Nobody cares about Moldova enough to significantly change its position

The relations between Kishinev and Moscow plunged into crisis after several Russian diplomats were expelled from Moldova. This is a pro-Western step, but it could be internal games of the elites intended for external use.

Moldova is a developing country, but still remains on the periphery of the European economy. GDP per capita is growing steadily, but still remains the lowest on the continent. In 2007 it reached USD1,231, and in 2016 amounted to approx. USD2,000.

The country’s economy, however, is very vulnerable and reacts strongly to any turbulence. In 2013, when Russia announced an embargo and ceased to import Moldovan wines, the main export product of Moldova, at the turn of 2014 and 2015 the country’s GDP fell by as much as approx. USD400 per capita. Although the effects of the embargo were less severe than when an analogous situation occurred in 2006 (mainly due to the significant reorientation of trade towards the EU market), as much as 35 per cent of domestic producers experienced serious financial problems.

The political upheaval in Ukraine and the associated economic crisis also had a significant impact. Moldova did not have effective instruments protecting it against the devaluation of the currencies of its economic partners. And because 2014 was an election year, the uncertainty associated with its consequences also adversely affected the interest of foreign investors.

In the last decade, unemployment fluctuated between 3 per cent and 8 per cent, although it never exceeded 10 per cent. It is now at approx. 7 per cent, which is a relatively high level from the perspective of the last several years. The forecasts indicate that it may fall to approx. 4 per cent in 2017. One persistent problem faced by Moldova is the low level of the average wage, which amounts to approx. MDL5,200 (USD293). As a consequence, the country has experienced a huge wave of emigration. According to the data of the International Organization for Migration (IOM) 750,000 people left the country, i.e. approx. 21 per cent of the entire population. For Moldova this means a deep shortage of a labor force that would be capable to build the country’s GDP. Additionally, this is yet another of Russia’s bargaining chips in the economic negotiations with this small country. Half of all Moldovans migrated to Russia.

In 2016, Moldova was 107th in the overall ranking in terms of the Human Development Index (HDI). This marks a drop by two spots compared to the previous year, and puts Moldova close to such countries as Uzbekistan (106th), Botswana (108th), Gabon (109th), Paraguay (110th) and Egypt (111th).

Looking at the last 15 years, Moldova has retained the same position in the ranking. These trends are reflected in the country’s demographic situation, where the population has decreased from 3.6 million to 2.9 million over the last twenty years.

Torn between Russia and EU

The low level of income and the overall low quality of life elevates the risk of internal conflicts, as well as that of activities aimed at an escalation of tension in the relations with Russia or Romania (as the only neighbor belonging to the EU, and thus indirectly also with Brussels) for political gains. This is clearly visible in Moldova’s politics.

Prime Minister Pavel Filip is a supporter of a pro-European policy, while President Igor Dodon supports a clearly pro-Russian course. The real problem is that they both represent the interests of Vlad Plahotniuc, an oligarch who is increasingly influencing Moldova’s political life. This means that the choice between the East and the West in the public discourse is purely pragmatic.

The creation of such a dichotomy has very far reaching consequences for Plahotniuc. It leaves him with a lot of room for maneuver in foreign policy. It also enables him to reap benefits from contacts with both Russia and the EU. The creation of such a public discourse also emphasizes the legitimacy of the Moldovan authorities in the eyes of both the voters and the international community.

Vlad Plahotniuc is not the only actor with great influence in the country. The choice between Brussels and Moscow, which is somewhat abstract now, could easily degenerate into a conflict in the future. An excessive emphasis on rapprochement with Russia will result in a more or less powerful response of the EU authorities in light of a violation of the provisions of the association agreement. Meanwhile, a clear orientation towards Brussels and even attempts to gain independence (mainly in the area of energy supply) from Moscow could lead to the use of military force – as the Russian military is stationed in Transnistria.

From Russia’s point of view its influence in Moldova is strong enough to ensure that this country will not enter the political orbit of the West. Therefore, there is no need to escalate the conflict as in the case of Ukraine, where both sides suffered high political and economic losses, and Ukraine’s status quo was ultimately maintained. The Kremlin’s “consent” to the development of Moldova’s close relations with the European Union is justified by two factors.

Firstly, Moldova does not have the same geopolitical weight as Crimea. Maintaining a state of suspended tension and the presence of Russian troops is in this case sufficient to prevent the authorities in Kishinev from conducting an independent policy. On the other hand, the pace of Moldova’s integration with the EU is very slow. These relationships continue to be balanced by Russia’s economic influence.

The relations between Kishinev and Moscow plunged into crisis recently, after several Russian diplomats were expelled from Moldova. Although no official explanations were given, these were most likely people spying for the Kremlin. It is a response to the harassment of Moldovan politicians visiting Russia by the Russian special services.

In reality, however, the expulsion of Russian diplomats is a theatrical play for the needs of the Western audience, which is much harder to please than the Russians. Moldova is not able to resist any of the possible scenarios, if only due to the fact that it is a very poor country.

Western Europe is only exhibiting a superficial interest in the situation in this remote country. Among the large EU countries, only Germany, for which Central and Eastern Europe is a huge sales market, shows relatively greater involvement in Moldova’s affairs.

Romania looks for reunification

One country keenly interested in the situation in Moldova is of course its neighbor, Romania, which had hoped for the reunification of the two countries during the 1990s. Romania is Moldova’s most important economic partner. However, because of Romania’s relatively weak position in the EU, it is not in a position to involve its European partners in its ambitious plan for Moldova’s integration with the EU. Romania’s membership in NATO and the clearly anti-Russian position presented by Bucharest at the international arena are met with an obvious reaction of the Kremlin, which is stoking anti-Romanian sentiments in the Republic of Transnistria, and also among certain social groups in Moldova itself.

One of the poorest European countries

In 2016, the (nominal) GDP amounted to USD6.75bn. The level of foreign direct investment (FDI) barely exceeded USD3bn, and the biggest investor was Russia (USD792m – 26 per cent of all FDI).

Russia is the second largest recipient of Moldovan exports after Romania, and the second supplier of goods to Moldova, which does not help in the country’s efforts to become independent from the Kremlin.

The second largest foreign investor, the Netherlands, invested over half that of Russia last year – USD353m (12 per cent of all FDI). Subsequent positions were taken by Cyprus – USD267m (9 per cent), France – USD238m (8 per cent), and Spain – USD223m (7 per cent).

The largest inflows were directed to the finance sector (about 20 per cent), retail sales and wholesale (about 20 per cent), the processing industry (about 18 per cent), real estate (about 18 per cent), transport and communications (about 9 per cent), and energy and mineral resources (about 8 per cent).

The impact of foreign companies in so-called strategic sectors is relatively high, which is associated with the risk of attempts to influence the policy of the government in the given fields, especially in an environment characterized by institutional, legal and political weakness, and a high corruption rate.

For over a dozen years Moldova has had a negative trade balance. The deficit was significantly reduced in the last year, however. Despite the almost complete dependence on Russian energy supplies, the country has revived economic cooperation with the countries of the European Union to a much greater extent than with the countries of the Commonwealth of Independent States. In 2016 exports to the EU amounted to USD1.217bn, and to the CIS – USD492m, whereas imports from the EU reached a value of almost USD2bn, and those from the CIS amounted to just a little over USD1bn.

As a consequence of a relative calming of the political crisis and the new government’s liberal approach to economic issues, Moldova adopted the National Strategy for Investment Attraction and Export Promotion 2016-2020, which includes seven priority investment and promotional sectors: agriculture and food industry, automotive industry, business services, clothing and footwear, electronics, information technologies and communication technologies, and machinery industry.

As one of the poorest European countries, almost 40 per cent of Moldova’s GDP comes from agriculture, followed by non-specialized industry.

Despite the close relations with the EU, however, Moldova is de facto Russia’s periphery. Russia controls the supply of energy resources, supports the Republic of Transnistria and maintains a permanent military presence there. In light of the economic data, as well as the political nuances and the current geopolitical configuration determined by the competition between the European Union and Russia for influence in Eastern Europe, Moldova does not have any real chance to increase the level of autonomy in the conduct of internal and foreign policy. The EU is pretending to recognize that Moldova is reforming, while Russia is pretending that the EU is not present in that country.

The authors are analysts at the Department of Conflict Studies in the Academy of Finance and Business Vistula in Warsaw.

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