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Europe’s poorest country

Moldova. Feeling nostalgic -1

in Conflicts · Crisis · Danube · Economics · Europe · Euroskepticism · EX-USSR · Moldova · Money · Nation · Person · Politics · Power · Russia · USA · World 22 views / 6 comments

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Transnistria Continues as a Success due to the Eurasian Market

More irritating to the west, the Eurasian idea, very popular in Transnistria, argues that any entry into western markets requires success first in Eurasia. Since this unrecognized nation is sandwiched between Romania and Ukraine, her geography is unfavorable. Yet, it is only the Russian republic there that has any chance of continued development.

  • The World Bank has Moldova at well below 100 in its “Doing Business” survey. They are equal to Botswana and Ghana. Moldova in 2013 alone lost 2 billion lei due to debt and trade deficits, so that all public services have been slashed.
  •  In Ukraine, the minimum wage is $240 a month, while Moldova lives impoverished at $85 in 2012 American dollars. In Transnistria, it is almost 300% higher even under a US enforced blockade of the country though Romania and Ukraine.
  •  The Marketing and Public Opinion Institute in Chisinau has 80% of the population registering contempt for the EU. In 2006, 97.1% of the eastern portion of Moldova voted for integration with Russia.

Thus, as both Moldova and Ukraine fall below Fourth World status, Transnistria, under an embargo from its two neighbors, remains prosperous and unified. Worse for the EU, her success has made her an important source of trade with the EU itself.

About 30% of this small country’s exports are to the EU, showing that profit is profit regardless of whether elites recognize the nation. As Russia has brought this tiny country into its own orbit (and hence that of China and the SCO) her budget has a surplus and her financial sector is stable. Moldova permitted about 600 Russian businesses from Transnistria to officially register in Moldova so as to circumvent EU sanctions.

Hence, the success of the Russians here have forced their enemies to accept their requests and – no doubt – register these as “Moldovan” capitalists. Today, much of the Moldovan budget comes from Russian businesses!

In the World Bank paper on Transnistrian economics, we read:

In the first half of 2003, economic activity in the region has increased again as it is reflected in GDP growth of 18.4% with investments in fixed capital increasing by 2.9%, hence reducing the trade deficit by 35.5%.

However These positive developments were combined with increased inflation. In January through August 2003 the average monthly inflation rate was 2.1% and it rose at the end of this period to 18% (in 2002, respectively 0.3 and 2.5%). Despite the commitment of the regional administration to alter the structure of the economy and the state, the economy remains in a transition stage (CISR, 2003: Translation mine).

This older study is important since it connects Transnistrian prosperity with Russian. Further, it shows that the increase in Moldovan trade has much to do with “illegal” relations with the Russian speaking east.

The study goes on to show that the rational system of Transnistria, her relatively open economy and first class labor pool have ensured its prosperity regardless of the demands of the EU. Not too long after this study was released, by 2006, Transnistria was running a 200% trade surplus with Ukraine and almost 300% with Belarus.

Privatization was done under tight state control, and slowly: the oligarchs that rule Ukraine did not develop there. Attracting Russian and Eurasian investors stabilized the economy early. Her excellent relations with Gazprom ensure cheap power. Once secure in her economic policy, this tiny country then permitted more western FDI, to the chagrin of Moldova. While still unrecognized, Transnistria has forced her recognition through economics.

The lessons here are clear:

  • first, rational economic policy will create the respect that diplomacy cannot.
  • Second, the EU is incapable of helping these small societies as its own society is near total economic collapse.
  •  Third, to plug into a massive Eurasian market with total freedom of policy development works: the IMF does not. In his analysis of Transnistria and the EU, Andrew Mospanov states:

The last 20 years are sufficient to judge the results of the western economic model. The main conclusion is that economic integration with the West strengthens the strong economy and undermines the weaker, soon to push them out of competition entirely and, finally, making them chronically dependent (Mospanov, 2013: translation mine)

Failures in 1990s Russia, today’s Ukraine, Bulgaria, and Moldova show this as the success of Putin’s Russia, China, Belarus, and the tiny state of Transnistria confirm it. The western “market” system is only for those already in control. He continues:

We know that integration [into the EU] in Latvia, Lithuania and Estonia, as well as the Czech Republic, Hungary and Poland led to significant structural changes in the economy of these countries. The changes have been very painful. Poland almost lost its coal industry and shipbuilding; Hungary, lost its well-known bus plants; Estonia and Lithuania saw their dairy industry destroyed, as well as its energy sector, mechanical engineering and other key sectors were lost to the more powerful EU states. In Latvia there are no more sugar factories (Mospanov, 2013: translation mine).

The only difference between these countries and Transnistria is the lack of formal ties with the EU. It is that union that has crippled and destroyed these countries and their significant industries. The future lies with Russia, China, and the Shanghai Cooperation Organization. Ukraine, Moldova, and Bulgaria, just to name three, should abandon the western sinking ship and focus on an area that actually wants their products.

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Moldova. Feeling nostalgic -1

in Conflicts · Crisis · Danube · Europe · Euroskepticism · EX-USSR · Moldova · Money · Nation · Politics · Power · Russia · USA · World 18 views / 4 comments

GEOMETR.IT   http://counter-currents.com/

Moldova is Europe’s poorest country. Tiny, landlocked, and with a population of about 3 million and shrinking, she is often ignored in modern writing on Eastern Europe. She is one of the many castaways of the 1990s, the imposition of the “free market,” and the “end of history.” Yet she was an important part of the old USSR. But after the breakup of the empire in 1990–1991, she fared even worse than Ukraine, reaching Fourth World poverty levels.

Like so much in Eastern Europe, Moldovans overwhelmingly reject the west and “free markets.” Their sole hope is a customs union with the Shanghai Cooperation Organization (SCO). The much smaller Transnistrian Republic, formerly a part of Moldova, is expanding rapidly within the Russo-Chinese market and is proof of this argument, but the Romanian side, welded to the West, has failed.

-Eurasia and the Transnistrian Republic

Moldova’s identity remains a problem that can only be solved through partition, especially as the two sides of the country move farther apart. She is an artificial creation taken from parts of Romania, Ukraine, and Belarus after the Second World War. As always, her diversity is nothing but a liability (Kaufman, 2006: 120). Her class imbalances are also enhanced by ethnic and linguistic division, making this failed state even further from a solution.

The new Romanian Popular Front based itself around the mobilization of marginalized Romanians and utilized anti-Slavic slogans to stoke resentment against Russians. Russians were envied for their economic and scientific prosperity as an important part of the USSR, but these Slavs were not voluntary migrants, but were sent by Stalin to raise the status of this area (Protsyk, 2002).

Moldova in the USSR

These present realities are a humiliating decline from the Soviet run system long dismantled. Moldova was seen as too small to be a threat, was able to develop in relative peace, and did not suffer the torments of the central regions of the USSR. In the first few years of the 1970s, industrial investment began to move east.

The results were a 7.5% yearly rise in incomes. Throughout the 1970s and 1980s, the economy expanded rapidly into electricity, chemicals, automobiles, and automation equipment for assembly lines. In general, this production boom amounted to a 15% yearly growth when all sectors are considered (Fedor, 1995: 125–31).

Exceeding their production quotas by 10% on the regular basis, Moscow had no incentive to harm her elite producers (Fedor, 1995: 105–109). Her industries were self-financing (and then some), so Moscow was not required to subsidize them or to reward failure. She was a model republic.

  • Even under this modified Soviet regime, Moldova was vulnerable to even a small shock. Profits, all told, increased by 15% yearly on average, but labor productivity had a tendency to rise only slowly. Given the absence of a market, this meant that production had little relation to wages. Given the “all union” nature of the economy, Moldova could be a major power in chemical engineering while only the elites had regular heat. These imbalances were to show themselves later (Fedor, 1995: 121).
  • Moldova grew even as the rest of the USSR stagnated. Moldova’s loyalty to Moscow, impressive production rate, and her importance in light industry permitted the Party to lower taxes and increase wages. She consistently registered a budget surplus made possible by 12–15% growth in high value-added industries on the cutting edge of (Soviet) science. Moldova focused on transformers, lighting, toolmaking, wine, and agricultural mechanization by the early 1980s (ibid).

Moldova grew rapidly without the ability to sustain these numbers. But beyond her capacity to sustain it. The USSR was designed as an economic machine where each region had a functional role (that is, what Moscow saw as their comparative advantage).

Independence and the Catastrophe of the “End of History”

Watching the USSR disintegrate rapidly, Moldova, like Ukraine and so many other areas, was not prepared to rule itself as a European state. Suffering from a total lack of ethnic unity, economic cooperation and civic consensus were increasingly impossible. The resulting civil war in 1991–1992 was in part due to the chronic shortage of skilled labor.

  • Many of the Soviet-era corporations were being privatized. This meant that local rent-seekers and foreigners moved in and absorbed the labor of decades. The debt that the region carried just meant that this stock of capital was liquidated. By 1993–1995, the formerly high wages of the country went down by more than half, made more traumatic by runaway inflation, as prices for staple goods reached absurd levels. In 2000, the official poverty rate of Moldova was roughly 75%.
  • By 2007, GDP was about 50% of its 1991 level while agriculture, always important, had fallen in value by more than 50% since 2009 (Bodewig, 2006: sec 3; World Bank, 2011 and Cantarji, 21–23).

Today, Moldova’s financial and fiscal policy shows no sign of improving. The gray and black markets are likely the only thing keeping the shrinking and malnourished population from disappearing .

Generally, if debt is too high, and there is no compensating domestic savings, then foreign investment will have to make up the difference. However, the central bank in Moldova is neither trusted nor in control, and of course, under these unstable circumstances, no incentive exists to think of the long-term. The crisis economy forces short-term thinking, as investments have no assurance of any future in the country .

Moldova’s burnt her bridges to the east because her ethnic hate rejected any cooperation with Moscow. The false promises of the IMF have led to the endless devaluation of the lei and the inability of the public sector to finance itself.

Moldova tragically declined from a rapidly developing country in a profitable relationship with a giant Soviet market to a Fourth World backwater in less than a generation. Most employment and exports in this traumatized society are in the lowest value added category.

Presently, there is not a single credible argument that a) the EU will do anything positive for Moldova, b) that Russia will somehow harm Moldova, or that c) the “independence” of this micro-state has been anything but a disaster.

The anti-Russian policy has consistently produced depopulation, early death, declining health, high infant mortality, and a general mood of distrust and anger. Since there is exactly 0% demand for Moldovan goods anywhere (including Moldova), the Transnistrian experiment shows how beneficial the Eurasian market is for these nations. Adding insult to injury, most of their consumption since 2010 has been through the sale of what functional, fixed assets remain in the country. Moldova is quite literally eating itself (Bodewig, 2007: sec. 17).

In the 2007 Annual Session of NATO, the Moldovan meltdown is treated in depth. In 2007, the full demolition of the country was well underway, and its trajectory was clear. They had the honesty to admit the statistics mentioned above, and without any apparent neurotic effects from cognitive dissonance. NATO states that “The Republic of Moldova and its supporters should lobby for better market access to the EU, and work to have the Transnistria issue placed higher on the EU agenda” (Sec. 51).

They continue: “The EU should continue to challenge the status quo of the Transnistrian ‘conflict’ and work to achieve a solution” (sec. 52). This does not stop them from admitting, in section 11, that Russia’s recovery is fueling some Moldovan growth, as are remittances. Of course, such growth is not growth at all. Making their argument more convoluted, they then state that real investment in fixed assets is non-existent (sec 12).

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Moldova. When will the recovery come?

in Conflicts · Crisis · Danube · Economics · Europe · Euroskepticism · EX-USSR · Moldova · Money · Nation · Person · Politics · Power · Russia · USA · World 35 views / 5 comments

GEOMETR.IT    http://neweurope.eu

Moldova will need 25 years to reimburse the $1 billion stolen from its banks

Moldovan authorities have defined and approved the modality of refunding the approximately 13.6 billion lei (the local currency), that remain to be paid to creditors after the disappearance of one billion dollars from the national banking circuit an the closure of three of the main banks (the Savings Bank, Unibank and the Social Bank).

1

A huge fraud was unveiled in 2014. Around $1 billion, accounting for one-eighth of Moldova’s GDP, had disappeared from Moldova’s banking system. The ensuing scandal led one year later to the fall of the pro-European government, in October 2015.

Former Moldovan prime minister Vlad Filat was detained in parliament in October 2015 over the heist, a crime that has led tens of thousands to camp out in the capital in protest.

2

The Moldovan finance minister summoned on Wednesday all heads of Moldovan banks to inform them that the duration of the repayment will be 20-25 years, with an interest rate of 5%.

The huge fraud has weakened the former Soviet republic’s currency and damaged living standards in what was already Europe’s poorest country.

3

4

Last November, three of Moldova’s largest banks were placed under special administration after they were reduced to insolvency by the hemorrhage of the $1 billion – equivalent to around one eighth of its gross domestic product – through a web of toxic loans, asset swaps and shareholder deals.

The fraud has held up the disbursement of valuable budget support from international lenders and highlighted the corrosive rivalry between oligarch groups in Moldova that might yet derail its avowed course towards European integration.

According to the Mold-Street, a simple calculation reveals that an annual interest of 5% for the sum of 13,57 billion lei represents about 678 million lei per year. This is without taking into calculation the payment of the basic amount.

  • At the same time, there are less and less hopes that from the commercialization of the assets of those three banks will be recovered important amounts. So, from the beginning of this year and till March, 25, 2016 the rest diminished with 122 million lei, that means with about 1,44 million lei a day.

The bankers did not show delighted by the “offer” of the Ministry and of the Government. Moreover, some of them even revolted for the fact that the authorities were not capable to prevent such a fraud, nor identify the guilty ones and punish them.

The Head of market studies and research Department within the Business Intelligent Services, Stanislav Madan, declared for the Mold-Street that the amount of 13,6 billion lei will have to be reimbursed from the account of taxes paid by the taxpayers, that means by all of us.

“Besides the presentation of the financial situations of the NBM, which illustrates broadly the effects of tightening of the monetary policy performed by the Central Bank through the increase of the availability of the commercial banks to the NBM, the audit report puts on the forefront a new epic in the case of the theft of large proportions from the banking system.

So, if from the end of 2014 and till now the Moldovan citizens paid indirectly the bills for the Robbery of Century through the collapse of the national currency, general price increase and the substantial limitation of the access to finances through price increase of credits, from this year it is planned we to pay as taxpayers in the most direct way.

Or, the Memorandum between the NBM and the Ministry of Finance through which will be activated the guarantees offered by the Government through the issuance of some securities of an amount of 13,6 billion lei transposes this sum in the account of internal public debt and respectively will have to be reimbursed from the account of taxes paid by taxpayers, that means all of us”, declared Stanislav Madan.

The audit report discloses also other curious details. Thus, in it is specified that the State guarantee no. 807 was offered on November, 17, 2014, that means four days from the Decision of the Government no. 938 from November, 13, 2014 “on the provision of the macro-economic stability in the context of regional conjuncture”, that was kept in secret and published just after five months.

The Kroll report shows eloquently how the operation took place and what the contribution of those four banks was in the disappearance of the billion. So, the Victoriabank contributed most of all, placing at the BEM about 1,8 billion lei. The other three had less contributions: the Moldindconbank and the Moldova-Agroindbank with almost 150 million lei, and the Eurocreditbank just 20 million lei.

A study realized by the Expert-Grup shows that the Government practically favored the theft of billions from the Banca de Economii, especially through the fact that its representatives in the Board of Directors were not participating at meetings. According to the Expert-Grup calculations, in 2013-2014, the representatives of the Ministry of Finance and of the Ministry of Economy did not participate at 119 meetings of the BEM Board.

About how difficult can be the recovery of money eloquently talks the case of the Investprivatbank, bank that remained without license on June, 19, 2009 and which after almost seven years still has to reimburse to the state budget arrears of 362 million lei.

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