RESPONDING TO THE GLOBAL ECONOMIC CRISIS: MOLDOVA’S EXPERIENCE Ruslan CODREANU - Head of the Policy, Strategic Planning and External Aid Department, State Chancellery of the Republic of Moldova Regional Policy Roundtable in Eastern Europe and Central Asia on Economic Crisis Responses from a Governance Perspective Chişinău, Republic of Moldova 6-7 July 2010

Crisis for the Republic of Moldova was… 1) A process recorded since September 2008 with negative economic and social impact 2) A result of the crisis in the financial and public policy management, promoted by the previous Government 3) Opportunity for a new approach for the development of the country, proposed by the new Government

Political context Parliamentary Elections Anticipated Parliamentary Elections Installment of the new Government 5 th of April th of July th of September 2009

How we went through the year 2009!  Economic decline was -6.5%  Remittances fell by about 30%  Foreign direct investment fell 6 times  The general government deficit increased 7 times  Stagnation of the important sectors of the economy  Number of unemployed persons increased 1.7 times (including the returned migrants)

Steps ahead: A new comprehensive Government Program September 25 th, 2009 Approval of the Economic Stabilization and Recovery Program of the Republic of Moldova for (ESRP) December 1 st, 2009 Creation of the National Council for Participation December 29 th, 2009

Either…or… I. Status-quo  Postpone imperative reforms because of insufficient financial means (fiscal policy, public expenditures, education, social security, etc.)  Continue money allocation without due efficiency analysis II. Take attitude  Initiation of imperative reforms  Increase public expenditure efficiency through reduction and redistribution  Release of additional foreign aid in order to implement urgent public policies and contract the public budget deficit

2 scenarios of economic revival:

ESRP based on 3 pillars ESRP(’09-’11) Public finance stabilization Economic activity revival Insuring an efficient and fair social protection KEY PRINCIPLES EquityMultiplier effectEfficient public sector Participative process

Other action steps: Start of negotiations on the Association Agreement with the EU January 12 th, mil USD agreed according the new Memorandum with the IMF January 29 th, ,8 mil. EUR additional financing got at the Donors’ Consultative Group meeting, Bruxelles March 28 th, 2010

A new approach for the economic growth in Moldova – orientation towards innovation… Innovation driven (2030) High salariesHigh level standards of life Competitive business based on innovative products Efficiency driven (2015) Economic growth based on the production of qualitative goods and services Investment based economic growth Competitiveness based on due qualification of the labor force Enlarged commodity market Functional labor force market Increased capacity to assimilate new technology Factor driven (2010) Low salariesDecreased productivity Economic growth based on remittances and import Economic growth based on trade activity

As a result in the 1Q of 2010: GDP +4.7% Consumer Price Index +5,5 % General public deficit (neg.)+18.2% Trade balance (neg.) +12.3% Average wage(real terms)+ 0.9% Fixed capital investments – 23.4%

Here we are! September , without ESRP 2010, with ESRP

Next steps…  Strengthening government capacity to provide high quality public services  Effective management of public spending towards sectors with growth potential and to the most vulnerable persons  Increasing internal growth potential based on investments, modern technologies, innovations, sustainable development  Development of communication infrastructure  Stimulate demand for new products, technologies, services  Developing public - private partnerships: Business - Science- Government-Civil Society  Developing skills for the new knowledge-based challenges of the global economy

Thank you!