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COUNTRY REPORT

Belarus

Moldova

2nd quarter 1996

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

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ISSN 1356-4137

Summary

Belarus, Moldova 2nd quarter 1996

May 10, 1996

Belarus Political and economic structures Pages 3-4

Outlook: The union treaty with Russia will remain popular with many sec-tions of the population but it could backfire economically, as Belarusian com-panies could face direct competition from Russian ones. Political repressionwill worsen as the president, Alyaksandar Lukashenka, tightens his grip on theeconomy. GDP will continue to decline this year but at a much slower rate, andit may register a slight recovery in 1997. Inflation will remain under controlprovided that agricultural and industrial credits are kept down. Pages 5-7

The political scene: Belarus and Russia have created the Community ofSovereign Republics, the closest political and economic relationship seen so farin the former Soviet Union. However, the much-vaunted currency union isunlikely to take place. The union treaty overshadowed an earlier accord amongRussia, Belarus, Kazakstan and the Kyrgyz Republic. The government issuedarrest warrants for prominent members of the opposition PFB. Demonstrationswere held to commemorate the tenth anniversary of the Chernobyl explosion.Relations with Poland and Ukraine remain sensitive. Pages 8-12

Economic policy: The IMF has suspended further credit releases because the1996 budget deficit exceeds the agreed limit. The president has nationalisedthe currency exchange and banned hard-currency loans. The new central bankgovernor supports renationalisation of the country’s six largest banks. Privatis-ation is on hold but is expected to resume later this year. Belarus is consideringconstruction of a nuclear power plant. The government has approved a majorjoint venture with Ford and Lada. Foreign investors have largely bypassedBelarus. Pages 12-15

The economy: The decline in GDP continues to ease and the rate of inflationis falling. Agriculture is getting further subsidies and the grain harvest is ex-pected to rise again this year. Corporate losses are up, and so are wage arrears.

Pages 15-16

Foreign trade and payments: Foreign trade continues in deficit. Russia andBelarus have agreed on the “zero option” on outstanding debts. An interimtrade agreement has been signed with the EU. Pages 16-17

Moldova Political and economic structures Pages 18-19

Outlook: The president, Mircea Snegur, is set for further clashes with parlia-ment in the run-up to November’s presidential election, for which he remainsthe favourite candidate. There will be little progress on Transdniestr until theRussian presidential election is over. Unemployment is set to rise sharply,partly due to the new bankruptcy law. The economy should resume growththis year, spurred by agriculture, and further improvement is forecast for 1997.

1

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996

Cash privatisation will draw in foreign investment, while inflation shouldcontinue to slacken. Pages 20-22

The political scene: Mr Snegur’s attempted dismissal of the defence ministerprovoked a major crisis. Parliament has rejected Mr Snegur’s language amend-ment to the constitution. There has been some progress in relations withTransdniestr, less so on Russian troop withdrawal from the region.

Pages 23-25

Economic policy: Parliament has approved a bankruptcy law in a move tobreak the chain of inter-enterprise debts. Moldova has reached a barter agree-ment with Gazprom. The central bank is getting tough on exporters who avoidrepatriating hard currency. The IMF has agreed to a $200m extended fundfacility. Foreign investors are being courted for the privatisation programme.

Pages 25-26

The economy: Industrial output is increasing year on year, while agriculturalproduction in 1995 proved better than expected. Inflation remains under con-trol, but living standards are low and wage arrears continue to mount. Officialunemployment figures understate the grave situation. Pages 26-28

Foreign trade and payments: The trade deficit in 1995 was lower thanexpected. Moldova’s non-Russian foreign debt reached $576m at end-1995.

Page 28

Statistical appendices

Important

The following tables, located in the Statistical Appendices, have been updated.A: A watchlist giving the status of the new currencies in the former Sovietrepublics.

B: A list tracking the quarter-by-quarter exchange rates for the currencies of theformer Soviet republics.

C: Tables showing the GDP and GDP per head in purchasing power parities forall 15 former Soviet republics. These tables give an indication of living stand-ards and domestic purchasing power, free from the distortions caused by theexchange rates. Pages 29-35

Editor:All queries:

Vlad SobellTel: (44.171) 830 1007 Fax: (44.171) 830 1023

2


Political structure: Belarus

Official name: Republic of Belarus

Legal system: a new constitution was adopted on March 15, 1994

National legislature: unicameral assembly, the Supreme Soviet, with 260 deputies; 198 deputies have beenelected so far

Last elections: June 23 and July 10, 1994 (presidential); May 14 and 28, November 29 and December 10, 1995(legislative)

Next elections due: 1998 (presidential); 1999 (legislative)

Head of state: president, Alyaksandar Lukashenka, elected with 80% of the popular vote on July 10, 1994

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

Main political parties: The Supreme Soviet is dominated by the Communist Party of Belarus and their alliesthe Agrarian Party; parties of left-wing/centrist orientation include the Party of People’s Accord and the Party ofAll-Belarusian Unity and Accord; parties of pro-reform orientation include the United Civic Party and theBelarusian Social Democratic Gramada; the opposition Popular Front of Belarus (PFB) failed to win any seats

Council of MinistersPrime minister Mikhail ChigirDeputy prime ministers in charge of: agriculture Vladimir Garkun the economy Sergei Ling fuel & energy Valery Kokarev international finance & trade Leonid Sinitsyn social affairs Vladimir Rusakevich financial control Vasily Dolgolyov

Key ministers agriculture Vasily Leonov anti-monopoly affairs Ivan Lyakh communications Vladimir Goncharenko defence Leonid Maltsev economy Georgy Badei education Vasily Strazhev finance Pavel Dzik foreign affairs Vladimir Senko health care Inessa Drobyshevskaya interior Valentin Agolets justice Valentin Sukalo social services Olga Dargel trade Pyotr Kozlov transport Aleksandr Lukashov

Chairwoman of the National Bank of Belarus Tamara Vinnikova

Belarus 3


Economic structure: Belarus

Latest available figures

Economic indicators 1991 1992 1993 1994 1995a

GDP at market prices BRb bn 42.2 77.6 817.3 14,300a 31,500

Real GDP growth % –1.2 –9.6 –11.6 –20.2 –10.0

Consumer price inflation % 84 969 1,188 2,220 250

Population m (mid-year) 10.3 10.4 10.4 10.4 10.4

Exports $ m 3,340 3,580 2,941 3,138 4,197

Imports $ m 3,410 3,203 3,217 3,680 4,770

Exchange rate BRb:$ n/a 152.0 3,160.0 4,652.0 11,513

May 10, 1996 BRb13,775:$1

Origin of gross national product 1994b % of total Components of net material product 1993b % of total

Agriculture & forestry 15.9 Private consumption 66.6

Industry 45.2 Public consumption 21.4

Construction 6.4 Net fixed investment 9.4

Transport & communications 7.2 Increase in stocks 18.4

Total incl others 100.0 Losses 0.4

Net exports –16.2

NMP 100.0

Principal exports 1994b % of total Principal imports 1994b % of total

Chemicals & minerals 39.5 Machinery & equipment 30.9

Textiles 18.8 Fuels & chemicals 28.5

Transport equipment & instruments 13.7 Agricultural products 12.7

Food industry Light industry 7.9

Food industry 3.8

Main destinations of exports 1995c % of total Main origins of imports 1995c % of total

CIS states 59.0 CIS states 69.0 of which: Russia 47.8 of which: Russia 59.7

Non-CIS countries 41.0 Non-CIS countries 31.0 of which: of which: Germany 6.8 Germany 9.1 Baltic states 5.7 Visegrad countries 4.1 Visegrad countries 4.7 Baltic states 3.0

a EIU estimates. b NMP is a measure of economic output which excludes depreciation and most services. c January-October.

4 Belarus


Belarus

Outlook

Reintegration with Russiawill remain popular in

Belarus—

Despite Western alarm and protests from the Belarusian opposition over thesigning on April 2 on an integration treaty with Russia, which established theCommunity of Sovereign Republics (CSR; see The political scene), there isgenuine popular support for this bilateral union. In 1991 Belarus was probablythe least enthusiastic of the Soviet republics in pushing for independence. Theinability of subsequent governments to adjust the economy to the collapse ofthe Soviet Union, a weak national identity and, more recently, a completesuppression of any criticism of close integration with Russia all reinforce theofficial view that Belarus cannot but benefit. In the short term the treaty is,therefore, likely to boost the popularity of the country’s president, AlyaksandarLukashenka.

—but not in Russia However, the CSR is far from being universally acclaimed in Russia. Criticsthere see it as little more than electioneering by the president, Boris Yeltsin, inthe forthcoming presidential poll—an attempt to steal the thunder from bothcommunist and nationalist challengers. Critics of the treaty also question whyRussia should imperil the economic progress it has achieved for the sake of aformer Soviet republic which has rather obviously refused to adjust to post-independence conditions.

Mr Lukashenka is headedfor disappointment—

One of the most intriguing questions is what role Mr Lukashenka envisages forhimself in a future union, and how Moscow will respond. Last year the Belaru-sian president suggested a six-month rotating presidency, an idea which Russianpoliticians simply cannot take seriously. Mr Yeltsin has already publicly contra-dicted Mr Lukashenka’s interpretation of the bilateral treaty’s significance, andalthough the Belarusian president can be perceived as useful by Moscow, he isalso a political liability: the Russian government will not wish to be too closelyassociated with the increasingly unsavoury regime in Minsk. It is significant thatthe Belarusian Helsinki Committee, which monitors human rights, has ap-pealed to Mr Yeltsin to use his influence to curb Mr Lukashenka’s excesses, andto obtain access for Russian media into the country.

—and the CSR couldbackfire economically

Mr Lukashenka is expecting financial benefits from the CSR treaty, such asartificially low energy prices and preferential Russian treatment for Belarusiangoods, which are currently losing out to competition from South-east Asia.(Last year Belarus saved an estimated $700m due to preferential oil prices underthe terms of the customs union with Russia.) But Moscow has given no prom-ises of such generosity. In fact Belarus could suffer financially as it has to payits share towards financing the bilateral institutions to administer the union.

Belarus 5


Furthermore, Belarusian industrial enterprises will be exposed to increasedcompetition and takeovers by their more powerful and aggressive Russiancounterparts. The Russian gas company, Gazprom, which has proved excep-tionally acquisitive, is to participate in an industrial-financial group that in-cludes the Belarusian distributor, Beltranzgas. Although Belarus’s existing gasdebts to Gazprom have been cleared by the “zero option” deal (1st quarter1996, page 14), new arrears are accumulating. Belarus’s banking sector will alsomeet unwelcome competition from Russian institutions.

Political oppression islikely to get worse

Belarus now has the most repressive political climate in Europe, and it is likelythat this situation may well become worse. The local press, which is alreadymuzzled, will be subject to further purges, forcing more journalists to publishunderground or abroad. Widespread purges in the educational establishment,in the unions and any institution with a network for disseminating infor-mation or nuclei for organised dissent are also likely. The president couldconceivably even ban the main opposition force, the Popular Front of Belarus(PFB). The regime is likely to argue that this is needed in order to restrain“foreign forces”—be they Ukrainian ultra-nationalists, Chechen rebels or theUS Central Intelligence Agency (CIA)—threatening the country. Mass demon-strations, which in the absence of a free press are the only means by which theopposition can maintain public awareness, will become more violent.

Further currencyrestrictions are on the

horizon

The president appears determined to impose severe restrictions on the currencyas a means of propping up its value. Interbank currency trading and hard-currency loans have already been banned, and the currency exchange is in theprocess of being nationalised. Further currency controls are inevitable, whichwill complicate life for importers. As Mr Lukashenka acknowledged, banninghard currency loans would reduce the trade deficit. Exporters would, however,be inclined not to declare their earnings, and there would be a parallel rise inthe black market and the criminalisation of the economy. SinceMr Lukashenka cut his political teeth in 1994 as head of the anti-corruptionparliamentary commission, he could consider establishing an economic policeunit designed to sweep up black-marketeers. This would be a popular move,which would also take care of any dissidents in the process.

GDP decline will slowdown—

There are no signs that Belarus will experience an economic recovery this year.Industrial output is still falling, and agriculture is still dependent on cheapcredits (as well as the unreliable climate). The country’s traders, meanwhile,will suffer as a result of the ban on hard-currency loans. Further indications ofthe poor state of the economy are the rising number of loss-making companiesand the accumulation of wage arrears. The EIU does not share the Belarusiangovernment’s view that real GDP will rise by 1% this year and is holding toearlier forecasts of a 5% decline in 1996, an improvement nevertheless on thefall of 10% in 1995. A recovery in Russia in 1997—forecast by us at 4%—shouldpull the Belarusian real GDP up by about 3%.

—while prices willcontinue to fall

The National Bank of Belarus (NBB, the central bank) has been successful inkeeping prices under control by reining in the money supply, and by bringingthe annual inflation rate down from 2,220% in 1994 to 250% in 1995.

6 Belarus


Monthly data for the beginning of 1996 indicate that the bank is maintainingthis policy, and we believe that on present indicators annual inflation in 1996should fall to about 90%. For 1997 we envisage a further easing down, to 50%.The president seems to have succeeded in wresting control of the NBB fromparliament, and his views on inflation—and their impact on central bankpolicy—will have a strong influence on future trends. Mr Lukashenka appearsto favour an overvalued Belarusian rouble to lower the cost of any futurecurrency integration with Russia, as well as dampen inflation—the desire forcurrency integration means that Belarus cannot allow its inflation and interestrates to diverge from those of Russia. Whether Mr Lukashenka sanctions the1996 budget’s $480m credits for the agro-industrial lobby, and whether he iswilling to trade inflationary discipline for populism by forcing the governmentto settle the backlog of wage arrears remains to be seen. In either case ourinflation forecasts would have to be revised upwards.

Foreign investors will stayaway

Despite recent policy initiatives such as a law authorising free economic zones,political repression, uncertainty over the future and confused privatisationpolicies will continue to deter Western investors. Western investors can alsolegitimately ask if there is any point in investing in a country which mightbecome a Russian province when they can go directly to Russia itself. On theother hand, should the CSR evolve into a stable arrangement, generating pres-sure on Belarus to open up and reform its economy, then investors might cometo perceive it as a bridgehead for preferential access to Russian markets.

Forecast summary(% change on previous year unless otherwise indicated)

1994a 1995b 1996c 1997c

Real GDP –20.2 –10.0 –5.0 3.0

Industrial production –27.0 –10.0 –3.0 3.0

Consumer prices 2,220 250a 90 50

Exports $ m 3,138 4,197 4,400 4,600

Imports $ m 3,680 4,770 5,000 5,300

a Actual. b EIU estimates; trade figures estimated on the basis of an overvalued official exchangerate. c EIU forecasts.

-25

-20

-15

-10

-5

0

5

1993 94 95(a) 96(b) 97(b)

BelarusEast Europe excl Russia

Gross domestic product % change on previous year

(a) EIU estimates. (b) EIU forecasts.Source: EIU.

0

300

600

900

1,200

1,500

1991 92 93 94 95(a) 96(b) 97(b)

Consumer price inflation%

(a) EIU estimate. (b) EIU forecast.Source: EIU.

Belarus 7


Review

The political scene

The Community ofSovereign Republics is

created—

On April 2 the president, Alyaksandar Lukashenka, realised a major politicalambition by signing an integration treaty with Russia. In a ceremony blessedby the patriarch of the Russian Orthodox Church, Alexey II, the Russian andBelarusian presidents created the Community of Sovereign Republics (CSR),which by unfortunate coincidence has the same acronym in Russian as theformer Soviet Socialist Republic, namely SSR.

The main features of the treaty are:

• coordination of foreign and military policy, border policing and crimeprevention;

• unification of taxation and investment legislation, transport and energysystems;

• common tariffs, pensions and other welfare benefits; and

• a common currency and a joint credit, fiscal and monetary system by 1997.

New administrative bodies to steer the CSR are to be created. They include aSupreme Council modelled on the European Commission and comprising thetwo presidents and government representatives, and a parliamentary assemblywith deputies from both legislatures. Both countries are to retain their separateflags and other sovereign emblems, in Belarus’s case the Soviet insignia revivedlast year.

—which could lead to aconfederation

Mr Lukashenka has presented the accord as a means of strengthening ratherthan reducing Belarus’s sovereignty and dismissed any suggestions that itamounts to an annexation of the country by Russia. He has argued that theunion is technically one of equals and that further integration requires bothcountries to hold referenda. The Belarusian president has stated that if the CSRproves successful, the two countries could establish a confederation towardsthe end of 1998.

Russian reaction ismixed—

The treaty came two weeks after a controversial vote by the Russian State Dumaabrogating the Belovezhsk accord of 1991 which dissolved the Soviet Union,and two days after four members of the Commonwealth of Independent States(CIS), including Belarus, signed a less comprehensive quadripartite integrationtreaty (see below). It is not surprising, therefore, that the formation of the CSRwas hailed by the Russian conservative press, for example by the daily news-paper, Pravda, as the beginning of the restoration of the Soviet Union.

—and currency union isunlikely

Other commentators viewed it as an electioneering manoeuvre by the currentincumbent, Boris Yeltsin, to boost his chances in June’s presidential election,and an attempt by Belarus to get Russia to bail it out of its financial difficulties.The most contentious element of the accord concerns the eventual unificationof the two countries’ monetary systems and budgets. The governor of the

8 Belarus


Russian Central Bank (RCB), Sergei Dubinin, announced at the time of signingthat a common currency was unlikely in the near future as both countries havepursued radically different economic courses since 1991. Furthermore, both arejointly expected to foot the bill for the budget to run the CSR. It should benoted in this context that an attempt in 1994 to form a financial union col-lapsed when Minsk refused to pay its share of the running costs or give up thesovereignty of the National Bank of Belarus (NBB, the central bank).

Four-state agreement getsovershadowed

The CSR is technically open to other states. While no former Soviet republic hascome close to matching Belarus’s desire for reunification, some states havemoved towards a relationship closer than that afforded by the CIS. On March 29Russia, Belarus, Kazakstan and the Kyrgyz Republic signed the Treaty onDeepening Integration in Economic and Humanitarian Spheres. This documentcomprises 28 articles and aims to create a common market in goods and services,as well as greater coordination in defence policy, crime prevention, transportand energy. Although at the time of its signing Mr Yeltsin described monetaryintegration as an ultimate goal of the treaty, it does not, unlike the CSR accord,include a timetable for unifying currencies, banking or entire financial systems.The two Central Asian participants regard Belarus’s wooing of Russia as un-seemly, and both feel that its bilateral accord with Russia has undermined someof the potential benefits of their own treaty.

Integration remainspopular—

Mr Lukashenka can legitimately claim that he has a mandate to forge closerlinks with Russia. In the May 1995 referendum 82.4% of participants voted foreconomic integration with Russia (3rd quarter 1995, page 7). Public support forcloser ties with Russia is quite understandable. For the majority of the popul-ation, life was undoubtedly better in the Soviet era, and factory managers andworkers in particular believe that the pact will restore Belarus’s position as anindustrial powerhouse in the region. In March a well-orchestrated and highlypublicised rally of 30,000 marched in Minsk to back the union. However, arecent poll in Minsk revealed that enthusiasm for reunification is not as strongas during the May 1995 referendum, and that a large section of the populationis confused about the treaty with Russia. Of the 300 questioned, 47% gave thebilateral treaty full support, 16% partial support, and 17% no support, while20% were “don’t knows”.

However, according to a poll held at the time of the signing, the president’spopularity has risen, with 46.4% of those questioned saying that they wouldvote for him in a new presidential election. However, given the widespreadpress censorship and the increasing impression that formulating anti-Lukashenka views can land people in prison, it is questionable how validBelarusian polls are these days.

—but parliament tooksome convincing—

Parliament initially withheld its support for the union but on March 29 votedfor the treaty, with 157 votes in its favour and only five opposed to it. TheSupreme Soviet stated that the treaty was based on the principles of statesovereignty and territorial integrity, and rejected a Communist Party proposalsimilar to that passed by the Russian State Duma in March condemning the1991 treaty dissolving the Soviet Union.

Belarus 9


—and the treaty has alsoset off mass protests

As April wore on the rallies against the union with Russia attracted increasingsupport. On April 2 around 20,000 turned out in Minsk after the signing. Thatparticular demonstration prompted the president to threaten to expel a num-ber of Western diplomats who had attended the rally. Mr Lukashenka alsothreatened to remove accreditation from foreign journalists who have pre-sented recent anti-government protests and other political developments in aless than flattering light. He has been particularly incensed by the irreverentcommentary of many Russian journalists but has failed to persuade Moscow toimpose a Belarusian-style censorship on its press. As there was a large numberof youngsters in the rallies, Mr Lukashenka is now holding teachers responsiblefor instigating political unrest and is threatening to dismiss many of them.

Opposition leaders flee thecountry

The most disturbing political developments in Belarus concern the president’sattitude towards the opposition. Before the signing of the accord the govern-ment issued arrest warrants for the leader of the Popular Front of Belarus (PFB),Zyanon Paznyak, and the party spokesman, Syarhei Naumchuk, for incitingunrest. The two were in Kiev at the time, speaking at a rally against the forth-coming union. The Ukrainian authorities, which view the accord as a disturb-ing development, ignored Minsk’s request to extradite the two men.Mr Paznyak and Mr Naumchuk, meanwhile, moved on to the Czech Republic,and thence to Poland.

The official line in Minsk is that the PFB leaders are not under any threat, butare making the type of mischief typical of disgruntled, thwarted politicians.Minsk claims that the two party leaders decamped to Poland because of thePFB’s failure to win any seats in last year’s parliamentary elections or to stopthe popular accord. However, opposition-sponsored rallies against the accordhave been broken up by the Ministry of Interior Forces, and PFB politicians andtheir families have been routinely harassed by security forces.

Chernobyl anniversarygenerates further unrest

Mr Paznyak did return to Belarus to attend a mass rally (which had beenbanned) commemorating the tenth anniversary of the explosion of reactornumber four at Chernobyl, the Ukrainian nuclear plant located close to theBelarusian border. Belarus received an estimated 70% of Chernobyl’s radio-active fallout, notably in the Gomel and Mogilev areas. The plant’s remainingoperating reactors have had regular minor accidents and leaks, while forest firesin the area at the end of April 1996 generated further radioactive smoke fromthe contaminated land.

The demonstration in Minsk to commemorate the explosion at Chernobylattracted 50,000, making it the largest rally to date. It was also one of the mostviolent, with police arresting around 200, including 17 Ukrainian participantsfrom the centre-right Rukh party and from Ukrainian extreme nationalistgroups, as well as a number of journalists and some innocent passers-by. Manywere sentenced to between five and ten days’ imprisonment. Two prominentPFB members were detained after the demonstration: the deputy party chair-men, Yuri Chodyka and Vyatsuk Vyachorka, went on hunger strike in protestat violations of civil rights. As a result they have been charged with fomentingpublic disorder.

10 Belarus


The Chernobyl protests prompted the president to ban all future rallies up toMay Day, when once again anti-Lukashenka protesters took to the streets. Livetelevision and radio broadcasts were also banned, in this case until the VictoryDay public holiday on May 9.

The G7 summit snubsMr Lukashenka

Mr Lukashenka attended the Chernobyl summit sponsored by the Inter-national Atomic Energy Agency in Vienna earlier in April, but unlike Ukraine’spresident, Leonid Kuchma, he was pointedly not invited to the G7 “nuclear”summit in Moscow. Russia and France had reportedly wanted Mr Lukashenkato attend, but were overruled by other countries alarmed at the Belarusianleader’s escalating authoritarianism. This diplomatic snub served little purposeexcept to push the president further into his personal Soviet-era dream world.While Ukrainian and Russian leaders and nuclear scientists used the tenthanniversary to acknowledge the design faults of Chernobyl, Mr Lukashenkamade an extraordinary public statement condemning the evacuation of Be-larus’s most heavily contaminated land as a hasty mistake. Belarusians whowanted to return should not be prevented from doing so, he asserted. Further-more, the affected land would in the not-too-distant future be reclaimed togrow “pure food”. Belarusian anti-nuclear campaigners are also alarmed byrecent government statements about the need for a nuclear plant to satisfy thecountry’s energy needs (see Economic policy).

The Constitutional Courtis under threat

Opposition to Mr Lukashenka is not confined to politicians. The president hasbeen thwarted on numerous occasions by the Constitutional Court, which hasdeemed a number of his decrees illegal (1st quarter 1996, page 9). This includedMr Lukashenka’s “decree of decrees” issued on November 29, 1995, whichstated that all institutions—parliament and the court among them—must obeyhis decrees unconditionally, and which the court ruled as unconstitutional andillegal on April 30. Mr Lukashenka is now threatening to disband the court. Inhis annual address to the court at the end of March the president declared thatthe Supreme Soviet should have the right to amend the constitution, andthat presidential decrees should have a greater legal force. Subsequently, undera decree issued on April 12, Mr Lukashenka established an alternative body, theLegal Constitutional Council. Like the court, it is supposed to examine the con-stitutional legality of decrees, laws and treaties, and then presumably rubber-stamp them. The council’s first task is to determine the legality of the April 2union treaty with Russia.

Relations with Poland arestrained—

During his brief sojourn in Poland Mr Paznyak met opposition leaders, includ-ing the former president, Lech Walesa. Significantly he did not succeed inmeeting the president, Aleksander Kwasniewski, who shortly thereafter paid anofficial visit to Minsk, despite warnings that in doing so he could be seen asendorsing Mr Lukashenka’s regime.

For the Polish president, relations with Belarus require delicate handling.NATO membership—which would imply Poland’s willingness to host NATOnuclear missiles—is one of Mr Kwasniewski’s priorities, but Minsk has regularlyannounced that if Poland joins the alliance, it will be obliged to take “necessarymeasures”, including the deployment of troops along the border. Minsk hasalso hinted that Russia could be invited to establish bases in the region.

Belarus 11


Poland was also put out by Minsk’s consent to Russia’s plan to build a highwaylinking the Baltic enclave of Kaliningrad with Belarus. The highway would endRussia’s dependence on Lithuania as a transit route to Kaliningrad, passingthrough Poland instead. The plan was initially proposed by Mr Yeltsin, rejectedby Poland and then shelved by the Russian side. It is still enthusiasticallyendorsed by Mr Lukashenka for providing a bridge between Kaliningrad andthe Russian “Motherland”.

—but relations withUkraine are in worse shape

The Ukrainian leadership, which is attempting to steer an avowedly neutralcourse in its relations with Russia, has been understandably alarmed byBelarus’s head-long rush into a union. Ukrainian diplomats in Minsk and theUkrainian foreign ministry have also been subjected to a barrage of complaintsfollowing the presence of some of their nationalists at the Chernobyl rally.

CFE obligations arebehind schedule

Belarus has missed the second deadline for removing weaponry from its soilunder the Conventional Armed Forces in Europe (CFE) treaty. The first deadline,November 16, 1995, was extended to April 26, 1996. Belarus still has to remove104 armed vehicles, although technically it claims to have almost fulfilled thatobligation by selling 100 T-72 tanks to Hungary to replace a similar number ofolder T-55s which Budapest intends to destroy. The delay is not a serious breachof the CFE treaty because Belarus has complied in other respects: it has since1992 destroyed 1,873 tanks, 1,441 armoured vehicles and 130 combat aircraft.

Economic policy

IMF suspends furthercredits—

The IMF has refused to release any further tranches due under its agreementwith Belarus because of the slow pace of market reform, state interference inthe economy and continued subsidies for the agro-industrial lobby. Last yearthe IMF agreed to a $300m stand-by credit for Belarus, disbursing the first, andto date only, tranche of $70m in September 1995.

The Fund has been particularly critical of the government’s maintenance of thefixed exchange rate (see below) and the slow progress on privatisation. It alsoobjected to the fact that the 1996 budget envisages a deficit equivalent to 3.1%of GDP, beyond the 2.7% target set by the Fund. The continuing practice ofsubsidising the agro-industrial lobby and weakening monetary policy boththreaten to undermine Belarus’s only noticeable economic policy achieve-ment—that of keeping inflation under control.

—as the 1996 budgetpromises further subsidies

The 1996 budget to which the IMF has taken such exception was passed byparliament at the end of March. Most reports put the deficit at BRb5.5trn($476m), or 3.1% of GDP, with an income of BRb37.7trn and expenditure ofBRb43.2trn although according to the Russian agency, ITAR-TASS, subsequentrevisions have managed to shrink it to the IMF-stipulated target of 2.7%. Value-added tax (VAT) is set to provide the biggest source of revenue (27.4% of thetotal), followed by income tax (21.1%), excise duties (10.8%) and customsduties (8.5%). The deficit will be funded by credit lines from the National Bankof Belarus (NBB, the central bank) and by foreign loans and Treasury-bill sales.

12 Belarus


Ominously, the budget envisages an increase of 50% in spending on the inte-rior ministry, security services and government administration. Free transportprivileges have been extended to many groups, including ministerial employ-ees. The expenditure figures for 1996 exclude a RBb5,520bn allocation for theagricultural sector. According to the finance minister, Pavel Dzik, the creditswill push the deficit to 6% of GDP by the end of 1996.

Currency exchange hasbeen nationalised—

As part of the continuing centralisation of the economy a presidential decree inApril nationalised the Minsk Interbank Currency Exchange (MICE), placing itunder the control of the NBB. The exchange’s former shareholders are to becompensated by the NBB on the basis of share values as of January 1, 1996. Anew managing director, Mikalay Byalow, was appointed in April. It was a signof the president’s confidence in his control of Belarus that he acknowledgedwithout much prompting that the nationalisation of the exchange was indeedillegal.

—and hard-currency loansbanned

At the end of April the NBB banned banks and companies from taking outhard-currency loans. These were popular with borrowers because the interestrates they carried, around 35%, compared favourably with the 100% rate leviedon credits issued in the weak Belarusian rouble. Importers and other companieswith hard-currency requirements must now first borrow in Belarusian roublesand then use the loans to purchase hard currency on the exchange.

The Belarusian roubledepreciated in May

Belarus’s exchange rate policy also came under criticism because of the costsincurred by the NBB in maintaining the Belarusian rouble at an artificially highrate. Although the government this January established a currency corridor ofBRb11,300-13,100:$1 to last until July 1, the NBB in practice continued tomaintain a fixed rate of BRb11,500:$1. At the Moscow Interbank CurrencyExchange the Belarusian rouble traded closer to BRb12,000:$1, while the streetrate at the end of April was around BRb15,000:$1. This official rate had re-mained unchanged since March 1995, but at the end of April, following theban on hard currency loans, the Belarusian rouble’s value fell to BRb12,290:$1.This was close to the currency corridor’s limit, and the decline continued in theweeks that followed, suggesting a change of policy. The NBB’s future plans forthe currency remain unclear. (According to a recent report, the EuropeanCommission recommended that the currency be devalued to BRb15,300:$1 asthe best means of stimulating exports.)

The fixed-rate policy was underpinned by a requirement for all exporters tosurrender hard currency and Russian rouble earnings to the MICE. A 10% levyon hard-currency purchases was then charged to importers, with the proceedspassed on to the exporters in compensation for the losses due to the overvaluedBelarusian rouble.

New NBB governorpromises renationalisation

In February, the Belarusian president, Alyaksandar Lukashenka, appointedTamara Vinnikova as the new chairwoman of the central bank. One of her firstpublic announcements was a promise to renationalise the country’s six largestbanks, echoing Mr Lukashenka’s earlier commitments. The banks involved areBelagroprombank, Belbisnesbank, Belpromstroibank, Belvneshkonombank,Priobank and Sbergatelny Bank-Belarusbank (1st quarter 1996, page 11).

Belarus 13


With Mr Lukashenka determined to bring all major institutions under his per-sonal control, his appointee—the former chairwoman of Sbergatelny Bank-Belarusbank—is also expected to maintain stricter control of the country’sbanking system. The new parliament, however, in its first serious conflict withthe president, initially refused to ratify her appointment, continuing to sup-port the former acting governor, Nikolai Kuzmich. However, in May parlia-ment yielded to Mr Lukashenka.

Privatisation policyremains confused

Privatisation in Belarus has been slow even by the standards of other formerSoviet republics (except Russia), with the private sector currently accounting foronly 27% of the economy. Belarus claims to have privatised 2,000 companiesalready, although the programme is effectively on hold. At the annual generalmeeting of the European Bank for Reconstruction and Development (EBRD) inSofia in April, Belarusian delegates announced that privatisation would resumelater this year, involving 516 companies, but using cash rather than vouchers. Atthe beginning of March the privatisation ministry banned secondary trading inBelarusian privatisation certificates. The vouchers, with a nominal value ofBRb30,000, were trading in the secondary market at some BRb200,000 ($17.4).Holders must now exchange them for shares.

Nuclear plant gets seriousconsideration

As part of a policy to diversify energy supplies and break the dependence onRussian oil, Belarus is contemplating the nuclear option. The energy ministryannounced in March that it intends to have a plant operational by 2005, andsix potential sites have already been identified. Earlier plans for two nuclearplants were abandoned after the Chernobyl explosion on April 26, 1986, butalthough Belarus received the bulk of the fallout, it has never ruled out thepossibility of using nuclear power itself. On cost grounds alone, the Russiannuclear industry would presumably play a leading role in constructing thefacility. There have, however, been no reports to this effect.

Ford project is approved— The president has approved a major investment by Ford of the USA to assemble5,000-10,000 Ford Escorts and Transit vans at the Minsk Tractor Factory. Theproject, a joint venture between Ford (51%), Russia’s Lada OMC Holding (23%)and the Belarusian government (26%), is the most significant foreign invest-ment in Belarus to date and is expected to attract $250m-300m from theforeign partners. It was formulated during Mr Lukashenka’s visit to the USA lastOctober, and will attract value-added tax (VAT), customs and excise duty relieffor the next five years. Production is set to start in 1997, and most of thevehicles will be exported to Russia. The project received the go-ahead in spiteof a strike by workers at the Minsk plant, who were protesting that the factoryshould continue to specialise in Belarusian tractors. The 30,000 workers fearlarge-scale lay-offs, but have had little influence on the president, as he sus-pended trade unions last year.

—investment climateremains poor—

A recent World Bank report described Belarus’s environment for foreign invest-ment as among the worst in the region and, for that matter, in the world. Thebank singled out the punitive tax system, which also hampered exports, as themain deterrent. It also blamed the slow pace of economic reform. In 1991-95Belarus attracted a total of only $396.1m in foreign investment. Germany

14 Belarus


provided the largest share ($120.3m) of this, followed by the USA ($69.2m) andPoland ($65.3m). The one positive piece of news here is the approval of Ford’srecent car assembly joint venture (see Economic policy), which should stimulaterelated investments such as tyre, glass and textile manufacturing in its wake.

—free economic zones areplanned

A decree signed by Mr Lukashenka on March 26 established the basic rules forfree economic zones to be created in Belarus. The zones, as yet unspecified, willoffer investors tax and duty advantages, as well as the opportunity to set uphard-currency funds. They are aimed at attracting foreign capital and creatingnew jobs.

The economy

GDP shows signs ofstabilising and inflation is

falling further—

The economy is still performing poorly, although the worst of the declineappears to be over. According to the Ministry of Statistics, real GDP in Februaryactually rose by 1% compared with the previous month, and March registered afurther increase of 9%. Total GDP for the first two months of the year, atBRb22,070bn ($1.9bn), however, was 8% down in real terms on the correspond-ing period in 1995, while that for the first quarter of 1996 was 3% below 1995figures. In a separate report, the ministry noted that industrial output inJanuary-February 1996 fell by 7% compared with the first two months in 1995.The sectors recording the biggest drops were light industry (down by 26.7%),construction materials (down by 17.8%) and mechanical engineering (down by15.3%). Electricity generation fell by 14.4% over the period, but fuel and powerengineering increased their output by 3.4%. There were also regional differ-ences, with Minsk and Brest region recording industrial output falls of 15% and13.4% respectively, while Vitebsk’s production rose by 0.7%.

Inflation continues to remain low after falling to average monthly rates of3-4% by the end of 1995. The month-on-month inflation rate was 5.6% inJanuary, 4% in February and 2% in March. In March food prices rose by 1.6%,those of other goods by 2.4% and services by 3.3%. January’s high rise waspartly due to the implementation of a wage rise which represented an increaseof 170% over January 1995.

—prompting a reductionin NBB interest rate

The continuing fall in the pace of price rises prompted the National Bank ofBelarus (NBB, the central bank) to cut its refinancing rate from the 66% prevail-ing since August 1995 to 55% as of March.

The authorities continueto provide large

agricultural subsidies—

Large subsidies in the form of cheap credits continue to pour into the state andcollective agricultural sector. In March the sector was due to receive fuel worthsome BRb315bn on credit and a further BRb300bn for machinery and partsfrom the state budget. In addition it is due to get BRb200bn from nationalextra-budgetary funds and BRb150bn from local authorities for fertiliser. Withthe farms themselves expected to finance only 20% of their needs, the stateand local budgets making up the difference, the agricultural sector will contin-ue to make substantial calls on the state budget.

0

500

1,000

1,500

2,000

2,500

1991 92 93 94 95(a) 96(b) 97(b)



Belarus 15


—and an improvedharvest should reduce the

need for imports

Regardless of their inflationary effects, the credits should alleviate the grainshortages prevailing in Belarus over the last two years, when the governmentwas forced to resort to imports. Officials predict that the 1996 grain harvestshould reach 6m tons, compared with 5.6m tons in 1995 and 5.4m tons in1994. The sugar beet harvest in 1996 is expected to rise to 1.55m tons, up from1.15m tons the previous year, according to the Ministry of Agriculture. Thiswill also reduce Belarus’s import requirements.

Corporate losses continueto rise—

The number of companies reportedly running at a loss has risen substantially.According to the Ministry of Statistics, at the beginning of February 2,681companies, 30.8% of the total number registered, were losing money. Thisfigure is considerably higher than last November, when 1,560 enterprises(17.9% of the total) were running at a loss (1st quarter 1996, page 13). Accord-ing to February’s figures, the sectors in the worst shape were housing, utility,trade and catering.

—as do wage arrears Meanwhile, Belarusian workers are being penalised by delayed wage payments.As of March the arrears from 1995 alone exceeded BRb500bn, while the totalowed was around BRb860bn. The worst offenders were the collective farms,which accounted for more than 40% of the backlog, followed by manufacturingindustry (30%) and construction (14%). At the end of February the president,Alyaksandar Lukashenka, promised workers that the government would clearthe arrears by early March, although no presidential decree had been issued tothis effect.

Foreign trade and payments

Trade stays in deficit andRussia clears Belarus’s debt

In 1995 Belarus exported BRb48.3trn ($4.2bn at the overvalued official ex-change rate—suggesting an unrealistically sharp rise on the previous year) ofgoods and imported BRb54.9trn, yielding a deficit of BRb6.6trn. Trade withmembers of the Commonwealth of Independent States (CIS) was in deficit byBRb7.3trn, that outside the region in surplus by BRb667bn. According to morerecent data from the Ministry of Statistics, in the first two months of this yearBelarus recorded a trade deficit of BRb2.3trn, on exports of BRb3.3trn andimports of BRb5.9trn.

Under an agreement between the Belarusian president, AlyaksandarLukashenka, and his Russian counterpart, Boris Yeltsin, in February, Russia iswriting off Belarus’s debts in return for Belarus waiving Moscow’s obligationsfor its nuclear missiles and the maintenance of Russian troops on Belarusianterritory (1st quarter 1996, page 14). Outstanding Belarusian debts consist of$470m in state credits owed to the Russian government and $916m owed tothe state gas company, Gazprom. The Belarusian finance ministry estimatesthat Belarus benefited from this deal, the so-called zero option, making asaving of some $150m-200m, although fuel bills to Gazprom are alreadymounting up again.

0

1

2

3

4

5

6

1991 92 93 94 95(a) 96(b) 97(b)

ExportsImports

Merchandise trade$ bn


16 Belarus


Provisional tradeagreement has been

signed with the EU—

On March 26 Belarus signed an interim trade agreement with the EuropeanUnion (EU). The agreement, which builds on the broader economic cooper-ation accord signed in 1995, lowers the duties imposed by the EU on Belarusiangoods. It is, however, asymmetrical, with Belarus still charging a much higherrate of duties on EU imports into the country.

Separately, the EU has imposed anti-dumping fines on Belarusian polyester,claiming it has been exported into the union at prices of 43.5% below prod-uction costs.

—and there is a range ofother international

agreements

Recent international accords signed by Belarus include: an air transportationdocument with Belgium; a double taxation agreement with the Netherlands; aprotocol with Ukraine on border cooperation; a series of cooperation agree-ments covering matters such as transport, shipping, education and construc-tion with Kaliningrad; an agreement on visa-free travel with the CzechRepublic; a treaty of friendship and cooperation with the Federal Republic ofYugoslavia; and agreements on investment protection, trade and cooperationwith Bulgaria.

Belarus 17


Political structure: Moldova

Official name: Republic of Moldova

Legal system: a new constitution was adopted on July 28, 1994. The Transdniestr region has declaredindependence, which is unrecognised, while the region inhabited by the Gagauz minority was granted speciallegal status in December 1994

National legislature: unicameral assembly, the parliament, with 104 members, directly elected

Last elections: February 27, 1994

Next elections due: November 17, 1996 (presidential); February 1998 (legislative)

Head of state: president, Mircea Snegur, directly elected on December 9, 1991

National government: Moldova has an executive presidency. The prime minister, Andrei Sangheli, chairs theCouncil of Ministers; he was reappointed to his post by the president on March 31, 1994. The currentgovernment was formed on April 5, 1994

Main political parties: the Democratic Agrarian Party won 56 seats in parliament in the 1994 election butis down to 43 after defections in mid-1995 to two new groups, the Party of Revival and Harmony and the Partyof Social Progress of Moldova; the Socialist Party-Unity bloc has 28 seats; the Peasants and Intellectuals bloc,11 seats; the Christian Democrats-Popular Front for Moldova bloc, 9 seats. Other significant parties are theCommunist Party and the Congress of Intellectuals

Council of MinistersPrime minister Andrei SangheliFirst deputy prime minister Ion GutuDeputy prime ministers Valentin Cunev; Valeriu Bulgari; Grigore OjogState minister (in charge of government staff) Gheorghe Gusac

Key ministers agriculture Vitalie Gorincioi culture Mihai Ciubotaru defence Pavel Creanga finance Valeriu Chitan foreign affairs Mihai Popov health care Tinofei Mosneaga industry Grigore Triboi information, computers & telecommunications Ion Casian interior Constantin Antoci justice Vasile Sturza labour & social protection Dumitru Nidelcu national economy Valeriu Bobutac national security Vasile Calmoi privatisation Ceslav Ciobanu transport Vasile Iovv

Chairman of the National Bank of Moldova Leonid Talmaci

18 Moldova


Economic structure: Moldova

Latest available figures

Economic indicators 1991 1992 1993 1994 1995

GDP at current prices Lei m n/a 192 2,210 5,780 7,636a

Real GDP growth % –17.5 –29.0 –1.2 –31.2 –1.0a

Consumer price inflation % 98 1,208 1,283 587 30

Population m (year-end) 4.36 4.35 4.35 4.35 4.34

Exports $ m fob n/a 426.6 484.8 632.1 740.6

Imports $ m fob n/a 624.9 636.3 682.1 773.1

Current account $ m n/a –38 –155.3 –177.3 –107.7

Reserves excl gold $ m n/a 2.45 76.3 179.9 239.1

External debt $ m n/a 38.5 289 440 576

Exchange rate (av) Lei:$ – – – 4.10 4.50

May 10, 1996 Lei4.60:$1

Origin of gross domestic product 1994 % of total Components of gross domestic product 1994 % of total

Agriculture & forestry 47.7 Private consumption 51.2

Industry 27.5 Public consumption 19.9

Total incl others 100.0 Gross fixed investment 9.3

Increase in stocks 25.1

Losses 0.5

Net exports –6.0

GDP 100.0

Principal exports 1993 % of total Principal imports 1993 % of total

Food industry & beverages 41.8 Energy & fuel 51.8

Machinery & equipment 19.6 Agriculture & food 17.1

Light industry 8.5 Machinery & equipment 8.4

Agriculture 6.3 Chemicals & petrochemicals 7.8

Light industry 3.8

Main destinations of exports 1995 % of total Main origins of imports 1995 % of total

CIS countries 60.4 CIS countries 66.1

Russia 48.3 Russia 33.9

Romania 13.9 Ukraine 26.4

Ukraine 7.9 Romania 6.8

Germany 6.1 Belarus 6.1

Germany 5.5

a Preliminary.

Moldova 19


Moldova

Outlook

More tension between thepresident and parliament

in the run-up to elections—

The presidential elections, due on November 17, will continue to polarise theMoldovan political scene. The ambitions of the president, Mircea Snegur, forre-election are causing friction with the government and parliament.Mr Snegur’s most serious likely rivals are the prime minister, Andrei Sangheli,and the parliamentary chairman, Petru Lucinschi, although the president hasfocused on attacking the institutions they represent rather than the individualsthemselves. Since official campaigning has not yet begun, Mr Snegur has notbeen forced to defend his own presidential record.

—with Mr Snegur thefavourite candidate—

Although the presidential ballot will not be held until November and the law onpresidential elections was only passed in mid-April, early indications show theincumbent as the favourite. According to one poll he would receive 26% of thevote, with Mr Lucinschi in second place. The president’s assaults on parliamentand government have so far proved to be successful electioneering tactics: an-other poll showed that dissatisfaction with parliament, at 67%, and with thegovernment, at 61%, outweighed that with the presidential office, at 49%.Mr Snegur’s campaign aims to capture those voters dissatisfied with the govern-ment for reasons of economic hardship, as well as those unhappy with thewell-intentioned but intellectually flawed attempts to create a Moldovan iden-tity by rewriting history. Although there have been no student demonstrationsagainst “Moldovanisation” since February, parliament’s failure to amend thedesignation of the official language as “Romanian” is most likely to result inmore protests in the near future, and the president will fully exploit these.

—and his re-electionwould augur a

strengthened presidency

Mr Snegur has made no secret of the fact that if re-elected he would institute astrong presidency. In the light of political developments in the former Sovietrepublics in Central Asia, and more recently in Belarus, the prospect makesMoldova’s committed democrats uneasy. Mr Snegur has also promised a bi-cameral parliament, but his recognition of the need for a separation of powerin a modern democracy is undermined by his formation of a party, the Party ofRevival and Harmony, whose main function appears to be to keep him inpower. Any substantial changes to Moldova’s political structure would necessi-tate a change in the constitution, which would require the approval of at leasttwo-thirds of parliamentary deputies, so Mr Snegur would not find it so easy tocapture a disproportionate amount of power. In spite of political animosities,however, all concerned—the president, parliament and government—haveshown respect for the constitution, the Constitutional Court and the inde-pendence of the judiciary.

20 Moldova


Stalemate is likely onTransdniestr—

There will be no progress on resolving Transdniestr’s status until the Russianpresidential elections are over. Even then the Tiraspol authorities are stubbornenough to continue with their demands for independence, for which there iscurrently sufficient local support. The region’s Russian residents naturallyfavour closer links with Moscow, and both they and the ethnic Ukrainianpopulation are against any rapprochement with Romania. Moscow’s attitude,which appears to border on indifference, is characterised by procrastination innegotiations and by lack of progress in removing its weaponry. Many Westernobservers have drawn the inevitable conclusion that although it is in no pos-ition to fund a major army presence, Russia is in no hurry to leave.

—until Tiraspol faceseconomic reality

Although Transdniestr’s attempted secession deprived Moldova of a large partof its industrial base, much of this is actually obsolete. Transdniestr is too smalland isolated to survive economically as an independent nation. It continues tobe propped up by Moldovan largesse, its own currency is worthless, and thereis little sign that Russia is willing to support the region financially. Inflation isreported to be running at 40% per month.

There are signs that Igor Smirnov, the president of the self-styled republic, isbeing forced by economic necessities to take a more conciliatory line towardsChisinau. Moldova, for its part, appears willing to grant some political conces-sions, but will not yield to the region’s demand for its own banking system.Moldova’s trump card would be to make Transdniestr’s industries directly re-sponsible for their large share of energy debts. In the meantime, Transdniestr’seconomy will continue to degenerate, with increasing numbers of the popul-ation turning to smuggling and black-marketeering as a means of survival.

Unemployment will risesharply—

Moldova has maintained its unemployment level at an artificially low rate ofbelow 2%, partly hoping that an economic recovery will take up the slack. Thisadministrative mechanism probably works more to the government’s advan-tage than to that of the workers currently on short time or unpaid leave, sincethey cannot technically claim unemployment benefit and thereby put furtherstrain on the budget. Meanwhile, those workers who have not been paid formonths still benefit from kindergartens, health facilities and other workplace-related facilities. However, the passage of the bankruptcy law in March willforce viable companies to adopt cost-cutting measures, including sheddinglabour, while the non-viable ones will be forced into liquidation. Privatisationwill also, in the short term, lead to widespread shedding of labour. In addition,it will lead to the loss of the associated welfare infrustructure.

—but bankruptcy law willultimately benefit the

state budget

The bankruptcy law nevertheless is a much-needed piece of legislation. Firstand foremost, it will break the circle of inter-enterprise debt plaguing manycompanies. Second, it will prevent companies from avoiding tax and dutypayments by pleading poverty by giving them legal means to pursue theirdebtors in court. Third, it will force industry to settle its energy debts andenable Moldova to pay back some of its outstanding bills to Russia. This isnecessary as otherwise the government might succumb to Russian pressure andshoulder the energy debts currently owed by industry, which would havedisastrous consequences for the budget.

Moldova 21


Economy is set for firstyear of growth—

Moldova’s economic decline appears to have bottomed out in 1995, and thecountry is expected to record modest growth in 1996. The EIU is predicting realGDP growth of 4%, conditional on agriculture performing well; the govern-ment’s own forecast of 7.7% seems overoptimistic. Moldova’s recovery ishighly dependent on its agro-industry, which is also the sector most likely toattract foreign capital. The wine sector is responding to investment and madea dramatic recovery last year. The agricultural sector is also on course to pro-duce good harvests this year, repeating the recovery shown in 1995. All farmshave adequate supplies of fertiliser, seed and other inputs, and spring sowing isreportedly on schedule.

—while cash privatisationwill boost foreign

investment—

Cumulative foreign investment in Moldova has totalled a mere $50m since thebeginning of 1996. This is not surprising given the unresolved crisis inTransdniestr and Moldova’s small economy and land-locked location. How-ever, the government believes that foreign capital will be crucial to the successof its cash privatisation programme, which requires strategic investors to re-structure the companies, and is actively courting companies from overseas. It isalso receiving enthusiastic support from the teams representing the multilat-eral lending agencies, who consider the country as a showcase for their eco-nomic stabilisation programmes and worthy of favourable consideration byforeign investors.

—which would be helpedby a change in land

purchase laws

To boost foreign investment Moldova needs to pass a law on land sales thatwould open the market to non-nationals. At present there is a moratorium onunrestricted land sales until 2001. The IMF is currently persuading the govern-ment to speed the matter up and Mr Snegur has presented to parliament lawwith this purpose, which would become effective by 1997.

Inflation is forecast to fallfurther

The government’s forecasts of 15% inflation in 1996 is in line with our predic-tion. The strong leu will keep prices down, although any economic recovery willfuel consumer demand and counter this effect. On the downside, Moldovanenergy prices are still not fully liberalised. The government’s plans to increaseelectricity prices for domestic consumers by 50% some time this year will inevi-tably raise the consumer price index (CPI). However, the National Bank ofMoldova (NBM, the central bank) has proved itself ready to raise interest ratesshould prices start moving upwards, even at the expense of industrial recovery.

Forecast summary(% change on previous year unless otherwise indicated)

1994a 1995a 1996b 1997b

Real GDP –31.2 –1.0 4.0 6.0

Industrial production –27.7 –6.0 3.0 4.0

Agricultural production –24.3 4.0 8.0 4.0

Consumer prices 587.0 30.0 15.0 10.0

Exports fob ($ m) 632.1 740.6 850.0 950.0

Imports fob ($ m) 682.1 773.1 950.0 1,000.0

Current account ($ m) –177.3 –107.7 –100.0 –80.0

a Actual. b EIU forecasts.

-35

-30

-25

-20

-15

-10

-5

0

5

10

1993 94 95 96(a) 97(a)

MoldovaCentral & eastern Europe

Gross domestic product % change on previous year

(a) Forecasts.Sources: EIU; IMF, World Economic Outlook.

n/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/a

22 Moldova


Review

The political scene

Defence minister’s sackingleads to political crisis—

Moldova was gripped by a major political crisis when, on March 15, the pres-ident, Mircea Snegur—apparently in an effort to gain political capital in hisre-election campaign—sacked the defence minister, Pavel Creanga, for alleg-edly embezzling budgetary funds and failing to wipe out corruption within thearmy. Mr Creanga’s deputy, General Tudor Dabiju, took over as acting min-ister. Predictably, this led to an outcry by the opposition. The deputy chairmanof the Party of Social Progress of Moldova, Nicolae Andronic, stated that parlia-ment was considering impeaching the president.

—dividing army loyalties The dismissal almost split the army, whose six top commanders initially backedthe defence minister, into pro-Snegur and pro-Creanga camps. Mr Creanga wasbarred from his office by army officers who claimed that, in the absence of areplacement, they were taking their orders from the president as commander-in-chief.

Mr Snegur backs down— On April 4 the Constitutional Court ruled that the dismissal was unlawful,because under Article 82 of the constitution, the president could only sack aminister following consultation with the prime minister or parliament. As aresult of the court’s decision, the prosecutor-general refused to investigate thecharges brought against Mr Creanga by the president. The president then askedthe prime minister, Andrei Sangheli, to sack Mr Creanga, but was turned down.Eventually the reluctant president backed down and issued a decree revokingthe earlier one.

—but Mr Creanga’sresponsibilities are

reduced

Although Mr Creanga was reinstated, his responsibilities were limited to thedaily running of the army. The president claimed that due to continued in-stability in the army, he was to play a greater role in his presidential capacityas chief-of-staff. The crisis has not been fully defused, however. A chastenedMr Creanga has stated that he does not intend to continue as defence ministerfor much longer, while senior officers have stated that his position is untenablebecause the army now has two leaders: a defence minister reinstated by theConstitutional Court, and a president who under the constitution of thecountry is commander-in-chief.

The president calls forgovernment’s dismissal

In late April Mr Snegur called for parliament to dismiss the government, blam-ing it for the low living standards still experienced by the majority of Mol-dovans. In addition the president accused the government of defrauding thecountry by exporting foodstuffs and other products at low prices. This rhetoricis part of Mr Snegur’s presidential campaign against the prime minister, andthe president has an important trump card here, namely the backlog of unpaidwages and pensions which, according to Mr Snegur, amounted to a total ofLei324m ($70m) in early February. On February 5 he had issued a decreeordering the government to pay all the arrears by April 1; the government hadignored the order, claiming it would only have enough funds to do so by July.

Moldova 23


Parliament rejectslanguage amendment to

the constitution—

As part of his unofficial presidential campaign, Mr Snegur has attempted toco-opt Moldovan intellectuals and students dissatisfied with what they see asthe absurdities of the section of the Moldovan constitution which calls theofficial language “Moldovan”. The issue brought large numbers of demon-strators out into the streets at the beginning of the year. In February Mr Snegurfinally succeeded in having parliament debate his motion to change the desig-nation of the language to “Romanian”, only to have it rejected.

—as president continuesdialogue with Romania

Inter-governmental discussions with Romania have continued, with meetingsat presidential and foreign ministry level. Economic rather than political issueswere the focus of these talks, with both sides aiming to boost joint ventures, ofwhich there are 100 in Moldova and 600 in Romania, and bilateral trade.Mr Snegur’s improved relations with Bucharest’s leaders have inevitably pro-vided his opponents with political capital, including charges that he is seekingeventual reunification with Romania. In addition, Mr Sangheli has accused thepresident of fostering anti-Russian sentiments in the country.

Some progress has beenmade on Transdniestr’s

status—

For the president of the self-styled republic of Transdniestr, Igor Smirnov, thedefence ministry crisis provided a convenient excuse to reject further use of theMoldovan leu and begin printing a separate currency. However, relations be-tween Chisinau and Tiraspol have entered a quiet phase. There has been a seriesof meetings on the nature of Transdniestr’s autonomous status, and Chisinauhas provisionally agreed that the region can have its own flags and other insig-nia, as well as some limited freedom to conduct its own foreign policy. The twosides have also agreed to Moldova policing the external borders, a task currentlyundertaken by Russian soldiers. Transdniestr is still holding out for its ownbanking and financial system, which Chisinau rejects out of hand.

From Mr Smirnov’s perspective there is little to be gained in raising the polit-ical temperature in the run-up to the Russian presidential election. It wouldobviously be to his advantage if the Russian Communist Party leader, GennadyZyuganov, won, but presently he cannot risk alienating the incumbent, BorisYeltsin, either.

—but less progress hasbeen made on relations

with Russia—

There has still been no indication that the Russian State Duma has ratified thetroop withdrawal treaty signed on October 21, 1994, despite assurances fromMoscow that it would speed up the process, given Moldova’s backing of Russiamembership of the Council of Europe on January 25, 1996 (1st quarter 1996,page 23). Matters were not helped by the Duma’s vote in March annulling theDecember 1991 treaty dissolving the Soviet Union, which was condemned byMr Snegur. There will be no further Russian troop withdrawals until after theRussian presidential election, despite Mr Snegur’s planned official visit toMoscow in late May. The Russian deputy foreign minister, Sergei Krylov, whovisited Moldova at the beginning of April, ruled out any progress for the nearfuture.

—as troop removalscontinue slowly

The current commander of the Operational Group of Russian Forces inMoldova, General Valery Yevnevich, continues to face accusations that Russia isdeliberately stalling on the removal of armaments from Moldovan soil, contraryto the withdrawal agreement. The commander has admitted that the arms

24 Moldova


disposal is not moving along as stipulated, but has put the blame on the authori-ties in Chisinau for not doing their share (the Moldovan government is commit-ted to contribute in cash and equipment such as trucks), the Tiraspol authoritiesfor demanding a share of arms in return for allowing the Russian troops freemovement, and Ukrainian border guards for demanding alcohol and financialbribes (Ukraine has agreed to allow to allow the weaponry to transit through itsterritory to Russia).

Colonel Bergman’sdismissal has been

overturned

The former head of the Tiraspol garrison, Colonel Mikhail Bergman, who wasdismissed shortly after the departure of Colonel-General Aleksandr Lebed(4th quarter 1995, page 21), is returning to Moldova. The colonel was unpopu-lar with the Tiraspol government which welcomed his removal by the Russiandefence minister, Pavel Grachev. However, Colonel Bergman successfully suedMr Grachev, winning not only reinstatement but financial compensation.

Economic policy

Bankruptcy law has beenapproved by parliament—

In late March parliament passed a much-needed bankruptcy law. The lawdefines bankruptcy and enables the state to sue debtors whose arrears exceedone month’s duration. Other creditors will be able to sue if their bills areoutstanding for more than three months. The law is expected to break thechain of inter-enterprise debt which currently exceeds Lei4bn ($870m) and toplug major shortfalls in the budget caused by companies pleading inability topay taxes because they themselves have not been paid.

—and energy debtdefaulters face supply

cut-offs

The bankruptcy law will also go some way to forcing industry to pay its electric-ity bills, thereby helping the government to settle its own energy debts toRussia. Moldova’s outstanding gas bill to Russia stood at $330m in March. Thisis exceeded by domestic debts to the state electricity company (Lei336.7m;$145m) and the gas distributor (Lei1.4bn). The government is threatening to cutoff supplies to companies that have fallen behind in their payments, althoughessential services such as hospitals and transport will be exempted. In additionthe government is set to raise domestic tariffs by 50%. However, even thesemeasures will not solve Chisinau’s Russian gas debt problems because much ofthe debt is owed by Transdniestr over which the government has no control.

Barter agreement hasbeen reached with

Gazprom

In March Moldova managed to reach an agreement with the Russian gas mon-opoly, Gazprom, to start paying off the debt through barter, with the supply ofagricultural produce and industrial goods. Moldova agreed to pay the firstinstalment, worth $30m, in March.

Central bank cracks downon currency repatriation

avoidance

The National Bank of Moldova (NBM, the central bank) is cracking down onexporters who break the law by not repatriating hard-currency earnings. Ex-porters are obliged to sell their foreign-currency receipts to the central bankwithin 180 days of filling in customs declarations, but many have been ignor-ing this requirement. As of April the NBM has imposed fines of Lei127.5m onlaggards and intends to take a tougher stance on those companies that havelodged appeals because they themselves have not been paid by their customers.

Moldova 25


In any event, following the passage of the bankruptcy law, this excuse will nolonger be tenable.

IMF agrees to $200mcredit—

The IMF is to grant Moldova a $200m Extended Fund Facility (EFF) followingdiscussions about a three-year economic programme between the Fund andgovernment. The Fund wants the government to put in place further controlson money supply growth. The first tranche, of $17m, is due in May. To date theIMF has advanced the country two stand-by loans totalling $230m.

—and the EU is alsoproviding assistance

Further assistance is due from the European Union (EU). The EU recently ap-proved a ten-year Ecu15m ($18.8m) loan earmarked for macroeconomic stabili-sation, including balance-of-payments support and strengthening of currencyreserves. The EU has already given Moldova a loan of Ecu45m for balance-of-payments stabilisation, and its interim agreement with the country came intoeffect on May 1.

Foreign investors areinsisted to participate in

privatisation

Under its cash privatisation programme the government has put up to tendercontrolling stakes of up to 60% in 41 companies. The companies, which in-clude pharmaceuticals, hotel, television, tobacco, aluminium, electronics, andagro-industrial concerns, are also open to foreign bidders. The major multi-nationals, including B.A.T, R J Reynolds, Rothmans and Philip Morris, havereportedly expressed interest of the nine tobacco companies on offer.

One major utility which has been earmarked for foreign participation is thetelecommunications monopoly, Moldtelecom. The country’s telecoms sectorhas been estimated to need around $50m per year over the next decade tomodernise and extend services. The government has hired a UK merchantbank, N M Rothschild, as adviser and is set to convert the company into ajoint-stock enterprise prior to privatisation and sell 40% to foreign investors.Meanwhile, in March Moldtelecom signed a contract with Intracom of Greeceunder which the Greek company would install automatic exchanges to service14,000 lines.

The economy

Industrial output isrising—

Industrial production, which started to pick up month on month in mid-1995,moved into year-on-year growth at the beginning of 1996. Output in the firstquarter of 1996 was 4.5% up in real terms on the corresponding period in 1995,while month-on-month production rose by 7.5% in February and 13.3%in March.

—but construction andtransport remained

depressed

Two sectors which have yet to register an improvement, and which will onlydo so when there is a sustained economic recovery, are construction and trans-port. In January 1996, the most recent data available, the construction sector’soutput was reported to be down by as much as 46% on January 1995. Transportoutput showed a 19% decline on January 1995.

Agricultural productionincreased last year

Final data for 1995 from the Ministry of Agriculture confirm that productionby state-owned firms rose by 4% in real terms over the previous year. Grain

26 Moldova


production rose by 48%, sunflower seed by 25%, sugar beet by 22% and grapesby 34%. The disappointing sectors were fruit (down 15%), vegetables (down4%) and tobacco (down 23%). The food-processing industry’s performance wasalso mixed. The production of canned goods fell by 9%, while wine productionrocketed by 40%.

For 1996 the ministry is expecting a dramatic improvement across the board,barring any of the freak weather conditions that periodically afflict thecountry. It has complained, however, that the food-processing industry, whichtogether with agriculture accounts for 60% of GDP, is being hampered byunfavourable excise laws which were designed to boost budget revenue but areinstead pricing Moldovan goods out of the market. The ministry is particularlyconcerned about the export duties imposed on vodka and spirits, which haveresulted in a sharp drop in sales to Russia—although import duties and quotasimposed by Russia in February to protect its own spirits industry also contrib-uted—and on the value-added tax (VAT) imposed on packaging material.

Food production(‘000 tons unless otherwise indicated)

1995 1996Output Target

Grain 1,801 2,900

Sunflower seed 185 260

Sugar beet 1,870 2,400

Grapes 676 750

Leaf tobacco 30 50-55

Vegetables 310 725

Fruit 400 807

Meat 162.8 185

Milk 759.7 75

Eggs (m) 478.7 500Source: Ministry of Agriculture.

Inflation reduction isback on track—

After a worrying surge towards the end of 1995 in the month-on-month ratetriggered by seasonal food price rises, inflation appears to be back under con-trol. Prices rose by 3.5% in January, 2.5% in February and 1.1% in March, whenthe average price of food increased by 0.7%, that of other goods 1.8%, andservices by 0.6%. Prices of some food items actually decreased, notably that ofmilk and eggs, which fell by 11%. Moldova’s containment of price rises isconsidered one of the most successful elements of its economic reforms. An-nual inflation in 1995 fell to 30% (year-end rate), from 108% in 1994, and thisyear the government is predicting a further fall, to 15%.

Moldova has succeeded in keeping prices low not only through administrativemeans but also because low wages and widespread poverty have depressed con-sumer demand. Wage rises have lagged behind those of prices since the begin-ning of 1994 and at the start of 1996 the average monthly wage, at Lei150($33.4), covered only 40% of the minimum consumer basket. The General TradeUnions Federation wants average wages to rise by 30%, to Lei200. Poverty isexacerbated by late wage payments, although wage arrears are in truth one ofthe ways in which the government has been able to keep its budget on track and

0

300

600

900

1,200

1,500

1991 92 93 94 95(a) 96(b) 97(b)



Moldova 27


inflation down. The backlog of wages was estimated at Lei178.6m in March1996. According to an opinion poll held at the end of April, 70% of respondentsdescribed their situation as “bad” or “very bad”.

—and unemployment ishigher than official

figures indicate

The official number of unemployed as of March 1 was 26,365, a 5% increase onthe number of people out of work three months earlier, but only about 1.4% ofthe total labour force. This figure is generally acknowledged to understate thereal levels of unemployment and underemployment since large numbers ofMoldovans are on reduced work-time or enforced leave. For the unemployedthe situation looks grim. Only 31% of those registered were receiving statebenefits, and the number job of vacancies at employment offices is onlyaround 1,300.

Foreign trade and payments

Final figures for 1995 arebetter than expected

Revised trade figures from the National Bank of Moldova (NBM, the centralbank) indicate that, contrary to previous indications, Moldova’s trade deficitnarrowed substantially last year from $78m in 1994 to $32.5m. Exports were upby 20%, to $740.6m, while imports rose by 11%, to $773.1m. The rise inexports is encouraging, given the real appreciation of the lei. The NBM’sfigures, however, do not capture the unrecorded trade that passes throughTransdniestr, and they do not take into account all barter trade. This is esti-mated to have accounted for 25% of exports and 22% of imports in 1995.

According to the economy ministry there has been some diversification awayfrom Commonwealth of Independent States (CIS) markets: their share of totalexports fell from 65.7% in 1994 to 60.4% in 1995, with the share of importsfalling from 68.6% to 66.1%. Russia was the main export market, accountingfor 48.3% of the total, followed by Romania (13.9%), Ukraine (7.9%), Germany(6.1%), Belarus (2.9%) and Italy (2.6%). Russia is also the main source of im-ports (33.9%), followed by Ukraine (26.4%), Romania (6.8%), Belarus (6.1%),Germany (5.5%), Bulgaria (3.9%) and Italy (2.3%).

Trade agreement is signedwith Ukraine

Recently signed trade agreements include a barter deal with Ukraine, underwhich Ukraine would provide coal, metals and chemical products in exchangefor Moldovan grapes and consumer goods.

External debt rose by 31%last year

At the end of 1995 Moldova’s outstanding foreign debt according to the centralbank totalled $576m. This represents an increase of 31% on the end-1994 level.Of the total, $231m was owed to the IMF and $186m to the World Bank. Debtservicing cost the country $58.23m last year, representing a debt-service ratioof 8%.

However, these figures exclude Moldova’s gas debts to Russia of $330m. Thegovernment is under pressure from Russian authorities to convert the debt intoa state credit, a proposal which the IMF is urging the country to refuse. Thefund argues that Moldovan industries and distributors should be encouraged totake a greater responsibility for their energy purchases and consumption.

28 Moldova


Appendix 1

Quarterly indicators of economic activity in Belarus and Moldova

1993 1994 1995

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

BELARUS

Industrial production Monthly av

General index 1990=100 68.4 77.0 101.8 49.8 49.0 66.8 100.8 44.6 41.9 57.4

Crude petroleum ’000 tons 166.7 169.0 168.0 164.3 166.0 168.0 168.3 161.0 161.0 162.3

Natural gas m cu metres 24.0 24.8 24.7 24.7 24.4 24.8 24.1 22.6 22.4 22.3

Construction

Houses completed ’000 4.77 3.77 8.80 1.50 4.33 2.07 8.33 1.17 1.20 1.47

Foreign trade Qtrly totals

Exports $ m n/a n/a n/a 544.5 518.0 655.9 749.7 837.6 986.2 1,199.3

to CIS “ n/a n/a n/a 317.8 302.6 372.8 443.5 484.2 551.1 732.8

Imports ” n/a n/a n/a 1,124.8 1,127.7 1,230.4 1,262.6 967.0 1,109.4 1,212.5

from CIS “ n/a n/a n/a 860.3 897.5 997.3 1,015.7 732.8 737.4 800.0

Exchange rate End-Qtr

Market rate Rb:$ 1,060 1,169 – – – – – – – –

BRb:$ – – 6,990 15,500 26,800 5,630 10,600 11,550 11,500 11,500

MOLDOVA

Industrial production Monthly av

General index 1990=100 61.8 73.3 90.8 52.3 42.0 48.5 67.5 38.9 36.3 48.7

Construction

Houses completed ’000 0.57 0.70 1.10 0.23 0.33 0.27 1.33 0.27 0.17 0.20

Foreign trade Qtrly totals

Exports $ m n/a n/a n/a 114.2 116.4 170.1 164.1 137.7 156.6 181.3

to CIS “ n/a n/a n/a 89.7 86.5 129.6 99.1 71.5 101.9 113.9

Imports ” n/a n/a n/a 292.8 249.0 301.0 287.9 160.8 161.5 206.3

from CIS “ n/a n/a n/a 248.1 217.1 249.2 233.0 119.1 107.2 129.7

Exchange rate End-Qtr

Market rate Rb:$ 1,060 1,169 – – – – – – – –

Leu:$ – – 3.64 3.98 4.05 4.20 4.27 4.43 4.54 4.53

Statistical appendices 29


Appendix 2

OECD trade with Belarus($ ’000)

Germany Italy USA Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Exports fob 1993 1994 1993 1994 1993 1994

Food 40,594 21,387 2,820 3,089 68,852 21,315 of which: cereals 10,235 4,213 572 371 42,408 0Chemicals 55,953 34,452 4,701 2,445 709 776Textiles yarn, cloth & manufactures 10,550 14,177 1,522 8,104 257 345Iron & steel 8,290 1,971 399 508 0 292Metal manufactures 5,153 5,578 731 710 248 48Machinery & transport equipment 242,338 233,452 18,910 21,390 9,768 12,094 of which: road vehicles 32,202 41,544 1,725 1,142 260 381Clothing & footwear 15,115 21,101 7,592 9,342 1,178 2,176Scientific instruments etc 13,390 15,273 335 606 862 968Total incl others 478,213 457,178 42,998 60,963 89,689 45,059

Germany USA Italy Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Imports cif 1993 1994 1993 1994 1993 1994

Food 6,184 12,881 82 56 1,028 1,613Wood & cork & manufactures 18,615 23,253 51 18 1,648 5,039Metalliferous ores & scrap 10,451 10,424 0 411 43 0Petroleum & products 28,144 9,798 1,327 0 0 976Chemicals 30,241 50,543 19,480 29,186 9,203 12,681Textiles yarn, cloth & manufactures 2,449 6,380 251 1,237 3,430 8,529Non-metallic mineral manufactures 173 731 185 348 24 47Non-ferrous metals 31,829 77,604 0 0 371 0Machinery & transport equipment 16,401 18,776 14,428 14,898 1,414 1,118Clothing 17,581 26,996 1,825 11,875 3,003 7,490Total incl others 198,488 307,128 39,089 60,476 32,987 55,525

30 Statistical appendices


Appendix 3

OECD trade with Moldova($ ’000)

Germany USA Italy Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Exports fob 1993 1994 1993 1994 1993 1994

Food 441 1,271 70 19,712 28,194 186Chemicals 7,577 8,778 495 199 15 1,089Leather & manufactures 1,063 2,692 2,210 0 0 293Textiles yarn, cloth & manufactures 3,711 8,567 2,199 28 41 2,713Machinery & transport equipment 16,461 18,714 4,802 1,716 1,172 3,577 of which: road vehicles 1,683 3,415 130 529 803 394Total incl others 36,981 55,150 14,481 23,328 30,653 13,485

Germany Italy USA Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Imports cif 1993 1994 1993 1994 1993 1994

Food 2,173 10,173 33 41 111 1,007Petroleum & products 0 0 0 0 0 0Chemicals 221 680 0 496 0 211Textiles yarn, cloth & manufactures 1,327 668 2,227 5,965 0 141Non-ferrous metals 300 384 0 0 0 0Machinery & transport equipment 146 273 859 860 53 49Clothing 2,928 5,820 5,468 6,043 282 1,669Total incl others 16,514 32,005 10,814 19,235 462 3,235



Appendix A

Status of currencies of the former Soviet republics

IntroductionCountry Name Status date Remarks

ArmeniaFinal currency Dram Sole legal tender Nov 22, 1993

AzerbaijanFinal currency Manat Sole legal tender Jan 1, 1993 Manat became sole legal tender on

January 1, 1994.

BelarusInterim currency Rubel Sole legal tender Jun 1992Final currency Taler May 1995

EstoniaFinal currency Kroon Sole legal tender Jun 20, 1992

GeorgiaFinal currency Lari Sole legal tender Sep 25, 1995

KazakstanFinal currency Tenge Sole legal tender Nov 15, 1993

Kyrgyz RepublicFinal currency Som Sole legal tender May 10, 1993 Sole legal tender as of May 15, 1993.

LatviaFinal currency Lat Sole legal tender Jun 28, 1993 Lat phased in between March 1 and June 28, 1993.

LithuaniaFinal currency Lit Sole legal tender Jul 20, 1993 Lit phased in between June 25 and July 20, 1993.

MoldovaFinal currency Leu Sole legal tender Nov 29, 1993

RussiaFinal currency Rouble Sole legal tender 1993 Soviet roubles issued between 1961 and 1992 withdrawn.

Russian 1993 rouble is devoid of Soviet emblems.

TajikistanInterim currency Tajik rouble Sole legal tender 1961, 1993 Tajik rouble replaced the Russian rouble on May 11, 1995.Final currency Somon Delayed No date set Introduction indefinitely postponed.

TurkmenistanFinal currency Manat Nov 1, 1993 Multiple exchange rate system abolished April 8, 1996

UkraineInterim currency Karbovanets Sole legal tender Nov 13, 1992 The karbovanets superseded the kupon

(introduced January 1, 1992).Final currency Hryvnia Delayed No date set

UzbekistanInterim currency Som Parallel Nov 29, 1993 Introduced as a coupon to circulate

in parallel with the rouble as of November 29, 1993.Final currency Som Final Jul 1, 1994



Appendix B

Currencies of the former Soviet republics

Exchange rate per $

Jan 3, Apr 4, Jul 4, Oct 3, Jan 6, Apr 9, Jul 3, Oct 6, Jan 5, Apr 4,

1994 1994 1994 1994 1995 1995 1995 1995 1996 1996

Outside rouble zone

Armenia (Dram) 100.0 254.08 310.10 356.68 403.57 406.91 408.20 400.00 402.00 404.23

Azerbaijan (Manat) n/a 1,000 995 n/a n/a 4,395 4,395 4,395 4,440 4,376

Estonia (Kroon) 13.9 13.4 12.6 12.4 12.5 11.2 11.1 11.4 11.6 11.9

Georgia (Coupon) 132,275 292,000 1,000,000 2,060,000 n/a 1,300,000 1,300,000 1.28a 1.17 1.26

Kazakstan (Tenge) 7.52 19.84 45 50 n/a 60.5 63.6 61.4 64.3 66.0

Kyrgyz Republic (Som) 9.15 12.3 11.3 n/a n/a 10.90 10.60 10.86 10.95 11.45

Latvia (Lat) 0.59 0.57 0.55 0.54 0.55 0.51 0.51 0.54 0.54 0.54

Lithuania (Lit) 3.9 3.9970 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00

Moldova (Leu) 3.6 4.0 4.05 4.19 n/a 4.49 4.54 4.54 4.53 4.58

Turkmenistan (Manat) 24.0 50.0 n/a 75b n/a 230 230 500 2,100 2,500

Ukraine (Karbovanets) 31,849.7 50,000.0 44,500 75,000 104,837 132,900 142,693 172,000 179,900 189,100

Uzbekistan (Som)c n/a 20,000 7c 17 n/a 26.1 30.3 33.8 34.6 37.0

Inside rouble zone (local parallel

currencies & Russian rouble)

Belarus (Rubel) 5,662.5 n/a 27,350 5,900 11,195 11,500 11,500 11,500 11,500 12,200

Russia (Rouble) }

1,239.2 1,750.01 2,008.5 2,674.5 3,880 4,9614,548 4,495 4,674 4,825

Tajikistan (Tajikistan rouble)d 51de n/a 300f 280

a Coupon replaced by Lari. b August 18. c Som-coupon replaced by Som on July 1. Conversion from old currency to new at rate ofSom-coupon 1,000:Som1. d Used the Russian rouble until May 11, 1995, when the Tajik rouble was introduced. e June 16. f February 2.



Appendix C

GDP and GDP per head(purchasing power parities)

1989 1990 1991 1992 1993 1994 1995

ArmeniaGDP $ m 14,943 14,457 13,713 6,721 5,875 6,068 6,530 per head ($) 4,294 4,084 3,798 1,821 1,550 1,709 1,866

AzerbaijanGDP $ m 21,777 20,049 20,705 16,466 12,992 10,376 8,806 per head ($) 3,076 2,804 2,872 2,228 1,760 1,389 1,223

BelarusGDP $ m 50,135 50,598 51,991 48,292 43,800 35,160 32,435 per head ($) 4,901 4,932 5,062 4,684 4,228 3,397 3,119

EstoniaGDP $ m 8,072 7,583 6,932 6,111 5,731 6,136 6,528 per head ($) 5,122 4,790 4,390 3,958 3,803 4,070 4,375

GeorgiaGDP $ m 23,429 21,398 19,183 11,767 7,352 5,263 5,125 per head ($) 4,299 3,919 3,533 2,163 1,349 966 940

KazakstanGDP $ m 71,934 74,399 68,245 61,005 54,517 41,589 38,835 per head ($) 4,371 4,477 4,081 3,612 3,214 2,442 2,271

Kyrgyz RepublicGDP $ m 11,041 11,879 11,737 9,045 7,795 5,875 5,648 per head ($) 2,550 2,706 2,637 2,014 1,721 1,291 1,228

LatviaGDP $ m 14,544 14,633 13,635 9,107 7,951 8,180 8,217 per head ($) 5,447 5,480 5,126 3,463 3,070 3,208 3,249

continued



GDP and GDP per head (continued)(purchasing power parities)

1989 1990 1991 1992 1993 1994 1995

LithuaniaGDP $ m 27,288 26,644 23,996 16,027 13,730 14,181 15,044 per head ($) 7,395 7,162 6,416 4,285 3,681 3,812 4,050

MoldovaGDP $ m 16,041 16,473 15,094 10,996 10,300 8,195 8,147 per head ($) 3,688 3,778 3,462 2,528 2,362 1,884 1,852

RussiaGDP $ m 856,913 875,550 865,043 759,951 711,875 636,240 626,060 per head ($) 5,801 5,904 5,821 5,111 4,793 4,290 4,224

TajikistanGDP $ m 9,919 10,176 9,832 7,183 6,551 5,266 4,728 per head ($) 1,915 1,920 1,810 1,287 1,162 916 815

TurkmenistanGDP $ m 10,018 10,654 10,559 10,275 9,488 7,762 6,762 per head ($) 2,798 2,903 2,823 2,683 2,420 1,940 1,610

UkraineGDP $ m 246,364 247,613 223,010 197,750 168,400 130,360 117,852 per head ($) 4,765 4,777 4,293 3,799 3,264 2,539 2,291

UzbekistanGDP $ m 44,809 47,465 49,117 44,866 44,928 44,749 44,950 per head ($) 2,228 2,312 2,350 2,068 2,055 2,002 1,989Sources: IMF; World Bank, Statistical Handbook of States of the Former USSR; UN Economic Commission for Europe, Bulletin for Europe, Vol 44 1992; EIU calculations.



Documents

Belarus Moldova - iuj.ac.jp€¦ · ation is on hold but is expected to resume later this year. Belarus is considering construction of a nuclear power plant. The government has approved