ECONOMIC MINISTER DESCRIBES MINIMAL

C O N F I D E N T I A L CHISINAU 001144

SIPDIS

STATE FOR EUR/UMB

E.O. 12958: DECL: 11/17/2018
TAGS: ECON EFIN EPET RS MD
SUBJECT: ECONOMIC MINISTER DESCRIBES MINIMAL
IMPACT OF GLOBAL FINANCIAL CRISIS ON MOLDOVA

Classified By: Ambassador Asif J. Chaudhry for
reasons 1.4 (b) and (d)


1. (C) Summary: During Ambassador Chaudhry's
November 13 meeting with Deputy Prime Minister and
Minister of Economy, Igor Dodon, the Minister
explained that the global financial crisis had not
affected Moldova initially. Moldova might face
the return of some citizens working abroad in the
EU and Russia but most Moldovans working abroad
would persevere in their current environments and
continue to send remittances home. Export markets
for Moldova might weaken in the region as other
countries suffered sharper economic downturns. A
positive note of economic liberalization was the
news that the GOM was taking steps to privatize
the national airline. End Summary.

Moldova Currently Unaffected
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2. (C) The Minister explained that the global
financial crisis had not affected Moldova during
this first stage, because Moldova did not have
speculative investments. The first signal of a
loss of confidence in the Moldovan economy would
have been flight of speculative capital which
would have influenced the exchange rate. The
government hoped to avoid panic in the general
population. The GOM would continue to maintain
the stability of the national currency and keep
inflation under control. Inflation was at 7.5%
for the first ten months of the year and the GOM
was optimistic that it would achieve its goal of
holding inflation to a single digit for 2008.

Spring May Bring Problems for Moldova
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3. (C) Dodon noted that in the most pessimistic
scenario the possibility of problems existed for
spring 2009 should some of the many Moldovans
working abroad be forced to return home. (Note:
Approximately 700,000 Moldovans live and work
abroad. Their recorded remittances to Moldova are
36% of GDP.) The return of migrants could cause
unemployment and some social problems and would
lead to a drop in remittances and thus a drop in
imports to Moldova as consumption decreased. A
drop in imports would result in a decrease in the
GOM's tax revenue and subsequently a reduction in
budget revenue.

Moldovan Migrants Abroad
--------------


4. (C) The Minister explained that Moldovan
migrants abroad fell into two categories:
migrants in the EU and migrants in Russia. The
numbers of Moldovan workers were about evenly
split between the two job markets. About 90
percent of the migrants in the EU worked in the
service sector. Since service jobs were the last
to be affected in an economic downturn, Dodon did
not expect many migrants from the EU to return
home. The migrants in Russia presented a
different picture, he thought. Most Moldovans
working in Russia were active in the construction
sector. Construction projects in Moscow and other
major Russian cities had been hit hard by the
global financial crisis. While this could lead to
Moldovans' becoming unemployed, the Minister noted
that there were still substantial construction
projects in Russia such as the site for the 2014
Winter Olympics in Sochi. In addition, Moldovans
in the construction sector were more qualified
than workers from the former Soviet republics in
Central Asia and the Caucasus, and therefore,
would be the last to become unemployed. There
were approximately 300,000 Moldovans working in
Russia and Dodon estimated that it was possible
that 50,000 to 60,000 could return to Moldova.
They would have the prospect of finding jobs in
Moldova where there was a labor shortage.
According to the Minister, the GOM was working on
several initiatives for January and February 2009
when migrants could possibly return.

Exports for Moldova
--------------




5. (C) Dodon noted that Russia, Ukraine and
Belarus had been hit hard by substantial decreases
in exports. The financial crisis in these
countries as major export markets for Moldova
could hurt the Moldovan economy. The GOM had
taken a close look at its major exports and was
following those sectors very carefully. Textiles
were a concern since the sector employed some
Moldovans. However, Moldova's textile sector was
not large enough to hurt the economy as a whole,
though unemployment could be a concern. Ukraine
and Russia were both suffering from a loss of
exports for their metal and metal products and
some factories had reduced production. The prices
for these goods had dropped to historical lows.
Moldova did not have many factories in this sector
and was not affected. However, this was a concern
for secessionist Transnistria which depended on
its metal works factory in Rybnitsa for 60 percent
of its budget revenue. As for food products, the
Minister was confident that demand would continue
even if prices increased.

Privatization of Air Moldova?
--------------


6. (C) Minister Dodon informed the Ambassador that
the GOM had taken a decision that same week
regarding the privatization of the state-owned
airline, Air Moldova. The Ministry of Economy
would conduct the tender process over the next
several months. The sale of the Air Moldova would
further liberalize the economy of Moldova.

Comment
--------------


17. (C) Minister Dodon expressed confidence that
Moldova would weather the financial crisis. At
the beginning of the global financial crisis, some
media had prognosticated a mass return of Moldovan
migrants. They had opined that returning
immigrants would be a concern for the ruling Party
of Communists with elections coming up in the
spring. The fact that Dodon mentioned the GOM was
already planning initiatives to assist returning
migrants could be motivated by concerns for doing
both what is right and what is necessary to
prevent political backlash for the ruling party.
The news on the planned privatization of Air
Moldova is welcome and shows GOM recognition that
the airline needs to function competitively.

CHAUDHRY