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COUNTRY REPORT

Belarus

Moldova

1st quarter 1999

The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

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ISSN 1356-4137

Contents

3 Summary

Belarus5 Political structure6 Economic structure7 Outlook for 1999-2000

10 Review10 The political scene12 Economic policy14 The economy17 Foreign trade and payments18 Business news

Moldova19 Political structure20 Economic structure21 Outlook for 1999-200024 Review24 The political scene27 Economic policy30 The economy32 Foreign trade and payments34 Business news

36 Quarterly indicators and trade data

List of tables9 Belarus: forecast summary

15 Belarus: gross domestic product, 199815 Belarus: consumer prices16 Belarus: monthly wages and pensions18 Belarus: current account23 Moldova: forecast summary27 Moldova: consolidated government budget31 Moldova: consumer prices32 Moldova: wage arrears by sector, Jan-Jun 199833 Moldova: current account34 Moldova: barter transactions by goods, Jan-Jun 199836 Belarus: quarterly indicators of economic activity37 Moldova: quarterly indicators of economic activity38 Belarus: OECD trade

1

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999

39 Moldova: foreign trade40 Former Soviet republics: exchange rates per $41 Former Soviet republics: GDP and GDP per head

List of figures9 Belarus: gross domestic product

15 Belarus: inflation17 Belarus: exports17 Belarus: imports23 Moldova: gross domestic product28 Moldova: exchange rate32 Moldova: exports32 Moldova: imports33 Moldova: direction of trade

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March 4th 1999 Summary

1st quarter 1999

Belarus Outlook for 1999-2000: The Belarusian president, Alyaksandar Lukashenka,will rely increasingly on his presidential administration and on ad hoc adminis-trative bodies for policy formulation and implementation. The opposition’splans to challenge the president’s legitimacy this year may provoke an intens-ified security crackdown. Closer union with Russia will continue as a top prior-ity, although the proposed union will prove largely symbolic. While Belarus willmake some effort to secure IMF funding, relations with the West will remaintense, and radical changes in economic policy will not materialise. Economicgrowth will slow to zero in 1999 with a possible modest recovery the followingyear. High official inflation will disguise even higher levels of latent inflation.

The political scene: Mr Lukashenka’s recent cabinet reshuffle does not indi-cate a change of policy, as several key administration officials remain in place.Russia and Belarus have signed a treaty laying out plans for imminent union.However, this provides few concrete details about future union structures.Opposition forces have finally shown signs of consolidation and have calledfor a symbolic presidential election in 1999, though they remain largely pow-erless in the face of continued official pressure.

Economic policy: Under IMF influence, Belarus has taken several steps to-ward liberalised foreign currency exchange, including measures towards a uni-fied exchange rate, and has indicated a willingness to curb credit expansion.However, Mr Lukashenka continues to rule out any major economic restructur-ing or any reduction in the government’s control over the economy.

The economy: Real output increased strongly last year, at the cost of soaringlevels of unsold stocks, rampant inflation and currency collapse. Inventorieshave grown to unsustainable levels as Russian demand for exports has declinedsharply. Although real wages increased, their dollar value has plummeted.

Foreign trade and payments: Excessive dependence on the Russian marketresulted in a fall in export revenue in the second half of 1998. The trade deficitincreased last year compared with 1997, in particular the deficit with non-CISstates. The share of barter trade remains high.

Business news: Belarusian authorities have frozen a bank account of an ac-counting firm, Deloitte & Touche, which had been auditing the central bank atthe time. Ford Motor Company will restart work at its assembly plant in Be-larus, having ceased production at the height of Russia’s financial turbulence inAugust.

Moldova Outlook for 1999-2000: Parliament is likely to confirm a centre-rightcabinet to avoid a return to the polls that could bring the Communist Partyinto power. Assuming no new election, Moldova will continue to increase thepace of reforms provided that the new government can control parliamentaryin-fighting. The Transdniestr conflict will remain unresolved despite a newproposal on the region’s status. Real output will fall by at least 5% of GDP in

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1999 and remain flat in 2000. The leu will remain highly vulnerable to changesin the Russian rouble and to Moldova’s political crisis and precarious externalposition: not only will the trade deficit continue to rise, but Moldova faces aserious risk of failing to meet its upcoming debt service obligations in 1999.

The political scene: The prime minister, Ion Ciubuc, resigned in February,precipitating a lengthy political crisis that remains unresolved. The constit-utional court ruled that parliament’s vote on a replacement cabinet led by theoutgoing deputy prime minister, Ion Sturza, fell short of the majority required.A draft formulated by international mediators in the Transdniestr conflictwould give the region extensive autonomy, although it is likely to prove unac-ceptable to the Transdniestr leadership. The Bulgarian-dominated district ofTaraclia held a referendum on retaining its identity as a district.

Economic policy: The parliament passed an austere budget for 1999 thatopened the way for resumed multilateral lending. Foreign currency reserveshave risen slightly but remain at critical levels, while the leu has stabilised.Gazprom halved its gas supplies, which has perpetuated Moldova’s recent en-ergy crisis. Consumers, meanwhile, face rising bills. Parliament approved legis-lation on privatising Moldtelecom and the electricity sector.

The economy: Real output fell by 8.6% of GDP in 1998, with industrialproduction down by 11% and agricultural output by 7%. Inflation rose to ayear-end level of 18.2%. Moldova remains among the poorest countries in theregion and, as wage arrears have risen, so too has the number of strikes anddemonstrations.

Foreign trade and payments: The trade deficit in the first 11 months of1998 rose by 18.2% over the same period in 1997, largely as a result of thecollapse of the Russian export market. Moldova avoided default in 1998, buthas already delayed debt-servicing due in the first two months of 1999.

Business news: A French team is to build the first foreign-owned power plant.McDonald’s plans further expansion, while Sudzucker of Germany has ac-quired controlling stakes in four large sugar plants.

Editor: Stuart HenselAll queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

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Belarus

Political structure

Official name Republic of Belarus

Legal system The constitution adopted in March 1994 was amended by referendum in November1996 to increase presidential powers and establish a bicameral parliament

National legislature Bicameral parliament (National Assembly): upper house, Council of the Republic, with64 members; lower chamber, the House of Representatives, with 110 members

National elections June 23rd and July 10th 1994 (presidential); May 14th and 28th November 29th andDecember 10th 1995 (legislative); next presidential election due in 2001; the date ofthe next legislative election to be decided by the president

Head of state President, Alyaksandar Lukashenka, elected with 80% of the popular vote onJuly 10th 1994

National government The president appoints the Council of Ministers and has strong executive powers

Main political parties The registered parties are: Communist Party of Belarus (CPB) and its ally, the AgrarianParty; parties of left-wing orientation include the Party of People’s Accord and theParty of All-Belarusian Unity and Accord; parties of pro-reform orientation include theUnited Civic Party and the Belarusian Social Democratic Union (Gramada); the mainopposition party is the Popular Front of Belarus (PFB)

Council of Ministers Prime minister Sergei LingFirst deputy prime minister Vasily DolgoliovDeputy prime ministers Gennady Novitski

Valery KokorevVladimir ZametalinLeonid Kozik

Key ministers Agriculture Yuri MorozCommunications Vladimir GoncharenkoDefence Alyaksandar ChumakovEconomy Vladimir ShymevEducation Vasily StrazhevEnterprise & investment Alyaksandar SazonevFinance Nikolai Korbut Foreign affairs Ural LatypovInternal affairs Yuri SivakovLabour Ivan LyakhSocial security Olga DargelState property & privatisation Vasily Novak

Central bank chairman Piotr Prakapovich

Belarus 5


Economic structure

Latest available figures

Economic indicators 1994 1995 1996 1997 1998

GDP at market prices (BRb bn) 17,815 119,813 184,174 351,043 637,591a

GDP at exchange rate ($ m) 3,830 10,407 13,778 13,383 13,649a

GDP at purchasing power paritya ($ bn) 39.2 36.1 37.9 42.5 42.1

Real GDP growth (%) –12.6 –10.1 2.6 10.0 8.3

Consumer price inflation (av; %) 2,221 709 53 64 70

Population (mid-year; m) 10.31 10.28 10.25 10.22 10.22

Exports fob ($ m) 2,510 4,689 5,790 7,383 7,016

Imports fob ($ m) 3,066 5,466 6,939 8,718 8,509

Current-account balance ($ m) –506 –567 –516 –799 –947a

State budget balance (% of GDP) –3.6 –2.8 –2.0 –2.1 –2.0a

Reserves excl gold ($ m) 101.0 377.0 469.2 393.7 696.2

Foreign debt ($ m) 1,273 1,667 1,157 1,082a 1,151a

Exchange rate (official; av; BRb:$) 4,652 11,513 13,368 26,205 46,295a

Exchange rate (av; BRb:Rb) 2.12 2.53 2.61 4.53 4,767

March 1st 1999 BRb229,000:$1 (official)

Origin of gross domestic product 1996 % of total Components of gross domestic product 1997 % of total

Agriculture & forestry 15.9 Private consumption 59.1

Industry 35.3 Public consumption 19.3

Construction 5.5 Gross fixed capital formation 24.7

Housing & public utilities 4.0 Increase in stocks 1.0

Services 39.3 Net exports of goods & services –4.1

Total 100.0 GDP 100.0

Principal exports 1997 % of total Principal imports 1997 % of total

Machinery & equipment 31.2 Mineral products 27.5

Chemicals 11.5 Machinery & equipment 20.0

Textiles 11.3 Metals 12.5

Food & food products 8.6 Food products 12.9

Mineral products 8.2 Chemicals 10.4

Metals 9.2 Plastic & rubber 5.5

Main destinations of exports 1997 % of total Main origins of imports 1997 % of total

CIS 73.1 CIS 66.8 of which: of which: Russia 64.7 Russia 53.6 Ukraine 6.0 Ukraine 11.2Non-CIS 26.9 Non-CIS 33.2 of which: of which: Poland 3.4 Germany 8.0 Germany 3.0 Poland 2.9 Lithuania 1.9 Lithuania 2.2

a EIU estimates.

6 Belarus


Outlook for 1999-2000

The president willincrease his control over

policy formation—

The president, Alyaksandar Lukashenka, will respond to growing economicand political tension by increasing his reliance on a small entourage of advisersand a number of ad hoc administrative bodies. This will further decrease thetransparency of policy formulation and expand Mr Lukashenka’s grip over allexisting power structures, as well as his personal power with respect to thelegislature and government ministries. However, a major source of politicaltension will come in the first half of 1999, as opposition groups plan to hold asymbolic presidential election on May 16th designed to undermine the legiti-macy of the current regime (see The political scene). Supported by many WestEuropean governments, the opposition insists that a presidential election mustbe held in 1999, as specified by the constitution, which was replaced by meansof a controversial referendum held in 1996.

—and clamp down furtheron the opposition

Mr Lukashenka recognises this symbolic election as a potentially dangerouschallenge to his government. He will try to prevent the opposition from usingthe issue to consolidate its power base and emerge as a credible political forceat a time of worsening economic crisis. As he has in the past, he will muzzle hisopponents in advance of the unofficial election through such coercive meansas arresting opposition activists, impeding public rallies and disrupting oppos-ition publications through forced closures and restricted printing access.Mr Lukashenka will not respond to international and domestic calls for anofficial presidential election in 1999, and will continue insisting that his termin office ends only in 2001—as outlined in the 1996 constitution.

Foreign policy will focuson closer union with

Russia—

Mr Lukashenka’s willingness to antagonise Western countries, through suchmeans as increased suppression of opposition groups, derives from a foreignpolicy based almost entirely on eventual union with Russia. Over the forecastperiod, Mr Lukashenka will continue pressing for the establishment of a newunion state, to include not only Russia and Belarus but eventually also Ukraine,Kazakhstan and even Yugoslavia. Nonetheless, the latest union initiativesigned by Russia and Belarus on December 25th (see The political scene) willresult in little substantive progress towards greater union, given current polit-ical and economic instability in both countries and a history of inaction onprevious union agreements. Although nationalist and Communist deputies inthe Russian parliament will continue to support unification, they will lack thepolitical strength required to realise it. Furthermore, despite his general ap-proval of many of Mr Lukashenka’s policies, the Russian prime minister,Yevgeny Primakov, will remain wary of the precedent that would be set by aunion predicated on the continued notion of a sovereign Belarus. He andothers in the administration will try to limit progress on a union that couldpotentially lead many of Russia’s regions to demand similar arrangements andthereby exacerbate Russia’s centrifugal tendencies. In his opposition to fullunion-treaty implementation, Mr Primakov will receive the support of Russia’scentral bureaucracy, which will invoke real and imagined technical problemsas possible obstacles.

Belarus 7


—and expandednon-Western ties

Increasingly isolated from the West, Mr Lukashenka will continue pressing forcloser relations with other states including China, India and a range of Arabnations and Iran. Through this policy, he will hope to gain support not only forhis anti-Western and anti-NATO views, but also access to markets for the sortsof low-quality exports that Russia can no longer absorb. As a result, the EIUdoes not expect any major change in Belarusian foreign policy towards theWest, which will continue to consist of little more than regular statements ofvarying degrees of hostility. Although Belarus’s relations with Western Europehave recently improved, Mr Lukashenka’s hardline tendencies will intensifyfurther in the face of potentially vocal EU criticism in coming months, ashuman rights violations escalate with the government’s campaign to thwartthe opposition’s election efforts. This will preclude any extended thaw whichmight otherwise have resulted from perceptions in Belarus that the return ofEU ambassadors to Minsk (see The political scene) signalled increased Westerntolerance of the Lukashenka regime.

Belarus will reformsufficiently to secure

limited IMF assistance—

Despite continued anti-Western rhetoric, Belarus’s dire financial situation willforce Mr Lukashenka to continue recent efforts at wooing IMF assistance. Thegovernment will provide the minimum co-operation needed to secure the$100m emergency loan possible under the IMF’s compensatory and contin-gency financing facility (CCCF), a programme designed to assist states sufferingfrom economic shocks emanating from outside their borders. While we hadexpected Mr Lukashenka to shift his policy stance in early 1999 in order tosecure IMF support, the steps he has taken to begin liberalising foreign ex-change markets have exceeded our expectations. Combined with recent com-mitments to tighten monetary policy, including reduced credit expansion andinterest rate increases, these reforms will probably prove sufficient to secureIMF assistance during the first six months of the year and help temporarily intaming the country’s rampant inflation.

—following which theIMF’s influence will

diminish—

Over the medium term, however, the IMF’s influence over economic policyformulation will diminish, and will only increase again once Belarus’s eco-nomy deteriorates sufficiently to necessitate renewed interest in IMF support.In general, therefore, we expect policy decisions to continue reflecting theregime’s over-emphasis on growth, its aversion to reform and its unfamiliaritywith market mechanisms—especially as an injection of IMF funding will pro-vide the regime with some much-needed breathing space in the short run.

—unless it sets up alonger-term funding

arrangement

The IMF may attempt a strategy of more comprehensive and long-term engage-ment towards Belarus, if it feels that Belarus’s dire economic situation willcompel Mr Lukashenka to seek further assistance. Eager to encourage a renewalof stalled reforms, the IMF is likely to establish a dialogue with the governmentand use a longer-term credit arrangement as an incentive. However, givenMr Lukashenka’s increasing personal role in policy formulation, any signif-icant shift in the direction of market reform over the next two years appearsunlikely. We continue to believe, therefore, that any longer-term arrangementwith the IMF will falter and ultimately fail in the face of the government’sintransigence.

8 Belarus


Economic growth willslow—

We expect no growth in real output next year, as a result of low domesticdemand and continued steep recession in Russia, and an increase of only 2% ofGDP in 2000—considerably below the high levels of growth attained over thelast three years. The government has forecast a 3-4% increase in real output for1999—higher than we expected but considerably lower than levels recorded inrecent years. These official forecasts are over-optimistic, given Belarus’s de-pendence on the Russian market, which stands little chance of recovery in1999, and the unsustainability of further increases in unsold stocks.

—based on poor industrialand agricultural sector

results—

Belarusian industry will fail to maintain its recent considerable expansion, witha likely 1% decline in real industrial production in 1999, and only modest 2%growth in 2000 assuming stabilisation in Russian demand levels. Already, realindustrial output in January 1999 showed virtually no change compared withJanuary 1998, and was down by 5.9% over the preceding month. Agriculture,after last year’s dismal performance, is likely to achieve at most 1% real annualgrowth over the next two years provided that weather conditions prove mod-erately favourable. However, the agricultural sector will continue to be ham-pered by inefficient resource allocation and ill-conceived governmentintervention. Overall growth in 2000 will come from stabilisation in Russia,which should spark a recovery in demand for low-quality Belarusian goods.Given the disparity in size of the two economies, even a modest and segmentedRussian recovery would significantly boost prospects for Belarusian exports.

—while inflation willremain high

We forecast continued high levels of inflation in the first half of 1999 with apossible decrease through the rest of the year as the government responds tothe growing need to contain spiralling price increases—and as the possibledisbursement of the IMF’s emergency loan eases the need for credit expansion.In 2000 inflation will continue below current levels, but will remain high andbarely sustainable. Hyperinflation will remain an acute risk throughout theperiod, given the government’s antipathy towards reform and reliance ongrowth through credit expansion. Rather than introduce fundamental struc-tural reforms to the agricultural and industrial sectors, the government willcontinue propping up producers who suffer from decreased exports to Russiaand who are unable to sell their uncompetitive products elsewhere.

Belarus: forecast summary(% change year on year unless otherwise indicated)

1997a 1998b 1999c 2000c

Real GDP 10.0 8.3a 0.0 2.0

Industrial production 17.6 11.0 –1.0 2.0

Agricultural production 6.9 –0.4 1.0 1.0

Consumer prices Annual average 64 70a 270 60 Year-end 63 182a 120 90

Exports fob ($ m) 7,383 7,016 6,100 6,400

Imports fob ($ m) 8,718 8,509 7,150 7,400

Current-account balance (% of GDP) –6.0 –6.9 –8.3 –8.5

a Actual. b EIU estimates. c EIU forecasts.

0

2

4

6

8

10

12

1996 97 98(b) 99(c) 2000(c)

BelarusEastern Europe (a)

Belarus: gross domestic product % change, year on year

(a) Excluding former Soviet Union. (b) EIU estimates.(c) EIU forecasts.Sources: EIU; Belarus Economic Trends.

nilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnil

Belarus 9


Review

The political scene

The recent cabinetreshuffle does not signify

a major policy change

Through a cabinet reshuffle initiated last December, the Belarusian president,Alyaksandar Lukashenka, replaced several key figures in his administrationincluding the foreign minister, the minister of foreign economic relations, theminister of agriculture and the minister of statistics. Subsequently,Mr Lukashenka merged the ministry of foreign economic relations and theministry for CIS affairs into the foreign ministry, under the control of UralLatypov, a former KGB colonel. These moves do not signal any significantchange to the regime’s anti-reform and pro-Russian policies, even though thegovernment appears to have accepted certain concessions to IMF condi-tionality in recent months (see Economic policy). Instead, the underlying poli-cies of the regime remain in place and appear unlikely to change, especially askey old-guard officials have remained in place. These include the chairman ofthe National Bank, Piotr Prakapovich, whose embrace of easy credits helpedprecipitate the collapse of the currency last year; the minister of state propertyand privatisation, Vasily Novak, who has presided over slow privatisation; andthe minister of the economy, Vladimir Shymev, whose policies have helpedspark galloping inflation and Soviet-style shortages.

Mr Lukashenka promotesunification with Russia—

Mr Lukashenka continues to promote the creation of a Russo-Belarusian unionas a counterweight to the “aggressive transatlantic monopolism” of the US andWestern Europe. On December 25th he joined his Russian counterpart, BorisYeltsin, in signing a declaration outlining future unification. This declarationconfirms the solidarity of the two countries and calls for the creation of jointRusso-Belarusian administrative bodies with a wide range of powers in socio-economic affairs, foreign policy, defence and security. However, the documentremains vague about the powers each country would retain under a union stateand fails to define the prerogatives to be delegated to the joint administrativebodies—or even to provide a general description of their structure and size.

—which will prove largelysymbolic

Furthermore, top Russian and Belarusian officials have continued to stress theconsiderable difficulties involved with implementing the union. Russianauthorities, for instance, point at numerous unresolved technical problems,while the Belarusian central bank chairman has stated that a single union-statecurrency would take from five to seven years to achieve. Therefore, the declar-ation remains of symbolic rather than substantive importance, with immediatepractical steps towards union unlikely to materialise, even if the two countriesput the question of unification to a referendum later this year.

The opposition begins toconsolidate—

Mr Lukashenka’s pro-Russian policies have sparked fierce criticism from oppos-ition parties, which have finally shown signs of improved co-ordination andconsolidation following years of division. In January they convened a congressof Belarus’s democratic forces, drawing 800 participants representing all of themajor opposition parties: the United Civic Party, the Belarusian Popular Front,the Belarusian Social Democratic Party, and the Belarusian Social Democratic

10 Belarus


Union (Gramada). During the meeting, Syamyon Sharetski, the chairman ofthe 13th Supreme Soviet (the elected legislative body which Mr Lukashenkadisbanded in 1996 and replaced with the current bicameral legislature) calledon a united front to overthrow the Lukashenka regime and establish a moredemocratic political system. Although the opposition followed up on this con-gress by agreeing on February 19th to regulations establishing a co-ordinatingcouncil for their activities, increased government suppression and divisionswithin the opposition ranks will limit any significant improvements in co-operation.

—and calls for apresidential election in

1999—

The main catalyst for greater consolidation comes from the opposition’s plansto organise a presidential election on May 16th, in accordance with the time-table that was laid out in the 1994 constitution and in direct defiance ofMr Lukashenka’s claim that, according to the 1996 constitution, an election isonly due in 2001. Given the opposition’s lack of resources and the govern-ment’s determination to disrupt their efforts, the election will remain largelysymbolic, with election organisers hoping mainly to erode the legitimacy ofthe Lukashenka regime and increase domestic and international pressure forpolitical reform. Belarusian authorities recognise the potential impact of theelection issue, and are keen to depict the opposition’s plans as an attempt toseize power by unconstitutional and violent means. In this way the govern-ment hopes to influence public opinion for further rounds of anti-oppositionrepression. Belarusian authorities have already arrested and jailed several local-and national-level opposition leaders in recent weeks including members ofthe opposition’s newly formed central election commission.

—despite thegovernment’s efforts to

limit participation

As part of these latest anti-opposition efforts, the parliament’s lower houseapproved Mr Lukashenka’s proposal to prohibit individuals with criminal re-cords from standing for public office. The provision applies not only to felo-nies, but also to administrative penalties including participation inunauthorised demonstrations. These measures effectively preclude the oppos-ition from participation in the political process, especially in the local electiondue in March 1999, and form part of a continuing strategy to criminalisepolitical opponents. A presidential decree on January 26th furthers this strat-egy, by forcing all parties, public associations and trade unions to re-register byJuly 1st. This has sparked considerable protest among opposition parties whichsee it as an unconstitutional attempt to limit freedom of association and in-timidate party activists. The opposition congress has since announced a boy-cott of the local election unless the regime meets a number of conditionsincluding releasing political prisoners, lifting restrictions on candidates andreforming the electoral law—none of which appears likely.

EU ambassadors return toMinsk

The government’s intensified anti-opposition measures will prevent any moresignificant improvement in relations with Western Europe. This comes in spite ofan end to the EU’s visa ban for Belarusian officials, and the return of EU ambassa-dors to Minsk after a half-year absence sparked by a diplomatic housing dispute inJune 1998 (3rd quarter 1998, pages 9-10). According to the agreement reachedbetween the EU and Belarus in December, the ambassadors will voluntarily leavetheir residences once the government has provided alternative accommodation

Belarus 11


and paid for relocation. Relations with the EU will not improve, and Belarus’sstance toward the US shows no sign of softening. Belarus’s stand-off with theUS over the embassy row continues, while the regime has maintained its viru-lent anti-NATO rhetoric and shows little concern for the effect that its con-tinued human rights abuses might have on US policy towards the country.

Economic policy

Shortages and sporadicpanic-buying continue

In order to contain the distortionary and inflationary effects of his regime’spolicies, President Lukashenka continues to issue resolutions and directiveswhich, for example, restrict private export of foodstuffs and protect the con-sumer market. These have resulted in increasingly pervasive rationing, whichhas taken on considerable local variation. In Vitebsk, one of five Belarusianregional centres, basic foodstuffs such as sugar and butter are now distributedaccording to lists of residents provided by housing management authorities. InGomel, another regional centre, goods are not only rationed but also onlyappear in stores in the late afternoon to prevent hoarding by those citizens ableto shop early. Measures such as these add to existing uncertainty in the con-sumer market and, as they fail to alleviate shortages, only increase consumeranxiety and ultimately provoke further panic-buying.

While the regime retainsan optimistic outlook in

public—

Despite rampant inflation and a collapsing currency, Mr Lukashenka has re-sisted major changes to his regime’s economic policy. The administration’spublic statements emphasise that Belarusian economic difficulties stem solelyfrom the turbulence in Russia, thereby ignoring the role played by the pres-ident’s focus on increasing exports to the Russian market and excessive admin-istrative controls. In public, Mr Lukashenka still confidently predicts “seriousstabilisation” in Belarus by mid-1999. However, the stabilisation sought byMr Lukashenka largely ignores monetary and financial stability, as he continuesto focus on agricultural and industrial policies that only aggravate inflationarypressures and currency collapse. The impetus behind these policies reflects notonly an ideological mistrust of the market, but also a careful political calcula-tion: the collectivised agricultural sector receives Mr Lukashenka’s full support,despite its inefficiency and dismal record, because it forms the cornerstone of hispolitical system in rural areas. Similarly, the regime continues to respond todemands for wage hikes in large and obsolete industrial plants, for fear ofprovoking heightened labour unrest and opposition to the regime.

—recent shifts suggestconsiderable underlying

concern—

Nonetheless, the extent to which the government has complied with the IMF’sconditions on foreign exchange liberalisation in order to gain IMF financialsupport, suggests considerable official concern that the government’s mainlegitimating claim of booming economic growth may soon be undermined bythe continued downward spiral of the country’s currency. The government’sconcern, and hence its interest in IMF assistance, appears to have intensifiedgreatly since the Russian rouble collapse in August rapidly accelerated Belarus’sunabated currency fall. This untenable situation has forced the regime to beginintroducing a degree of foreign-exchange liberalisation (see box) in order tosecure much-needed IMF assistance in the form of a $100m emergency loanpossible under the IMF’s compensatory contingency financing facility (CCFF),

12 Belarus


a programme designed to assist states suffering from external economic shocks.Mr Lukashenka’s acceptance of greater foreign exchange liberalisation repre-sents a major development for Belarus, given that legal foreign currency oper-ations by non-government entities proved almost impossible even as late asSeptember 1998.

—and results inconcessions to IMF

conditionality

The most recent concession to the IMF came on March 1st when Belarusianauthorities complied with one of the IMF’s key conditions for a CCCF loan bytaking the first steps towards eliminating the country’s multiple exchange ratesystem and introducing a unified rate. Although the regime’s long-term com-mitment to liberalisation still appears doubtful, its move towards a unified rateindicates its fear that the current problems may be spinning out of control.

While Mr Lukashenka is unlikely to think that exchange rate liberalisation willhelp, he does appear to hope that an infusion of IMF assistance will helpstabilise the currency and allow him to avoid further economic collapse. It istoo early to analyse the effect of Belarus’s recent move towards reducing thenumber of official rates in use or to gauge how the IMF, which has not yetcommitted itself to releasing any funds, will react to this latest initiative. Atbest, further moves towards a unified rate could bring the official rate suffi-ciently close to the black market rate to stabilise the latter and eventually helpalleviate both the rise in inflation and in consumer goods shortages. Alterna-tively, however, further moves towards a unified rate may still fail to close thewidening gap between the official and black market rates, thus achieving littleand necessitating further adjustment later in the year.

Recent steps towards foreign exchange liberalisation

November 15th 1998: The National Bank of Belarus (NBB)hoped at first that it could limit liberalisation to anannouncement that foreign currency transactions betweenbanks and individuals were now permitted at rates up to50% higher than the official rate, as long as 95% of theforeign currency involved was sold to the NBB at the officialrate. However, this measure failed to attract significantamounts of foreign currency, as both the 95% mandatorysale requirement and considerably higher black market ratesdiscouraged banks from expanding retail currencyoperations.

December 3rd 1998: The NBB introduces furtherliberalisation by allowing exchange booths to buy and sellforeign currency at market rates and obliging them to sellonly 30% of proceeds to the NBB. This still left banks at adisadvantage vis-à-vis black market traders, which were notconstrained by the 30% surrender requirement and couldrespond more adequately to fluctuations in supply anddemand.

December 9th 1998: The NBB introduced an additionalexchange rate, alongside the official rate, that corresponded

more closely to the market rate. The main trading session ofthe Interbank Currency Exchange began using the new ratefor accounting purposes while still conducting transactionsaccording to the official rate. Since the new rate was still nota market rate, it only added to the existing confusionwithout achieving meaningful liberalisation.

December 16th 1998: Complicating the exchange regimefurther, the Interbank Currency Exchange introduced anadditional daily trading session at which buyers and sellersconducted transactions at rates closer to the above-mentioned one established by the NBB (which was almosttwice the official rate), rather than at the official rate used atthe main session. Exporters were required to sell 30% ofproceeds at the main session and 10% at the additional one.

March 1st 1999: Belarusian officials introduced a unifiedofficial exchange rate and eliminated the second currencytrading session. The unified rate of BRb229,000:$1 wassharply down from the BRb107,000:$1 reached at the end of1998 and narrowed considerably the difference between theofficial and market rates. However, the gap was still large,and all other restrictions remained in place.

Belarus 13


The IMF tries to curbcredit expansion

In addition to demanding a degree of foreign exchange liberalisation, the IMFhas also sought to pressure the government into tightening its loose creditpolicy. Here also, Belarusian authorities seem to have responded to a limiteddegree. The National Bank of Belarus (NBB) increased its refinancing rate from38% at the beginning of December to 82% at the beginning of March. In theBelarusian context, however, this will likely achieve little, as persistently highinflation and politically motivated lending will continue to result in negativereal interest rates on most credits to the agricultural and industrial sectors. In afurther concession to the IMF, the NBB professed its intention to pursue a“fairly strict monetary policy” and has announced changes to its usual policyof printing money in order to finance the spring sowing campaign. However,the greatest impediment to the government carrying through with any credit-tightening policies is that they run directly counter to Mr Lukashenka’s em-phasis on ever-higher levels of production. In the agricultural sector inparticular, Belarusian officials will continue to avoid privatisation and realstructural reform by bolstering agricultural production through easy credit tothe large and inefficient collective farms that continue to dominate the sector.While the extent to which Belarus will actually tighten credit remains to beseen, therefore, even limited steps will help somewhat in slowing inflationand, combined with foreign exchange liberalisation, may satisfy the IMF suffi-ciently for it to disburse its CCCF loan.

The parliament andMr Lukashenka agree on a

1999 budget

On March 1st Mr Lukashenka signed into law a 1999 budget stipulating adeficit of 1.8% of GDP. However, given the state of Belarus’s economy, espe-cially the potential for galloping inflation, many of the underlying macro-economic assumptions used in the 1999 budget may prove to beunrealistic—including an average exchange rate figure for 1999 barely abovethe current official level and predictions of 4-5% annual growth in real output.In a potentially important policy shift, the government announced plans tofinance its 1999 budget deficit through an increase in Treasury-bill sales fromBRb12,600bn in the 1998 budget to BRb50,300bn in the current year. Presum-ably, Belarus hopes that international financial institutions will consider thispreferable to the direct monetary emissions previously used to cover budgetdeficits—although it will prove difficult to find buyers for the government’sdebt except through mandatory purchases by commercial banks.

The economy

Belarus posts impressiveannual growth in 1998—

According to official statements, real output in Belarus grew by 8.3% of GDP in1998 as a result of easy credit policies for industry and the expansion of outputdestined for the Russian market. However, this increase hides a significantslowdown from the 12% annualised growth recorded in the first seven monthsof the year before the onset of the Russian problems in August. This slowdownhas continued in 1999, with real output growth in January declining by 0.8%of GDP on a year-on-year basis. Real industrial output increased by 11% in1998, and agricultural production decreased by 0.4%, largely as a result of a25% fall in grain production brought on by region-wide poor weather condi-tions. Real investment increased by 16% last year.

14 Belarus


Belarus: gross domestic product, 1998

Jan-Jul Jan-Aug Jan-Sep Jan-Oct Jan-Nov Jan-Dec

Year-on-year % change 12.0 11.0 10.0 8.5 8.0 8.3Source: Official statements.

—helped bystockbuilding—

Belarus’s strong industrial growth figures belie underlying weaknesses in the realeconomy. Approximately 20% of industrial enterprises suffered losses, whilestocks of unsold goods grew steadily throughout the year, from 56% of totaloutput in January to an alarming level equal to 85% of monthly industrialoutput in January 1999. Furthermore, the industrial sector as a whole has basedits claims of a 40% annual increase in profits on figures unadjusted for inflation.

—and at the cost of realdepreciation—

Although the government has again satisfied its requirements for high growth,low unemployment and steadily rising nominal wages, this has come at thecost of significant failure in meeting exchange rate and inflation targets. TheBelarusian currency plummeted over the course of last year, falling from a levelof Brb31,000:$1 at the start of the year to Brb106,000:$1 by the end. Most ofthis collapse came in the last four months of the year: in nominal terms, theBelarusian rubel devalued by 136% between the end of August and the end ofthe year, compared with a nominal depreciation of 45% over the first eightmonths of 1998. This decline has accelerated even further in the first twomonths of 1999, with the March 1st rate of BRb229,000:$1 representing anominal devaluation of 114% compared with the 1998 year-end rate.

Belarus: consumer prices(% change)

Month on month Year on yeara

1998Jan 3.9 49.9 Feb 3.1 44.9 Mar 3.3 46.4 Apr 3.8 45.7 May 3.4 43.4 Jun 2.7 41.0 Jul 2.8 42.9 Aug 3.8 46.9 Sep 17.6 64.5 Oct 21.0 92.9 Nov 25.0 136.8 Dec 21.7 181.7

1999Jan 16.6 216.2

a EIU estimates based on monthly data.

Sources: Belarus Economic Trends; press reports.

—and high inflation Similarly, inflation in 1998 averaged higher than the government’s originalforecast of 2% average monthly inflation for the year. Once again, the problemsaccelerated in September, with inflation jumping from a month-on-month rateof 3.8% in August to 17.6% in September and then remaining at double-digitlevels through the end of the year. Year-end inflation stood at 181.7%, and hasremained high through the start of 1999, with month-on-month inflation in

0

5

10

15

20

25

30

Feb Mar Apr May Jun Jul Aug Sep Oct NovDec Jan

Belarus: inflation% change, month on month

Sources: Belarus Economic Trends; news reports.

1998199819981998199819981998199819981998199819981998199819981998199819981998199819981998 99991998 991998 99991998 991998 991998 991998 991998 991998 991998 991998 991998 991998 991998 9919981998 99

Belarus 15


January recorded at 16.6%—slightly down from a level of 21.7% in December.Belarus’s inflation record for 1998 hides what are hyper-inflationary conditionsin the economy. Belarus’s official recorded inflation is accompanied by evenhigher latent inflation, as indicated by widespread and growing consumer goodsshortages, and by high levels of unrecorded inflation on the black market.Moreover, a recent reduction in the sample of consumer goods used to calculateofficial consumer price inflation now provides a source of further discrepanciesbetween real and reported inflation, which further reduces officially reportedinflation and leads to over-reporting of real GDP growth.

Official unemploymentremained low

At the end of December, official reports placed the number of unemployed at106,000, virtually unchanged over September figures. However, real numbersare likely higher as only those registered at state-run job centres count asunemployed. Also, monthly unemployment benefits equivalent to approxi-mately BRb400,000 (less than $2) means that a lack of incentive to registerresults in further under-reporting.

Belarus: monthly wages and pensions(monthly average, BRb ’000 unless otherwise indicated)

Total wageNominal Real wage Minimum arrears Nominal Real pension

wage indexa wage (BRb bn) pension indexa

1997Jan 1,526.2 76.2 130.0 479.8 597.1 88.4 Feb 1,639.6 76.8 130.0 595.2 705.9 98.0 Mar 1,732.5 79.4 130.0 596.8 712.3 96.7 Apr 1,898.7 83.4 150.0 439.7 718.4 93.5 May 2,003.4 83.8 150.0 559.9 718.4 89.1 Jun 2,187.9 87.6 150.0 660.2 857.2 101.7 Jul 2,299.3 90.8 150.0 502.8 857.2 100.3 Aug 2,361.1 92.3 150.0 598.7 980.6 113.6 Sep 2,664.1 99.2 200.0 632.3 1,002.3 110.6 Oct 2,748.3 99.1 200.0 738.4 1,002.3 107.1 Nov 2,743.5 97.2 200.0 498.3 1,204.4 126.5 Dec 3,276.0 113.5 200.0 748.6 1,204.3 123.6

1998Jan 3,024.2 100.8 250.0 797.5 1,238.2 122.3 Feb 3,390.0 109.6 250.0 803.8 1,475.3 141.4 Mar 3,698.2 115.8 250.0 722.8 1,475.3 136.8 Apr 3,669.3 110.6 250.0 948.3 1,475.3 131.8 May 3,854.9 112.4 250.0 1,081.7 1,475.3 127.5 Jun 4,176.8 118.6 250.0 1,312.9 1,475.3 124.1 Jul 4,348.2 120.1 250.0 758.7 1,721.2 120.8 Aug 4,449.0 120.1 250.0 1,068.6 1,721.2 120.8

a December 1993=100.

Source: Belarus Economic Trends.

Real wages increase, buttheir dollar value

plummets

Over the first 11 months of 1998, real wages increased by 20% in comparisonto the corresponding period in 1997, while total wage arrears as of October1998 remained at 9.2% of total wages paid that month. However, wages in1998 decreased by 68% over the beginning of the year when calculated indollars, which remain the currency of choice for most major transactions. Themost precipitous decline in dollar terms occurred in July and August when the

16 Belarus


Belarusian rubel plummeted, causing a decline in average wages in dollar termsof more than 50%. Pensions have fared even worse in dollar terms, as they haveincreased at a lower nominal rate than wages.

Foreign trade and payments

Foreign trade levels decline Belarus’s export revenue in 1998 decreased in dollar terms by 3.9% comparedwith the corresponding period in 1997, and imports decreased in revenueterms by 2.1% relative to the year before, resulting in a 5.4% rise in the tradedeficit for the year. However, these figures hide the repercussions of the Russianturbulence on Belarusian trade. The collapse of the Russian export market andthe sharp real devaluation of the Belarusian rubel beginning in August areclearly reflected in preliminary trade figures available for the last five monthsof 1998: compared with the corresponding period in 1997, export revenue overthe August-December period declined by 17.4%, while imports fell by 19.6% inrevenue terms.

Russia still remains themain trading partner

Despite its economic turmoil in the second half of the year, Russia continuedto occupy the dominant position in Belarus’s foreign trade in 1998, accountingfor 59.4% of total trade in revenue terms over the first 11 months of 1998.Ukraine remained a distant second with 7.3%. Among the non-CIS countries,Germany accounted for 6% of Belarus’s foreign trade, followed by Poland with2.9%. Nonetheless, trade figures for the first 11 months of the year also indicatea disturbing trend in Belarus’s terms of trade that threatens to cause furtherexternal imbalances in 1999. While exports to Russia through November de-clined in revenue terms by 0.5% compared with the same period in 1997,exports to non-CIS countries declined by 2.4%. Similarly, while imports toRussia grew by 1.6% in revenue terms over the same period, compared with theyear-earlier period, imports from non-CIS countries increased by 7.8% in reve-nue terms, leading to an alarming increase in the trade deficit with non-CIScountries of 30.7%.

0

200

400

600

800

1,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

1997

1998

Belarus: imports$ m

(a) 1998 figure is an EIU estimate. Sources: Belarus Economics Trends; press reports; EIU.

(a)(a)(a)(a)(a)(a)(a)(a)(a)(a)(a)(a)(a)(a)(a)(a)(a)(a)(a)(a)(a)(a) (a)(a)(a) (a)(a) (a)(a)(a) (a)(a) (a)(a) (a)(a) (a)(a) (a)(a) (a)(a) (a)(a) (a)(a) (a)(a) (a)(a) (a)(a)(a) (a)

0

100

200

300

400

500

600

700

800


1997

1998

Belarus: exports$ m



Belarus 17


The share of barter traderemains high

Barter trade constituted 34.2% of exports and 27.9% of imports in the first 11months of 1998, compared with 27.5% of exports and 30.2% of imports overthe same period in 1997. The share of barter deals in trade with Russia isreportedly as high as 56%.

Belarus: current account($ m)

1997 1998 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr

Exports 1,570.6 1,708.0 1,959.2 2,144.8 1,772.9 1,893.5 of which: barter 467.3 482.8 475.3 624.8 n/a n/a

Imports 1,968.8 2,049.0 2,181.6 2,518.6 2,257.3 2,262.4 of which: barter 638.7 600.1 582.3 720.0 n/a n/a

Trade balance –398.2 –341.0 –222.4 –373.8 –484.4 –368.9 % of GDPa –14.7 –11.3 –5.6 –10.5 –15.2 –9.9

Net services 140.2 138.4 116.3 142.9 111.8 137.0

Net income –18.8 –15.9 –15.2 –29.4 –13.0 –25.1

Net transfers 16.1 26.6 21.0 14.7 15.2 43.4

Current-account balance –260.7 –191.9 –100.3 –245.6 –370.4 –213.6 % of GDPa –9.6 –6.3 –2.5 –6.9 –11.6 –5.7

a Belarus Economic Trends estimates.

Source: National Bank of Belarus, published in Belarus Economic Trends.

Business news

Deloitte & Toucheaccounts are frozen

In December Belarusian authorities froze the accounts of the Belarusian subsid-iary of an international accounting firm, Deloitte & Touche, which opened itsMinsk office in November. At the time of the incident, Deloitte & Touche hadbeen providing auditing services to the National Bank of Belarus. The fact thattax authorities have inspected Deloitte & Touche four times since the companyfirst registered in Belarus in July shows the degree of government interferencethat exists for international companies operating in Belarus.

Ford restarts its assemblyplant

After having ceased work at its assembly plan outside Minsk in August due tothe financial problems in Russia, the primary destination of over 90% of itsBelarusian output, Ford Motor Company has announced its intention to re-sume production of mini-vans in March and automobiles later on in the year.As reported by Belapan news agency, the plant’s output in 1999 will not exceed4,000 vehicles despite a maximum capacity of 6,300 vehicles per year. Theplant is a joint venture between Ford (51%), the Belarusian government (26%)and the Lada OMC company (23%).

18 Belarus


Moldova

Political structure

Official name Republic of Moldova

Legal system Moldova adopted a new constitution on July 28th 1994. The Transdniestr region hasdeclared independence, which the central government has not recognised. The regioninhabited by the Gagauz minority was granted special legal status in December 1994

National legislature Unicameral assembly, the parliament, with 101 members, directly elected byproportional representation

National elections March 22nd 1998 (legislative) and November 17th 1996 (presidential); next electionsdue in late 2000 (presidential) and by 2002 (parliamentary)

Head of state President, Petru Lucinschi, sworn in January 15th 1997

National government Moldova has an executive presidency. The prime minister chairs the Council ofMinisters; a new coalition government was approved by parliament on March 1st 1999

Main political parties The Bloc for a Democratic and Prosperous Moldova (24 seats), the DemocraticConvention (17), the Party of Democratic Forces (11) and the Christian-DemocraticPopular Front (7) comprise the centre and centre-right in parliament. The CommunistParty of Moldova holds the largest number of seats (40)

Council of ministersa Prime minister Ion Ciubucb

Deputy prime minister & minister for the economy Ion SturzaDeputy prime minister & minister of industrial policy Valentin DolganiucDeputy prime minister & minister of social policy Oleg StratulatDeputy prime minister in charge of justice Nicolae Andronic

Key ministers Agriculture & food-processing Valeriu BulgariCulture Ghenadie CiobanuDefence Valeriu PasatEducation Anatol GrimalschiFinance Anatol ArapuForeign affairs Nicolai TabacaruHealth Eugeniu GladunIndustry & commerce Ian TanaseInternal affairs Victor CatanJustice Ion PaduraruLabour & social protection Vladimir GuritsencoSecurity Tudor Botnaru

Central bank chairman Leonid Talmaci

a Outgoing. b Announced his resignation on February 1st 1999.

Moldova 19


Economic structure

Latest available figuresa

Economic indicators 1994 1995 1996 1997 1998

GDP at current prices (Lei m) 4,737 6,480 7,658 8,655 8,519b

GDP at exchange rate ($ m) 1,109 1,441 1,663 1,872 1,576b

GDP at purchasing power parityb ($ bn) 7.3 7.3 6.9 7.1 5.9

Real GDP growth (%) –30.9 –1.9 –8.0 1.3 –8.6

Consumer price inflation (av; %) 486.4 29.9 23.5 11.8 7.7b

Population (mid-year; m) 4.35 4.35 4.33 4.31 4.30

Exports ($ m fob) 619 739 823 890 633b

Imports ($ m fob) 672 809 1,075 1,235 1,024b

Current-account balance ($ m) –82 –98 –191 –268 –312b

Consolidated budget balance (% of GDP) –5.9 –5.8 –9.8 –7.7 –3.0b

Reserves excl gold ($ m) 179.9 239.8 313.6 366.0 150.0b

Foreign debt ($ m) 504 677 834 1,067b 1,096b

Exchange rate (av; Lei:$) 4.27 4.50 4.61 4.62 5.37b

March 2nd 1999 Lei8.728:$1

Origin of gross domestic product 1997 % of total Components of gross domestic product 1997 % of total

Agriculture & forestry 32.2 Private consumption 70.5

Manufacturing 28.6 Public consumption 26.1

Construction 4.6 Gross fixed investment 19.6

Services 33.8 Increase in stocks 4.6

Total 100.0 Net exports –20.8

GDP 100.0

Principal exports 1997 % of total Principal imports 1997 % of total

Food products, beverages & tobacco 54.8 Mineral products & fuel 35.3

Vegetable products 8.6 Machines, electronic devices & equipment 12.9

Live animals & animal products 8.6 Chemicals 9.6

Textiles 6.6 Textiles 5.3

Machines, electronic devices & equipment 5.2 Metals & metal products 4.5

Main destinations of exports 1997 % of total Main origins of imports 1997 % of total

Russia 58.0 Russia 26.0

Romania 6.7 Ukraine 20.5

Ukraine 5.9 Romania 9.3

Germany 4.1 Belarus 8.2

Belarus 3.7 Germany 4.4

a Excluding Transdniestr. b EIU estimates.

20 Moldova


Outlook for 1999-2000

Moldova’s political crisiswill intensify in the near

future—

Divisions and in-fighting among Moldova’s centre and centre-right groups willcontinue to plague the political scene, having already led directly to the downfallof the government and delayed its replacement. In the immediate future, theright’s lack of unity could potentially derail efforts at forming a new cabinet underIon Sturza, the reform-minded deputy prime minister from the outgoing govern-ment. The president, Petru Lucinschi, is likely to re-nominate Mr Sturza after acontroversial March 6th vote to confirm his cabinet fell just short of the requiredmajority. In so doing, Mr Lucinschi will count on non-Communist deputies arriv-ing at agreement, given their mutual desire to avoid precipitating a new electionwhich might allow the Communists into power. Assuming Mr Sturza succeeds informing a government, we expect him to prove more reform-minded than hispredecessor and to enjoy the domestic and international support needed to bringa return to relative stability. As long as the centre-right demonstrates sufficientcohesion within parliament, we expect the present legislature to continue on areformist track and build on its significant 1998 achievements.

—and could spark a newelection or a return of

the left

However, the risk to this forecast is that insurmountable differences on thecentre and centre-right prevent a consensus candidate from emerging and forceMr Lucinschi to call a new parliamentary election. This would launch a periodof protracted political uncertainty, further delaying reforms and leading to abreak in multilateral and bilateral inflows. This would in turn render Moldovaunable to meet its external obligations and precipitate renewed currency crisisand resurgent inflation. Moreover, in any new election the Communist Party islikely to benefit both from its organisational strength and the right’s ineffective-ness to win a majority in parliament. The other, more remote risk is thatMr Sturza’s centrist party, the Bloc for a Prosperous and Democratic Moldova(BDPM), attempts to avoid a new election by forming a coalition with theCommunist Party. Even though the Communists would prove more pragmaticin government, given Moldova’s dependence on conditional multilateral assis-tance, both of these last scenarios would greatly reduce the likelihood of sub-stantial reform progress and prolong Moldova’s economic and political crisis.

Moldova’s institutionalineffectiveness will

continue as a problem

Even if the centre and centre-right parliamentary factions succeed in appoint-ing a consensus candidate such as Mr Sturza, any hope of political stability willbe endangered by the risk of persistent in-fighting within the new governmentand by the president’s on-going efforts to expand his own powers. Althoughthis environment will increase the difficulty of pushing reforms forward, theconstraints imposed by multilateral agencies and the urgency of the situationshould keep Moldova on the reform path. The new prime minister’s chances ofsuccess will increase further if he manages to establish his authority as head ofgovernment and the government’s authority as the country’s executive—whilestill maintaining a co-operative relation with the presidency.

The status of Transdniestrwill not be resolved—

The EIU remains pessimistic over the likelihood of any imminent resolution tothe status of Transdniestr, Moldova’s breakaway republic. The most recentinitiative in this protracted dispute, which would allow Transdniestr its ownconstitution and its own foreign trade policy, appears destined to fail as a result

Moldova 21


of Transdniestr’s insistence upon nothing short of independence—which theother parties to the conflict will continue to reject: the Organisation for Secu-rity and Co-operation in Europe (OSCE) will not sanction the break-up ofMoldova; Ukraine will resist becoming a military corridor between Russia andTransdniestr; and Russia will not support separatism for its own internal rea-sons, even though it would enjoy the benefit of a permanent military base in acountry far beyond its current borders.

—meaning thatTransdniestr remains

virtually independent

Transdniestr will therefore remain independent in all but name, given theleadership’s refusal to compromise and Moldova’s inability to impose a mili-tary solution. Transdniestr will continue to exercise considerable leverage overthe central government in Moldova, as it controls much of the former Sovietrepublic’s heavy industry and two of its largest electricity generators. It will alsomaintain its disproportionate influence over the continuing internationallymediated negotiations as long as the amount of weapons stockpiled in theregion remains at current levels. Ultimately, we see little prospect for anylong-term solution until democratic reforms within Transdniestr progress to astage where citizens begin pressing for improvements to its disastrous andunviable economy.

Budget revisions will leadto further austerity and

social unrest

The 1999 budget will require substantial revisions early in the year, due tounrealistic underlying macroeconomic assumptions and changes brought on byrecent administrative reforms. In particular, we anticipate that significant reve-nue shortfalls will result from an overly optimistic assumption of 1% growth inreal output in 1999. With growth more likely to continue the steep decline seenlast year, Moldova’s parliament will be forced to respond to financing con-straints and continued IMF pressure by approving further public spending cuts.This will mean more reductions in social, medical, and educational expenditure,which will result in further job losses and the continued build-up of public-sector wage arrears. In the context of high inflation, this reliance on arrearswhich erode the value of unpaid wages will lead to further demonstrations bythe country’s trade unions and benefit the Communist Party—which is likely toperform well in local elections scheduled for May 23rd.

The economic outlookremains grim

The combination of depressed consumer demand, falling export demand, energycuts and reduced government spending will result in further recession in 1999. Weforecast a 5% drop in real output in 1999, with zero growth the following yearbased on stabilisation in Russia and a gradual increase in reform and demand inMoldova. However, much rests on the output of the agricultural sector, whichdepends to a significant extent on the weather, and on the recovery of the CISmarkets which take most of Moldova’s wine and food products. The recent inflowof foreign investment into the agro-industrial sector, as seen in the sugar industry,should provide Moldova with easier access to EU markets.

A vulnerable leu willweaken further and fuel

inflation

Although the leu has stabilised in the wake of its precipitous decline in 1998, itwill remain vulnerable to any external or domestic shocks given the centralbank’s inability to intervene in support of the currency due to a lack of reserves.We expect continued slow real depreciation in 1999, as a result of economicinstability and widespread concerns over the country’s external obligations, and

22 Moldova


because of further weakening in regional currencies such as the Russian roubleand the Ukrainian hryvnya. Although we have reduced our inflation forecastfrom last quarter due to the leu’s relatively successful stabilisation so far, we stillexpect continued real depreciation to result in high levels of inflation thisyear—especially as any devaluation will quickly result in higher domestic energybills due to the government’s commitment to paying off gas debts through priceliberalisation. In 2000, we expect both lower inflation and slight real apprec-iation, as a result of improved regional stability and continued tight monetarypolicy on the part of the National Bank of Moldova (NBM, the central bank).

The trade deficit willremain high

Moldova’s trade deficit will deteriorate further in 1999, as a result of continuedweak demand in the Russian market. The resulting decline in export revenuewill exceed the drop in import demand brought on by currency devaluationand reduced domestic demand, leading to high trade deficits in both 1999 and2000. Moldova will continue to experience difficulty exporting to the EU,given problems with quality, marketing and protectionism, which will preventit from improving what have become increasingly negative terms of trade withWestern Europe.

Meeting debt servicerequirements will be

difficult

According to our estimates, Moldova faces substantial debt-service requirementstotalling approximately $285m in 1999 and $245m in 2000. Moreover, Moldovais reportedly already behind on its obligations for 1999 and will need to ensurecontinued IMF and World Bank inflows in order to avoid defaulting on upcom-ing payments. Other sources of financing will not materialise, as foreign invest-ment remains anaemic and international capital markets will remain closeduntil at least the second half of 2000. If multilateral inflows are interrupted as aresult of political instability or insufficient reform, then Moldova will face littlechoice but to default on its upcoming external obligations. Even with continuedmultilateral assistance, Moldova will struggle to meet its payments. During theforecast period, much of the impetus for continued reform, including privatis-ation and fiscal austerity, will derive from the fact that Moldova remains almostentirely dependent on conditioned IMF assistance.

Moldova: forecast summary(% change year on year unless otherwise indicated)

1997a 1998b 1999c 2000c

Real GDP 1.3 –8.6a –5.0 0.0

Industrial production –2.3 –1.0 –8.0 –2.0

Agricultural production 11.0 –7.0 –1.0 1.0

Consumer prices Annual average 11.8 7.7 40.0 14.0 Year-end 11.2 18.2 30.0 12.0

Exports ($ m) 890 633 538 582

Imports ($ m) 1,235 1,024 767 781

Current-account balance ($ m) –296 –312 –141 –113 % of GDP –15.8 –19.8 –13.1 –10.9

Exchange rate (Lei:$) Annual average 4.62 5.37 10.50 12.50 Year-end 4.66 8.34 12.00 13.00

a Actual. b EIU estimates. c EIU forecasts.

-10

-8

-6

-4

-2

0

2

4

6

1996 97 98(b) 99(c) 2000(c)

MoldovaEastern Europe (a)

Moldova: gross domestic product % change, year on year

(a) Excluding former Soviet Union. (b) EIU estimates. (c)EIU forecasts.Sources: EIU; Moldovan Economic Trends.

nilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnilnil

Moldova 23


Review

The political scene

The prime ministerhas resigned—

The resignation of Moldova’s prime minister, Ion Ciubuc, on February 1stended weeks of speculation over the premier’s inability to cope either with hisfractious cabinet or the country’s increasingly deteriorating economy. Accord-ing to Moldova’s constitution, Mr Ciubuc’s decision automatically triggeredthe resignation of the centre-right coalition government. Mr Ciubuc hadserved in his position since January 1997, having been reappointed followingthe March 1998 election by the president, Petru Lucinschi. Although fromMr Lucinschi’s point of view Mr Ciubuc proved a useful presidential loyalist,this characteristic reduced the effectiveness of the cabinet by precluding execu-tive independence in the face of a president intent on expanding his ownpowers. Ever since the parliamentary election, this had exacerbated in-fightingamong the Alliance for Democracy and Reforms (ADR) coalition government,which comprised the Democratic Convention (CDM), the Bloc for a Prosperousand Democratic Moldova (BPDM) and the Party of Democratic Forces (PDF), asboth the Democratic Convention and PDF resent the disproportionate powerwielded by the pro-presidential BPDM.

—sparking a protractedpolitical crisis—

By delaying his announcement until after the passage of the 1999 budget and theresumption of multilateral lending (see Economic policy), Mr Ciubuc hoped tocontain much of the potential fallout from these events. Although this has largelybeen the case, as suggested by the leu’s continued stability, in-fighting amongcoalition members resulted in a serious political turbulence that has delayed anyprogress on reformist measures for over a month and forced the postponement ofWorld Bank and IMF missions planned for February and March.

—due to the failednomination of Chisinau’s

mayor—

Mr Lucinschi first nominated the mayor of Chisinau, Serafim Urecheanu, asMr Ciubuc’s replacement. Although Mr Lucinschi emphasised his nominee’slack of political affiliation, party leaders resisted Mr Urecheanu’s appointmentand considered it a clear attempt by Mr Lucinschi to exert additional powers.In particular, the Party of Renewal and Harmony (PRH), a member of theDemocratic Convention (the largest party in the ADR coalition), objected tothe nomination, arguing that the ADR’s coalition agreement reserved the postfor a Democratic Convention member. However, opposition from the coali-tion’s other parties and even from within the Democratic Convention scup-pered the chances of an alternative Democratic Convention candidate. In theend, therefore, Mr Urecheanu’s efforts to form a new government foundered asa result of a lack of support among Moldova’s parliamentary groupings. Notonly did he try to discard the proportional formula agreed upon by the ADR toreflect the higher number of seats won by the Democratic Convention andBPDM, but he also drew further objections by calling for a technocratic govern-ment to steer the country through the problems.

—and resistance toMr Sturza’s nomination—

On February 19th Mr Lucinschi presented parliament with a second nominee,the 38-year-old deputy prime minister, Ion Sturza, who had served as minister

24 Moldova


of economy and reform in the outgoing government. Considering Moldova’seconomic difficulties and reliance on conditional international loans,Mr Sturza was an obvious successor as he had proved the most reformist mem-ber of the previous cabinet and enjoyed good relations with the multilateralagencies. Nonetheless, his nomination was resisted, at the outset, by the PRHwhich continued to insist upon its own candidate.

—including opposition tohis proposed cabinet

Although the PRH eventually agreed to the Sturza nomination, further splitsquickly emerged on the centre-right. Shortly before the vote on the newcabinet, the Christian Democratic Popular Front (CDPF) which had originallyproposed Mr Sturza withdrew its support in protest over a lack of CDPF cabinetposts. As in the case of the Ciubic government, Moldova’s centre-right partiesfelt the BPDM enjoyed a disproportionate power within the governing coali-tion. Having by this point withdrawn from the Democratic Convention overdifferences with the PRH’s earlier position, the CDPF party leader, Iure Rosca,joined the other eight parliamentarians from his party to vote againstMr Sturza. Although Mr Sturza was supported by 51 out of 101 deputies duringthe March 3rd vote, the Constitutional Court ruled that a majority required 52votes, and rejected Mr Sturza’s appointment.

Changes emerge in thepolitical party landscape—

This turmoil has clearly underlined the continued instability of Moldova’spolitical system, wherein parties act more as vehicles for leaders seeking min-isterial positions than as broad-based organisations furthering well-defined pol-icy platforms. A recently introduced political party law offers a step in thedirection of greater consolidation. The law requires political parties to registera minimum of 5,000 members from at least half the country’s administrativeregions, and should help achieve a degree of consolidation among some of thesmaller bodies in advance of the local elections scheduled for May 23rd. By theFebruary 12th re-registration deadline, 26 out of over 50 parties had applied tore-register, including all the parties represented in parliament.

—while Mr Lucinschistrives for greater powers

Much of the political paralysis that led to Mr Ciubuc’s resignation stemmedfrom unresolved tension involving the relative powers of the presidency,cabinet and legislature. Mr Lucinschi had long argued for stronger presidentialpowers similar to the Russian system, and considered Moldova’s present parlia-mentary system unsuitable for a transitional economy. Just after Mr Ciubuc’sresignation, therefore, Mr Lucinschi appealed to parliament to extend the pow-ers of the cabinet at the expense of parliament, by granting broad executivepowers for a period of two years, including the right to pass laws on budgetarymatters, privatisation, tax and social guarantees without seeking parliamentaryapproval. While the Communist Party of Moldova (CPM) continues to call forMr Lucinschi’s resignation, it has in fact stated that it would prefer a strongpresidency over Mr Lucinschi’s recent proposal. From the viewpoint of theCPM, the president’s plan would indirectly bolster his own policymaking pow-ers, while leaving the government to take the blame for unpopular measures.The CPM blames Moldova’s economic problems specifically on reforms initi-ated by the president, and is campaigning for Mr Lucinschi’s resignation basedon his promise, when first elected in 1997, to resign if the economy did notimprove in two years’ time.

Moldova 25


The latest draft onTransdniestr introduces

significant independence

The unresolved status of Transdniestr, Moldova’s breakaway republic, stands asa further, impediment to greater political stability within Moldova. A draftdocument formulated by the main international mediators to the conflict,Russia, Ukraine and the Organisation for Security and Co-operation in Europe(OSCE), goes further than Moldova would have liked by providing Transdniestrwith extensive autonomy, including its own constitution and power to set itsown trade policy, while notionally preserving Moldova’s territorial integrity.However, this will not satisfy Transdniestr’s leadership, headed by Igor Smir-nov, which has become comfortably entrenched in its position since the con-flict erupted in late 1991 and which continues to invoke the spectre ofabsorption by Romania.

Splits in Russia preventeffective leadership on

Transdniestr—

Despite Russia’s interest in reducing the flow of weapons from Transdniestr totrouble spots in the Russian Federation, deep divisions within the Russian polityover relations with former Soviet republics have limited Russia’s effectiveness insolving the Transdniestr problem. In particular, many Duma (parliament) mem-bers are either nostalgic for or ideologically committed to the restoration of theSoviet Union, and as a result back the idea of an “independent” Transdniestrloyal to Russia. For instance, the leader of the nationalist Liberal DemocraticParty, Vladimir Zhirinovsky, caused an uproar in Moldova at the end ofDecember, by referring to Transdniestr as a western province of Russia and prom-ising to further the cause of local independence. Although a subsequent motionrecommending an interstate treaty between Russia and the “TransdniestrMoldovan Republic” failed to win sufficient support within the Duma, the factthat it was put on the agenda indicates the extent to which Moldovan territorialintegrity remains a controversial issue among Russia’s political leaders.

—or on Moldova’s treatieswith Russia

As a result, the chances of the Russian parliament providing concrete assistanceto finding a solution to the conflict, or even to stabilising relations betweenRussia and Moldova, are not good. In particular, the Duma has failed to ratifyeither the September 1990 basic treaty between Russia and Moldova, or theadditional protocol signed in 1995. It has also not ratified the 1994 treaty onRussian troop withdrawal from Transdniestr—an issue which is further compli-cated by the significant stockpiles of arms under the guard of the remaining2,500 Russian troops in Transdniestr. From a logistical standpoint alone, thestockpiles diminish any chance of imminent reductions in Russia’s military pres-ence: until the weapons are removed, Moldova will not support the withdrawal ofRussian troops responsible for guarding them—even though the amount in ques-tion will take years to remove. Moreover, Moscow’s own economic problems raisequestions about how well the arms stores are guarded. Although Moscow has nointention of letting Transdniestr get hold of the arms, various Russian officialshave been implicated in alleged secret arms transfers from Transdniestr to insur-gents in the Caucusus and elsewhere in the region.

Tensions rise in Taraclia Outside of Transdniestr, Moldova faces additional tensions in the region ofTaraclia, where a significant Bulgarian majority has resisted the recent changesapproved to the region’s administrative status (4th quarter 1998, pages 27-28).The planned changes would merge the southern district of Taraclia, largelypopulated by ethnic Bulgarians who fled Ottoman rule 200 years ago, into the

26 Moldova


province of Cahul, where the Bulgarians would no longer constitute a majority.Although the reforms guaranteed the Bulgarian community its own deputychairman, the ethnic Bulgarians are opposed to losing their previous status. OnJanuary 24th Taraclia held a referendum on preserving its district as a separateentity, with 91.8% of the voters in favour and a turnout of almost 90%. TheMoldovan authorities, however, have declared the referendum invalid and sofar have ignored the result. Moreover, parliament has ignored the president’ssuggested amendments to the proposed reforms, which would have satisfiedthe region’s request for administrative autonomy, and instead have recon-firmed the district as part of Cahul. The Democratic Convention proved themost vocal critic of the president’s proposal, even threatening to remove thehead of the pro-presidential BPDM, Dumitru Diacov, as parliamentary speakerif the law did not go through in its original form.

Economic policy

Parliament approved anaustere budget—

On December 14th the parliament approved a 1999 budget that met the IMF’sfiscal austerity requirements and paved the way for resumed IMF lending inJanuary. However, the government plans to cover the deficit, equivalent to 2%of projected GDP, through a combination of internal and external borrowing—both of which will be in short supply. The budget calls for spending cuts in allmajor areas, including social services, health spending and education, and aimsto make significant cuts in defence spending that will require a 30% reductionin army personnel and a reduction in national service from 18 months to oneyear. As parliament accelerated passage of the budget in order for IMF lendingto resume, the document will require substantial revisions due to over optim-istic underlying macroeconomic assumptions (see Outlook for 1999-2000), in-cluding an overvalued exchange rate of Lei7:$1 and an increase in real outputof 1% of GDP. Furthermore, additional revisions will prove necessary as a resultof recent administrative changes, which have altered the financial relationshipbetween the central government and the newly formed provinces (4th quarter1998, pages 27-28).

Moldova: consolidated government budget(Lei m)

Jan-Oct 1998 19991997 1998 Original Amended Proposed

Revenue 1,934.8 1,787.7 2,950.0 2,950.0 2,800.0

Expenditure 2,533.0 1,906.5 3,265.0 –3,300.0 3,000.0

Balance –598.2 –118.8 –315.0 –350.0 –200.0Sources: Moldovan Ministry of Finance, published in Moldovan Economic Trends; press reports.

—following significantfiscal tightening in 1998

Moldova’s budget deficit reduction during the second half of 1998 provided animpressive contrast to the considerably looser spending seen in previous years.In particular, the government cut spending concertedly in order to ensure theresumption of IMF lending and in recognition of its limited financing options.By the end of October, public expenditure equalled only approximately 58% ofthe revised expenditure forecast for the year, at the cost of significant cuts in awide range of services and mounting wage and benefit arrears. This drasticreduction in spending was largely necessitated by Moldova’s poor revenue

Moldova 27


collecting abilities, with revenue inflows through October totalling only about61% of budgeted yearly revenue. Although 1999 budget’s revenue calculationsare not as inflated as in previous years, a sharper than expected decline in realoutput this year will lead to continued revenue shortfalls and further expend-iture adjustments, including additional wage and benefit arrears. Already in1999, consolidated budget revenue as of February 17th was reportedly 15%lower than in the preceding year at current prices.

The IMF resumes lending— The passage of an austere 1999 budget helped secure the resumption of IMFlending, after an 18-month interruption prompted by political paralysis andstalled economic reforms in the build-up to the 1998 parliamentary election. InJanuary 1999 the Fund released a $35m credit from a three-year $190m ex-tended fund facility (EFF) negotiated in May 1996. The IMF has now extendedthe EFF to May 2000, with Moldova eligible for up to $135m in 1999. Since theelection in March 1998, Moldova has met a number of conditions demandedby the Fund, including reorganisation of the electricity sector, administrativereform and improved progress on privatisation. However, Moldova will stillneed to demonstrate additional progress in areas such as fiscal discipline andrevenue collection, which will prove particularly difficult given the country’spoor tax-collecting record and the anticipated steep decline in real output.

—followed by the EU andthe World Bank

The IMF’s decision to resume lending has opened the way for further assistancefrom other multilateral and bilateral donors. The EU has already made $15mavailable and has committed to lend up to $35m over the course of 1999. TheWorld Bank will provide up to $60m, including $35m from a structural adjust-ment programme suspended in 1997, and a further $25m under an Inter-national Development Association (IDA) programme available to the poorestdeveloping countries. Over the forecast period, Moldova will remain almostentirely dependent on these multilateral inflows to meet its significant foreigndebt-service requirements in 1999 (see Foreign trade and payments) and tobolster foreign currency reserves that have fallen sharply as a result of last year’scurrency crisis (4th quarter 1998, page 28).

The leu has stabilised Although reserves remain at critically low levels, they have risen to approxi-mately $180m as a result of resumed IMF lending, and will rise again with the$35m expected from the World Bank. Nonetheless, continued low levels ofreserves will force the central bank to maintain its recent policy of not inter-vening in the currency market, making it unable to protect the leu againstfurther pressure. Since plunging to Lei9.7:$1 in early December, the leu hasrecovered and has succeeded in remaining relatively stable during the politicalturmoil brought on by the government’s resignation.

The leu remains vulnerable to shocks, either due to a mounting debt crisis athome or to further real depreciation in major trading partners such as Russiaand Ukraine. The NBM has not returned to the currency markets since deplet-ing much of its reserves at the beginning of November, and has continued toset the leu’s official rate based on a daily average of market rates.9

8

7

7

6

5

4

Mar Apr May Jun Jul Aug Sep Oct NovDec Jan Feb

Moldova: exchange rateLeu:$, av; inverted scale

(a) Figures from December onwards are EIUcalculations. Sources: IMF, International Financial Statistics; EIU.

1998199819981998199819981998199819981998199819981998199819981998199819981998199819981998 99991998 991998 99991998 991998 991998 991998 991998 991998 991998 991998 991998 991998 991998 9919981998 99

28 Moldova


Gazprom halves supplies— The energy supply crisis that surfaced at the end of 1998 (4th quarter, page 30)re-emerged in February with the decision by Gazprom, a Russian companysupplying most of Moldova’s gas, to cut gas supplies by 50% due to Moldova’slack of progress in paying accumulated debts of approximately $614m. Despiterecent threats to cut supplies entirely, Gazprom has never yet completelystopped gas supplies and, despite being partly a private company, remains con-strained by Moscow’s foreign policy imperatives. Most of its customers dependon Gazprom because of infrastructure inherited from the Soviet era, such thatRussia dares not risk either alienation within the Commonwealth of Inde-pendent States (CIS) or opprobrium from the international community. How-ever, Russia’s own economic difficulties have prompted renewedannouncements about stiffened policies, including an insistence that chronicdebtors such as Moldova be forced to formulate and adhere to repayment plans.

—as local consumers facehigher bills

Moldova’s outstanding energy bills have risen steadily in recent years due tothe continued subsidisation of energy supplies and the government’s inabilityto force local consumers to pay outstanding bills. In an effort finally to liberal-ise energy prices, the government has increased energy tariffs substantially asof December 15th, with electricity charges rising from Lei0.26 to Lei0.42($0.05) per kwh, and gas prices increasing from Lei370 per 1,000 cu metres toLei638 ($73). However, these rises have only offset the decreasing value of theleu relative to the dollar and do nothing to dent Moldova’s existing externalenergy debts. Furthermore, the existence of a larger cycle of domestic non-pay-ment renders customers unable to pay their bills until the government reducesthe additional backlog of unpaid wages and other benefits.

Parliament approveselectricity privatisation—

Recent privatisation in the electricity sector, which the IMF has demanded for anumber of years, presents an essential component in breaking the cycle ofdomestic non-payment. Most importantly, it will shift the obligation for ensur-ing bill payment from a government wary of upsetting political constituenciesto profit-driven enterprises. Last year the government began privatising theelectricity sector by transforming five of its distribution companies and threegenerating companies (two in Chisinau, with capacities of 54 mw and 225 mw,and one in Balti, with a capacity of 22 mw) into joint-stock companies in whichmajority stakes are now available to potential investors. This privatisation willbring much-needed investment into the sector and enable suppliers to cut wast-age and theft—while simultaneously increasing revenue for the government.

—as well as a telecomsprivatisation law

In a further privatisation breakthrough, the government has also receivedparliamentary backing to proceed with the privatisation of Moldtelecom, thestate-owned telecoms operator. On December 17th parliament approved aprivatisation plan for the company under which 51% will be sold to a strategicinvestor. The law does not specify a minimum price, limits the planned tenderto recognised telecommunications companies, and guarantees a five-yearmonopoly on local and long-distance services. In return, Moldova expects theinvestor to increase the country’s teledensity from 14 per 100 inhabitants to 25over the coming five years. Moldova’s last attempt to sell Moldtelecom failedwhen the remaining bidder, OTE of Greece, offered only $46.4m for a 40%stake, well below the government’s $120m asking price (3rd quarter 1998, page

Moldova 29


35). OTE, which recently acquired a controlling share in neighbouring Roma-nia’s RomTelecom, is likely to bid again as it attempts to establish itself as theleading international player in the Balkan telecommunications market.

The economy

Real output declinedsharply in 1998—

Moldova suffered a severe economic contraction in 1998, with real outputslumping by 8.6% of GDP compared with 1997. Although a sharp decline hadbeen widely expected in the wake of the financial crisis in Russia, Moldova’spredominant trading partner, the extent of the fall exceeded even the mostpessimistic forecasts, including the 7% contraction expected by the EIU in itslast report.

—as a result of a sharpdownturn in industrial

output—

Since January 1998 year-on-year real industrial output in 1998 had trendedalmost consistently downwards, resulting in an 11% year-on-year drop by theend of the year. Much of this decline came in the food, beverages and tobaccosector, which accounts for over for 80% of total industrial production. Withinthis sector, a shortage of critical inputs and a collapse of export markets re-sulted in a 17.8% fall in real output over the first 11 months of 1998 relative tothe same period in 1997, with output of wine, sugar, tobacco and processedfood all declining—the latter by as much as 27.8% due to the timing of Russia’sfinancial collapse in August. In January 1999 the slide in real industrial outputcontinued still further, with an 18% year-on-year decline for the month.

—and a poor performancein agriculture

Real agricultural output dropped by 7% in 1998 compared with 1997, largelydue to extreme weather conditions and a perennial lack of investment. Thesector also continues to suffer from serious soil erosion resulting from intensivecultivation, as well as purchase prices that fail to cover the cost of productionand an unhealthy dependence on impoverished Commonwealth of Inde-pendent States (CIS) markets. Over the first 11 months of 1998, fruit output fellby 79.9% compared with the corresponding period of 1997, sugarbeet by28.4% and cereals by 17.6%. Due to improved yields, vegetable productionimproved by 12.1%, despite an almost 25% reduction in the area under cultiv-ation. The sunflower seed crop was up by 3% over 1997 figures.

Inflation shot up The sharp real depreciation of the leu in November 1998 ended an otherwiseexcellent anti-inflation record dating back over four years (4th quarter 1998,pages 28 and 32). Month-on-month inflation rocketed to 8.6% in Novemberand 7.8% in December, compared with 1.4% in October, 0.2% in Septemberand three months of deflation prior to that. Year-end inflation in 1998equalled 18.2%, compared with 11.2% in 1997. The recent rise in energy tariffs(see Economic Policy) will further affect prices, particularly if additional realdevaluation prompts further energy price increases. For the time being, how-ever, the currency has stabilised, while the NBM’s continued responsiblemonetary policy and a lack of consumer demand should combine to helpcounteract the increase in inflation expected from continued real depreciationand the rise in energy tariffs.

30 Moldova


Moldova: consumer prices(% change)

Month on month Year on year

1997Jan 1.9 13.3Feb 1.4 10.9Mar 1.0 10.8Apr 0.8 10.8May 0.6 11.3Jun 2.0 13.8Jul –1.0 12.6Aug –0.8 10.1Sep 1.2 9.7Oct 0.9 10.6Nov 1.1 10.3Dec 1.5 11.2

1998Jan 1.3 10.4Feb 0.4 9.3Mar –0.1 8.1Apr 0.7 8.0May 0.2 7.6Jun –1.1 4.3Jul –1.4 3.9Aug –0.6 4.1Sep 0.2 3.1Oct 1.4 3.6Nov 8.6 11.3Dec 7.8 18.2Sources: Moldovan Economic Trends; news reports; EIU.

Falling wages andgrowing arrears spark

protests

The Moldovan population has fared poorly since independence. Averagemonthly nominal wages fell to a level of Lei247 ($45) in October, an amountthat barely covers half of the official minimal monthly consumption basketcalculated to equal Lei447. Furthermore, arrears in wages and benefits con-tinued to climb throughout 1998 as fiscal austerity took increasing precedenceover the state’s responsibilities as an employer. In December 1998 accumulatedwage arrears totalled Lei 638.2m ($77m), compared with Lei519.04m in July.These deteriorating conditions sparked a mass protest on December 4th, organ-ised by the General Federation of Trade Unions and drawing an estimated60,000 demonstrators. Moldova’s unions claim that the cost of heating theaverage apartment now equals the average wage, and demand a reversal in therecent increase in energy charges (see Economic Policy). Civil unrest promisesto increase further over the course of 1999, with additional demonstrationslikely among student groups and trade unions.

Moldova 31


Wage arrears by sector, Jan-Jun 1998(Lei m)

% increaseJan 1st 1998 % of total Jul 1st 1998 % of total over Jan 1st

Agriculture, hunting & related services 183.62 50.64 202.94 39.10 10.52

Manufacturing industry 43.00 11.86 63.48 12.23 47.6

Construction 19.25 5.31 25.85 4.98 34.29

Transport & telecommunications 19.36 5.34 26.42 5.09 36.47

Real estate 10.08 2.78 16.66 3.21 65.28

State administration, defence & social insurance 23.03 6.35 56.89 10.96 147.03

Education 30.10 8.30 60.83 11.72 102.09

Healthcare & social assistance 17.51 4.83 33.22 6.4 89.72

Total incl others 362.6 100.00 519.04 100.00 43.14Source: Department of Statistical and Sociological Analysis, published in Moldovan Economic Trends.

Foreign trade and payments

Trade turnover falls— Moldova continues to experience high trade deficits—now no longer because ofburgeoning imports but because of the disappearance of export markets. Accord-ing to preliminary figures, export revenue totalled $632.5m in 1998, a 29% fallcompared with 1997. Imports fell by 17.1% in revenue terms to equal $1.02bnfor the year. This has resulted in a 13.8% increase in the trade deficit, whichreached critically high levels equivalent to 61.9% of total exports for the year.

More detailed figures for the first 11 months of the year show that exports offood, beverages and tobacco, which traditionally comprise over 70% of totalexports, declined by 24.4%. Some sectors managed to increase exports in reve-nue terms, most notably textiles, which increased by 8.7%, and metals whichgrew by 7.4%. In the case of imports, a 20.5% fall in the purchases of mineralproducts, including fuel, reflects Moldova’s continuing problems servicing itsenergy debts.

—as a result of the Russianturbulence

Much of this sharp decline resulted from the Russian economic problems inAugust. The decline in exports beginning in August equalled 51.1%, relative tothe same period in 1997, whereas the drop over the first seven months of the

0

20

40

60

80

100

120

140


1997

1998

Moldova: imports$ m



0

20

40

60

80

100

120

140

160


1997

1998

Moldova: exports$ m

(a) 1998 figure is an EIU estimate. Sources: Moldovan Economics Trends; press reports; EIU.


32 Moldova


year had equalled only 5.7%. Imports also dropped sharply as a result of thedepreciation of the leu following Russia’s depreciation in August: in the lastfive months of the year, imports fell by 36.2% in revenue terms compared with1997, following a 5.9% rise over the first seven months of the year. In partic-ular, the decline in imports in November and December in revenue termsaveraged 43%, compared with the corresponding period in 1997.

Moldova: current account($ m)

1997 19982 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

Trade balance –72.30 –96.35 –67.92 –119.52 –101.34 –123.21 Exports 204.88 210.47 284.66 174.58 184.20 148.75 Imports –277.18 –306.82 –352.58 –294.10 285.54 –271.96

Services balance –11.37 –6.51 –26.86 –20.37 –14.90 –15.96

Income balance 6.75 7.80 5.43 8.96 12.14 25.74

Net transfers 4.44 27.11 27.96 23.22 26.47 18.88

Current-account balance –72.48 –67.95 –61.39 –107.71 –77.63 –94.55Sources: National Bank of Moldova, published in Moldovan Economic Trends; EIU calculations.

The pattern of trade ischanging

Moldova’s patterns of trade changed for the worse in 1998, as a result ofincreased import dependency on non-CIS countries and falling exports to non-CIS markets. Export revenue from non-CIS countries declined by 11.5% overthe first 11 months of the year relative to 1997, while the value of imports fromnon-CIS countries rose by 10.6%. This compares with a 25.8% decrease inimports from CIS states, in dollar terms, according to figures published inMoldovan Economic Trends. As a result of the leu’s recent devaluation, Moldovathus faces a rising and potentially inflationary imports bill, while its ability touse its lower exchange rate to boost exports remains limited as a result of itscontinued difficulty penetrating Western markets.

Debt service presents amajor burden

Moldova avoided default last year, having succeeded at the last minute inmeeting a principal repayment of $30m on a Merrill Lynch private placementby drawing down its already critically low reserves. Moldova also faces consid-erable debt-service obligations in 1999, including Eurobond payments and

0

20

40

60

80

100

1995 1996 1997 1998 xxxx 1995 1996 1997 1998

CIS countries CEE countries EU countries Other

Moldova: direction of trade (a)% of total trade

(a) January-September of year stated.Source: Moldova Economic Trends.

ImportsImportsImportsImportsImportsImportsImportsImportsImportsImportsImportsImportsImportsImportsImportsImportsImportsImportsImportsImportsImportsImportsImports ExportsExportsExportsImports ExportsImports ExportsExports100100100100

Imports ExportsImports ExportsImports ExportsImports ExportsImports ExportsImports ExportsImports ExportsImports ExportsImports ExportsImports Exports100100

80

Imports Exports100

8080

Imports Exports100

80

60

40

20

0

Moldova 33


principal repayments on Gazprom debt. According to preliminary reports, ithas already missed payments this year and will face even more difficulties ifofficial loans are delayed because of a protracted political crisis, as few othersources of financing exist. International capital markets have remained inac-cessible since investors pulled out of emerging markets last year, and willprobably only reopen for countries such as Moldova in the second half of 2000at the earliest. Much of the impetus for Moldova’s concerted push to ensure aresumption in IMF funding last year reflects the government’s concern aboutthe considerable debt servicing due in 1999. The entire $35m tranche recentlyreleased by the IMF (see Economic policy) will go towards debt servicing, as willthe $35m soon to be released by the World Bank. The government also intendsto channel some of the privatisation receipts from the sale of Moldtelecom andother enterprises towards debt repayment.

Barter transactions by goods, Jan-Jun 1998(% of total bartered transactions unless otherwise indicated)

Exports Imports 1997 1998 1997 1998

Share of barter in total trade 16.26 13.03 11.91 7.67

Food, beverages & tobacco 49.5 31.6 4.3 2.4

Live animals & animal products 4.9 2.4 1.4 1.9

Vegetable products 12.7 32.8 8.1 5.0

Machines, electronic devices & equipment 9.8 13.4 14.4 15.0

Textiles 4.7 4.5 5.6 4.9

Metals & metal products 1.8 0.9 12.3 7.5

Mineral products 1.0 1.0 14.4 13.5

Transport 3.7 6.3 4.8 10.1

Chemical products 3.1 2.9 9.5 9.0

Other 8.8 4.6 25.2 30.7

Total barter value ($ m) 63.63 46.61 66.27 44.18Source: Ministry of Economy and Reforms, published in Moldovan Economic Trends.

Business news

Germans buy into thesugar industry

A German company, Sudzucker, has acquired a 36% stake in four of Moldova’ssugar plants. The company purchased the stakes from Moldova-Agroindbank,the country’s largest private bank, for $4m. The plants produced 90,000 tonnesof sugar in 1998, or half of Moldova’s total output. Sudzucker, meanwhile, hasa 16% EU sugar quota, which will enable Moldova to access the lucrative westEuropean market.

French team to build thefirst foreign-owned power

plant

Alstom and SIIF Energies of France are to build and run a 300-mw electricitygenerating plant at Budesti near Chisinau. The French team will invest $65m-70m and seeks co-financing from the International Finance Corporation (IFC),the private-sector arm of the World Bank, as well as private commercial lend-ers. The first unit, with a 125-mw capacity, will be operational by 2000.

McDonald’s plans moreburger bars

McDonald’s plans to open four more restaurants in Chisinau as part of a$12.5m investment plan for the country. McDonald’s already has a restaurant

34 Moldova


and drive-through facility in the capital. Its expansion plans, which includeinvestments in the agricultural sector in order to source most of its food locally,will eventually create an estimated 3,500 jobs.

EBRD loan for a privatebank

The European Bank for Reconstruction and Development (EBRD) has grantedMoldova-Agroindbank, the country’s largest private bank, a $8m loan tostrengthen its balance sheet. The five-year loan is guaranteed by the govern-ment and carries the option of the EBRD converting the credit into shares inthe Moldovan bank.

Moldova 35


Quarterly indicators and trade data

Belarus: quarterly indicators of economic activity

1996 1997 1998

3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

Industrial production Monthly av

General index Jan 1994=100 90.3 92.3 94.1 97.2 97.6 100.1 104.2 107.1 105.8 n/a

Fuel “ 78.6 62.1 62.5 75.7 76.9 81.8 74.2 95.9 101.7 n/a

Crude petroleum ’000 tonnes 156.0 154.7 149.7 151.7 154.0 155.0a n/a n/a n/a n/a

Natural gas m cu metres 20.3 20.4 20.5 20.0 20.5 20.8a n/a n/a n/a n/a

Employment

Unemployed ’000 185 183 178 157 140 126 118 105 106 n/a

End-Qtr

Employed, registered ’000 4,139 4,151 4,178 4,184 4,187 4,196 4,235 4,234 4,265 n/a

Wages & prices

Nominal wagesb BRb ’000 1,289 1,593 1,733 2,188 2,664 3,276 3,698 4,177 4,664 n/a

Monthly av

Consumer prices 1993=100 8,587 9,302 1,767 13,344 14,485 15,796 17,296 19,086 21,969 n/a

change year on year % 41 36 52 64 69 70 47 43 52 n/a

Producer prices, ind 1993=100 5,547 5,990 8,131 9,867 10,632 11,380 12,509 13,607 15,923 n/a

Construction

Houses completed ’000 3.20 5.67 1.60 3.03 3.73 n/a n/a n/a n/a n/a

Retail trade

Sales Jan 1995=100 110.4 123.0 99.4 108.7 118.5 137.2 134.3 142.2 150.4 n/a

Money

M1 BRb bn 13,782 15,708 17,995 22,886 28,340 33,852 35,642 44,435 58,583 80,932

change year on year % 64.2 56.7 82.3 99.0 105.6 115.5 98.1 94.2 106.7 139.1

Foreign trade Qtrly totals

Exports $ m 1,429.8 1,483.9 1,439.4 1,774.1 1,961.4 2,126.3 1,758.2 1,878.3 1,628.3 n/a

to CIS “ 933.6 888.8 955.3 1,096.4 1,404.6 n/a n/a n/a n/a n/a

Imports ” 1,630.7 1,890.8 1,939.2 2,040.5 2,187.0 2,522.1 2,257.4 2,255.8 1,957.6 n/a

from CIS “ 1,073.9 1,272.1 1,345.5 1,289.7 1,387.7 n/a n/a n/a n/a n/a

Exchange holdings End-Qtr

Foreign exchange $ m 410.6 469.0 427.3 376.2 383.5 393.7 291.3 286.1 299.4 695.8

Exchange rate

Official rate BRb:$ 14,650 15,500 24,650 26,980 27,830 30,740 33,660 37,540 53,200 107,000

a October only. b Average monthly.

Sources: TACIS, Belarus Economic Trends, monthly; OECD, Short-term Economic Indicators; IMF, International Financial Statistics.



Moldova: quarterly indicators of economic activity

1996 1997 1998

3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

Employment Monthly av

Unemployed, registereda ’000 26.3 23.4 22.9 22.8 27.1 28.0 39.1 33.7 33.8 n/a

Wages & prices

Nominal wagesb Lei 185 232 189 193 207 229 238 248 256 247c

Consumer prices Jun 1994=100 159 165 171 176 177 181 187 188 183 194d

change year on year % 24.2 14.6 10.9 12.0 11.1 9.9 9.4 6.7 3.7 n/a

Money End-Qtr

M1, seasonally adj Lei m 893.8 888.0 1,029.8 1,121.4 1,075.5 1,159.7 1,356.5 1,209.5 887.5 787.5e

change year on year % 33 12 6 12 20 31 32 8 17 n/a

M2 Lei m 1,246 1,292 1,261 1,411 1,585 1,740 1,689 1,603 1,370 1,197f

Foreign trade Qtrly totals

Exports $ m 187.4 230.9 189.3 201.9 206.4 300.0 171.7 186.0 142.8 82.8 g

to CIS “ 125.9 149.7 135.6 158.1 154.3 164.5 126.6 146.0 98.5 n/a

Imports ” 272.9 292.4 288.9 267.7 294.3 321.5 287.0 288.9 252.8 118.7 g

from CIS “ 151.3 181.9 170.1 135.7 145.4 161.2 129.9 117.1 98.4 n/a

Exchange holdings End-Qtr

Foreign exchange $ m 278.8 305.7 285.8 335.3 358.7 364.8 324.2 287.6 211.9 194.6e

Exchange rate

Official rate Leu:$ 4.62 4.65 4.54 4.59 4.62 4.66 4.72 4.74 4.97 6.20e

a End-quarter. b Average monthly. c October only. d Average for October-November. e End-October. f End-November. g Total for October-November.

Sources: OECD, Short-term Indicators; IMF, International Financial Statistics; TACIS, Moldovan Economic Trends.

Quarterly indicators and trade data 37


Belarus: OECD trade($ ’000)

Germany Italy France Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

1996 1997 1996 1997 1996 1997

OECD exports fobFood 30,864 31,439 5,991 6,023 5,778 2,490 of which: cereals & preparations 3,835 3,621 1,178 413 841 182 Chemicals 88,773 115,391a 4,343 6,900a 17,138 14,375 Textile yarn, cloth & manufactures 29,916 32,256b 14,162 25,561b 3,129 2,728b

Iron & steel 19,977 141,597c 846 4,628c 809 2,037c

Metal manufactures 12,514 7,672d 5,871 1,386d 727 1,861d

Machinery & transport equipment 228,173 287,423 38,541 43,666 16,620 25,842 of which: road vehicles 103,341 137,449e 1,665 3,504e 9,037 6,801e

Clothing & footwear 24,456 16,061 10,157 17,044 374 54 Scientific instruments etc 21,124 21,993 5,046 1,846 2,660 2,043 Total incl others 620,628 769,998 107,738 130,543 55,324 64,921

Germany US Italy Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

1996 1997 1996 1997 1996 1997

OECD imports cifFood 17,386 18,386 448 0 1,864 1,239 Wood & cork & manufactures 20,933 25,597 1,137 85 3,151 3,735 Metalliferous ores & scrap 7,725 7f 1,109 0f 39 0f

Petroleum & products 111 124g 0 0g 0 490g

Chemicals 36,578 25,936a 6,221 2,421a 588 973a

Textile yarn, cloth & manufactures 11,160 17,057b 2,789 8,415b 7,029 10,531b

Non-metallic mineral manufactures 3,180 4,682h 536 1,222h 2 33h

Non-ferrous metals 20,662 5,910c 0 62c 0 9c

Metal manufactures 7,963 360d 52 30d 1,821 118d

Machinery & transport equipment 30,831 25,235 8,029 7,228 3,909 3,487 Clothing 50,268 52,005 33,545 46,493 18,536 24,806 Scientific instruments etc 15,245 15,002 777 582 58 240 Total incl others 259,535 220,989 56,677 70,083 63,419 66,033

a Including crude fertilisers and manufactures of plastics. b Including fibres. c Including manufactures and scrap. d Tools etc and miscellaneousmetal manufactures. e Including tractors. f Ores, slag and ash. g Mineral fuels. h Including precious metals and jewellery.

Source: UN, External Trade Statistics, series D.



Moldova: foreign trade($ ’000)

Total Russia Ukraine Romania Bulgaria

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Imports cif 1994 1995 1994 1995 1994 1995 1994 1995 1994 1995

Food 34,477 49,447 3,360 6,620 5,166 10,902 1,913 2,205 459 983

Crude materials 19,141 31,562 5,438 8,188 3,318 8,939 3,023 2,651 217 155

Coal 55,657 50,278 7,390 6,317 47,676 43,485 0 0 0 0

Petroleum & products 132,394 182,568 67,721 63,991 24,345 66,427 15,332 16,281 49 3,045

Chemicals 44,439 77,722 8,482 15,765 6,503 13,433 4,331 5,745 3,239 2,270

Manufactured goods 74,979 120,505 25,895 39,303 14,005 21,888 3,932 10,813 3,491 11,024

of which:

paper & manufactures 10,781 26,639 6,970 12,088 640 1,350 218 1,384 576 235

textile yarn, cloth & mnfrs 23,326 28,120 5,050 5,668 1,307 1,428 2,100 2,946 886 218

non-metallic mineral mnfrs 13,928 23,622 2,790 4,291 2,976 4,131 428 3,820 1,837 7,347

Machinery & transport eqpt 84,395 127,877 20,659 27,633 9,081 11,708 7,474 9,729 1,940 3,746

Total incl others 668,951 840,713 319,103 277,995 122,709 228,487 42,553 55,953 10,120 31,876

Total Russia Ukraine Romania Germany

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Exports fob 1994 1995 1994 1995 1994 1995 1994 1995 1994 1995

Food 230,598 295,954 118,144 132,842 27,113 8,886 33,836 63,788 10,851 23,464

of which:

fruit, vegetables & preps 105,678 116,279 54,220 56,005 22,040 1,948 1,121 4,604 10,653 23,341

Beverages & tobacco 132,176 174,345 95,204 141,172 13,585 5,911 2,913 3,277 880 203

Manufactured goods 42,327 52,615 12,919 18,905 3,842 7,960 16,428 13,808 1,298 1,866

of which:

non-metallic mineral mnfrs 5,640 15,378 1,365 9,319 1,463 2,768 2,504 2,457 0 0

Machinery & transport eqpt 65,148 58,793 36,259 27,607 15,249 14,783 5,777 5,773 313 81

Clothing 14,297 23,315 6,183 5,161 945 226 392 678 1,246 5,902

Total incl others 566,001 745,530 289,703 360,141 68,561 58,894 83,415 103,667 19,678 45,440

Imports ($ m) Exports ($ m)

Jan-Dec Jan-Dec Jan-Dec Jan-Sep Jan-Sep Jan-Dec Jan-Dec Jan-Dec Jan-Sep Jan-Sep

1995 1996 1997 1997 1998 1995 1996 1997 1997 1998

CIS 568.9 664.1 612.4 451.2 345.4 466.9 546.1 612.5 448.0 371.1

Russia 278.0 295.3 305.1 219.3 168.8 360.1 430.1 509.8 371.1 294.9

Ukraine 228.5 297.1 240.2 183.0 131.1 58.9 47.6 52.1 37.3 41.0

Belarus 50.7 61.0 52.1 36.5 39.7 26.5 34.2 35.7 26.0 25.3

Central & eastern Europe 120.4 179.5 240.9 165.0 194.6 158.7 132.4 95.7 64.2 46.0

Romania 56.0 72.1 109.3 73.2 95.7 103.7 74.9 59.2 34.2 34.2

Bulgaria 31.9 58.4 62.9 44.7 28.0 21.4 12.7 10.0 7.4 2.1

Hungary 8.5 14.2 22.5 14.6 30.9 5.7 2.7 1.8 1.7 0.9

EU 115.2 162.6 227.2 160.5 229.6 86.2 78.3 90.4 57.2 53.7

Germany 45.6 65.9 95.5 70.2 77.9 45.4 29.9 32.5 22.8 16.5

Italy 19.3 33.9 42.1 28.7 45.8 15.6 21.1 23.8 15.4 16.4

Netherlands 6.6 10.5 12.9 8.3 9.9 2.3 8.7 5.6 3.9 3.6

Total incl others 840.7 1,079.2 1,172.4 850.9 828.7 745.5 801.6 879.6 597.6 500.5

Sources: UN, External Trade Statistics, series D; Moldovan Economic Trends.



Former Soviet republics: exchange rates per $

1996 1997 1998 1999

Oct 4th Jan 1st Apr 4th Jul 11th Oct 6th Jan 12th Apr 3rd Jul 4th Oct 7th Jan 14th

Outside rouble zone

Armenia (dram) 412 440 469 505 501 496 502 502 508 529

Azerbaijan (manat) 4,304 4,200 4,074 3,968 3,928 3,891 3,858 3,861 3,857 3,896

Estonia (kroon) 12.2 12.4a 13.4 14.0 14.2 14.5 14.8 14.5 13.1 13.4

Georgia (coupon/lari) 1.27 1.29b 1.30c 1.30 1.30 1.31 1.34 1.35 1.37 1.96

Kazakhstan (tenge) 70.0 72.5 75.4 75.6 75.6 75.6 76.5 77.1 80.5 84.2

Kyrgyz Republic (som) 13.3 17.0 17.6d 17.3 17.3 17.4 18.1 19.3 22.4 29.6

Latvia (lat) 0.55 0.56b 0.58 0.58 0.59 0.60 0.60 0.60 0.58 0.57

Lithuania (litas) 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00

Moldova (leu) 4.61 4.60 4.57 4.57 4.62 4.66 4.72 4.75 4.99 8.40

Turkmenistan (manat) 4,075 5,000 4,110c 4,165 4,165 4,165 4,165 5,200 5,200 5,200

Ukraine (karbovanets/hryvnya) 1.77e 1.83 1.85 1.86 1.87 1.90 2.04 2.07 3.41 3.43

Uzbekistan (som) 40.0 55.0 58.9f 63.6 75.8 80.4 84.5 93.5 105.8 110.7

Inside rouble zone (local parallel

currencies & Russian rouble)

Belarus (rubel) 19,300 20,200 34,200 43,337 27,910 30,830 33,760 38,010 53,600 113,000

Russia (rouble) 5.424 5.747a 5.737 5.788 5.865 5.972 6.112 6.202 15.794 21.800

Tajikistan (Tajik rouble) 298 330 380f 398g 747 748 754 754 754 985

a January 7th. b January 8th. c April 7th. d April 9th. e Karbovanets replaced by hryvnya on September 2nd, at the exchange rate ofHRN1:KRB100,000. f April 11th. g June 10th.

Sources: OMRI; FT; BBC Monitoring, Summary of World Broadcasts; Reuters; Bloomberg.



Former Soviet republics: GDP and GDP per head(at purchasing power parity)

1989 1990 1991 1992 1993 1994 1995 1996 1997

ArmeniaGDP $ bn 17.6 17.0 16.1 7.9 6.9 7.3 8.0 8.6 9.0 per head ($) 5,058 4,804 4,467 2,142 1,853 1,942 2,122 2,287 2,389

AzerbaijanGDP $ bn 21.8 20.0 20.7 13.8 10.9 8.7 7.4 7.6 8.2 per head ($) 3,074 2,804 2,879 1,888 1,476 1,171 986 1,010 1,080

BelarusGDP $ bn 49.4 50.0 51.4 47.7 43.8 39.2 36.0 37.7 42.2 per head ($) 4,832 4,876 5,004 4,630 4,228 3,802 3,507 3,676 4,131

EstoniaGDP $ bn 6.2 5.9 5.5 5.7 5.8 6.0 6.6 7.2 8.2 per head ($) 3,937 3,758 3,505 3,621 3,803 3,984 4,448 4,904 5,633

GeorgiaGDP $ bn 23.4 21.4 17.8 10.9 7.7 5.6 5.5 6.2 7.0 per head ($) 4,296 3,919 3,256 2,001 1,407 1,036 1,009 1,147 1,303

KazakhstanGDP $ bn 71.8 74.6 72.3 64.6 56.0 43.0 40.0 41.2 42.8 per head ($) 4,342 4,477 4,302 3,825 3,316 2,569 2,421 2,495 2,734

Kyrgyz RepublicGDP $ bn 11.1 11.9 11.2 9.7 8.3 6.3 6.0 6.5 7.0 per head ($) 2,553 2,706 2,523 2,163 1,863 1,405 1,336 1,419 1,529

LatviaGDP $ bn 13.6 14.6 13.6 9.1 8.0 8.2 8.3 8.8 9.5 per head ($) 5,094 5,469 5,114 3,460 3,070 3,213 3,313 3,516 3,847

continued



1989 1990 1991 1992 1993 1994 1995 1996 1997

LithuaniaGDP $ bn 20.3 20.1 19.7 16.0 13.7 12.7 13.4 14.3 15.4 per head ($) 5,505 5,412 5,278 4,268 3,681 3,409 3,612 3,853 4,164

MoldovaGDP $ bn 15.9 16.2 13.9 10.2 10.3 7.3 7.3 6.9 7.1 per head ($) 3,664 3,723 3,193 2,335 2,362 1,675 1,681 1,583 1,637

RussiaGDP $ bn 865.0 875.4 864.7 759.7 711.9 636.3 623.6 613.1 629.5 per head ($) 5,871 5,919 5,833 5,122 4,805 4,300 4,210 4,150 4,280

TajikistanGDP $ bn 9.9 10.2 9.7 6.9 5.2 4.5 4.0 3.9 4.1 per head ($) 1,914 1,920 1,769 1,247 915 783 693 666 680

TurkmenistanGDP $ bn 10.0 10.7 10.5 10.2 9.5 7.7 6.8 6.4 4.8 per head ($) 2,797 2,903 2,806 2,541 2,195 1,757 1,513 1,404 1,053

UkraineGDP $ bn 171.6 179.0 186.1 191.2 168.4 132.9 119.4 109.5 107.9 per head ($) 3,314 3,446 3,579 3,673 3,224 2,551 2,308 2,134 2,131

UzbekistanGDP $ bn 44.5 47.2 48.8 44.6 44.7 43.7 43.9 45.4 47.4 per head ($) 2,215 2,312 2,341 2,089 2,048 1,963 1,952 1,982 1,998Sources: IMF; World Bank, Statistical Handbook: States of the Former USSR; UN Economic Commission for Europe, Bulletin for Europe, Vol. 44 1992; EIU calculations.



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