REPORT ON MOLDOVA

With a GDP of just over $6 billion and GDP per capita of some $2,200, Moldova is among the poorest countries in Europe. Some 20 percent of the population live below the poverty line.. Moldova’s official population (not counting Transdniestria) is approximately 3.5 million.

Foodstuffs are at the top of the list of exports generated by Moldova’s economy, in which agriculture plays a big part. Romania’s geographic proximity makes it the biggest destination for Moldovan exports, which were worth approximately $450 million in 2015. The EU is Moldova’s biggest trading partner, with some $ 3.5 billion in overall trade in 2016. Russia is the second-largest export market for Moldovan goods, estimated at $241 million in 2015. Russia supplies most of Moldova’s energy.

Moldova’s ties to its two principal foreign partners—Russia and the EU (directly and via Romania)—have been both an essential lifeline and a major constraint on the country’s development. With few, if any external sources of support, the key question is whether the country will be able to find domestic resources to break out of this predicament.

In 2014, Moldova signed an Association Agreement (AA) with the EU.  Moldova has committed to the path of European integration and necessary reforms. The agreement was an important milestone. The agreement on a Deep and Comprehensive Free Trade Area (DCFTA) that Moldova signed at the same time signaled the country’s commitment to its European course. That said, neither the AA nor the DCFTA accord offers Moldova a path to membership in the EU. They are a replacement for membership of sorts. They codify the country’s commitment to more difficult reforms and offer trade advantages, assuming Moldova can take the necessary steps to meet the conditions stipulated in those agreements.

Corruption is a major problem for Moldova. In 2016, the country ranked 123 out of 176 countries surveyed. Combined with a fractious domestic political environment, frequent government changes, poverty, and the presence of powerful business interests, corruption has been a major impediment to the functioning of the government and development of the country’s private sector and investment.

Moldova’s prospects for breaking through this combination of political instability, scandal, government dysfunction, and corruption are uncertain. The 2016 presidential election resulted in the victory of Igor Dodon, a pro-Russian candidate. Even though the presidency in Moldova does not have strong executive authority, Igor Dodon has promised to scrap the Association Agreement with the EU in 2018. The Moldovan President suggests a trilateral EU-Moldova-Russia dialogue on the restoration of the Moldova-Russian commercial relations.

Still, the pro-European, pro-reform agenda is publicly favored by the Democratic Party of Moldova, which currently holds a majority of seats in the parliament. Its leader is Moldova’s most prominent businessman Vladimir Plahotniuc, who is rumored to be the most influential business and political leader in the country. Among other assets, he controls four of Moldova’s five national television outlet. Plahotniuc does not hold any official post but has publicly embraced the cause of European integration and declared his resolve to keep the party and the country on a pro-EU course.

Today Moldova is a country that still faces multiple challenges before its transformation is secure. Although none of the challenges facing Moldova—economic, political, or geopolitical—is to be treated lightly, it is important not to lose sight of a number of advantages that Moldova has. Moldova is European, relatively homogeneous, and small. Its closeness and connection to the EU through Romania, its geographic location, and its culture make it an integral part of Europe. The EU cannot turn its attention away from Moldova under the pretext that it is not European. Its European credentials are just as valid as those of Albania, Macedonia, or Montenegro. Size also matters. Moldova’s small size is an advantage in its dealings with the EU. Assuming—as is almost certainly the case—that EU membership for Moldova is not in the cards for the foreseeable future, the country’s small size means that EU assistance funds can have a disproportionate effect on its development and make a real difference for the population as a whole.

The unresolved Transdniestrian conflict is widely seen as one of the biggest challenges facing Moldova. That, however, is a misperception. The conflict has been de facto settled. While the prospect of its formal resolution appears remote at best for the time being, the two parts of the former Soviet Moldavia have learned to co-exist peacefully, and there is no perceptible reason to suggest that hostilities between them are likely to resume. Perhaps not everyone in Moldova will admit to it publicly, but the status quo seems to suit most if not all parties.

On the country’s foreign and security policy agenda, no challenge is greater than its relationship with Russia. Relations with Russia remain an essential element of Moldova’s economic, political, and security equation. Moldova can ill afford bad relations with Russia and needs to carefully manage them. The EU is not in a position to step in and displace Russia in that equation. Careful balancing between Russia and the West is key to Moldova’s future, and to suggest otherwise would be fraught with dire consequences for the country.

Aside from Russia, another major challenge to Moldova is its own domestic political and economic environment. Corruption, government dysfunction, and a lack of prospects make up the main reasons behind the country’s loss of population to emigration to other countries in search of a better future.Moldova’s signing of the Association Agreement and the DCFTA accord with the EU was undoubtedly a major step forward. Reversing them, as Dodon has pledhed, would be an even bigger step backward. The AA and DCFTA accord contain the blueprint for the country’s progress, and implementing them is the way to tackle its biggest problems.

This suggests priority areas for Western engagement with Moldova. The relatively benign and stable equilibrium in relations between Moldova and Transdniestria indicates that the status quo has to be maintained, including with continued support from the international community and the Organization for Security and Cooperation in Europe (OSCE) mission to help manage the relationship. However, a more vigorous effort by either side to seek a formal resolution to the conflict is hardly needed and could even prove destabilizing.

The EU-Moldova Association Agreement including a Deep and Comprehensive Free Trade Area (AA/DCFTA) fully entered into force on 1 July 2016 after being applied provisionally since September 2014. The Agreement significantly strengthens political association and economic integration between Moldova and the EU. It also illustrates a deep mutual commitment based on shared values and interests in the areas of democracy and the rule of law, human rights and fundamental freedoms, good governance, a market economy and sustainable development. In addition, the Agreement commits Moldova to an ambitious reform agenda in key areas such as the fight against corruption, justice, economic recovery and growth, trade, transport and energy, environment and social development.

The main challenges and key reform areas to be tackled in Moldova include excessive politicisation of state institutions, systemic corruption, lack of judiciary independence, the financial sector governance and insufficient investigation into the banking fraud. With extensive support from the EU, Moldova has already adopted a number of reforms. These aim to restore the independence of the judiciary and tackle corruption, make the public administration more efficient, restore macro-economic stability, and approximating the legislation on electricity and natural gas. However, further reform efforts are needed to improve the rule of law and the business environment, which is still affected by endemic corruption, as well as inconsistent policymaking. Strong implementation measures are needed in order to deliver tangible results for the population. Moldova is a partner for the EU in the security sector. This includes cooperation in the fight against terrorism, trafficking and in Common Security and Defence Policy operations. The EU continues to fully support Moldova’s sovereignty and territorial integrity and, on this basis, a peaceful settlement of the Transnistrian conflict with a special status for Transnistria.

Since the EU-Moldova Association Agreement was signed, the EU has consolidated its position as Moldova's main trading partner, with 63% of Moldovan exports going to the EU and around 50% of imports coming from the EU.