Moldova: Moldova Finance Profile 2011

Market-based competition Moldova’s market economy suffers from a weak institutional framework and thus lacks a level playing field for market competition. The “wild capitalism” of the transition period gave certain major economic players privileged access to political decision-makers, and because of the entanglements between politics and business, the state does not apply the law consistently. Substantial gray zones exist beyond state regulation, such as corruption, the informal sector, criminal activities and migrant cash remittances. Estimates of employment in the informal sector in Moldova itself are relatively low, but a third of the labor force works aboard, often illegally and in the informal sector.

Anti-monopoly policy Because of its small market, Moldova has not witnessed the emergence of oligarchic monopolists like those in Russia or Ukraine. Nevertheless, the state inconsistently regulates the formation of monopolies because of the entanglements between politics and big business and because of the country’s large informal economy.

Liberalization of foreign trade After becoming a WTO member in 2001, Moldova has reoriented its economy toward exports. Exports now comprise about 50% of GDP. The state’s monopoly on trade was quickly abolished after the fall of the Soviet Union and most prices were also liberalized early on. State regulation, illegal trade flows and administrative non-tariff barriers mean that Moldova is only selectively integrated into the world market. Prohibitive Russian customs tariffs and excises on most Moldovan agricultural products seriously limit Moldova’s access to world markets and the important Russian market in particular. The main exportable agro-industrial products originate from sub-sectors dominated by state-owned companies.

Since 2007, the ownership of several Moldovan banks has changed. French and Austrian financial institutions acquired several larger and smaller Moldovan banks. The legal framework for the supervision of banking and for the central bank was partly revised and improved but still falls short of international standards. The same applies to the National Commission for the Financial Markets, which the government created in mid-2007 to supervise the non-bank financial sector. Due to IFI assistance, investment credits are growing steeply.