Valeriu Chitan, economist, former Minister of Finance of the Republic of Moldova
His ministerial career (1987-1998) coincided with the era of democratization and liberalization, respectively, with the start of structural-institutional transformations and reforms related to the transition to a market economy. In the early 1990s, Valeriu Chitan devoted himself to forming the foundations of the fiscal system, institutionalizing the state treasury and introducing national accounting and auditing standards. In 1997, the first (and only) sovereign transaction on the international capital market was successfully realized.
In 2013, he initiated a public discussion on rethinking the tax concept, respectively, restarting tax reform and drafting a new Tax Code.
The Logos Press editorial board favors an open and professional discussion about the country’s development path and economic transformation. Within the framework of this discussion, we publish these assessments by Valeriu Chitan on the state of the Moldovan economy and proposals for its development. We hope that other representatives of the political and economic environment who have something to say will also join the discussion.
From crisis to decline and recession
The Republic of Moldova continues to be in the conditions of economic recession, constantly facing challenges and crises caused mainly by incompetence and managerial-institutional dysfunctions. The situation is perceived as a consistent degradation, i.e. from bad to worse. Ministries and other state structures, being significantly politicized, are practically unmanageable, they are “ruled” by appointees who have no proper professional and managerial experience. Moreover, they are deprived of the recognized authority necessary to manage public affairs.
Such a phenomenon as nepotism – endemic “nepotism” – has become an unspoken rule of state administration, where personal relations and patronage “from above” prevail over competence and compliance with the law, which indicates a vicious practice of personnel selection, unprecedented in recent decades (in a negative sense).
In this context, the authorities do not seem to be concerned about the real economy and financial sustainability of the country. Socio-economic development issues are absent from the government’s agenda, and national/sectoral policies and measures related to financial and economic recovery present an insurmountable obstacle for the current managers. Thus, in the absence of anti-crisis measures, the real sector is practically stagnant, with some industries experiencing recession. Ultimately, the economy as a whole is showing signs of an impending recession. GDP growth remains below the minimum required threshold of 5-7%, and foreign direct investment for development is virtually non-existent, indicating a deep distrust of the domestic business climate.
Accordingly, tax revenues are woefully inadequate to cover current budget expenditures. The state provides only two-thirds of the tax revenues needed to cover its needs. In addition to the narrowing of the tax base due to the situation in the economy, the poor state of the budget is also affected by the low level of tax coverage and collection, which does not exceed 30% of GDP. This indicates the absence of a system of targeting and tracking the phenomenon of evasion. This situation limits the financial capacity of the state to provide basic public services to the population. In this regard, the state budget becomes increasingly dependent on costly borrowing, thus becoming a hostage of commercial banks.
The Republic of Moldova is among the countries with the lowest level of public capital investments in relation to GDP. The business environment, which is the most important pillar of the economy, is marginalized, ignored and does not receive clear signals from those in power.
At the same time, an increasingly polarized and disillusioned society disqualifies incompetent authorities, more concerned with obeying state management than solving real problems. From the “manual” judicial system to the servile media, the oversight of power has extended to everything and anything…..
At the same time, officials flood the public space with irresponsible statements and ill-considered decisions. Socially harmful populism propagated by the rulers has led to the destruction of social assistance and wage systems, thus damaging the principles of meritocracy and justice. Social discrimination has increased, further exacerbating inequalities in society.
The incumbent government has driven citizens to the point of absurdity and confusion with its inane rhetoric and unfounded promises. A striking example is the contradictory statements, before and after the elections, regarding energy prices, which in fact turned out to be false, with the corresponding unpredictable effects: inflation in the period 2021-2024 reached 70%, and according to the current dynamics, by the end of 2025 this indicator (cumulative) will be about 80-85%.
There is a need for genuine judicial reform, not an imitation
Corruption at various levels and excessive bureaucracy remain serious obstacles, constantly undermining the confidence of citizens and investors. The lack of political will, lack of vocation and inability to implement reforms are quite evident. Although reforms have been announced, the reality shows their utter failure. Frequent and contradictory legislative changes, especially in areas of law that directly affect investors’ interests (tax, corporate and civil legislation), as well as scandalous legislative initiatives, such as, for example, the Law on Amnesty or amendments to the Criminal and Criminal Procedure Codes (June 2024), have further undermined the interest of foreign investors in our country and even derailed the very idea of reforming justice. It is well known that a dependent and corrupt judicial system is the main obstacle to foreign investment and capital.
In this context, it is worth emphasizing that the current political class (including those involved in making government decisions related to bank theft), by impermissibly interfering in the functioning of the judiciary, has essentially legitimized the precedent of legislative fraud. Examples include the amendments to the criminal legislation that reduced the penalties for the embezzlement of European funds, as well as the controversial amendments related to the amnesty of life prisoners, which led to the release of particularly dangerous criminals, causing a real shock in the public consciousness of citizens.
Undoubtedly, judicial reforms are very much needed, but they must be genuine. The political will to reform the system must be genuine and deep. It is unacceptable for reforms to be used as a cover to achieve partisan or group interests. Subordinating reforms to the interests of maintaining power inevitably leads to even more serious dysfunctions.
At present, the political class seems to have turned justice into a bargaining chip. The announced so-called reforms are not based on any expert opinion and lack relative social consensus, so that their implementation lacks credibility, its results are contestable and unsustainable. The paradox is that the authorities tolerate a so-called “moderate” form of corruption in exchange for the loyalty of the judiciary to those who rule and to their actions.
Any new government will be able to easily undo these reforms. Consequently, only a well-considered and transparent reform can be irrevocable and truly contribute to the strengthening of the rule of law and the sustainable development of the justice system.
Ultimately, the management of reform processes from outside state structures discredits the government itself and undermines the legitimacy of the act of governance.
In view of the above circumstances, the following conclusion emerges: from the point of view of the “internal agenda”, the Republic of Moldova is in an uncertain position, and the authorities, having exhausted themselves, have reached a deadlock….
These failures fuel distrust in the institutions of power, jeopardize the country’s European path and, most damagingly, stimulate the outflow of human capital, especially young talents who seek opportunities abroad.
This reality sharpens the attention of the society not only to the obvious challenges, but also points to possible changes that require a mature approach in order to capitalize them. In this regard, we need rethinking public policies and, above all, a comprehensive institutional audit. The deleterious effects of the current rulers should be counteracted and a genuine healing process based on social understanding and a new development model should be initiated.
Today, more than ever, it is crucial to orient ourselves towards a new normal, to overcome stagnant phenomena and promote the values necessary for the reconstruction and consolidation of society. Only in this way can we confront fear, apathy and disorder and build an inclusive and prosperous society.
On the need to restart public policies and structural-institutional reforms – in the next issue of LP.
Valeriu CHITAN,
economist, former Minister of Finance of the Republic of Moldova
