Kester Eddy in Chisinau -

Speaking to a group of visiting journalists in 2008, the mayor of Chisinau, the capital of Moldova, told the story of a successful local entrepreneur - let's call him Peter - who, having spotted how effectively pizza restaurants operated in the US, decided to replicate the idea back home. His first outlet being an instant success, he quickly set about opening a second, and a third, and so it went on till he had a dozen or so pizza parlours in the city.

Then one day two man called by. They told Peter that they represented someone very close to the highest echelons of Moldovan political power, and if he wanted to stay healthy, Peter would sell his chain of eateries for a nominal sum to their boss. Peter prevaricated for awhile, but after a short, if violent reminder, a deal was struck. Alas, this tale of political lawlessness was not an isolated incident.

Given such a business environment, along with limited natural resources, it's little wonder that Moldova, a former Soviet Republic, was - and remains - "the poorest country in Europe," as Iurie Leanca, Moldova's minister of foreign affairs and European integration, told bne in a recent interview.

Poor it may be - the World Bank put GDP per capita at a mere $1,516 in 2009 (neighbouring Romania was $7,500 the same year) - but at least the country is "no longer living in fear," Leanca insists. "Since the [governing] alliance of Alliance for European Integration took over from the Communists in September 2009, it's a quite different country. There is no more authoritarian regime, we have a separation of powers, and the political institutions are now much more accountable to the public. And there are no more 'hostile takeovers' [such as Peter's] with the help of administrative resources," he says.

Not that Leanca, who speaks English like a man in a hurry, with one idea rapidly following another, pretends that either political or business life has become perfect overnight. There remain numerous "vested interest" groups, often nominally state owned run as management fiefdoms; corruption is commonplace; the judiciary barely functions; and the governing coalition contains politicians desperate to block any reforms that would touch their economic interests. Further, the political and economic misery of the noughties led to widespread despair among the general population, with hundreds of thousands - some estimates say a million - leaving for a better life abroad, including many of the well educated.

And the new government had and still has to deal with Moldova's unique situation inherited from the dissolution of the Soviet Union - the breakaway sliver in the east of the country run as an unrecognised state with the tacit support of Russian forces, the so-called Transnistria, or "Left Bank of the Dniestre", as it is officially known in Moldova. "The Alliance could not produce miracles," says Leanca. "We inherited many, many challenges. We are still learning what the word 'co-habitation' means, to live together."

Unblocking the bottlenecks

Yet Leanca insists the economic changes seen over the past 22 months have been very significant. "When we came to power, the budget deficit was heading for 16.5% of GDP. We had to undertake extremely unpopular measures. Vested interests, related very closely to the former leadership, limited many parts of the economy, with quasi-monopoly situations," he says.

With the help of an International Monetary Fund programme worth $574m in early 2010, the government began a programme of reforms, slashing state spending and attempting to remove the economic blockages, particularly in the key agricultural sector. As a result, in 2010 the budget deficit was reduced to 2.5% of GDP, and economic growth hit 6.9% last year, with 8.4% in the first quarter this year.

Lucian Anghel, chief economist of BCR, Erste Bank's Romanian operation, confirms the liberal policies of the Alliance. "The government has a pro-European way of doing business. Before everything in business needed a licence - they have reduced the number of licences by 70%. And they have introduced competitive tenders for infrastructure projects," he says.

Moldova also began negotiations for association agreement with the EU. "We started one year and some months ago, three years later than Ukraine, and by now almost finalised all the chapters; 90% of has been agreed. What remains is to do with economic policy, sanitary standards, financial and competition law. We hope that in one and a half years we should finalise these negotiations," says Leanca.

And, partly as a result of closer links with Germany, there is even some hints of movement on the thorny issue of Transnistria. "Chancellor Merkel understands the situation there very well," he says.

Meanwhile, perhaps the biggest change in terms of daily life for ordinary citizens has been the transformation of the media. "People have much better access to various sources of information. There is no more kind of brainwashing that happened during the previous eight years of rule by the Communist Party," he says.