OREANDA-NEWS. January 11, 2013. The 2012 year was difficult for the Moldovan economy, after 2011 was a regional leader and caused a slowdown of the economy, which entered the decline in the third quarter. The current year's severe drought compromised the harvest and severely affected the agricultural sector.

The recession in Europe influenced Moldova's economic growth as well. Also officials signed an agreement on common air space between Moldova and the EU, agreeing upon a step-by-step liberalisation of the air space between Moldova and Russia.

Authorities approved the government's first long-term plan "Moldova 2020", which is meant to remove the main barriers that hinder Moldova's economic development. The USA repealed the Jackson-Vanik amendment for Moldova, thus setting up a new commercial regime. Moldovan officials continued the negotiations with the EU.

The State News Agency MOLDPRES has ranked the most significant economic events of 2012.

1. Moldova continues talks on a free trade agreement with the EU.

Moldova and the EU held four rounds of negotiations, after the first negotiations on a deep and comprehensive free trade area (DCFTA) were held on 12 December 2011. The European Commission welcomed Moldova's successful elaboration of an action plan on implementing the EU's recommendations related to negotiations on the creation of a DCFTA, which were included in the progress reports. During the fourth round of negotiations that took place in November 2012, the delegations discussed the opportunity to sign a new agreement with a higher liberalisation degree than the current one, by making new commitments in sectors of common interest.

The Economics Ministry organised public consultations to consolidate Moldova's position during the DCFTA negotiations in the industrial, agricultural and service sectors. Moldova asked for a transition period from five to ten years from the EU, by gradually reducing customs taxes for 40 categories of industrial goods, including finite textile products, carpets, costumes, knitted products, plastic products, cement, furniture and others. The EU's offer in this respect is to fully liberalise industrial sectors. Service providers ask for exceptions in the auto and rail transportation sectors, for certain postal services, banking services and juridical services, such as the representation of criminal and civil cases in court.

2. Economic slowdown

The current year's drought, which severely affected the Moldovan agriculture in 2012, and the crisis in the EU, have overthrown the forecasts of the Moldovan economy's evolution. Official statistics show that the Moldovan economy entered the decline in the third quarter, when it decreased by 1.7 per cent against the same period of 2011, after it has recorded an insignificant growth of 1.0 per cent and 0.6 per cent in the first and second quarter respectively. "Trade, industrial production and remittances have stagnated, whereas the economy has dramatically decreased due to the economic slowdown in Europe and the severe drought," ascertains the mission of the International Monetary Fund (IMF), which visited Moldova in November. According to the Independent Analytical Centre, "the Moldovan economy is facing a comeback of its economic trends from 2008-2009. These trends unveil Moldova's vulnerability to external shocks and its inability to approach internal problems". Though experts forecasted a slowdown of the Moldovan economy in 2012, they did not expect it would be that severe. The IMF reduced the growth forecasts for 2012 from 3.0 per cent to 0.3 per cent. The Institute of Economics, Finance and Statistics is more pessimistic, forecasting a 0.2-per-cent growth, while the Independent Analytical Centre Expert Grup forecasts a 0.5-per-cent growth.

3. Approval of the National Development Strategy "Moldova-2020"

The Moldovan government approved the National Development Strategy "Moldova-2020" on 21 March 2012. This long-term strategic planning draft provides for an approximate 4.7-per-cent growth per year in 2012-2020 and for an alleviation of the poverty rate amounting from 21-21.9 per cent to 12.7 per cent. It is for the first time when the Moldovan government is carrying out a long-term planning draft meant to remove the main barriers hindering Moldova's economic development. The strategy includes seven development priorities, as follows: career-oriented education, good roads all over the country, accessible and cheap finances, clear-rules business, safely and efficiently delivered energy, fair and sustainable pensions system and responsible and fair justice. So far, the consumption and imports were boosting up the economic growth. However, Moldova now wants investments, development of production and exports to improve the economic growth as well.

4. Annulment of Jackson-Vanik amendment for Moldova

The US congress voted for the annulment of the Jackson-Vanik amendment for Moldova on 6 December 2012. Ten days later the law was promulgated by the American President Barack Obama. "The adoption of a new trade regime represents the USA's strong support for Moldova's modernisation and EU integration path. The annulment of the Jackson-Vanik amendment will offer Moldovan citizens economic benefits, by attracting investments and creating new jobs in the national economy sector," reads the Moldovan government's statement. The Jackson-Vanik Amendment has been in effect since 1974 and implies the commercial limitation with the socialist countries. The USA is Moldova's biggest bilateral creditor and also one of its main commercial partners. The export of Moldovan goods on the American market increased by 20.1 per cent in ten months amounting to 23.8 million dollars in 2012. According to the State Registration Chamber, a number of 379 American companies are active on the Moldovan market, investing almost 586 million lei in Moldova's social capital.

5. Moldova signs agreement on common air space with the EU.

Moldovan Prime Minister Vlad Filat signed an agreement on common air space between Moldova and the EU during his visit to Brussels on 26 June. According to the deputy chairman of the European Commission, Siim Kallas , Moldova's adherence to the EU's common air space will offer benefits to passengers who travel by plane, will improve the business environment and the development of the air transport. Moldova's adjustment to the EU standards will increase the security of flights and the quality of services in this sector. According to the agreement, Moldova is given three years to adjust its legislation to the EU one. Moldova will also apply flight security and safety standards, will open the EU market for Moldovan flight companies and will open its market for EU companies. During negotiations that were held in Chisinau in December, officials decided to perform a step-by-step liberalisation of the common air space between Moldova and Russia as well. Authorities plan to remove all of the restrictions that relate to destinations in both states, number of operators and frequency of flights in all directions, excepting the Chisinau-Moscow route.

6. Moldova adopts laws on state aid and competition, one more step towards the EU integration

After a long process, the Moldovan parliament finally adopted the law on competition and the law on state aid in June 2012. "With the adoption of the laws on state aid and competition, the last chapter in the negotiations on a free trade agreement between Moldova and the European Union has been closed," the head of the EU Delegation to Moldova, Ambassador Dirk Schuebel said. Also Schuebel said the EU will further back Moldova to adequately enforce the law. "Moldova made a big step towards the European integration, by adopting these two laws," the chairwoman of the Competition Council, Viorica Carare said. The laws will "ensure the security that the European and local investors want". The law on state aid will enter into force in August 2013, a year after its publication in Moldova's official paper Monitorul Oficial. The law on competition has entered into force immediately after its publication in September 2012.

7. Third energy package-the new Gordian knot

Moldova's intention to implement the EU's Third Energy Package has angered Moscow. Moscow required Chisinau to withdraw from the European Energy Community. The Russian gas supplier Gazprom fears its investments into Moldova might be affected, as the third energy package provides for separating gas transportation from gas supplies and distribution. The opposition Party of Communists said "Moldova should immediately abandon the Protocol to the agreement on energy cooperation with the EU". "An ultimatum addressed to a country that is transiting Russian gas, could cause alert in Europe," the news agency Reuters says. "The public ultimatum Russia has addressed Moldova will increase the tension between Moscow and the EU," the news agency Agence France-Presse says. The spokeswoman of the EU Energy Commissioner, Marlene Holzner said "Moldova's participation in the EU energy packages is advantageous, as Moldova would have direct access to the EU energy market". The officials response was uncompromising. Moldova will not give up to its energy agreements with the EU and the Moldovan government will continue negotiate with Russia from this position. The Ministerial Council of the Energy Community officially approved a four-year delay in the implementation of the Third Energy Package until 2020. The European Commission welcomed the decision. However, the negotiations with Russia are still continuing. The sides succeeded to agree on the prolongation of a gas supply and transit contract for 2013.

8. Moldova ratifies free trade agreement within CIS

The Moldovan parliament ratified a free trade agreement within the CIS states on 27 September 2012. All of the MPs present at the meeting approved the ratification decision. According to representatives of the governing coalition, the agreement does not run counter to Moldova's EU integration path. The agreement was previously ratified by Russia, Belarus, Ukraine and Armenia. A number of eight CIS member-states, including Moldova, signed a free trade area agreement within CIS, in Sankt-Petersburg on 18 October 2011.

9. Moldova, Transnistria resume freight train traffic

Moldova and Tiraspol resume the freight train traffic after a six-year break on 26 April 2012. The freight train traffic was stopped in March 2006, after Chisinau imposed customs taxes to Transnistrian economic agents. The first 30-carriage Moldovan freight train took off from the Ribnita railway station and headed to Odessa, Ukraine, transporting shielding that was produced at the metallurgical plant in the Transnistria-based town Ribnita. The US embassy in Chisinau and the OSCE mission to Moldova welcomed the resumption of the freight train traffic across the Transnistrian segment, saying "it is a positive step for the economic development and consolidates ties between the two banks of the Dniestre". Officials agreed to resume the freight train traffic across the Transnistrian segment, in Tiraspol in late March 2012.

10. A relatively stable year in the Moldovan banking system

The Moldovan banking system became more resistant to eventual crises, though it faced several problems in 2012. The official reserve assets increased by more than 470 million dollars and reached a historical record of 2 billion 483.1 million dollars on 7 December 2012. According to financial experts, in the context of a high deficit of the current account, increase in the short-term external debt and external risks, the consolidation of Moldova's currency reserves is rather important. The inflation rate fitted the National Bank of Moldova's (NBM) target of 5% ± 1.5 percentage points decreasing to a 3.7-per-cent annual rate in November 2012. The exchange rates of Moldovan leu were stable. Authorities adopted a draft law on the transparency of bank shareholders in the last minute. Bank shareholders will be obliged to implement international transparency standards, otherwise they risk losing their property.

Off-shore companies will no more have the right to hold shares in banks. On the other hand, the interest rates on loans in Moldovan currency decreased against 2011. Both the demand and the banks' supply have also decreased. "Banks and companies delay their investment activities in order to optimise risks, which is a normal cause in the context of the current uncertainty," the Independent Analytical Centre Expert-Grup says. The quality of the loans' portfolio has also worsened, the maximal quota of bad loans reaching 15.3 per cent in August 2012, decreasing by 14.4 per cent in the next months. Loans have cheapened by 12 per cent. The Moldovan bank Universalbank went into bankruptcy. As a result, the management board of the National Bank of Moldova has withdrawn its activity license. The IMF mission voiced concern towards the situation of the Moldovan bank Banca de Economii. The bank's bad credits reached 45 per cent. The IMF believes the government and the National Committee for Financial Stability should urgently intervene in this respect.