Note: This document may not always reflect the actual appropriations determined by Congress. Final budget allocations for USAID's programs are not determined until after passage of an appropriations bill and preparation of the Operating Year Budget (OYB).
MOLDOVA
FY 1998 Assistance to the NIS Request . . . . . . . . . . . . . . . . . $32,800,000 Introduction
The Government of Moldova is committed to the process of reform and transition to a market economy initiated in 1991. The second smallest and the most densely populated of the New Independent States (NIS), Moldova remains one of the foremost reform-minded countries within the former Soviet Union and it is in the U.S. Government interests to support its efforts in becoming a market-oriented democracy. Moldova can be viewed as a reform laboratory in the region, providing useful lessons for the neighboring States of Belarus and Ukraine. It was the first former Soviet Republic to receive a structural adjustment credit from the World Bank and also the first NIS country to establish an independent securities market regulating entity with Ministry status, the Securities and Exchange Commission. In November 1996, Moldova held its first contested presidential elections. A run-off election was held on December 1, 1996, between President Snegur and parliamentary chairman Petru Lucinschi, in which Lucinschi was elected president.The goal of U.S. assistance in Moldova is to promote the country's successful transition to a strong, independent, market-oriented democracy. Over the past several years, Moldova has begun the arduous task of building a democratic nation and market-based economy as it faces ethnic conflicts and the social hardships accompanying societal transformation. Despite these obstacles, the country is pushing ahead with political and economic reform and adopting peaceful solutions to its ethnic and security problems, including granting the largely Russian population of the separatist Trans-Dniester region broad autonomy. It is now poised to initiate essential market reform programs that will create a business environment to attract both foreign and domestic investment.
Moldova has made significant progress in establishing the macroeconomic and policy framework needed for the transition to a market economy. Its stabilization policy reduced inflation to under one percent per month, the fiscal deficit is approximately 3.25 percent of gross domestic product (GDP), and the real GDP growth should be positive in 1997. Important progress has been made in structural reform, notably in the liberalization of prices and trade, and the privatization of state assets. Foreigners can now buy up to 60 percent of a former state-owned company. The leu is the most stable currency in the NIS. Continued progress is being achieved in the stabilization of financial and macroeconomic indicators, and the focus of policy makers remains structural reform to lay the foundations for market reform and sustainable economic growth.
The Development Challenge
Moldova is increasingly viewed as a NIS model for the positive application of an integrated strategy and approach to market reform. The current approach to privatization and post-privatization assistance seeks to address multiple constraints present in transition economies by bringing together, in a tightly integrated fashion, USAID resources targeted for land privatization, enterprise restructuring, capital markets, accounting reform and tax policy. USAID technical assistance is expected to demonstrate how carefully targeted interventions in these sectors can result in a fair and transparent business environment in which privatized enterprises can restructure, pursue new capital resources and new business start-ups can flourish. The objective is to create a fair and transparent business environment suitable for domestic and foreign investment.In reaching this goal, some difficulties are being encountered in enforcing hard-budget constraints, in restructuring the industrial and agricultural sectors, and in addressing budgetary arrears to energy enterprises. To maintain financial stability and to lay the basis for sustained growth, a broadening and deepening of macroeconomic and structural reforms are necessary.
As of March 1996, the country's external official debt was $652 million, about 42 percent of GDP, and growing steadily. Analysts report that production efficiency that promote exports needs to be encouraged to help reduce external indebtedness. Debt rescheduling privileges will begin to expire in 1997-1998, significantly increasing the debt servicing burden. In 1996, the Ministry of Finance drafted a new law that will allow the government to manage and regulate all official debt, including internal, external and sovereign guarantees to economic agents. A significant share of the total debt burden is for energy imports, primarily gas from Russia, with energy debt arrears of $400 million as of May 1996. Moldova is almost wholly dependent on imports for its energy requirements for its industries. The World Bank has provided a first energy project $10 million loan, with USAID, Moldova-Gaz and MoldEnergo providing the balance of a total credit of $20.5 million loan for energy efficiency improvement projects.
Other Donors
Data from Moldova's Ministry of Economy as of October 1996 indicate that there are approximately 105 projects ongoing under foreign technical assistance, two thirds of the planned target of 157 projects in the country's 1995 two year technical assistance program plan. The chief donors in 1996 were EU-TACIS, USAID, GTZ of Germany, and the UNDP.FY 1998 Program
Moldova is poised to initiate additional essential reform programs that can create a business environment to attract both foreign and domestic investment. More importantly, these efforts will continue to build a constituency to support economic reform and democratic institutions. The United States is working with Moldovan officials to expand land and energy sector reforms, improve agricultural capacity, improve fiscal performance through better tax administration, establish a treasury function, institute the use of international accounting standards and practices, and reform the bank system, including better supervision. Moldova will benefit from both the cooperative activities under the Partnership for Freedom and ongoing technical assistance to support the establishment of a market-oriented democracy. Without the substantial support of the United States and the international donor community, Moldova could falter in its commitment to economic and political reform.
Strategic Goal: Economic Restructuring
Strengthening efforts at macroeconomic stabilization and accelerating structural reform are the most important economic policy challenges facing Moldova. The U.S. Government is playing a major role in creating a fully-functioning market economy with the expectation of attracting foreign investment. USAID priorities encompass post privatization activities, including enterprise restructuring; fiscal reform; improvement of the policy environment; development of capital markets; land reform, including decollectivization; and energy efficiency measures, including full cost recovery.
The mass privatization program has nearly been completed, with the participation of 90% of the eligible population and resulting in the privatization of an estimated two-thirds of the Republic's agro-industrial assets. USAID is now focussing its privatization efforts on providing technical assistance to the Ministry of Privatization to support cash auctions of residual state shares in privatized enterprises by establishing an open and transparent auction system. This is expected to rapidly move remaining government-owned assets and services to broad-based private ownership and control. USAID is also supporting a comprehensive agricultural and enterprise land privatization program nationwide. The focus is the breakup of a large number of collective farms resulting in the formation of independently-owned and operated farm entities together with the issuance and registration of thousands of land titles. Also, significant efforts are under way to streamline the legal and regulatory environment to facilitate the privatization of land under enterprises.
USAID continues to strengthen the underlying capital markets infrastructure through capacity building activities of the nascent Moldova Stock Exchange and the independent state body established to regulate the trading activities of the professional participants. Also, activities are in place to strengthen the institutional capabilities of the investment fund industry and other intermediaries seeking to establish market transparency and fostering investor confidence. Development of accounting expertise focuses on financial accounting for capital markets and managerial accounting for enterprise development. Support will also be provided to the development of an accounting and audit self-regulating organization, so as to increase the professional competence of practitioners.
Technical assistance is also being provided to develop a Moldovan private-sector management consulting industry to take the lead in restructuring privatized enterprises by focussing on development of financial management, cost accounting, and marketing tools. In tandem, institutional development is being provided to a self-regulatory organization in support of the Moldovan accounting and auditing industry. A public information and education campaign has been implemented to publicize the results of privatization, educate the public concerning corporate governance, and promote post-privatization activities. Other areas of support include small and medium-sized enterprise development, as well as creating a computerized business information network to link Moldova with other NIS countries and the U.S. The Western NIS Enterprise Fund also fosters private sector development by providing investment capital to small and medium-scale businesses. Through a pilot effort to develop land and real estate markets, USAID is helping to introduce a legal and regulatory environment supportive of the development of land markets and to establish pilot systems for titling and registration which will allow private land owners to hold secure titles.
Since Moldova is primarily an agricultural country, USAID also focuses on agricultural privatization. Through the Farmer-to-Farmer program (FTF), USAID is helping the agriculture and agribusiness sectors adjust to a market economy by promoting private solutions to agriculture production and marketing problems and to improve farm management methods. In addition, FTF is working with the Ministry of Agriculture and the Parliamentary Agriculture Committee concerning the development of land law and policy. Under USAID's food systems restructuring activity, there is assistance to Moldovan private agribusinesses to become more competitive through linkage with non-Moldovan sources of private and public finance and trade. Furthermore, USAID is establishing a resource center for agribusiness to assist them in accessing sources of finance. Promoting increased capacity at the Chisinau Agricultural University for teaching marketing, commodity trading and transportation of agricultural goods, as well as conducting seminars and workshops for private business and farmer associations in marketing, financial management and business planning is also a focus of USAID assistance.
USAID's fiscal program is designed to aid in the development of fiscal policy and management infrastructure essential to the growth of a market economy. Specifically, USAID's goals are to increase the capacity of the Moldovan Government to generate revenue, assist with making improvements in efficiency and administration of a new tax system, and recommend changes to improve Moldova's legal foundation. Since 1995, USAID has provided technical assistance and training to Ministry of Finance officials in the areas of tax policy, analysis and administration. It has assisted in drafting comprehensive reforms to Moldovan tax laws and harmonizing those laws into a single tax code. Parallel activities include working with the Budget and Finance Committee of the Parliament to establish an analysis unit and providing policy advice on budget, tax and other economic legislation.
In financial reform, USAID's strategy is to focus on strengthening the private banking sector and the transparent and open securities system. As a result, USAID has helped improve banking supervision capacity by establishing a "troubled bank resolution unit" to determine the nature and extent of the problems for each of the troubled banks, and to assist the National Bank to develop solutions on how to resolve the banking problems. USAID has also helped develop a modern, standardized accounting system through which the Central Bank has converted to a new chart of accounts. In 1997, the commercial banks are to convert to a new chart of accounts consistent with internationally accepted standards. Through USAID assistance, Moldova's capital markets structure improved with the creation of a Securities and Exchange Commission and a Moldovan Stock Exchange. Furthermore, USAID created a banking center to train employees of the central and commercial banks in western banking practices and standards.
Concerning energy and environment, Moldova imports close to 100 percent of its energy resources, most of which is gas. Gas imports are an enormous balance of payments burden to the country, and need to become profitably and effectively managed by Moldova's gas distribution companies. MoldovaGas, the state monopoly, has requested the assistance of USAID in restructuring its assets. This restructuring is also being promoted by the World Bank in order for MoldovaGas to qualify for loans. USAID expects to work with MoldovaGas in reconfiguring the State monopoly into a series of competitive companies and provide a corporatization strategy together with new corporate organization plans. The restructuring effort will include training programs in financial management and in financial accounting as well as a procurement plan for management systems equipment. More efficient natural gas use will also be promoted.
Strategic Objective: Increased transfer of state-owned assets to the private sector
Strategic Objective: Increased soundness of fiscal policies and fiscal management practices
Strategic Objective: Accelerated development and growth of private enterprises
Strategic Objective: A more competitive and market-responsive private financial sector
Strategic Objective: A more economically sustainable and environmentally sound energy sector Cross-cutting and Special Initiatives
Through cross-sectoral and special initiative programs, USAID is increasing Moldova's capacity to implement democratic reforms and to deal with the social hardships accompanying the difficult transition. This category also includes other U.S. agency activities that do not directly support USAID's strategic objectives. In support of democracy-building, USAID assistance is directed toward non-governmental organization (NGO) development, voter education, legal reform, independent media development, and a resource center for information on election management and administration. USAID is also assisting with reproductive health care, partnerships between U.S. and Moldovan hospitals, child survival issues, and training.Although the November/December 1996 Presidential elections were deemed free and fair, Moldova does not yet have a permanent Central Election Commission. However, an elections resource center has been established, public opinion surveys have been conducted and disseminated, and assistance to the temporary Central Election Commission and NGOs improved the flow of information to citizens. In addition, a voter education program has been implemented to provide technical advice on the legal issues of electoral reform, establish voter education programs to prepare for elections, and create and produce instructional materials that promote a focus on issues in local election campaigns. USAID assistance has also increased the participation of media, civic activists, and politicians in shaping the policy debate concerning the election process.
USAID's assistance to promote rule of law has been modest compared to the progress the country has made. USAID is focussing its efforts on strengthening indigenous, self-sustaining bar associations to enhance the effectiveness of judges and lawyers in monitoring the ethics of their professional members. Moreover, USAID has supported the establishment of a judicial training center, and is educating legal professionals and the public concerning the rule of law in a democratic society. To this point, USAID has been successful responding to discrete targets of opportunity in the democracy area. During the 1997 strategic planning cycle, USAID will explore whether a strategic objective in democracy is warranted.
After Moldova's independence from the Soviet Union in 1991, it soon became evident that the government was no longer able to provide adequate health services for the population. Poor medical services contributed to high rates of maternal and infant mortality and morbidity. Abortion complications are a leading cause of maternal mortality and morbidity and treatment of these complications severely strains Moldova's scarce financial resources. As a result, USAID is promoting increased access to family planning services to reduce reliance on abortion as a means of fertility control, upgrading selected clinical sites with modern equipment, and facilitating qualitative research to develop mass media messages on the health benefits of birth spacing. Training for service providers on modern contraception, sound clinical practice, infection control and counseling is provided through USAID's women's reproductive health program. The program is also initiating activity in improved maternity care practices. Basic support for institutionalizing child survival is reducing infant and child illness and death through immunization programs as well as improving the effectiveness of child survival programs through strengthening the local health systems.
USAID continues to provide humanitarian assistance to the most vulnerable members of Moldovan society, such as the elderly, children and disabled. USAID supports the Counterpart Humanitarian Assistance Program which coordinates the delivery and distribution of humanitarian aid provided through the U.S Department of Defense (DOD) excess supplies program to vulnerable people through social service non-governmental organizations (NGOs) and social service providers such as hospitals and orphanages.
USAID, the major donor assisting Moldova carry out their mass immunization campaigns to control diphtheria, provided technical assistance to the Government of Moldova in planning for mass immunization campaigns and educating the population on the importance of immunization. For the first eight months of 1996 diphtheria cases declined by 80 percent compared to the same time in 1995. The epidemic has come under control faster in Moldova than anywhere else in the NIS.
Through medical partnerships, USAID is improving the efficiency and productivity of existing health care providers through better clinical and administrative management and organization. The partnerships also train health care policy makers and administrators at all levels of government to make informed choices and rational system changes with respect to delivery system reform. The partners will continue to train operating room personnel in infection control techniques, data collection and team approach management strategies. Furthermore, the Emergency Medical Services (EMS) Center aims to reduce complications from inappropriate and untimely treatment. Other partnership activities are reducing mortality and decreasing infection resulting from cardiovascular surgery. The partnership is initiating the expansion of Emergency Medical Training to include police, firemen, and industrial safety personnel.
MOLDOVA
FY 1998 PROGRAM SUMMARY*
Strategic Objectives
Economic Restructuring Democratic Transition
Social Stabilization Cross-cutting / Special Initiatives Total Privatization 3,000,000 -- -- -- 3,000,000 Fiscal Reform 1,000,000 -- -- -- 1,000,000 Private Enterprise 8,300,000 -- -- -- 8,300,000 Financial Reform 5,200,000 -- -- -- 5,200,000 Energy 2,500,000 -- -- -- 2,500,000 Citizens' Participation -- -- -- -- -- Legal Systems -- -- -- -- -- Local Government -- -- -- -- -- Crises -- -- -- -- -- Social Benefits -- -- -- -- -- Environmental Health -- -- -- -- -- Cross-cutting / Special Initiatives -- -- -- 12,800,000 12,800,000 TOTAL 20,000,000 -- -- 12,800,000 32,800,000 *FREEDOM Support Act (FSA) Funds
USAID Mission Director: Gregory Huger
ACTIVITY DATA SHEET
PROGRAM: MOLDOVA
TITLE: Privatization, 110-S001.1
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $3,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1994; ESTIMATED COMPLETION DATE: FY 1999
Purpose: Increased transfer of state-owned assets to the private sector.
Background: The Republic of Moldova is one of two countries of the Former Soviet Union (FSU) to complete its mass privatization program, with two-thirds of the non-agricultural economy affected.
This effort was accomplished through the broad-based participation of 95 percent of the population resulting in the transfer to the private sector of more than 2,238 small, medium and large enterprises. USAID technical assistance supported the development of the methodology and infrastructure during the program through the use of open outcry auctions and public tenders for small-scale objects and a nationwide share for subscription process for medium and large-scale enterprises. USAID assistance was also instrumental in the creation of the Share Registry Coordination Unit responsible for issuing and consolidating an accurate and complete record of privatized enterprises with more than 300 shareholders, and transferred to one of 27 independent share registries to protect the ownership rights of the fledgling shareholders. Gradual but significant changes continue to improve the overall environment for market reform and private sector growth.
USAID Role and Achievements to Date: USAID assistance continues to support critical components of Moldova's ongoing continued success as a NIS role model in its transition to a market economy. Moldova now claims the distinction as the first of the NIS republics to issue individual land titles to independent private farmers. At a public ceremony attended by the President-elect Petru Luchinschi, the U.S. Ambassador to Moldova, USAID Regional Mission Director and other key representatives, the first 150 land titles were distributed to the new private independent men and women landowners, December, 1996. This ceremony marked the initial results of a nine-month pilot effort which, by the time the process is complete, will produce some 2,200 land titles arising out of the break-up and dissolution of the former collective farm. In possession of registered, secure land titles, independent farmers are now able to enter into private transactions and freely sell, proxy, or bequeath their land rights.
The distribution of land and property shares was accomplished through a fair, transparent and democratic process. The methodology developed during the pilot has lead to the consolidation of the land through the sale or lease of the land by people who no longer want to engage in agricultural production, to people who want to farm large areas of land. All eligible individuals of the former collective have exchanged their land shares for physical land at a public land auction and ownership has been registered at the mayor's office prior to issuance of the land titles. Likewise, the property share is a registered right which can be sold or proxied.
Concurrently, USAID has committed substantial resources to the privatization of land adjacent to privatized enterprises. Through the Ministry of Privatization, efforts are underway to refine the legal and regulatory environment to facilitate the transfer of land rights to the privatized enterprises. It is expected that early in 1997, the Parliament of Moldova will amend the Law on the Normative Prices of Land thereby approving a significantly lower pricing structure for the sale of urban land.
Description: USAID assistance in 1998 will focus on a nationwide roll-out of the collective farm break-up methodology implemented by a cadre of Moldovans acting as a swat team to troubleshoot problems as they arise. Prior to that time, USAID will expand the pilot collective farm break-up by taking the process to an additional 70 farms throughout Moldova and training a cadre of 80 Moldovans. All technical assistance efforts will be implemented through the Ministry of Privatization and its eleven Territorial Agencies. Continuing support will also be provided for the roll-out of the privatization of enterprise land.
USAID will continue to support cash auction sales of the remaining state shares in privatized enterprises. This effort will also provide a welcome opportunity to achieve capital market institution building. Plans are being developed for the transfer of the remaining share packets through a variety of mechanisms including: staging the cash auctions at the stock exchange or by private placement by broker/dealers using their own contacts within the investment community, transfers to a compensation fund or a liquidation fund and/or to parties having claims on the government.
Host Country and Other Donors: The Moldovan Government has under consideration a proposal from the World Bank to create an agricultural restructuring agency which would be responsible for the restructuring of debt owed by the collectives. EU-TACIS is providing training and technical assistance in the restructuring of four collective farms.
Beneficiaries: Beneficiaries include the Moldovan population at large as Moldova is primarily an agricultural economy and therefore private ownership and possession of land titles are key to achieving market reform and attracting domestic and foreign investment. Also privatization of the residual state shares will accelerate the restructuring of enterprises and strengthen the corporate governance process under way since 95% of the population directly participated in the mass privatization program. During this program, employees and managers of small to large-scale firms exercised preferential rights to ownership in their own enterprises.
Principal Contractors, Grantees, or Agencies: East-West Management Institute is the sole implementor of the rural land privatization program while Booz Allen & Hamilton is implementing urban land privatization component and all aspects of the titling and registration effort. International Business & Technical Consultants, Inc. is the contractor providing technical assistance and support for the sale or disposition of residual state owned shares. Mendez England is providing public education, publicity and public relations on all privatization activities.
Major Results Indicators Baseline Target:Number of land titles issued (cumulative) 0 (1995) 350 (1999)
Market-based land pricing system No (1995) Yes (1996) implemented
ACTIVITY DATA SHEET
PROGRAM: MOLDOVA
TITLE: Fiscal Reform, 110-S001.2
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $1,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 1999
Purpose: Increased soundness of fiscal policies and fiscal management practices.
Background: The development of a market economy in Moldova requires fundamental changes in the approach to government taxation and expenditure from those employed under the former central planning system. The tax system must be restructured to encourage economic activity and taxpayer compliance and also to ensure fairness and consistent application. Modern techniques of budget preparation and budget execution are needed, along with the capacity to finance any budget deficit through issuance of government securities. Moldovan officials have been receptive to technical assistance and have pursued a number of reforms, including modernization of major tax laws, improved tax administration practices, adoption of a comprehensive budget law, improved budget process, establishment of a treasury, and development of a government securities market.
USAID Role and Achievements to Date: A USAID-funded project has provided tools and training to Ministry of Finance (MOF) staff in the areas of tax policy, tax analysis and revenue forecasting, tax administration and computerization of tax collection. A team of experts has been working with the MOF and the Parliament in drafting comprehensive reforms to Moldovan tax laws (especially the major taxes, including personal and corporate income tax, VAT and excise taxes). They are also working on techniques, procedures and systems to administer these laws, including assistance in computerizing the tax system under a World Bank loan.
A companion USAID-funded project has been assisting the Parliament to develop its legislative drafting and analysis capacity, particularly in the tax and budget areas. Under its auspices, a Center for Budgetary and Financial Analysis (CBFA) has been established to advise the Parliament -- the first of its type in the entire CIS.
Under USAID funding, the U.S. Treasury has provided both resident and short-term advisors to the MOF, including a budget/treasury advisor, a government securities advisor, and short-term legal and data processing advisors. The principal undertaking is the implementation of a treasury system, with assistance from the IMF and computers provided by USAID. Components of this project include budget law, budget classification, organization of a Treasury, and implementation of a computerized budget execution, accounting and cash and debt management system.
Description: USAID-funded advisors, including contractors and U.S. Treasury advisors, will continue to provide assistance in fiscal reform activities in FY 1998, coordinating closely with other donor organizations, particularly the IMF and the World Bank. On the tax side, we expect to see implementation of the personal and corporate income tax law enacted in FY 1997, adoption of a revised VAT law and preparations for implementation, and significant improvements in tax administration, including collections of excise taxes. On the budget side, technical assistance to the MOF should result in a more efficient budget preparation process and the creation of a functioning treasury at the central level, with the beginnings of a similar development at the regional level. We also expect that, in time, government securities will finance an ever-increasing part of the government budget. In the Parliament, the growing capability of the CBFA to provide independent advice and analysis will result in better drafted and more economically informed legislation and aid significantly in deliberations on budget and tax legislation.
Host Country and Other Donors: The World Bank has approved a $1.9 million loan for computerization of the State Tax Service, for which USAID has supplied the necessary technical assistance. The IMF is providing assistance to the MOF in macroeconomic analysis and development of the treasury system. GTZ and various other donors are assisting with reform of customs law and procedures, which complements USAID's efforts on VAT and excise taxes.
Beneficiaries: The MOF receives advice on tax policy and tax law codification, tax analysis, and tax administration and computerization. It also gets advice on budget process, treasury management and government securities issuance. The Budget and Finance Committee of the Parliament, and soon other committees as well, receive advice on the budget, tax and other economic policy legislation.
Principal Contractors, Grantees, or Agencies: KPMG/Barents is the contractor in charge of the USAID tax reform and parliamentary development activities, while the USAID-funded U.S. Department of Treasury advisors assist with budget reform, treasury management and government securities issuance.
Major Results Indicators: Baseline TargetsGovernment meets IMF deficit targets No (1995) Yes (1996)
Comprehensive budget law adopted and Yes (1997) No (1995) implemented
State budget revenues equal or exceed No (1995) Yes (1998) forecast level
Treasury system operational, centrally No (1995) Yes (1996) and locally
ACTIVITY DATA SHEET
PROGRAM: MOLDOVA
TITLE: Private Enterprise, 110-S001.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998 $8,300,000 FREEDOM Support Act:
INITIAL OBLIGATION: FY 1995; ESTIMATED COMPLETION DATE: FY 1999
Purpose: Accelerated development and growth of private enterprises.
Background: The emphasis of USAID assistance to Moldova is now on post-privatization since the mass privatization program has been completed. USAID will build on the concomitant components of the enabling environment necessary to support and strengthen the newly developing private sector. It is designed to build the capacity of individual Moldovan professionals, independent firms and nascent industries in fields that did not exist before the transformation to a market economy, and in areas that are essential to ensure that new and developing enterprises become commercially viable.
USAID Role and Achievements to Date: Without laws, regulations and policies that are conducive to business activity, the private sector will not be able to grow. USAID is addressing that through strengthening business advocacy associations. Another approach is to improve the analytical capacity of the Parliament to understand the ramifications of laws proposed for enactment. The improved management of business is a key to the creation of viable private enterprises.
Description: In order to improve the management capacity of business, USAID will assist in the improvement of production and processing technologies in selected businesses, the provision of additional financial resources for selected local businesses through joint ventures, ensure the availability of adequate market information to identified pilot enterprises, and the development of business and farm advisory centers. USAID will also build on its integrated and interdependent activities to develop the legal and regulatory environment related to capital markets and land markets, privatization of urban and agricultural land, expansion of the capital markets infrastructure and the development of western accounting principles.
Host Country and Other Donors: USAID coordinates with the United Nations Development Programme and EU-TACIS to provide technical assistance and funding for business service centers that help small and medium-sized business managers improve business plans and management skills.
Beneficiaries: Privatized and start-up businesses will benefit directly from these activities, but specific focus will be on restructuring the agro-industrial complex, including food processing, marketing, equipment and services suppliers, as well as light manufacturing, construction and the service industry.
Principal Contractors, Grantees or Agencies: Development Alternatives Inc. provides business support services. Peace Corps provides business volunteers to advise the Moldovan managers of the business service centers.
Major Results Indicators: Baseline Target:Number of MBA graduates from Moldovan 50 (1995) 1,500 (1999) state institutions (cumulative) Number of companies listed on stock 0 (1995) 70 (1999) exchange with financial statements conforming to international accounting standards (cumulative)
Number of corporations filing quarterly 0 (1996) 100 (1999) reports with State Commission on Securities
Markets (cumulative)
Compliance with trade standards of World No (1995) Yes (1998)
Trade Organization (WTO)
ACTIVITY DATA SHEET
PROGRAM: MOLDOVA
TITLE: Financial Reform, 110-S001.4
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $5,200,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1995; ESTIMATED COMPLETION DATE: FY 1999
Purpose: A more competitive and market-responsive private financial sector as well as continued development of a modern capital market infrastructure.
Background: The development of a strong and dynamic market-based economy requires an effective, transparent and safe financial sector. USAID's strategy emphasizes the creation of a private banking sector together with the creation of a transparent and open securities system. The revitalized banking sector will provide a vehicle to transfer ownership and funds between individuals and enterprises. Effective, safe and transparent capital markets facilitate the restructuring of enterprises and provide them with a flexible source of funds for investment.
USAID Role and Achievements to Date: The development of the financial infrastructure in Moldova is continuing at an accelerated pace. The Moldovan Stock Exchange was inaugurated in June, 1995, following a six month USAID effort to train Moldovan professionals in all aspects of the securities market and installation of the necessary hardware and software. To date, 43 investment companies, 11 trust companies, 27 independent registrars, and 54 broker/dealers and consulting companies are active in the stock exchange. Moldova was the first NIS country to establish an independent securities market regulating entity with Ministry status. In addition, the Central Bank has converted to a new chart of accounts, and the commercial banks are expected to convert to a new chart of accounts consistent with internationally accepted standards by the end of 1996. Improved banking supervision is a major emphasis, and it has led to the formation of a troubled bank resolution unit in the central bank. This unit has already made its first recommendations for dealing with the largest troubled institution.
Description: USAID's assistance in 1998 will focus on helping to create a professional bank supervision department at the National Bank as well as assisting in refining the laws and regulatory-reform environment. In developing Moldova's capital markets, USAID will assist with the development of self-regulation among market participants, while helping to expand and strengthen the front-office and back-office broker/dealer community and broaden the role of existing investment funds to include raising capital for privatized enterprises through initial public offerings, venture funds or private placements. In the banking sector, USAID will focus on training employees of the Central and commercial banks in western banking practices and standards, and supporting the Moldovan Bankers Association in maintaining a self-sustaining bank training center.
Host Country and Other Donors: The banking school is benefitting from the support of the German Government in training trainers, and the National Bank is receiving assistance in on-site bank supervision from the International Monetary Fund in collaboration with USAID.
Beneficiaries: The beneficiaries are the National Bank of Moldova and virtually all the larger banks in the country that have sent employees to the USAID-funded training center. By extension, depositors and borrowers will benefit, as will firms and their employees that access securities markets and the financial intermediaries - banks, brokerage firms, etc. - that participate in the financial market.
Principal Contractors, Grantees, or Agencies: Barents-KPMG, Financial Services Volunteer Corps are implementing USAID's banking support activities. The capital markets assistance implementors are The Intrados Group and International Business & Technical Consultants, Inc.
Major Results Indicators: Baseline Targets:Commercial bank credit to private 35% (1995) 55% (1999) enterprises and households (as percentage of total bank credit)
Equity capital of private banks (as 15% (1995) 30% (1999) percentage of assets of total banking system)
International accounting standards No (1995) Yes (1996) adopted by commercial banks
ACTIVITY DATA SHEET
PROGRAM: MOLDOVA
TITLE: Energy, 110-S001.5
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $2,500,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1996; ESTIMATED COMPLETION DATE: FY 1999
Purpose: A more economically sustainable and environmentally sound energy sector
Background: Moldova imports 98% of its primary energy from Russia. Moldovagas, the only gas supplier in the country, is in arrears to Russia by over U.S. $230 million. Its ability to pay is substantially hindered by nonpayment by its own customers, including the national electricity utility, Moldenergo. Additionally, Moldovagas has no current capability for operational, administrative and financial oversight and planning of its affiliates, as well as no corporate planning, finance, rate and regulatory, marketing, or customer service departments. Moldenergo is in a similar situation. In 1995 the Moldovan Parliament approved a Privatization Program that includes Moldovagas as a prime candidate. Successful privatization of Moldovagas and Moldenergo will be facilitated by establishment of a regulatory framework, restructuring and commercialization of the companies.
USAID Role and Achievements to Date: USAID, in cooperation with other key donors in the country and in particular the World Bank, has agreed with the Government of Moldova to provide primary assistance in regulatory reform and restructuring and transforming Moldovagas and Moldenergo into commercial energy companies. Project activities were only initiated in 1996.
Description: The USAID program in Moldova will focus on establishing a market-oriented regulatory framework and independent regulatory body, implementation of restructuring of Moldovagas and Moldenergo, as well as improved managerial, planning and commercial practices and control procedures within Moldovagas and Moldenergo. Restructuring assistance will include the introduction of state of the art combustion technologies to the energy industry.
Host Country and Other Donors: World Bank, EU-TACIS and EBRD coordinate with USAID in providing assistance.
Beneficiaries: The State Department of Energy, State Department of gasification, Moldenergo, Moldovagas, Fossil-fuel power plants (Chisinau CHP#1, CHP#2) will directly benefit, and the environment and consumers of energy resource will indirectly benefit from subsequent improvements.
Principal Contractors, Grantees, or Agencies: USAID's energy sector activities are implemented by Hagler-Bailly Consulting, Inc., Burns and Roe, and the US Energy Association.
Major Results Indicators*
Percent change in energy prices
Elimination of budgetary subsidies for power and gas
Number of privately-owned utilities operating
Number of privately-owned utilities financially viable
Independent regulatory agency established
*Targets will be set as a result of the 1997 strategic planning process for the Moldova program.
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