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Moldova (10/07/10)


October 7, 2010

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For the most current version of this Note, see Background Notes A-Z.

PROFILE

Geography
Area: 33,843 sq. km. (13,000 sq. mi.); slightly larger than Maryland.
Cities: Capital--Chisinau.
Terrain: Rolling steppe, gradual slope south toward the Black Sea.
Climate: Moderate winters, warm summers.
Time Zone: GMT+2

People
Nationality: Noun--Moldovan(s). Adjective--Moldovan.
Population (January 1, 2010): 3.65 million living in-country, not including the estimated Transnistrian population of 533,000. An estimated 750,000 to 1,000,000 work outside the country.
Population growth rate (2007): -0.3%.
Ethnic groups (2004 census): Moldovan (83.7%), Ukrainian (6.6%), Russian (1.7%), Gagauz (4.5%), Bulgarian (1.7%), Romanian (1.4%), other (0.4%).
Main religions: Christian Orthodox (96%), Baptist (1%), Adventist, Roman Catholic, Jewish.
Languages: Romanian (officially known as Moldovan), Russian, Ukrainian, Gagauz.
Education: Literacy--96%.
Health: Infant mortality rate--11.1/1,000. Life expectancy--68.4 years.
Work force (1.3 million): Agriculture--35%; industry--12%; other--47%.

Government
Type: Republic.
Constitution: Adopted July 28, 1994.
Independence: August 27, 1991 (from Soviet Union).
Branches: Executive--President (head of state), Prime Minister (head of government), government (cabinet). Legislative--unicameral Parliament. Judicial--Supreme Court.
Administrative subdivisions: 32 counties (raions), 4 municipalities, and one autonomous territorial unit.
Political parties with seats in Parliament: Party of Communists, Our Moldova Alliance, Democratic Party, Liberal Party, Liberal Democratic Party, United Moldova, and European Action Movement.
Suffrage: Universal at 18.

Economy
GDP (2009): $5.403 billion.
GDP growth rate (2009): -6.5%
Per capita GDP (2009 estimate): $1,516.
Natural resources: Lignite, phosphates, gypsum, arable land, and limestone.
Agriculture: Products--vegetables, fruits, wine and spirits, grain, sugar beets, sunflower seeds, meat, milk, eggs, tobacco, walnuts.
Industry: Types--processed foods and beverages, including wine and refined sugar; processed fruit and vegetable products, including vegetable oil; dairy and meat products; tobacco items; metal processing and production of machinery; textiles and clothing, shoes; furniture.
Trade (2009): Exports--$1.298 billion (of which 52% went to EU countries and 38% to the countries of the former Soviet Union): textiles, clothing, foodstuffs, wine, and machinery. Major markets--Russia, Romania, Italy, Ukraine, Belarus, and Germany. Imports--$3.278 billion (of which 43% came from the EU and 35% from the former Soviet Union): gas, oil, coal, steel, machinery and equipment, chemical products, textiles, foodstuffs, automobiles, and other consumer durables. Major suppliers--Ukraine, Russia, Romania, Germany, China, and Italy.
Currency: Moldovan Leu (plural Lei).
Exchange rate: Leu/US$ 2009 average: 11.11; 2008 average: 10.39; 2007 average: 12.13.

PEOPLE AND HISTORY
Ethnic groups represented in Moldova include Moldovan/Romanian, Ukrainian, Russian, Gagauz, and Bulgarian. Romanian (officially known as Moldovan) is the official language; Russian, Ukrainian, and Gagauz are also spoken. The great majority of Moldova's population is Christian Orthodox--96% of the population nominally belongs to one of the two main Orthodox denominations. The Moldovan Orthodox Church (MOC), an autonomous diocese of the Russian Orthodox Church and subordinate to the Patriarch of Moscow, has 1,281 component parts, including churches, monasteries, and other buildings; the Bessarabian Orthodox Church (BOC), subordinate to the Romanian Orthodox Patriarchate in Bucharest, has 309 component parts. A May 2010 Gallup poll found that 89% of respondents identified themselves as members of the MOC, and 5% identified themselves as members of the BOC. In addition, followers of the Old Rite Russian Orthodox Church (Old Believers) have 15 component parts. The government does not seek out or record the number of adherents of religious organizations.

The Republic of Moldova occupies most of what has been known as Bessarabia. Moldova's location has made it a historic passageway between Asia and southern Europe, as well as the victim of frequent warfare. Greeks, Romans, Huns, and Bulgars invaded the area, which in the 13th century became part of the Mongol empire. An independent Moldovan state emerged briefly in the 14th century under celebrated leader Stefan the Great but subsequently fell under Ottoman Turkish rule in the 16th century.

After the Russo-Turkish War of 1806-12, the eastern half of Moldova (Bessarabia) between the Prut and the Dniester Rivers was ceded to Russia, while Romanian Moldavia (west of the Prut) remained with the Turks. Romania, which gained independence in 1878, took control of Russian-ruled Bessarabia in 1918. The Soviet Union never recognized the action and created an autonomous Moldavian republic on the east side of the Dniester River in 1924.

In 1940, Romania was forced to cede Bessarabia to the Union of Soviet Socialist Republics (U.S.S.R.), which established the Moldavian Soviet Socialist Republic by merging the autonomous republic east of the Dniester and the annexed Bessarabian portion. Stalin also stripped the three southern counties along the Black Sea coast from Moldova and incorporated them in the Ukrainian Soviet Socialist Republic. Romania sought to regain Bessarabia by joining with Germany in the 1941 attack on the Soviet Union. On June 22, 1941, German and Romanian troops crossed the border and deportations of the Jews from Bessarabia began immediately. By September 1941, most of the Jews of Bessarabia and Bukovina had been transported in convoys and force marched to concentration camps in Transnistria. About 185,000 Jews were in the Transnistria area in concentration camps by 1942 in abysmal conditions. Very few were left alive in these camps when the Soviets reoccupied Bessarabia in 1944.

In September 1990, the Supreme Soviet elected Mircea Snegur as President of the Soviet Socialist Republic of Moldova. A former Communist Party official, he endorsed independence from the Soviet Union and actively sought Western recognition. On May 23, 1991, the Supreme Soviet renamed itself the Parliament of the Republic of Moldova, which subsequently declared its independence from the U.S.S.R.

From August 1991, Moldova's transition to democracy confronted a series of obstacles, including an ineffective Parliament, the lack of a new constitution, a separatist movement led by the Gagauz (Christian Turkic) minority in the south, and unrest in the Transnistria region on the left bank of the Nistru/Dniester River, where a separatist movement declared a "Transdniester Moldovan Republic" in September 1990. The Russian 14th Army intervened to stem widespread violence and support the Transnistrian regime. In 1992, the government negotiated a cease-fire arrangement with Russian and Transnistrian officials, although tensions continue, and negotiations are ongoing. In February 1994, new legislative elections were held, and the ineffective Parliament that had been elected in 1990 to a 5-year term was replaced. A new constitution was adopted in July 1994. The conflict with the Gagauz minority was defused by the granting of local autonomy in 1994.

GOVERNMENT AND POLITICAL CONDITIONS
The current Moldovan government was elected in July 2009 and took office in September in a peaceful transfer of power. Four former opposition parties together won a majority of seats in the Parliament (53 of 101), and created the Alliance for European Integration (AIE) coalition government. Liberal Democratic Party leader Vlad Filat (PLDM, 18 seats) was elected Prime Minister. Liberal Party leader Mihai Ghimpu (PL, 15 seats) became Speaker of Parliament. Our Moldova Alliance leader Serafim Urechean (AMN, 7 seats) became Deputy Speaker of Parliament. Democratic Party leader Marian Lupu (PD, 13 seats) was the AIE candidate for President. The Communist Party (PCRM) went into opposition, holding 43 seats in the Parliament. Independents and small parties took the remaining seats.

Speaker Ghimpu has served as Acting President since September 2009. The AIE coalition failed twice in November and December 2009 to attract the additional eight votes required (61 total) for the Parliament to elect Lupu, which meant that Ghimpu was constitutionally required to dissolve Parliament and call new elections. A September 5, 2010 referendum to replace the system of parliamentary election of the president with direct popular election failed due to low turnout. Parliament was dissolved September 28 in preparation for new parliamentary elections on November 28, 2010.

The AIE government has launched an ambitious reform effort and placed a clear priority on Moldova's relations with the West and integration with the European Union. It has pledged to respect and promote human and civil rights, improved relations with neighboring Romania, and negotiated a difficult agreement with the International Monetary Fund (IMF) to help alleviate the effects of the global economic crisis.

The Government of Moldova generally recognizes freedom of religion in practice, although it has continued to deny registration to some religious groups. A new law on religion, passed in July 2007, liberalized registration procedures for religious groups, transferred responsibility for registration from the State Service for Religion to the Ministry of Justice, and permitted congregations to switch denominational allegiance. Of the 24 groups that submitted applications after the new procedures came into effect, only the Unification Church, the Armenian Christian Apostolic Denomination, and the Ukrainian Orthodox Patriarchate have been successfully registered. Orthodox Christian, Muslim, and Protestant organizations continue to encounter bureaucratic obstacles to registration, and Jehovah's Witnesses recount numerous instances of social discrimination and abusive behavior. In August 2009, the majority Moldovan Orthodox Church successfully blocked a concert by Seventh-day Adventists in the public square next to the Orthodox cathedral.

In December 2009, a menorah displayed in a public square was removed and dismantled by members of an Orthodox Christian group, whose leader recited anti-Semitic rhetoric. The Government of Moldova publicly condemned the event, and the menorah was reassembled a few blocks away at the Holocaust Memorial without further incident. A number of minority religious groups in the breakaway region of Transnistria, which is not under the control of the Moldovan Government, continued to be denied registration and are subjected to harassment by Transnistrian authorities.

Transnistria
The population of the Moldovan region of Transnistria, which includes most of the land between the Nistru/Dniester River and the Ukrainian border as well as the city of Tighina/Bender, is approximately 40% Romanian/Moldovan, 28% Ukrainian, and 23% Russian. Separatist forces maintain control of the Transnistrian region. Moldova has offered the region rather broad cultural and political autonomy. The dispute has strained Moldova's relations with Russia. The July 1992 cease-fire agreement established a tripartite peacekeeping force comprised of Moldovan, Russian, and Transnistrian units.

Negotiations to resolve the conflict continue, and the cease-fire is still in effect. The Organization for Security and Cooperation in Europe (OSCE) is trying to facilitate a negotiated settlement and has had an observer mission in place since 1993. In July 2002, OSCE, Russian, and Ukrainian mediators approved a document setting forth a blueprint for reuniting Moldova under a federal system. Over the next year and a half, the settlement talks alternated between periods of forward momentum and periods of no progress. In February 2003, the U.S. and European Union (EU) imposed visa restrictions against the Transnistrian leadership. In April 2003, the Moldovan Government and the Transnistrian authorities agreed to establish a joint commission to draft a constitution for a reintegrated state. However, fundamental disagreements over the division of powers remained, and a settlement proved elusive.

President Vladimir Voronin decided not to sign a Russian-brokered settlement with Transnistria in November 2003; the proposal--seen by many as not in Moldova’s best interest--sparked opposition protests. During the summer of 2004, the Transnistrian separatists forcibly closed several Romanian language Latin-script schools in the region, for which the regime was subject to international condemnation. In 2005, the Transnistrian regime prevented farmers on the right bank of the Nistru River from working their fields on the left bank. The OSCE Mission to Moldova eventually mediated solutions to these crises.

After a 15-month pause, the sides met for a renewed round of settlement negotiations in October 2005. Mediators from Ukraine, Russia and the OSCE joined the Moldovan and Transnistrian representatives at the talks. In addition, the U.S. and EU joined the talks as observers. However, subsequent "5+2" negotiations have made little progress on a settlement or on withdrawal of Russian forces from Moldova: Russia still has weapons and munitions of the Operational Group of Russian Forces (formerly the Russian 14th Army) stationed in Transnistria, although it pledged to remove them under a timetable established at the 1999 OSCE Ministerial--the so-called "Istanbul Accords." However, there has been no progress on Russian withdrawals since early 2004.

In response to Moldova's call for international monitoring of the border, in December 2005 the EU dispatched a Border Assistance Mission (EUBAM) to help stem the flow of illegal trade across the eastern border with Ukraine. In March 2006, Ukraine and Moldova began implementing a 2003 customs agreement, under which Transnistrian companies seeking to engage in cross-border trade must register in Chisinau. Despite the protests of Transnistrian leader Igor Smirnov, most major Transnistrian businesses have subsequently registered. In what is seen as a response to the new customs procedures, the Smirnov regime began a boycott of formal 5+2 talks in March 2006, which stalled negotiations for several years. Since then, the 5+2 has been able to meet only for informal discussions.

Principal Government Officials
President--Mihai Ghimpu (acting)
Prime Minister--Vladimir Filat
President of Parliament (Speaker)--Mihai Ghimpu
Foreign Minister--Iurie Leanca
Ambassador to the United States--Igor Munteanu
Ambassador to the United Nations--Alexandru Cujba

Moldova's embassy in the United States is at 2101 S Street NW, Washington, DC 20008 (tel: 202-667-1130; fax 202-667-1204).

More information about Moldova can be found at the official Government of Moldova website at http://www.moldova.md/en/start/.

ECONOMY
Moldova is one of the poorest countries in Europe. It is landlocked, bounded by Ukraine on the east and Romania to the west. It is the second smallest of the former Soviet republics and the most densely populated. Industry accounts for less than 15% of its labor force, while agriculture's share is over 30%. The country lacks mineral resources and is almost fully dependent on imports of energy inputs (gas, oil, and coal).

Moldova's proximity to the Black Sea gives it a mild and sunny climate. This makes the area ideal for agriculture and food processing, which accounts for one-third of the country's GDP. The fertile soil supports wheat, corn, barley, tobacco, sugar beets, and soybeans. Beef and dairy cattle are raised, and beekeeping is widespread. Moldova's best-known product comes from its extensive and well-developed vineyards concentrated in the central and southern regions. In addition to world-class wine, Moldova produces liqueurs and champagne. It is also known for its sunflower seeds, walnuts, apples, and other fruits.

Like many other former Soviet republics, Moldova has experienced economic difficulties. Since its economy was highly dependent on the rest of the former Soviet Union for energy and raw materials, the breakdown in trade following the breakup of the Soviet Union had serious economic and social effects, exacerbated at times by drought and civil conflict. The Russian ruble devaluation of 1998 had a deleterious effect on Moldova's economy, which only started to rebound in 2000 after years of recession since independence. From 2000 to 2008, the country's economic growth averaged 6% and was driven primarily by consumption fueled by remittances from Moldovan migrant workers. Even though affected by a two-fold increase in gas prices and a politically-motivated Russian ban on Moldovan wine imports in 2006, a severe drought in 2007, and floods in 2008, the economy proved resilient. The country was less prepared for the global crisis, which started to take its toll in the last quarter of 2008, despite an impressive growth rate of 7.8% for that year. In 2009, with GDP falling 6.5%, Moldova felt the full impact of the global crisis while also going through an extended political transition.

Moldova has made progress in economic reform since independence. The government has liberalized most prices and has phased out subsidies on most basic consumer goods. A program begun in March 1993 has privatized the vast majority of all housing units and nearly 2,000 small, medium, and large enterprises. Other successes include the privatization of nearly all of Moldova's agricultural land from state to private ownership, as a result of an American assistance program, "Pamint" ("land"), completed in 2000. A stock market opened in June 1995.

Following the economic difficulties caused by the Russian currency crisis of 1998, the country has scored some success in reducing inflation, even though keeping it at single-digit levels has proved challenging. It was only in 2008 that inflation dropped below 10%--for the first time in recent years--to 7.3%. Owing to the global crisis that triggered deflationary pressures, inflation fell further to 0.4% in 2009, the lowest level since Moldova's independence. After recent years of relative stability and gradual appreciation because of a weakening U.S. dollar and growing remittances from Moldovans working abroad, the value of the local currency, the Moldovan leu, eroded somewhat in 2009. Reforms to the National Bank of Moldova in 2006 changed the central bank's policy priority from currency stability to price stability (fighting inflation). Faced with the formidable task of sterilizing the money supply to contain inflation, in 2009 the National Bank of Moldova had to grapple with the unprecedented pressure on the leu caused by the effects of the global crisis, compounded by the domestic political uncertainties. Although Moldova managed to avert a financial crisis, the recession affected banks' credit quality. The share of non-performing loans shot up to 16.3% by the end of 2009 and one medium-sized bank became insolvent in June 2009. Lending conditions worsened despite expansionary monetary policy pursued by the National Bank.

While Moldova has made great strides in establishing a market economy since its independence, the economy remained overregulated and was hampered by government controls and corruption, creating very few additional jobs and forcing Moldovans over the years to migrate in increasing numbers to find work abroad. Moldova managed to maintain a tight fiscal policy resulting in a slight deficit of 0.3% of GDP in 2007 and 0.5% of GDP in 2008. However, as the global crisis hit the Moldovan economy hard in 2009, a year marked by two electoral campaigns, the country ran a deficit of 7.8% of GDP. The economy continues to depend greatly on remittances sent from Moldovans working abroad. In 2008, remittances reached almost one-third of GDP, ranking among the highest in the world. After registering double-digit growth rates for most of the decade, in 2009 remittances fell 28.8%, reflecting plunging economic activity in countries with large numbers of Moldovan workers. The crisis exposed the vulnerability of the country's growth over the recent years.

As the European Union expanded to Moldova's border with Romania's accession in 2007, the trickle of foreign direct investment (FDI) coming into the country grew to a record $861 million. However, FDI was less than half that figure in 2009. Cumulative FDI since independence is slightly more than $2.7 billion, far below the country's needs. Sporadic and ineffective enforcement of the law, bureaucratic obstacles, corruption, economic and political uncertainty, and government interference have discouraged greater FDI inflows.

Worker remittances and higher energy prices fueled a consumption boom in recent years that has led to imports growing more rapidly than exports. Afflicted by trade deficits, the country lacks diversification in terms of sector development and export markets. In 2009, contraction in domestic and foreign demand led to a fall in exports by 18.9% and imports by 33.1%.

In 2005, Russia enacted a ban on Moldovan agricultural products and in 2006, it banned imports of Moldovan wines. Although Russian President Putin announced an end to the wine ban in November 2006, actual resumption of wine exports came a year later. The wine ban was particularly painful because, prior to the ban, Moldovan wines accounted for one-third of the country's exports and 80% of wine exports went to Russia. Some Moldovan wineries have been successful in finding new, alternative markets for their products. The current Central European Free Trade Agreement (CEFTA) and EU autonomous trade preferences are incentives for further market diversification. As part of talks for an Association Agreement with the EU started on January 12, 2010, Moldova seeks to establish a deep and comprehensive free trade area with the EU. In 2010, Russia again took measures to restrict Moldovan wine, fruit, and vegetable exports--ostensibly due to food safety concerns. Some easing of these restrictions were reported in September.

Moldova had an inconsistent relationship with the International Monetary Fund and World Bank until 2006 when the government reached an agreement with the IMF for a 3-year, $180 million Poverty Reduction and Growth Facility (PRGF) program. Also in 2006, the government reached agreement with the Paris Club on rescheduling Moldova's foreign debt. After the initial failure of negotiations for a new assistance agreement upon the expiration of the PRGF program, the IMF in January 2010 approved a 3-year combined Extended Credit Facility and Extended Fund Facility arrangement in the amount of $574 million for Moldova. So far, the government is implementing the program successfully. Current projections show that the economy will expand slightly in 2010.

DEFENSE AND MILITARY ISSUES
Moldova has accepted all relevant arms control obligations of the former Soviet Union. On October 30, 1992, Moldova ratified the Conventional Armed Forces in Europe Treaty, which establishes comprehensive limits on key categories of conventional military equipment and provides for the destruction of weapons in excess of those limits. It acceded to the provisions of the nuclear Non-Proliferation Treaty in October 1994 and to the Biological Weapons Convention in December 2004. It does not have nuclear, biological, or chemical weapons. Moldova joined the North Atlantic Treaty Organization's Partnership for Peace on March 16, 1994. Due to Moldova's constitutional neutrality, it is not a participant in the Commonwealth of Independent States (CIS--a group of 12 former Soviet republics) Collective Security Agreement.

FOREIGN RELATIONS
Moldova's Parliament approved the country's membership in the Commonwealth of Independent States and a CIS charter on economic union in April 1994.

In 1995, the country became the first former Soviet republic admitted to the Council of Europe. In addition to its membership in NATO's Partnership for Peace, Moldova also belongs to the United Nations, the OSCE, the North Atlantic Cooperation Council, the International Monetary Fund, the World Bank, and the European Bank for Reconstruction and Development. Moldova is a member of the World Trade Organization (WTO).

In 1998, Moldova contributed to the founding of GUAM, a regional cooperative agreement made up of Georgia, Ukraine, and Azerbaijan, in addition to Moldova. Although the agreement initially included a declaration of mutual defense, Moldova has since declared its disinterest in participating in any GUAM-based mutual defense initiative. Moldova has been involved in information exchange, trade and transportation, border control, and energy projects issues within this regional agreement. In 2006, the organization's members voted to change the name to the Organization for Democracy and Economic Development--GUAM.

The past 6 years have seen significant developments in Moldova's relations with the West. In 2005, the European Union (EU) appointed a Special Representative for Moldova and the European Commission opened an office in Chisinau. In February 2005, Brussels and Chisinau agreed on a European Union-Moldova Action Plan, a "roadmap" of reforms to strengthen the democratic and economic situation of the country and facilitate its Euro-Atlantic integration. In accordance with the 2005 Action Plan, Moldova has begun to harmonize its laws with those of the EU. Although Moldova has made some progress toward laying the structural and legislative foundation for reform, the EU has emphasized that more implementation is needed. In 2008, the EU proposed a new Eastern Partnership Initiative that would substantially upgrade the level of political engagement with Moldova and five other countries in the EU “neighborhood”, including the prospect of a new generation of Association Agreements and increased financial assistance.

Relations with the Russian Federation remain troubled due to the presence of Russian forces in the separatist Transnistria region, renewed restrictions on Moldovan exports to Russia, and reassessments of Moldova's history during the Soviet period.

U.S.-MOLDOVAN RELATIONS
Following the dissolution of the Soviet Union, the United States recognized the independence of Moldova on December 25, 1991 and opened an Embassy in its capital, Chisinau, in March 1992. The current U.S. Ambassador to Moldova, Asif Chaudhry, arrived at post on September 24, 2008.

A trade agreement providing reciprocal most-favored-nation tariff treatment became effective in July 1992. An Overseas Private Investment Corporation agreement, which encourages U.S. private investment by providing direct loans and loan guarantees, was signed in June 1992. A bilateral investment treaty was signed in April 1993. Generalized system of preferences status was granted in August 1995, and some Eximbank coverage became available in November 1995.

Following the successful implementation of a $24.7 million Threshold Country Program with the U.S. Millennium Challenge Corporation (MCC), Secretary of State Hillary Clinton and Moldovan Prime Minister Vlad Filat in January 2010 signed a new $262 million 5-year Millennium Challenge Corporation Compact for economic development and investment projects in irrigation infrastructure, high-value agricultural production, and road rehabilitation. The agriculture project will help stimulate the production and improved marketing of high-value agricultural products, including fruit and vegetables. The project includes plans to provide reliable water for agriculture by repairing up to 11 large irrigation systems servicing 15,500 hectares. The project also includes improving access to credit for agricultural projects, and a technical assistance package co-financed by the U.S. Agency for International Development will support related investments by farmers and entrepreneurs in the shift to higher-value agriculture production, post-harvest processing, storage, and marketing.

The new agreement includes a road rehabilitation project that will repair a 93-kilometer section of a major highway in the northeast of the country. The highway is a key link for passenger travel and for internal commerce and trade.

[Fact sheet on U.S. assistance to Moldova.]

Principal U.S. Embassy Officials
Ambassador--Asif J. Chaudhry
Deputy Chief of Mission--Marcus Micheli
Consular Officer--Richard Roesing
Management Officer--Brian Anselman
Political/Economic Officer--Gregory Winstead
Public Affairs Officer--Valerie Colby
Regional Security Officer--Nick Pietrowicz
USAID Officer--Dianne Tsitsos

The U.S. Embassy in Moldova is at Strada Alexei Mateevici #103, Chisinau (tel: 373-22-40-83-00/23-37-72; fax: 373-22-23-30-44).
 



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