BACKGROUND:
Economy

         External Ties and Economic Potential

Due to deep reorganization during the last seven  years, the  social-economic  situation  in  the Republic of Moldova has  changed  greatly.  It  is   mentioned  the   subsequent decline  of  economic  activities  in  country.  The motives were  a  number  of  internal  and external factors:  former economic relations  dissolving, inefficient  coordination of producing system  of NIS,  disintegration of  the republic's economic system, armed conflict  in the Eastern part  of the republic, natural calamities and other.
In period of independence  of the Republic of  Moldova the financial sector  has also  experienced heavy  fluctuations. The Republic of Moldova was practically forced to  introduce its own currency, the Leu (end of 1993), after the  monetary reform was  carried out  in Russia  (March, 1993).   In short period  it  was  obtained  good  results  in reducing of the inflation, of the quote per cent for credits, and  currency reform of  the national  currency (  Leu of  the Republic of Moldova).  At  the  end  of  1995  medium exchange reference value (per month) of the  national monede (Leu) was at  4.53 Lei in comparison with USA $, the nominal lose of its  value from the beginning of year  was  0.2 points.

Nevertheless, recently achieved  political stability  has generally  had a positive impact  on the  economic situation  as well. Though it is too  early to speak  about a recovery,  a stop in  the decline of  the Leu  exchange rate,  rapid pace  of economic reforms and privatization, and a strict monetary policy  are  creating  a  positive  background  for  the  restoration  of industrial  production.   A  moderate   influx  of   foreign investments clearly indicates  the increasing confidence  in the steady economic development  of the country. This  trend has  had  a  psychological  effect,   but  has  yet  to   be reflected in actual  economic statistics. As a result, the currency (Moldovan Leu) has stabilised and inflation has fallen substantially.

Some basic  economic indicators  are presented below. Starting  with  1990,  the  main   macroeconomic  figures continue to decrease and in  the end of 1994 and   beginning with  1995   there  observed   the  stabilization   and  the increasing of this parameters (Table 1.2).

 Table 1.2 Macroeconomic evolution (per cent face with precedent year)
 
 
1991 1992 1993 1994 1995 1996  1997
Gross intern product 82.5  70.9 100 69.1 98.1 92.2 101.3
Net material product 82 71.2 97.4 69.6 96    
ndustrial production 88.9  73 100.3 72.3 94 94  100
Agricultural production 89.9 83.6 109.9 75 104 88 111
Capital investments   91 67 56 49 76  83 94
Transportation of goods  80  44 47 69 85 71 112
Sale of goods by retail 82 53 75  58  96 118 96
Performance of service  
 for population		 81 55 67 52 100.7 78 109
Inflation,medium per month  7.9 27  32 6.2 1.8 1.2 0.9
 
 
source: Ministry of Economy, Department of Statistics

Energetics production of the republic has also decreased, therefore it stimulated the increasing of the
import of these one ( Table 1.3).

Table 1.3: Energy balances, 1990-1995
 

 
Source: Energy consumption in the Republic of Moldova. Trends. Informative bulletin, January 1997.

Concomitantly, with  the reduction  of fuel  imports, the structure   of   consumed   energetic   resources    changed essentially. The share of natural gas has increased and  the consumption  of  coal  and  fuel  oil decreased. More than a half of the consumed  energetic resources were utilized  for producing  thermic  energy.  Industry  is  one  of  the main consumers of electricity  (40%); agriculture (19%);  communal
husbandry (19%).

During the  december 1995 year, the  prices on coal  and fuel  oil were  at the  international level, on gas  -  less  with  27%,  but  on  benzine - with 25-95%, on diesel oil - with 9-10% and on liquid gas with 1.8-2.5  time higher than thous international ones.
But energy prices have increased substantially in recent years. Natural gas and district heat cross-subsidies continue to exist, and electricity tariffs are generally well below marginal costs.  Cross-subsidies to natural gas, with higher prices paid by the industrial and power sector, provide limited incentives to substitute natural gas for more polluting fuel oil and coal.  More than 100 boilers (50% of the total number) have switched to gas.
      During the years of transition period  the Industrial Output Structure of economy branches
have changed in way of increasing of foodstuffs industry and electrical energy (see Table 1.4).
 
 

Table 1.4 Changes of Industrial Output Structure by Branch (in %)
 
 
1990 1991 1992 1993 1994 1995 1996
Industry -total 100  100 100 100 100 100 100
of which:-electrical energy  2.8 1.8  4.4 11.1 17.8  18.2 13.6
-chemical  3.3 2.7   1.0 0.6  0.6 0.3 0.6
-machine-building 20.9 15.6 15.0 14.4 10.7  8.7 8.0
 -forestry, woodworking 3.5 3.4 4.0 4.4 4.3 4.3 3.4
-construction materials  4.1 4.1 4.4 3.6 4.5 3.2 3.9
 -lightia 22.6 22.3 10.6 7.9  6.2 6.1 5.7
 -foodstuffs industry 38.2 45.4  53.5 51.6 46.2 54.4 57.5
-glass  0.5 0.6 1.1 1.5 2.1  3.0 2.1
 -polygraphic  1.0 1.0  5.5 0.6  0.8  1.1 1.0
Other 3.1 3.1 5.5  4.3 6.8 0.7 4.2
   Without Transnistria, Bender and Dnestrovsk

The  weight  of  private  sector in agriculture increased  in 1996 with  50% of overall volume and in 1997 with 52%.  The global production was  positively influenced  by increasing with 20% of  vegetable production and  negatively - by diminuation with 8% of  livestock  production.
 

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