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MOLDOVA: FULL OF SURPRISES
by Paul Norton

Despite its low profile, Moldova is one of  the most forward-looking of the Newly
Independent States (NIS) of the former Soviet Union, with a stable currency, low
inflation, and an aggressive privatization program.  With support from the U.S.
Agency for International Development (USAID) and the World Bank, Moldova is
creating an increasingly favorable business climate in this country of 4.4 million
located on the Dniestr River between Ukraine and Romania. 

The Government of Moldova has already implemented many tough reform
measures.  Moldova's recent agreement with the International Monetary Fund
(IMF) pledges to keep the government budget deficit below 3.5 percent of gross
domestic product, and to maintain an annual rate of inflation of 10 percent for
1995.  As a result of effective economic reforms, Moldova's currency has
depreciated very little since it was introduced in November 1993.  At the time, the
leu (Moldova's currency; plural form: lei), was introduced at a rate of 3.85 lei to
the dollar, while today, the leu can be exchanged at a rate of 4.45 to the dollar. 

PRIVATIZATION

The Government of Moldova is also committed to privatization, which enjoys the
support of  63 percent of Moldovan citizens queried in a recent poll.  Technical
assistance provided by USAID has helped prepare Moldovan citizens to become
business owners and shareholders in private companies, as well as to own their
own apartments.  Roughly one-third of state-owned property has already been
transferred to private hands.  The government plans to privatize another third in
1995-96.  Cash sales of larger enterprises, improved corporate governance for
newly-privatized enterprises, and the continued efforts to stabilize, restructure, and
develop a market economy are also in the works.

Capital markets are also under development, and trading of shares is expected to
begin on the Moldovan stock exchange within the next six months.  USAID and
Price Waterhouse are working with the Moldovan authorities to establish a capital
markets monitoring agency to regulate the country's fledgling capital markets.  

This agency has already begun to monitor investment funds and other market
participants in the country's privatization process.   U.S. investors in Moldova can
work directly with newly-privatized firms, buy shares through investment funds, or
purchase shares directly on the stock market.  Foreign investors are allowed to
hold a 100 percent share of a Moldovan company.  Significant advantages are
available, however, to foreign investors that establish joint ventures with
locally-owned companies.  When at least $250,000 is invested in a Moldovan
company, for example, all  imported production inputs are duty free if they are
re-exported in products processed or manufactured in Moldova.  Moldovan
companies with at least $250,000 in foreign capital  participation are also eligible
for a 50 percent reduction in corporate income taxes and a five- year tax holiday
on capital investments. 

The World Bank, for the first time in its history, is also providing the Moldovan
Government with a $30 million Pre-Export Guarantee Facility.  As a result, the
Government of Moldova can issue financial guarantees to foreign suppliers
exporting to Moldova.  The guarantees will be issued on a first-come-first-served
basis to foreign suppliers, trading companies, or financial institutions that finance
exports to Moldovan enterprises for transactions ranging in value between
$25,000 and $4 million.  A private commercial bank will be chosen to issue
standby letters of credit to suppliers approved for participation in the program.  For
more information on this program, contact the office of Andrei Cheptine, Deputy
Minister of Economy, at 373 (2) 23-40-46 (fax).

OPPORTUNITIES

This favorable commercial environment enhances the attractiveness of business
opportunities in a variety of Moldovan  industries.  Blessed with chernozem, some
of the world's most fertile soil, Moldova's agricultural sector is well-suited to
produce a variety of crops.  Moldova produces very good wines and cognacs,
although the wine industry suffers from a lack of investment in production
facilities.  U.S. partners can offer this industry improved quality control, packaging,
labeling, and marketing, especially for export. 

Until 1992, Moldovan industry supplied electronic components, processors, and
circuits to various elements of the Soviet defense industry.  The Mezon enterprise,
one of the few defense firms in Moldova, supplied most of these electronics
products, producing more than 200 million integrated circuits per year during the
Soviet era.  More recently, the firm has been diversifying its production, and now
manufactures computer games, radios, televisions, and other electronics products. 
Mezon has already been approached by German and Japanese firms considering
various joint ventures.

Despite dramatic improvements in the Moldovan commercial environment,
problems do  exist.  For example, no Western banks do business in Moldova, nor
are there any Moldovan banks that belong to the SWIFT electronic transfer
network.  Burdensome taxes have also been sighted as an impediment to increased
trade and investment. Given the commitment of the Moldovan government to
creating a market economy, however, prospects for an even better commercial
environment are quite likely.  For a comprehensive business overview of Moldova,
call BISNIS Flashfax at (202) 482-3145, and order document #6525.
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