WORSENING ECONOMIC INDICATORS FOR

UNCLAS CHISINAU 000496

STATE FOR EUR/UMB, EUR/ACE, EEB/OMA

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV EREL ETRD MD
SUBJECT: WORSENING ECONOMIC INDICATORS FOR
MOLDOVA


1. (SBU) Summary: In October 2008, the outlook
for Moldova's economy was still positive for 2009.
Since that forecast the economic situation for the
entire region has deteriorated dramatically. The
Moldovan National Bureau of Statistics (NBS)
published numbers for the first quarter,
underscoring the impact of the economic crisis on
the country. Moldova's GDP declined 6.9 percent
in the first three months of 2009 due to falling
industrial output, exports and consumption. The
only sector in the economy registering positive
growth was agriculture. The national currency,
the Moldovan leu (MDL),depreciated slightly in
the first quarter as the Government of Moldova
(GOM) intervened heavily in the foreign exchange
market to support the MDL. Foreign trade turnover
experienced a sharp decline. Moldovan economic
growth has been driven by remittance-based
consumption in recent years, but the flow of money
from Moldovans working abroad declined sharply as
the economic crises reduced job prospects in the
countries where Moldovans were working. End
Summary.

INDUSTRIAL OUTPUT DECLINED
--------------


2. (U) Industrial production fell 24.2 percent in
the first quarter. Leading the declining were
food processing and beverages, plus textiles and
articles from textiles. Production in the food
and beverages subsector declined by 21.5 percent,
including the production of processed and canned
meat by 23 percent, canned fruit and vegetables by
28 percent, wine by 35 percent and distilled
alcoholic drinks by 53 percent. Output of
textiles shrank by 31.2 percent and articles from
textiles by 23 percent. In addition, the NBS
reported that construction was down 36.8 percent
and retail 4.3 percent.

AGRICULTURAL PRODUCTION UP
--------------


3. (U) In the first quarter of 2009, agricultural
production increased 3.7 percent compared with the
first quarter of 2008. Growth in agriculture was
generated by good performance in the animal
subsector, but the growth was not uniform.
Poultry increased by 46 percent year on year. The
production of eggs increased 10.4 percent. Cattle
and pig stocks declined 5.4 percent and 1.5
percent, respectively. Milk production dropped
3.7 percent.

LOCAL CURRENCY DEPRECIATES SLIGHTLY AS GOM ACTS
-------------- --

4. (U) The MDL depreciated against the USD by 5.2
percent in the first three months of 2009, from
10.4002 MDL/USD in early January to 10.9601
MDL/USD at the end of March. Before the April 5
parliamentary elections, there was a widespread
belief that the MDL would depreciate immediately
after elections. Though this anticipated
depreciation did not occur, the belief in
devaluation lingers due to a continuing political
crisis and uncertainty about the outcome of new
elections scheduled for July 29. The IMF noted in
a statement in June that "heavy foreign exchange
interventions of more than USD 500 million to
defend the leu have eroded competitiveness and
drained liquidity from the financial system,
weakening the banksQ ability to provide credit to
the economy."
FOREIGN TRADE DECLINED
--------------


5. (U) In the first three months of 2009, total
exports declined by 19.2 percent and imports by
25.2 percent. The major Moldovan trading partners
remained primarily the same with one notable
change in import partners. Kazakhstan became
Moldova's major import partner with USD 166
million or 21 percent of imports. The share of

Kazakhstani imports to Moldova had been less than
one percent in 2008. The sharp increase in
imports from Kazakhstan was due to the purchase of
Kazakh natural gas which began in January 2009.
Moldova's imports from Russia dropped from 17
percent in 2008 to 6 percent in the current year.
Imports from other major partners also decreased,
including Ukraine to 11 percent (from 15 percent)
and Romania to seven percent (from 13 percent).


6. (U) The leading importers of Moldovan goods
did not change. Of USD 280 million of exports,
20.5 percent were exported to Romania, 19 percent
to Russia, 10.5 percent to Italy, 7.3 percent to
Belarus, 6 percent to Germany and 5 percent to
Ukraine.

REMITTANCES
--------------


7. (U) Remittances from Moldovan workers abroad
sent via official channels totaled USD 317.6
million in the first four months of 2009,
according to the National Bank of Moldova. This
was a decrease of 33 percent for the same period
in 2008 when remittances were USD 477.1 million.
The GOM is monitoring daily transfers of
remittances. The daily figure was $2.4 million in
April, down from $3 million daily in March. The
decline in remittances led directly to a drop in
consumption which fell 9 percent in the first
quarter. Household consumption decreased 10.2
percent in the same period.

COMMENT
--------------


8. (SBU) The IMF has revised its forecast for the
projected decline in GDP for the Moldovan economy
for 2009 from 6 percent in spring to 9 percent in
June 2009. The unfavorable economic developments
in Moldova are further aggravated by political
stalemate. Moldova has been in political
stalemate since the April 5 parliamentary
elections. The parliament was unable to elect a
president and has been dissolved. New elections
will take place on July 29, and it is not yet
clear what the political configuration of the new
parliament will be. According to the IMF, the GOM
can expect a budget deficit of at least 11 percent
of GDP for 2009, if the budget is not adjusted.
Continued political instability will generate a
vacuum in power without a parliament or government
to implement policies to promote economic activity
and reduce government spending.

CHAUDHRY