Moldova - Politics, government, and taxation



Independent since 1991, Moldova is a republic with a multiparty system. Moldova's unicameral parliament is elected by universal suffrage. In February 2001, the Communist Party of Moldova (CPM) won 71 of the 101 seats, the formerly ruling centrist Alliance got 19 seats, and the right-wing nationalist Christian Democratic Popular Party (CDPP) won 11 seats. Popularly-elected President Vladimir Voronin of the CPM appointed a cabinet led by independent ethnic Bulgarian Prime Minister Vasile Tarlev. The CPM has generally opposed privatization and independence for Transnistria, and advocated reorientation towards Russia, but it is highly unlikely that market reforms will be reversed. With its absolute majority in parliament, the CPM will be able to pursue reform without distraction. It is expected that poorer voters will more readily accept austerity policies if they come from a leftist administration such as the CPM. The CPM retained key ministers from the previous reformist cabinet to stress continuity and it maintains rigorous inflation and budget targets, but it focuses on restoring industrial and agricultural output through policies that may antagonize the IMF. Also on the CPM agenda are reforming the public pension system by linking contributions to benefits and raising the retirement age; restructuring the public health care system by partially privatizing health services; and reforming the social assistance system. The IMF expressed satisfaction with its stabilization and privatization plans.

The Democratic Convention (DCM) is a right-of-center, pro-Western bloc, and the Democratic Party of Moldova (DPM) is a centrist group that developed from the older Movement for a Democratic and Prosperous Moldova, the Popular Democratic Party, the New Forces, and the National Youth League. There are also a variety of small and relatively insignificant parties.

The government's role in the economy is large but declining as the size of the private sector has grown considerably over the 1990s. In 1999, an estimated 60 percent of the economy was in the private sector. Industries were more than 60 percent private, agriculture 86 percent private, retail and services 70 percent, and construction and transport almost 44 percent. The private sector accounted for 45 percent of GDP in 1999. The tax system is considered business-unfriendly, particularly with the introduction in 1998 of value-added tax (VAT) of 20 percent on imported goods and services, and of excise taxes in 1992. The business environment, legal framework, regulation, licensing, inspection, investment climate, access to bank credits, and business infrastructure have been deemed unfavorable to western investment.

Moldova has faced 2 major political conflicts since gaining independence in 1991. The most pressing of these conflicts was in the Transnistria region. The Transnistria region is a narrow strip of land laying east of the Nistru River (also known as the Dniester or Dniestr River). More heavily industrialized than the rest of Moldova, and populated primarily by Slavs, the region identifies itself more closely with Ukraine than with Moldova and has sought independence. Russian forces remained east of the Nistru River after 1991, supporting the self-proclaimed Transnistria Republic, which the government in Chişina˘u has not recognized. Russia and Ukraine are acting as mediators between Chişina˘u and Transnistria; the parties have observed a cease-fire since 1992, but progress to a settlement on the status of Transnistria has been slow. The region is still used for tax and customs evasions. The government in 2001 seems more willing to accept a Russian presence in return for greater pressure on Transnistria to discard sovereignty claims. Russia's influence will likely be acknowledged, and chances of political and economic union with Russia and Belarus may grow. Less pressing is the conflict in Gagauzia, a small region in the south of the country that is populated primarily by a Christian Turkic minority known as the Gagauz. Gagauzia has been granted a great deal of autonomy, including the right to control the privatization of assets in the region and the right to determine trade relations.

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