Moldova's drought is severe, but isn't as bad as government claims

By bne IntelliNews August 27, 2007

Anca Paduraru in Bucharest -

Moldova's government asked in mid-August for international help in dealing with the severe drought, saying it had cost the state $1bn. However, experts argue the government grossly exaggerated the loss in agricultural output and that the actual situation, while still serious, doesn't warrant such alarming requests for aid.

The move is bound to further weaken Moldova's international standing, which analysts believe will in turn discourage foreigners from investing in this still very emerging market and thus expose the country further to Russian influence. "We will get €20m in international aid, but at the same time lose annual international investments worth €500m for infrastructure and €500m in the economy," reckons independent economist Veaceslav Ionita.

The Russian daily Nezavysymaia Gazeta, along with other Russian media, gleefully reported the request for help that Chisinau issued to both Western governments and the states of the former Soviet Union, as well as reports that Moldovan farmers have started to stock up on flour imported from Ukraine.

"No wonder the Russian media picked up the official stance in Chisinau without further checking the information. A weaker Moldova, or at least one perceived to be so internationally, serves Russian interests," says Igor Munteanu, director of the Institute for Development and Social Initiatives (IDIS).

Viorel Chivriga, a leading Moldovan expert on agricultural markets, describes the request by the government as a poor publicity stunt. "They are unable to manage the crisis, did not implement the proper pre-emption mechanisms, have no real-time information on the actual situation and no solutions to solve the crisis," says Chivriga.

So how did the confusion arise?

Keeping it in the family

IDIS estimates put this year's loss in agricultural output due to the drought at around $98.9m, a 10th of the figure put out by the government. Moldova's total agricultural output in 2006 was worth $1.1bn. Experts say that where the government miscalculated is that many Moldovan farmers are keeping for their own household consumption whatever poor harvests they have yielded instead of selling it the state.

"The situation is serious, but not catastrophic. Grains like wheat, barley, rye and corn are damaged 55% to 85%, pending on the given crop. These crops cover more than 60% of the agricultural land; also to be taken into account is the fact that 40% of the population works in agriculture," explains Chivriga.

To supply the state reserves and the market, the government has already set in motion import and VAT tax exemptions for the type of grains it cannot buy domestically. Lower prices in the neighbouring agricultural markets of Ukraine and Russia, and the tax exemptions offered by the government should stabilize the local market in the next two months, reckons Chivriga. This is one more reason why the brunt of the lost revenues that IDIS puts at $98.9m will be shouldered by Moldovan farmers, Chivriga said, not by the state per se.

For the longer term, the drought and the state's inadequate response highlights the need for the government to press on with the agricultural reforms it has begun implementing. Among them, says the Economic Quarterly, a publication put out by the Centre for Economic Policies in Chisinau, is a system for subsidies and direct-payments to farmers that the government drafted with help from non-governmental organizations. The Economic Quarterly estimated Moldova's wheat harvest this year at around 500,000 tonnes, compared with 677,000 tonnes in 2006. The 2003 wheat harvest was the lowest in decades, at 107,000 tonnes.

Adding to the strain that the drought put on the state's budgetary resources is the failure of the central government to get any contributions from companies and farms in the breakaway region of Transdniester, which is often described as a smuggling racket with a bit of land attached. And prospects for a resolution to the issue are dim given Russia's interest in holding Transdniester as a bargaining chip in its relations the West.

"The tensions between Russia and the West will further escalate, with Moscow openly set to regain its influence over the former Soviet-controlled space," says the Economic Quarterly. "Russia has rejected so far Western proposals for setting up an international peace-force in Transdniester, and won't remove its military force present there unless it stands to lose something far more important."

Few Moldovans support outright independence for Transdniester, though more believe granting the region some autonomy would be the best way to resolve the crisis. According to an opinion poll published on August 21, just 4% of Moldovans believe Transdniester should be granted independence, thought this figure rose to 12% for giving the region a measure of autonomy. 32% believe Russia is capable of settling the conflict.

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