This article is part of ECFR's Wider Europe Forum
On the eve of the parliamentary elections in Moldova, the country’s economic situation is relatively stable despite negative external factors.
On the eve of the parliamentary elections in Moldova, the country’s economic situation is relatively stable despite negative external factors, like the Russian embargo on Moldovan products and the worsening business climate in Ukraine, an important trade partner to Moldova.
Even according to cautious estimates, Moldova should record 2-2.25% of economic growth in 2014.
The Russian embargo on wine, meat, fruits, and vegetables was supposed to be a “punishment” for the Moldovan government’s pro-European policy. It has affected certain sectors of the Moldovan economy, but it has not done enormous damage. As a result, Moldova has not faced mass protests, and the pro-European political parties have enjoyed uninterrupted popular support.
A large part of the embargoed Moldovan products still arrive in Russia via Belarus, and also via Kazakhstan and even Abkhazia. And many Moldovan enterprises have succeeded relatively quickly in re-routing their exports from Russia to the European Union. Since the implementation of the Association Agreement on 1 September 2014, Moldova’s exports of plums to the EU have increased almost by a factor of eight. Exports of grapes have increased by a multiple of six and apple exports have increased by a factor of three. Exports of Moldovan wines to the EU have also increased by 25 percent within the last year. A recession in Moldova is very unlikely. Even according to cautious estimates published recently by the International Monetary Fund (IMF) and the European Bank for Reconstruction and Development (EBRD), which take into account both the Russian embargo and the Ukraine crisis, Moldova should record 2-2.25 percent of economic growth in 2014.
However, the Moldovan economy is still affected by older problems, such as the country’s non-transparent banking system (which is largely under control of Russian capital) and the systemic corruption that pervades both the administration and the judiciary system, scaring away potential foreign investors and blocking the development of local entrepreneurship. Another threat to Moldova’s economic and political security is its dependence on Russian gas and deliveries of electricity, in spite of government’s attempts to change this state of affairs. Deliveries from Ukraine, traditionally an alternative supplier of electricity, have significantly decreased in recent months because of the conflict in the Donbas region, where the coal mines and the power plants that produce energy for Moldova are located.
However, the Moldovan economy is still affected by older problems, such as [its] non-transparent banking system and systemic corruption.
The campaign narratives of the parties running for parliament are focused on the further geopolitical integration of Moldova, the fight against corruption, social problems, and – to a lesser extent – on historical and identity issues. Plans for economic reform have been much less visible in the campaign. Those that have surfaced are either only talked about in relation to the different models of geopolitical integration or have been reduced to populist slogans.
Further rapprochement with the EU is supported by the current ruling political parties – the Liberal Democratic Party, the Democratic Party, and the Liberal Reformist Party – along with one opposition party, the Liberal Party, which was part of the governing coalition before the government crisis of 2013. These parties believe that integration with the EU will help to fix the country’s economic problems, attract foreign investment, fight corruption, provide new markets for Moldovan producers (mostly thanks to the Deep and Comprehensive Free Trade Agreement, DCFTA), improve energy security (through the development of connections with European gas infrastructure and the implementation of the Third Energy Package), and facilitate access to the European job market.
The campaign narratives of the parties running for parliament are focused on the further geopolitical integration of Moldova, the fight against corruption, [and] social problems.
Among the opposition parties, the pro-Russian Party of Socialists of the Republic of Moldova led by Igor Dodon favours joining the Russia-led Customs Union. The Socialists claim that Moldova’s economic problems can be resolved only by close cooperation with Russia, which is not only a natural trade partner and gas supplier, but also an attractive country for migrant workers. The Socialists, along with other anti-European parties, warn that further integration with the EU will result in breaking economic ties with Russia. As a result, the economy would be seriously damaged. Moldovan products would permanently lose access to the Russian market and the EU market would not provide an adequate substitute. And the Moldovan guest workers that transfer billions of dollars a year back home would no longer have permission to work in Russia.
At the moment, the Party of Communists of the Republic of Moldova, led by Moldova’s former president, Vladimir Voronin, has an unclear position. The Communist Party is the biggest political party in Moldova. It was until recently unequivocally pro-Russian and called for integration with the Customs Union. But in recent months, the Communists’ rhetoric has been ambiguous. Voronin still supports rapprochement with the Customs Union (although not as robustly as he used to). However, he is no longer pushing to cancel the Association Agreement with the EU – he only declares the necessity to make some changes to it. The traditionally populist rhetoric of the Communists on the economy – for example, on the reindustrialisation of Moldova – has hardly been mentioned in the campaign, although it still plays an important role in the party’s political programme.
The majority of the political parties base their economic programmes on the assumption that Moldova’s economic problems can be solved either by closer integration with the EU or with Russia.
A completely new figure who will most likely gain a seat in the Moldovan parliament is Renato Usatîi, the leader of the Patria (Homeland) Party. The party is considered to be pro-Russian and Usatîi does not hide his close links to Russia. However, in the party’s official pitch, he does not talk about integration with the EU or with the Customs Union. His campaign is based on populist slogans: the fight against corruption, revision of privatisation, the fight against oligarchs, and so on. All the political parties stress the fight against corruption and the need for transparency in property-related issues, including in the banking sector.
The majority of the political parties base their economic programmes on the assumption that Moldova’s economic problems can be solved either by closer integration with the EU or with Russia. As a result, the parties have not presented (or even developed) more sophisticated economic policy plans. Moldova’s relatively stable economic situation has meant that politicians have not had to talk about deep, painful, and unpopular economic reforms. The mainstream political parties calling for the revision of privatisation or the re-industrialisation of the country in line with the Soviet model are only concerned with using economic issues as a populist tool to get more votes. Thus, regardless of political and geopolitical affiliations, the major political parties in Moldova do not present a complex vision for the country’s much needed economic transition.
Nevertheless, if the pro-European parties win and continue the integration process, it may push Moldova (in spite of the protests of part of the political elite) to implement economic and judicial reforms as required by the Association Agreement and the DCFTA. However, if the pro-Russian and populist parties win in the upcoming elections, it could result in the suspension of the implementation of the Association Agreement. If that happens, Moldova’s chances of meeting its major economic challenges will diminish significantly and its economic dependence on Russia will most likely increase.
Kamil Calus is a research fellow at the Department for Ukraine, Belarus, and Moldova, Centre for Eastern Studies (OSW), Poland.
The European Council on Foreign Relations does not take collective positions. This commentary, like all publications of the European Council on Foreign Relations, represents only the views of its authors.