreign direct investments are also discouraged by the fact that no comprehensive law covering all legal forms of business activities exists in the country. Another disincentive to inward investment is the limitation to acquisition of land property, heavy bureaucracy and rigid labour laws (it remains nearly impossible to fire someone in Moldova).

DEPENDENCE ON EU SUPPORT

Despite recent progress from its small economic base, Moldova is still one of the poorest countries in Europe. Around one third of Moldovan citizens live below the poverty line (26%, 2006). The average monthly salary is 2,200 lei (US$220, €143). The economy depends heavily on agriculture, featuring fruits, vegetables, wine and tobacco. Although growing, the services sector is still small. Moldova has no major mineral deposits and must import almost all of its energy supplies, mainly from Russia. It makes it vulnerable to Kremlin’s politically-driven decisions such as the 2006 ban on Moldovan wine exports (wine exports accounted for around 25% of GDP, with 80% going to Russia). Moreover, the country’s economy remains dependent on the external environment and in particular on external financing, inter alia, from the EU and from Moldovan emigrants (according to the World Bank’s Migration and Remittances Factbook for 2008, 36.2% of Moldova’s GDP in 2007 came from money sent home by emigrants). Overall, the EU earmarked €209.7 million for Moldova for 2007-2010. Most of the EU financing is spent on support for democratic development and good governance, regulatory reform, administrative capacity-building, poverty reduction and economic growth. The EU also pays special financial and political attention to the frozen conflict in Transnistria, which harms Moldova’s modernisation efforts. The break and subsequent war with Transdniestria in the early 1990s has been painful, as the region accounted for 45% of Moldova’s industrial base.

⁽¹⁾ The ENP applies to the EU’s immediate neighbours by land or sea – Algeria, Armenia, Azerbaijan, Belarus, Egypt, Georgia, Israel, Jordan, Lebanon, Libya, Moldova, Morocco, the Palestinian Territories, Syria, Tunisia and Ukraine.