Identifier
Created
Classification
Origin
09CHISINAU44
2009-01-22 10:42:00
UNCLASSIFIED
Embassy Chisinau
Cable title:  

MOLDOVA 2009 INVESTMENT CLIMATE STATEMENT

Tags:  EINV EFIN ETRD PGOV KTDB OPIC USTR MD 
pdf how-to read a cable
R 221042Z JAN 09
FM AMEMBASSY CHISINAU
TO SECSTATE WASHDC 7544
DEPT OF TREASURY WASHINGTON DC
DEPT OF COMMERCE WASHINGTON DC
CIM NTDB WASHINGTON DC
INFO EUROPEAN POLITICAL COLLECTIVE
UNCLAS CHISINAU 000044 


STATE FOR EB/IFD/OIA AND EUR/UMB
BUCHAREST FOR FCS
KYIV FOR FCS
SOFIA FOR FAS
STATE PASS OPIC

E.O. 12958: N/A
TAGS: EINV EFIN ETRD PGOV KTDB OPIC USTR MD
SUBJECT: MOLDOVA 2009 INVESTMENT CLIMATE STATEMENT
(PART 2 OF 2)

REF: 08 STATE 123907


Protection of Property Rights
-----------------------------


44. The legal system protects and facilitates the
acquisition and disposition of all property
rights. Moldova has adopted laws on property and
on mortgages. A system for recording property
titles and mortgages is in place; however, the
mortgage market is still underdeveloped.


45. Moldova adheres to key international
agreements on intellectual property rights.
Moldova is a signatory to the International
Convention Establishing the World Intellectual
Property Organization.


46. Moldova took measures to implement and
enforce the WTO TRIPS agreement before its
official accession to the WTO, and adopted local
laws to protect intellectual property, patents,
copyrights, trademarks and trade secrets. The
country has an agency for the protection of
copyright, the State Agency for Intellectual
Property. Although many basic policies are in
place and meet international standards in the
field, enforcement is sporadic. Also, Moldova
still needs to implement changes to its Criminal
Code to strengthen copyright protection.

Transparency of the Regulatory System
-------------------------------------


47. Bureaucratic procedures are not always
transparent and red tape often makes processing
unnecessarily long, costly and burdensome.
Discretionary decisions by state functionaries
provide room for corruption. The GOM has taken
measures to fight corruption with the
implementation of the "guillotine law," which
eliminated costly and obsolete regulations and
forced the publication of all business-related
regulations. All regulations and governmental
decisions related to business activity have been
published in a special business registry. These
steps were intended to raise the awareness of
business people about their rights, increase the
transparency of business regulations, and help
fight corruption. A second "guillotine law," the
Law on Basic Principles Regulating Entrepreneurial
Activity, was enacted in August 2007. To enhance
transparency in the drafting of laws and
regulatory acts, the GOM started applying a
Regulatory Impact Assessment to all draft laws and
acts bearing on business activity. The GOM vetted
100 laws with the goal of reducing payments to
regulatory and control bodies and streamlining
business-licensing procedures and economic-
financial controls.


48. The legal framework for anti-monopoly
regulation is the Law on Protection of
Competition. The law establishes the fundamental
principles, based on EU standards, for regulating
the activity of enterprises with a de facto
monopoly and for support and development of
competition. After several years of delay, the
government established a National Competition
Agency in 2007. However, the agencyQs targeted
actions against major foreign investors right at
its outset drew accusations of abuse, lack of
experience, and flawed antitrust legislation.
While the GOM has taken note of the business
community's complaints, it has not taken action to
change the law.


49. The government took measures to streamline
business registration with the implementation of a
"one-window" approach in 2004. Despite the
creation of a Licensing Chamber and a significant
reduction in the number of regulated business
activities requiring licensing, businesses must
still provide a great deal of supporting
documentation to receive a license. The GOM has
made progress in simplifying registration
procedures during the startup stage, but still has
a long way to go to ease day-to-day business
activity and simplify regulation of foreign trade
transactions, business licensing, and lending.


50. The government usually publishes significant
laws in draft form for public comment. The
working group of the State Commission for
Regulation of Entrepreneurial Activity, which was
established as a filter to eliminate excessive
business regulations, meets weekly to vet draft
governmental regulations dealing with
entrepreneurship. The working groupQs meetings
are open to interested businesses. The Foreign
Investors Association (FIA) was established in
2004 with the support of the OECD. The FIA
engages in a dialogue with the GOM on topics
related to the investment climate and publishes an
annual White Book of concerns and recommendations
for the improvement of the investment climate. In
2006, the American Chamber of Commerce was
registered in Moldova, representing another voice
for the business community.


51. In 2003, the GOM passed new criminal and
civil codes and ratified several important
international conventions that, in general, create
a better environment for the market system.


52. Moldova introduced its National Accounting
Standards (NAS),based on International Accounting
Standards (IAS),in 1998. While this meant
greater transparency of financial information and
compatibility with IAS, the NAS has not been
updated since then, leaving it outdated. NAS is
not compatible with the International Financial
Reporting Standards (IFRS) introduced in 2004. A
new law on accounting took effect on January 1,

2008. Moldova is moving toward adoption of IFRS
by 2011. Large and publicly listed companies that
meet compliance criteria set out in the law must
apply the IFRS from January 1, 2009.

Efficient Capital Markets and Portfolio Investment
--------------------------------------------- -----


53. Laws, governmental decisions, securities
regulations, National Bank regulations, and Stock
Exchange regulations provide the framework for
capital markets and portfolio investment in
Moldova. The GOM began regulatory reform in this
area in 2007 with a view to spurring the
development of the weak non-banking financial
market. In particular, only two bodies Q the
National Bank and the National Commission on the
Financial Market Q regulate financial and capital
markets starting in 2008.


54. Credit is allocated on market terms with
banks being the only reliable source of business
financing. The GOM regulates credit policy via
credits from the National Bank, auctions through
commercial banks, compulsory reserves, credits
secured through collateral, open market
operations, and T-bill auctions on the primary
market. Foreign investors may obtain credit on
the local market. However, local commercial banks
loan funds at prohibitively high interest rates,
and mostly short term, which reflect the countryQs
perceived high economic risk and inflation. The
situation has been further aggravated by the
uncertainty about the fallout from the global
credit crunch. Also, large deals rarely can be
financed through a single bank and require a bank
consortium. Recent years have seen a growth in
leasing and micro-financing. In 2007, Raiffeisen
Leasing was the first international leasing
company to open a representative office in
Moldova.


55. The private sector's access to credit
instruments is difficult because of the
insufficiency of long-term funding and excessively
high interest rates. Financing through local
private investment funds is virtually non-
existent. A few U.S. investment funds have been
active on the Moldovan market, notably NCH
Advisors, Western NIS Enterprise Fund, and
Emerging Europe Growth Fund, the latter two
managed by Horizon Capital equity fund managers.


56. In 2007, a "mega-regulator," the National
Commission on the Financial Market (NCFM),
replaced the National Securities Commission. The
NCFM supervises the securities market, insurance
sector and non-bank financing. The NCFM is
operationally independent. Starting October 1,
2008, it acquired the right to issue and withdraw
licenses for all non-bank financial sectors it
supervises. The Commission adopted a Corporate
Governance Code and passed new regulations
intended to simplify the issuance of corporate
securities and increase the transparency of
transactions at the Moldovan Stock Exchange. The
GOM is interested in transforming Moldova into a
regional hub for capital market services by
becoming a center of distribution of international
venture capital. The GOM wants to attract
investment fund management companies to relocate
their regional headquarters to Moldova.


57. Moldovan banks are the main source of
business financing, with non-bank financing,
albeit growing, poorly developed. The banking
system has two levels: the National Bank of
Moldova (NBM) and 16 commercial banks. The NBM
supervises the commercial banks and reports to the
Parliament. The GOM holds a controlling stake in
one bank, Banca de Economii (a savings bank). As
of November 30, 2008, foreign investors' share in
Moldovan banks' capital was more than 73 percent.


58. As of September 2008, total bank assets were
USD 3.8 billion (equal to 83.5 percent of GDP).
Moldova's five largest commercial banks account
for about 62 percent of the total bank assets, as
follows (as of September 30, 2008): Moldova
Agroindbank: MDL 7,839 million (USD 757 million)
in assets; Victoriabank: MDL 5,189 million (USD
501 million); Moldindconbank: MDL 4,868 million
(USD 470 million);
Mobiasbanca: MDL 3,744 million (USD 362 million);
Banca de Economii: MDL 3,626 million (USD 350
million).


59. Unofficial "cross-shareholding" and "stable
shareholders" agreements are used mostly by
investment funds to restrict other companies'
participation, but are not specifically aimed
against foreign investment.


60. Measures to prevent hostile takeovers are
typically designed to protect against all
potential takeovers, not just foreign takeovers.


61. No laws or regulations authorize private
firms to adopt articles of incorporation or
association which limit or prohibit foreign
investment.


62. The U.S. Embassy has no reports about private
sector or government efforts to restrict foreign
participation in industry standards-setting
consortia or organizations. However, private
enterprises' internal regulations may include such
restrictions.

Political Violence
------------------


63. The U.S. Embassy has received no reports over
the past ten years involving politically motivated
damage to projects or installations in Moldova.
Such civil disturbances are unlikely in the near
future.


64. Separatists control the Transnistrian region
of Moldova along the eastern border with Ukraine.
Although a brief armed conflict took place in
1991-1992, the cease-fire of July 1992 has
generally been observed. Local authorities in
Transnistria maintain a separate monetary unit,
the Transnistrian ruble (current market exchange
rate is approximately 8.5 rubles per one USD),and
a separate customs system. Despite the political
separation, economic cooperation takes place in
various sectors. In recent years, the GOM has
implemented measures requiring businesses in
Transnistria to register with Moldovan authorities
(see paragraph 26). A settlement is still being
negotiated with the Organization for Security and
Cooperation in Europe (OSCE),Russia, and Ukraine
acting as guarantors/mediators and the U.S. and EU
as observers (the "five plus two"). After a
stalling of the settlement talks since 2006,
negotiations resumed in 2008 following several
confidence-building initiatives announced by the
Moldovan President earlier in 2007. Any progress
in talks has been piecemeal at best.

Corruption
----------


65. Moldova is making efforts to adopt European
and broader international standards to combat
corruption and organized crime. However,
significant governance challenges remain as
government commitment to fighting corruption has
not been successful. The GOM's failure to reduce
corruption is reflected by the deteriorating
country ranking on the Transparency International
corruption index, placing Moldova at 109th place
in 2008 (down from 79 in 2006).


66. In 2007, Moldova ratified the United Nations
Convention against Corruption, subsequently
adopting amendments to its domestic anti-
corruption legislation. As a consequence, the
Parliament has adopted the new Law on Preventing
and Combating Corruption. In 2008, the GOM also
developed several companion draft laws designed to
address current legislative gaps.


67. Moldova's Criminal Code came into effect on
June 12, 2003 but there is no evidence that it has
contributed to the effort to combat corruption.
It includes articles on public and private sector
corruption, combating economic crimes, criminal
responsibility of public officials, active and
passive corruption, and trade of influence. These
additions put the legislation more in line with
international anti-bribery standards by
criminalizing the act of offering a bribe. Under
this definition, the act of promising, offering or
giving a bribe to a "person of responsibility,"
i.e., a public official, is a crime.


68. Both offering and accepting a bribe are
criminal acts. A bribe - whether to a foreign
official or not - is a criminal act and is not
deductible for tax purposes.


69. The penalties for offering and accepting a
bribe are included in two articles of the Criminal
Code. Offering a bribe is punishable by up to
three years imprisonment or by a fine of 10,000-
20,000 lei (approximately USD 1,000-2,000); if
repeated, the penalty is up to five years
imprisonment or a fine of 20,000-40,000 lei (USD
2,000-4,000); and offering a large bribe for the
benefit of a criminal organization is punishable
by 5-10 years imprisonment.


70. Accepting a bribe is punishable by up to five
years imprisonment or by a fine of 10,000-30,000
lei (USD 1,000 3,000); if the offense is repeated,
the penalty is 5-10 years imprisonment or a fine of
20,000-60,000 lei (USD 2,000-6,000); and for accepting
a large bribe in the interest of a criminal
organization, the punishment is 7-15 years
imprisonment.


71. Several international and local organizations
in Moldova work on combating corruption. In
December 2006, the Republic of Moldova and the
United States signed a USD 24.7 million Millennium
Challenge Corporation (MCC) Threshold Country
Program (TCP) agreement aimed at reducing
corruption. Moldova's MCC TCP program focuses on
persistent corruption in the judiciary, the health
care system, and the tax, customs and police
agencies.


72. The Project against Corruption, Money
Laundering, and Terrorism Financing in the
Republic of Moldova (MOLICO) - was signed in July
2006 between the Council of Europe, the European
Commission, and the Swedish International
Development Cooperation Agency. The MOLICO
project is aimed at ensuring the implementation of
Moldova's anti-corruption strategy on the basis of
annual action plans and strengthening the anti-
money laundering/counter- terrorist financing
system of Moldova. While the MOLICO project has
been active in conducting training and supporting
anti-corruption legislation, concrete results in
the fight against corruption are not apparent.


73. Moldova is not a signatory of the
Organization for Economic Cooperation and
Development (OECD) Convention on Combating
Bribery. However, Moldova is part of two regional
anti-corruption initiatives: the Stability Pact
Anti-Corruption Initiative for South East Europe
(SPAI) and the Group of States against Corruption
(GRECO) of the Council of Europe. Moldova
cooperates closely with the OECD through SPAI, and
with GRECO, especially on country evaluations. In
1999, Moldova signed the Council of Europe's
Criminal Law Convention on Corruption and Civil
Law Convention on Corruption. Moldova ratified
both conventions in 2003.


74. The U.S. Embassy has received reports that
corruption and bribery are serious problems for
foreign investors. For example, when a foreign
investor discovered that he had under-paid his
taxes and wished to remedy the situation, the
individual tax inspector assigned to the company
attempted to extort money. However, when the
investor informed the tax administration of his
error, the tax service lauded his self-reporting
and negotiated a reduced payment. In other
situations, however, a foreign investor may be
faced with the choice of either paying a bribe or
leaving. The Embassy has received reports of
"informal" hostile takeovers of profitable
businesses. In these cases, business owners are
approached by politically connected individuals
who wish to acquire part of the business. If
business owners refuse, they may face harassment
by tax, fire, sanitary and health inspectors.


75. According to Transparency International and
an assessment of closed court cases, corruption is
most pervasive in the following areas: law
enforcement, customs, taxation and regulatory
system; the judicial system; the health care
system; the educational system; government
procurement and procurement in general;
agricultural subsidies and social assistance.


76. Moldova's ranking in Transparency
International's Corruption Perception Index
steadily worsened from 2001, when it was ranked 63
out of 91 countries, to 2004, when it ranked 116
out of 145 countries. In 2006, Moldova ranked 81
out of 163 countries surveyed, but slipped in
2007, dropping to 113 out of 80 countries. In
2008, Moldova ranked 109, behind such countries as
Belize, Armenia, Tanzania and Rwanda. According
to surveys conducted in 2006, about one third of
Moldovan firms admit that they frequently pay
bribes.

Bilateral Investment Agreements
-------------------------------


77. Moldova has signed bilateral investment
protection and promotion agreements with 35
countries, including Albania, Austria, Azerbaijan,
Belarus, Belgium, Bosnia and Herzegovina,
Bulgaria, China, Croatia, the Czech Republic,
Finland, France, Georgia, Germany, Greece,
Hungary, Israel, Italy, Kuwait, Kyrgyzstan,
Latvia, Lithuania, the Netherlands, Poland,
Romania, Russia, Slovenia, Spain, Switzerland,
Tajikistan, Turkey, Ukraine, the United Kingdom,
the United States, and Uzbekistan.


78. Moldova has a bilateral treaty with the
United States on the Encouragement and Reciprocal
Protection of Investment, but does not have a
bilateral taxation treaty with the United States.

OPIC and Other Investment Insurance Programs
--------------------------------------------


79. In 1992, the Moldovan and U.S. governments
signed an investment incentive agreement that
exempts OPIC from Moldovan taxes on loan interests
and fees. The Overseas Private Investment
Corporation (OPIC) became active in Moldova in
September 1997, providing political-risk insurance
to an American company investing in an
agribusiness. In 2002, OPIC provided nearly USD 1
million in political-risk insurance to two U.S.
companies operating in the telecommunications and
agricultural sectors. In 2004, OPIC extended a
USD 150,000 loan to a New York-based small
telecommunications business. In 2005, OPIC closed
on a USD 3.0 million loan to Procredit, a
microfinance institution providing loans to small
businesses in Moldova. In 2007, OPIC committed
USD 10 million in financing to a U.S. company to
support the expansion of its agribusiness
operations.


80. The U.S. Export-Import Bank (Ex-Im) provides
U.S. companies investing in Moldova short- and
medium-term financing in the private sector under
its insurance, loan and guarantee programs. In
2000, the Ex-Im Bank and Moldova signed a
Framework Guarantee Agreement setting the terms
for the GOM to issue sovereign guarantees to
facilitate Ex-Im Bank financing of U.S. exports to
Moldova. Also in 2000, the Ex-Im Bank and Moldova
signed a Project Incentive Agreement that enabled
the Bank to consider financing of U.S. exports for
credit-worthy private sector projects in Moldova
on a non-sovereign risk basis, but which required
host-government support in project-related
activities such as permit and license approvals.
Under the agreement, repayment of Ex-Im Bank
financing is based on the capture of financed
projects' revenue streams in special escrow
accounts held in banks approved by the Ex-Im Bank.


81. In 2002, the Ex-Im Bank signed a memorandum
of cooperation with the Black Sea Trade and
Development Bank. Under the memorandum, the Ex-Im
Bank's financing products can be used to support
exports of U.S. goods and services to any country
located in the Black Sea region, including
Albania, Armenia, Azerbaijan, Bulgaria, Georgia,
Greece, Moldova, Romania, Russia, Turkey and
Ukraine. The agreement enables the Black Sea
Trade Development Bank to act as a guarantor of
specific transactions and also provides for
parallel financing arrangements.


82. Moldova is eligible for U.S. Trade and
Development Agency (USTDA) funding of feasibility
studies, orientation visits, specialized training
grants, business workshops and other forms of
technical assistance. USTDA considers funding for
a wide range of sectors with export potential for
U.S. companies. In 2003, USTDA approved funding
for a study on upgrading the telecom system for
the Moldovan Customs Service.


83. Institutions such as the European Bank for
Reconstruction and Development and the World Bank
are very active in Moldova in both the private and
public sectors, offering various financial tools
for both insurance and credit. Moldova is a
member of the Multilateral Investment Guarantee
Agency. Moldova is also eligible for project and
trade financing from the Black Sea Trade and
Development Bank.

Labor
-----


84. Skilled labor is readily available in
Moldova, which has an adult literacy rate of 99.1
percent. The labor force includes numerous
workers with specialized and technical skills.
Labor migration has led to some shortages of
workers in the agricultural and construction
sectors. The Moldovan constitution guarantees all
employees the right to establish or join a trade
union. Trade unions have influence in the large
and mostly state-owned enterprises and
historically have been strong in negotiations on
labor relations, such as minimum wage and basic
worker rights. Unions are less active in small
private companies. Moldova is a signatory to
numerous conventions on the protection of workers'
rights.


85. The Moldovan General Federation of Trade
Unions has been a member of the ILO since 1992,
and is also affiliated with the International
Confederation of Free Unions in Brussels since

1997. After the Federation split into two
separate unions in 2000, the two merged in 2007,
forming the National Trade Union Confederation.

Foreign Trade Zones/Free Ports
------------------------------


86. One of the GOM's stated economic policies is
the creation and development of free economic
zones (FEZ). At present, six FEZs and one
international free port Q Giurgiulesti Q are
registered in Moldova. According to Moldovan law,
export-oriented production is the main goal of
such zones. FEZ commercial residents are allowed
to sell no more than 30 percent of their products
in Moldova. FEZ activity is regulated by the Law
on Free Economic Zones (2001). Foreigners have
the same investment opportunities as local
entities. FEZ commercial entities enjoy the
following advantages: 25 percent exemption from
income tax; 50 percent exemption from tax on
income from exports; for investments of more than
USD 1 million, a three-year exemption from tax on
income resulting from exports, and for investments
of more than USD 5 million, a five-year exemption
from tax on income from exports; zero value-added
tax; exemption from excises; and protection of
commercial residents against any changes in the
law for 10 years. The GOM announced the
establishment of three industrial parks in 2008,
but their actual operation has not yet begun.
Businesses operating in industrial parks would not
enjoy special fiscal treatment, but would have
access to ready-to-use production facilities and
offices.


87. Similar to the FEZs, the Giurgiulesti Free
International Port was estaQished in 2005 for 25
years. Commercial residents of the port enjoy the
following advantages: 25 percent exemption from
income tax for the first 10 years following the
first year when taxable income was reported; 50
percent exemption from tax on income for the
remaining years; exemption from value-added tax
and excises on imports and exports outside
Moldova's customs territory; zero valued-added tax
on imports from Moldova; and protection of
commercial residents against any changes in the
law until February 17, 2030.

Foreign Direct Investment Statistics
------------------------------------


88. As of January 1, 2008, the total stock of
foreign direct investment (FDI) inflows in Moldova
since independence amounted to USD 1,812.8
million, according to the National Bank of Moldova
(NBM).


89. According to NBM data, annual FDI inflows (in
million
USD) to Moldova have increased steadily over the
past several years: 262.84 (2005); 368.12 (2006);
537.68; and 362.19 (Jan-Jun 2008).


90. FDI by country in 2007, according to NBM data
and based on charter capital (in million USD) was
as follows:
Italy 37.22
Romania 22.16
United States 20.28
Netherlands 17.80
France 17.50
Austria 16.36
Cyprus 15.71
Germany 14.00
Ukraine 13.08
Switzerland 10.18
Other countries 52.28


91. According to the NBM, the stock of FDI
inflows (in million USD) by country of origin for
the ten largest investing countries for the period
1992 to 2007 was:
UNCLAS CHISINAU 000044


STATE FOR EB/IFD/OIA AND EUR/UMB
BUCHAREST FOR FCS
KYIV FOR FCS
SOFIA FOR FAS
STATE PASS OPIC

E.O. 12958: N/A
TAGS: EINV EFIN ETRD PGOV KTDB OPIC USTR MD
SUBJECT: MOLDOVA 2009 INVESTMENT CLIMATE STATEMENT
(PART 2 OF 2)

REF: 08 STATE 123907


Protection of Property Rights
--------------


44. The legal system protects and facilitates the
acquisition and disposition of all property
rights. Moldova has adopted laws on property and
on mortgages. A system for recording property
titles and mortgages is in place; however, the
mortgage market is still underdeveloped.


45. Moldova adheres to key international
agreements on intellectual property rights.
Moldova is a signatory to the International
Convention Establishing the World Intellectual
Property Organization.


46. Moldova took measures to implement and
enforce the WTO TRIPS agreement before its
official accession to the WTO, and adopted local
laws to protect intellectual property, patents,
copyrights, trademarks and trade secrets. The
country has an agency for the protection of
copyright, the State Agency for Intellectual
Property. Although many basic policies are in
place and meet international standards in the
field, enforcement is sporadic. Also, Moldova
still needs to implement changes to its Criminal
Code to strengthen copyright protection.

Transparency of the Regulatory System
--------------


47. Bureaucratic procedures are not always
transparent and red tape often makes processing
unnecessarily long, costly and burdensome.
Discretionary decisions by state functionaries
provide room for corruption. The GOM has taken
measures to fight corruption with the
implementation of the "guillotine law," which
eliminated costly and obsolete regulations and
forced the publication of all business-related
regulations. All regulations and governmental
decisions related to business activity have been
published in a special business registry. These
steps were intended to raise the awareness of
business people about their rights, increase the
transparency of business regulations, and help
fight corruption. A second "guillotine law," the
Law on Basic Principles Regulating Entrepreneurial

Activity, was enacted in August 2007. To enhance
transparency in the drafting of laws and
regulatory acts, the GOM started applying a
Regulatory Impact Assessment to all draft laws and
acts bearing on business activity. The GOM vetted
100 laws with the goal of reducing payments to
regulatory and control bodies and streamlining
business-licensing procedures and economic-
financial controls.


48. The legal framework for anti-monopoly
regulation is the Law on Protection of
Competition. The law establishes the fundamental
principles, based on EU standards, for regulating
the activity of enterprises with a de facto
monopoly and for support and development of
competition. After several years of delay, the
government established a National Competition
Agency in 2007. However, the agencyQs targeted
actions against major foreign investors right at
its outset drew accusations of abuse, lack of
experience, and flawed antitrust legislation.
While the GOM has taken note of the business
community's complaints, it has not taken action to
change the law.


49. The government took measures to streamline
business registration with the implementation of a
"one-window" approach in 2004. Despite the
creation of a Licensing Chamber and a significant
reduction in the number of regulated business
activities requiring licensing, businesses must
still provide a great deal of supporting
documentation to receive a license. The GOM has
made progress in simplifying registration
procedures during the startup stage, but still has
a long way to go to ease day-to-day business
activity and simplify regulation of foreign trade
transactions, business licensing, and lending.


50. The government usually publishes significant
laws in draft form for public comment. The
working group of the State Commission for
Regulation of Entrepreneurial Activity, which was
established as a filter to eliminate excessive
business regulations, meets weekly to vet draft
governmental regulations dealing with
entrepreneurship. The working groupQs meetings
are open to interested businesses. The Foreign
Investors Association (FIA) was established in
2004 with the support of the OECD. The FIA
engages in a dialogue with the GOM on topics
related to the investment climate and publishes an
annual White Book of concerns and recommendations
for the improvement of the investment climate. In
2006, the American Chamber of Commerce was
registered in Moldova, representing another voice
for the business community.


51. In 2003, the GOM passed new criminal and
civil codes and ratified several important
international conventions that, in general, create
a better environment for the market system.


52. Moldova introduced its National Accounting
Standards (NAS),based on International Accounting
Standards (IAS),in 1998. While this meant
greater transparency of financial information and
compatibility with IAS, the NAS has not been
updated since then, leaving it outdated. NAS is
not compatible with the International Financial
Reporting Standards (IFRS) introduced in 2004. A
new law on accounting took effect on January 1,

2008. Moldova is moving toward adoption of IFRS
by 2011. Large and publicly listed companies that
meet compliance criteria set out in the law must
apply the IFRS from January 1, 2009.

Efficient Capital Markets and Portfolio Investment
-------------- --------------


53. Laws, governmental decisions, securities
regulations, National Bank regulations, and Stock
Exchange regulations provide the framework for
capital markets and portfolio investment in
Moldova. The GOM began regulatory reform in this
area in 2007 with a view to spurring the
development of the weak non-banking financial
market. In particular, only two bodies Q the
National Bank and the National Commission on the
Financial Market Q regulate financial and capital
markets starting in 2008.


54. Credit is allocated on market terms with
banks being the only reliable source of business
financing. The GOM regulates credit policy via
credits from the National Bank, auctions through
commercial banks, compulsory reserves, credits
secured through collateral, open market
operations, and T-bill auctions on the primary
market. Foreign investors may obtain credit on
the local market. However, local commercial banks
loan funds at prohibitively high interest rates,
and mostly short term, which reflect the countryQs
perceived high economic risk and inflation. The
situation has been further aggravated by the
uncertainty about the fallout from the global
credit crunch. Also, large deals rarely can be
financed through a single bank and require a bank
consortium. Recent years have seen a growth in
leasing and micro-financing. In 2007, Raiffeisen
Leasing was the first international leasing
company to open a representative office in
Moldova.


55. The private sector's access to credit
instruments is difficult because of the
insufficiency of long-term funding and excessively
high interest rates. Financing through local
private investment funds is virtually non-
existent. A few U.S. investment funds have been
active on the Moldovan market, notably NCH
Advisors, Western NIS Enterprise Fund, and
Emerging Europe Growth Fund, the latter two
managed by Horizon Capital equity fund managers.


56. In 2007, a "mega-regulator," the National
Commission on the Financial Market (NCFM),
replaced the National Securities Commission. The
NCFM supervises the securities market, insurance
sector and non-bank financing. The NCFM is
operationally independent. Starting October 1,
2008, it acquired the right to issue and withdraw
licenses for all non-bank financial sectors it
supervises. The Commission adopted a Corporate
Governance Code and passed new regulations
intended to simplify the issuance of corporate
securities and increase the transparency of
transactions at the Moldovan Stock Exchange. The
GOM is interested in transforming Moldova into a
regional hub for capital market services by
becoming a center of distribution of international
venture capital. The GOM wants to attract
investment fund management companies to relocate
their regional headquarters to Moldova.


57. Moldovan banks are the main source of
business financing, with non-bank financing,
albeit growing, poorly developed. The banking
system has two levels: the National Bank of
Moldova (NBM) and 16 commercial banks. The NBM
supervises the commercial banks and reports to the
Parliament. The GOM holds a controlling stake in
one bank, Banca de Economii (a savings bank). As
of November 30, 2008, foreign investors' share in
Moldovan banks' capital was more than 73 percent.


58. As of September 2008, total bank assets were
USD 3.8 billion (equal to 83.5 percent of GDP).
Moldova's five largest commercial banks account
for about 62 percent of the total bank assets, as
follows (as of September 30, 2008): Moldova
Agroindbank: MDL 7,839 million (USD 757 million)
in assets; Victoriabank: MDL 5,189 million (USD
501 million); Moldindconbank: MDL 4,868 million
(USD 470 million);
Mobiasbanca: MDL 3,744 million (USD 362 million);
Banca de Economii: MDL 3,626 million (USD 350
million).


59. Unofficial "cross-shareholding" and "stable
shareholders" agreements are used mostly by
investment funds to restrict other companies'
participation, but are not specifically aimed
against foreign investment.


60. Measures to prevent hostile takeovers are
typically designed to protect against all
potential takeovers, not just foreign takeovers.


61. No laws or regulations authorize private
firms to adopt articles of incorporation or
association which limit or prohibit foreign
investment.


62. The U.S. Embassy has no reports about private
sector or government efforts to restrict foreign
participation in industry standards-setting
consortia or organizations. However, private
enterprises' internal regulations may include such
restrictions.

Political Violence
--------------


63. The U.S. Embassy has received no reports over
the past ten years involving politically motivated
damage to projects or installations in Moldova.
Such civil disturbances are unlikely in the near
future.


64. Separatists control the Transnistrian region
of Moldova along the eastern border with Ukraine.
Although a brief armed conflict took place in
1991-1992, the cease-fire of July 1992 has
generally been observed. Local authorities in
Transnistria maintain a separate monetary unit,
the Transnistrian ruble (current market exchange
rate is approximately 8.5 rubles per one USD),and
a separate customs system. Despite the political
separation, economic cooperation takes place in
various sectors. In recent years, the GOM has
implemented measures requiring businesses in
Transnistria to register with Moldovan authorities
(see paragraph 26). A settlement is still being
negotiated with the Organization for Security and
Cooperation in Europe (OSCE),Russia, and Ukraine
acting as guarantors/mediators and the U.S. and EU
as observers (the "five plus two"). After a
stalling of the settlement talks since 2006,
negotiations resumed in 2008 following several
confidence-building initiatives announced by the
Moldovan President earlier in 2007. Any progress
in talks has been piecemeal at best.

Corruption
--------------


65. Moldova is making efforts to adopt European
and broader international standards to combat
corruption and organized crime. However,
significant governance challenges remain as
government commitment to fighting corruption has
not been successful. The GOM's failure to reduce
corruption is reflected by the deteriorating
country ranking on the Transparency International
corruption index, placing Moldova at 109th place
in 2008 (down from 79 in 2006).


66. In 2007, Moldova ratified the United Nations
Convention against Corruption, subsequently
adopting amendments to its domestic anti-
corruption legislation. As a consequence, the
Parliament has adopted the new Law on Preventing
and Combating Corruption. In 2008, the GOM also
developed several companion draft laws designed to
address current legislative gaps.


67. Moldova's Criminal Code came into effect on
June 12, 2003 but there is no evidence that it has
contributed to the effort to combat corruption.
It includes articles on public and private sector
corruption, combating economic crimes, criminal
responsibility of public officials, active and
passive corruption, and trade of influence. These
additions put the legislation more in line with
international anti-bribery standards by
criminalizing the act of offering a bribe. Under
this definition, the act of promising, offering or
giving a bribe to a "person of responsibility,"
i.e., a public official, is a crime.


68. Both offering and accepting a bribe are
criminal acts. A bribe - whether to a foreign
official or not - is a criminal act and is not
deductible for tax purposes.


69. The penalties for offering and accepting a
bribe are included in two articles of the Criminal
Code. Offering a bribe is punishable by up to
three years imprisonment or by a fine of 10,000-
20,000 lei (approximately USD 1,000-2,000); if
repeated, the penalty is up to five years
imprisonment or a fine of 20,000-40,000 lei (USD
2,000-4,000); and offering a large bribe for the
benefit of a criminal organization is punishable
by 5-10 years imprisonment.


70. Accepting a bribe is punishable by up to five
years imprisonment or by a fine of 10,000-30,000
lei (USD 1,000 3,000); if the offense is repeated,
the penalty is 5-10 years imprisonment or a fine of
20,000-60,000 lei (USD 2,000-6,000); and for accepting
a large bribe in the interest of a criminal
organization, the punishment is 7-15 years
imprisonment.


71. Several international and local organizations
in Moldova work on combating corruption. In
December 2006, the Republic of Moldova and the
United States signed a USD 24.7 million Millennium
Challenge Corporation (MCC) Threshold Country
Program (TCP) agreement aimed at reducing
corruption. Moldova's MCC TCP program focuses on
persistent corruption in the judiciary, the health
care system, and the tax, customs and police
agencies.


72. The Project against Corruption, Money
Laundering, and Terrorism Financing in the
Republic of Moldova (MOLICO) - was signed in July
2006 between the Council of Europe, the European
Commission, and the Swedish International
Development Cooperation Agency. The MOLICO
project is aimed at ensuring the implementation of
Moldova's anti-corruption strategy on the basis of
annual action plans and strengthening the anti-
money laundering/counter- terrorist financing
system of Moldova. While the MOLICO project has
been active in conducting training and supporting
anti-corruption legislation, concrete results in
the fight against corruption are not apparent.


73. Moldova is not a signatory of the
Organization for Economic Cooperation and
Development (OECD) Convention on Combating
Bribery. However, Moldova is part of two regional
anti-corruption initiatives: the Stability Pact
Anti-Corruption Initiative for South East Europe
(SPAI) and the Group of States against Corruption
(GRECO) of the Council of Europe. Moldova
cooperates closely with the OECD through SPAI, and
with GRECO, especially on country evaluations. In
1999, Moldova signed the Council of Europe's
Criminal Law Convention on Corruption and Civil
Law Convention on Corruption. Moldova ratified
both conventions in 2003.


74. The U.S. Embassy has received reports that
corruption and bribery are serious problems for
foreign investors. For example, when a foreign
investor discovered that he had under-paid his
taxes and wished to remedy the situation, the
individual tax inspector assigned to the company
attempted to extort money. However, when the
investor informed the tax administration of his
error, the tax service lauded his self-reporting
and negotiated a reduced payment. In other
situations, however, a foreign investor may be
faced with the choice of either paying a bribe or
leaving. The Embassy has received reports of
"informal" hostile takeovers of profitable
businesses. In these cases, business owners are
approached by politically connected individuals
who wish to acquire part of the business. If
business owners refuse, they may face harassment
by tax, fire, sanitary and health inspectors.


75. According to Transparency International and
an assessment of closed court cases, corruption is
most pervasive in the following areas: law
enforcement, customs, taxation and regulatory
system; the judicial system; the health care
system; the educational system; government
procurement and procurement in general;
agricultural subsidies and social assistance.


76. Moldova's ranking in Transparency
International's Corruption Perception Index
steadily worsened from 2001, when it was ranked 63
out of 91 countries, to 2004, when it ranked 116
out of 145 countries. In 2006, Moldova ranked 81
out of 163 countries surveyed, but slipped in
2007, dropping to 113 out of 80 countries. In
2008, Moldova ranked 109, behind such countries as
Belize, Armenia, Tanzania and Rwanda. According
to surveys conducted in 2006, about one third of
Moldovan firms admit that they frequently pay
bribes.

Bilateral Investment Agreements
--------------


77. Moldova has signed bilateral investment
protection and promotion agreements with 35
countries, including Albania, Austria, Azerbaijan,
Belarus, Belgium, Bosnia and Herzegovina,
Bulgaria, China, Croatia, the Czech Republic,
Finland, France, Georgia, Germany, Greece,
Hungary, Israel, Italy, Kuwait, Kyrgyzstan,
Latvia, Lithuania, the Netherlands, Poland,
Romania, Russia, Slovenia, Spain, Switzerland,
Tajikistan, Turkey, Ukraine, the United Kingdom,
the United States, and Uzbekistan.


78. Moldova has a bilateral treaty with the
United States on the Encouragement and Reciprocal
Protection of Investment, but does not have a
bilateral taxation treaty with the United States.

OPIC and Other Investment Insurance Programs
--------------


79. In 1992, the Moldovan and U.S. governments
signed an investment incentive agreement that
exempts OPIC from Moldovan taxes on loan interests
and fees. The Overseas Private Investment
Corporation (OPIC) became active in Moldova in
September 1997, providing political-risk insurance
to an American company investing in an
agribusiness. In 2002, OPIC provided nearly USD 1
million in political-risk insurance to two U.S.
companies operating in the telecommunications and
agricultural sectors. In 2004, OPIC extended a
USD 150,000 loan to a New York-based small
telecommunications business. In 2005, OPIC closed
on a USD 3.0 million loan to Procredit, a
microfinance institution providing loans to small
businesses in Moldova. In 2007, OPIC committed
USD 10 million in financing to a U.S. company to
support the expansion of its agribusiness
operations.


80. The U.S. Export-Import Bank (Ex-Im) provides
U.S. companies investing in Moldova short- and
medium-term financing in the private sector under
its insurance, loan and guarantee programs. In
2000, the Ex-Im Bank and Moldova signed a
Framework Guarantee Agreement setting the terms
for the GOM to issue sovereign guarantees to
facilitate Ex-Im Bank financing of U.S. exports to
Moldova. Also in 2000, the Ex-Im Bank and Moldova
signed a Project Incentive Agreement that enabled
the Bank to consider financing of U.S. exports for
credit-worthy private sector projects in Moldova
on a non-sovereign risk basis, but which required
host-government support in project-related
activities such as permit and license approvals.
Under the agreement, repayment of Ex-Im Bank
financing is based on the capture of financed
projects' revenue streams in special escrow
accounts held in banks approved by the Ex-Im Bank.


81. In 2002, the Ex-Im Bank signed a memorandum
of cooperation with the Black Sea Trade and
Development Bank. Under the memorandum, the Ex-Im
Bank's financing products can be used to support
exports of U.S. goods and services to any country
located in the Black Sea region, including
Albania, Armenia, Azerbaijan, Bulgaria, Georgia,
Greece, Moldova, Romania, Russia, Turkey and
Ukraine. The agreement enables the Black Sea
Trade Development Bank to act as a guarantor of
specific transactions and also provides for
parallel financing arrangements.


82. Moldova is eligible for U.S. Trade and
Development Agency (USTDA) funding of feasibility
studies, orientation visits, specialized training
grants, business workshops and other forms of
technical assistance. USTDA considers funding for
a wide range of sectors with export potential for
U.S. companies. In 2003, USTDA approved funding
for a study on upgrading the telecom system for
the Moldovan Customs Service.


83. Institutions such as the European Bank for
Reconstruction and Development and the World Bank
are very active in Moldova in both the private and
public sectors, offering various financial tools
for both insurance and credit. Moldova is a
member of the Multilateral Investment Guarantee
Agency. Moldova is also eligible for project and
trade financing from the Black Sea Trade and
Development Bank.

Labor
--------------


84. Skilled labor is readily available in
Moldova, which has an adult literacy rate of 99.1
percent. The labor force includes numerous
workers with specialized and technical skills.
Labor migration has led to some shortages of
workers in the agricultural and construction
sectors. The Moldovan constitution guarantees all
employees the right to establish or join a trade
union. Trade unions have influence in the large
and mostly state-owned enterprises and
historically have been strong in negotiations on
labor relations, such as minimum wage and basic
worker rights. Unions are less active in small
private companies. Moldova is a signatory to
numerous conventions on the protection of workers'
rights.


85. The Moldovan General Federation of Trade
Unions has been a member of the ILO since 1992,
and is also affiliated with the International
Confederation of Free Unions in Brussels since

1997. After the Federation split into two
separate unions in 2000, the two merged in 2007,
forming the National Trade Union Confederation.

Foreign Trade Zones/Free Ports
--------------


86. One of the GOM's stated economic policies is
the creation and development of free economic
zones (FEZ). At present, six FEZs and one
international free port Q Giurgiulesti Q are
registered in Moldova. According to Moldovan law,
export-oriented production is the main goal of
such zones. FEZ commercial residents are allowed
to sell no more than 30 percent of their products
in Moldova. FEZ activity is regulated by the Law
on Free Economic Zones (2001). Foreigners have
the same investment opportunities as local
entities. FEZ commercial entities enjoy the
following advantages: 25 percent exemption from
income tax; 50 percent exemption from tax on
income from exports; for investments of more than
USD 1 million, a three-year exemption from tax on
income resulting from exports, and for investments
of more than USD 5 million, a five-year exemption
from tax on income from exports; zero value-added
tax; exemption from excises; and protection of
commercial residents against any changes in the
law for 10 years. The GOM announced the
establishment of three industrial parks in 2008,
but their actual operation has not yet begun.
Businesses operating in industrial parks would not
enjoy special fiscal treatment, but would have
access to ready-to-use production facilities and
offices.


87. Similar to the FEZs, the Giurgiulesti Free
International Port was estaQished in 2005 for 25
years. Commercial residents of the port enjoy the
following advantages: 25 percent exemption from
income tax for the first 10 years following the
first year when taxable income was reported; 50
percent exemption from tax on income for the
remaining years; exemption from value-added tax
and excises on imports and exports outside
Moldova's customs territory; zero valued-added tax
on imports from Moldova; and protection of
commercial residents against any changes in the
law until February 17, 2030.

Foreign Direct Investment Statistics
--------------


88. As of January 1, 2008, the total stock of
foreign direct investment (FDI) inflows in Moldova
since independence amounted to USD 1,812.8
million, according to the National Bank of Moldova
(NBM).


89. According to NBM data, annual FDI inflows (in
million
USD) to Moldova have increased steadily over the
past several years: 262.84 (2005); 368.12 (2006);
537.68; and 362.19 (Jan-Jun 2008).


90. FDI by country in 2007, according to NBM data
and based on charter capital (in million USD) was
as follows:
Italy 37.22
Romania 22.16
United States 20.28
Netherlands 17.80
France 17.50
Austria 16.36
Cyprus 15.71
Germany 14.00
Ukraine 13.08
Switzerland 10.18
Other countries 52.28


91. According to the NBM, the stock of FDI
inflows (in million USD) by country of origin for
the ten largest investing countries for the period
1992 to 2007 was:

1. Russia 154.08

2. United States 102.16

3. Italy 91.30

4. Spain 82.57

5. Netherlands 80.12

6. France 79.00

7. Romania 60.14

8. Germany 50.64

9. Austria 35.20

10. Cyprus 27.54


92. Based on figures from the National Bureau of
Statistics, FDI since 1992 by sectors was as a
percentage of total FDI:
--Food processing: 24.6 percent
--Electricity, gas and water supply: 23.3 percent
--Financial activities: 19.3 percent
--Wholesale, retail & repair services: 17.9
percent
--Real estate transactions: 5.4 percent
--Transportation and communications: 4.9 percent
--Hotels and restaurants: 2.1 percent
--Other activities: 2.5 percent


93. According to NBM data, at the end of 2007,
Moldova's direct investment abroad since
independence amounted to USD 41.18 million.


94. In 2007, FDI inflows were 12.9 percent of
annual GDP (USD 4.398 billion).


95. Major U.S. investors or representatives of
U.S. companies in Moldova include:
- NCH Group of Investment Funds: real estate and
financing companies;
- Horizon Capital: equity investment fund
managing the investments of Western NIS Enterprise
Fund (which is phasing out its local activity) and
the recently Emerging Europe Growth Fund with
holdings in banking, food processing and glass
manufacturing;
- McDonald's: fast food;
- Coca-Cola: soft drinks;
- Foodpro International: food processing;
- Development Group USA: food processing, wine
and media;
- Lion Gri: wine;
- Transoil Ltd.: f arming, agribusiness and grains
trading;
- Mary Kay: perfumes and cosmetics;
- Avon: perfumes and cosmetics.

CHAUDHRY