Moldova

LOCATED between Ukraine and Romania, Moldova has a population of 4.5 million and is the fourth poorest postcommunist nation among the eastern European states and former Soviet republics—after Kyrgyzstan, Uzbekistan, and Tajikistan, according to the Economic Intelligence Unit in 2004.

The size of the Moldavian economy shrunk by two-thirds within about a decade into its postcommunist transition, with the economy having been in 1999 equivalent to a mere 31 percent of its size in 1989, as noted by the United Nations Development Program (UNDP). The breakup of the Soviet Union did away with many of the benefits of socialism, such as free, quality healthcare. Independence for Moldova thus [Page 723]brought about poverty and, among other things, epidemics of communicable diseases. In the mid-1990s, the country experienced outbreaks of dysentery (1994), cholera and diphtheria (1995), and mumps (1997). During the Soviet era, Moldova acted as the regional supplier of fruits and vegetables. Agriculture continues to be an extremely important component of Moldova's economy, accounting for about 25 percent of the coun-try's Gross Domestic Product (GDP). Remittances sent by Moldavians working abroad (mostly in Russia and western Europe) accounted for an estimated $440 million in 2003, forming another 25 percent of the GDP.

A civil war involving the northern and more industrialized part of the country (Transdniestr) in the 1990s further increased Moldova's dependence on agricultural exports. Incidence of poverty, however, is much higher in rural and agricultural regions and is associated with the declining terms of trade in the relative prices for agricultural and nonagricultural products. As opposed to rural areas, the economies of large cities, especially of the capital city, Chisinau, have retained their strengths and even grown because of more diversified production structure and developed infrastructure.

There exists a spatial component of poverty in Moldova: the highest poverty level is in small towns (53 percent), less in rural areas (45 percent), and least in big cities (17 percent). Poverty in Moldova affects children, the elderly, and large households the worst. The elderly suffer through insufficient pensions, which in 2002 were only 30 percent of the official minimum cost of living. Poverty among households headed by people with unfinished secondary education is 49 percent and for those with no education it is 59 percent, together accounting for over one-third of all households in Moldova.

In comparison, only 13 percent of households headed by university graduates are poor. All said, poverty by 2002 in Moldova had declined substantially from a high of 70 percent in 1999 to the level obtained just before the 1998 financial crisis (49 percent). Income inequality as measured by the Gini coefficient (a measure of inequality from zero to one) was 0.34. In general, economic growth has contributed to a reduction of poverty, yet it has not so far impacted sufficiently on inequality. Incomes of the wealthiest families in Moldova are estimated by the International Monetary Fund to be at least 10 times higher than those of the least well-todo.

Though the rate of unemployment is relatively low in Moldova (around seven percent), lower than most of the transition economies in central and eastern Europe (where the rate is closer to 15 percent), analysts argue that the labor market does not operate efficiently, with labor resources being substantially underutilized, job opportunities being relatively scarce, and the labor market being depressed. A general measure of the utilization of labor resources, the employment ratio (the ratio of number of people employed to the number of working-age population between 15 and 64 years) stands at 57 percent for Moldova, well below the average of 66 percent for the 24 member states of the Organization for Economic Cooperation and Development (OECD).

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