LATVIA'S DEVELOPMENT COOPERATION WITH MOLDOVA COUNTRY STRATEGY PAPER

02.12.2014. 19:09

Latvia's development cooperation with Moldova
country strategy paper

(Word Document format)

Introduction

1. General framework for Latvia's development cooperation

2. Moldova: overview

2.1 Political situation

2.2 Economic and social transformation: developments, challenges and prospects

3. Moldova: development cooperation target sectors

3.1 Macroeconomics: monetary and fiscal policies

3.2 Public sector: public administration, judiciary and enforcement mechanisms

3.2.1 Judiciary

3.2.2 Police, border guarding, customs

3.3 Poverty reduction and social services sector

3.4 Infrastructure and energy

3.5 Education and research, human resource development, information society

3.6 Rural development

3.7 Regional development

3.8 Financial sector

3.9 Private sector

3.10 Civil society and democratic governance

4. Activities of international donors: participants, directions and funding

4.1 Assistance to macroeconomic transformation and strengthening of private sector

4.2 Enhancement of public administration

4.3 Contribution to poverty reduction, social and gender equality

4.4 Assistance to rural and regional development, cross-border cooperation

4.5 Support to democratic governance, human rights and civil society

5. Latvia's development cooperation with Moldova: directions and measures

5.1 Democratic and good governance

5.1.1 Democratic governance

5.1.2 Public administration reform

5.2 Human resource development

5.3 European integration

Conclusions: cooperation, coordination, complementarity

Introduction

The Moldova Country Strategy Paper (CSP) sets out the major objectives and tools of Latvian official development cooperation with Moldova for the time period of 3 years (2006-2008). CSP incorporates non-governmental expertise, additions from relevant governmental agencies and recommendations from representatives of Moldovan government and civil society as well as international donors engaged in Moldova. CSP provides a background analysis of Moldova's political and economic developments, and identifies the prospective target sectors for development cooperation as reflected in Moldova's policy documents. CSP ascertains comparative advantages, priorities and involved actors of Latvian development cooperation with Moldova, and specifies development cooperation directions and prospective measures for Latvia's and Moldova's development cooperation. It must be noted that the defined priorities and tools of Latvian development assistance to Moldova are planned to undergo a regular evaluation process as well as further consultations with Moldovan counterparts, and as a consequence, may be subject to eventual modifications and optimization.

 

1. General framework for Latvia's development cooperation

Latvia's development cooperation efforts are guided by several international and national documents. At the international level, Latvia subscribes to the global development goals outlined in the UN Millennium Declaration. Although Latvian development assistance would represent only a modest contribution to the global aid efforts, Latvia is committed to assume its international responsibility for accomplishing the Millennium Development Goals. Furthermore, Latvia's development cooperation efforts are guided by overall objectives of the European Union official development assistance (ODA) policy, which Latvia accepted after joining the European Union. These include: sustainable economic and social development, smooth and gradual integration of developing countries into the world economy, poverty reduction, and development and consolidation of democracy and the rule of law. Thus, Latvia commits itself to the EU development policy based on principles of sustainable, equitable and participatory human and social development.

Within the framework of these internationally binding documents, the Government of Latvia has developed its own ODA Policy Guidelines, as well as annual plans for development cooperation. The ODA Policy Guidelines state that development assistance is gradually becoming an integral and principal part of Latvia's foreign policy vis-ą-vis the developing countries. In the process, Latvia's Ministry of Foreign Affairs (MFA) has undertaken the role of the main coordinating unit of Latvia's development assistance. MFA supervises establishment of policy framework for development assistance, coordinates the elaboration of country strategy papers, and contributes to the development of mechanisms, structures and human resources for development assistance. The ODA Policy Guidelines also recognize the role of the civil society in successful implementation of development assistance, thus making cooperation with NGOs an important principle for all development cooperation efforts.

 

2. Moldova: overview

2.1 Political situation

After gaining independence in 1991 Moldova has witnessed signs of political instability and de facto territorial disintegration of the country. The problems associated with the breakaway Transnistria region have become the pinnacle and symbol of Moldova's domestic political turmoil and a major obstacle to stability and development. Massive arms and equipment stocks remained located in the Transnistrian region. International criticism and OSCE requirements notwithstanding, the Russian Federation has not completed its troop and military equipment withdrawal. All mediation efforts to reach a permanent solution for the conflict so far have been ineffective.

Moldova's political conundrum, which limits effective transformation of the country, remains yet to be solved. However, positive developments are apparent. Externally, the European Union has increasingly revealed its readiness to launch a more pro-active policy in an attempt to achieve a settlement in Moldova. This pinpoints to an increasing awareness and interest of the leaders of the European Union to make a contribution to the resolution of this political predicament near its prospective borders. The new Europe's Neighbourhood Policy may provide instruments to contribute to political and economic stabilisation of the country. Moreover, a certain domestic political stability has been achieved since 2001. Repeatedly winning the parliamentary elections in 2005, the communist president and government has revealed inclination to reform the country and determination to intensify cooperation with European countries and institutions, identifying the integration with the EU as the country's foreign policy priority.

2.2 Economic and social transformation: developments, challenges and prospects

Since collapse of the Soviet Union, Moldova has experienced the difficulties of simultaneous state-building and fundamental socio-economic transformation. As part of the economic reforms, Moldova embarked on price liberalization, opening of the internal markets, mass privatization, developing foreign trade and attracting investments, introducing foreign currency and formation of a new banking system.

The transition period for Moldova, however, has been very painful and difficult during which the small and highly trade depended country effectively faced an economic collapse. During the decade of Moldova's economic crisis, the country's GDP dropped almost three times. In 1999, which became the lowest point of Moldova's economic and social conundrum, GDP accounted for only 34%, industrial output for 32% and agriculture for 50% of the 1989 level. Moldova's GDP per capita effectively placed the country among poorest in Europe and led the World Bank to classify it as a low-income country. This caused the situation in which a considerable segment of society lived under poverty line and at the end of the 1990s almost half of the population lived below the absolute poverty line. Poverty and the increasing unemployment rates have contributed to extensive exodus of the economically active population.

During the 2000's, due to the re-intensification of foreign trade, primarily with Russia, increasing domestic demand facilitated by money inflows from labour migrants and curbing inflation, Moldova experienced an apparent economic revival and growth. Economic growth accelerated throughout 2001-2004 reaching 6-7% annually. GDP per capita was gradually increasing to the effect that the segment of society living under poverty line declined. Unemployment dropped and positive employment growth reappeared in 2003. Nevertheless, the country's output by 2003 was still less than half of what it was in 1989 and in the context of identifying future prospects significant socio-economic challenges and constraints must be taken into account.

Moldova's fiscal situation remains complicated. Throughout the 1990s, in order to compensate for budget deficit Moldova's government relied substantially on external borrowings (Moldova's primary creditors have been World Bank, IMF, EBRD, as well as Russia). By 2002, Moldova's debt-to-GDP ratio reached the massive 81.9%, which had made it difficult to service the country's debt, let alone to accumulate the necessary capital for domestic investments, including in the social sector and development of economy.

Accumulation of fixed capital and capital investment has been low. Investment has been predominantly concentrated only in a few sectors of economy, such as processing (mostly agricultural products), energy, gas and water supply and communication. Foreign direct investment has been rather limited and declining. Moldova has considerably lacked behind in per capita terms ($ 198 annually in 1993-2002) in comparison to East and Central European countries ($ 1958) and countries of South East Europe ($ 444). In the context of a high poverty incidence, it is a complicated task to identify and implement an appropriate balance between improvement of investment environment in order to attract investors and public interests of increased social spending.

Moldova's trade balance has steadily been in deficit. Moldova is an export-oriented country with exports amounting to more than half of GDP in 2000s. Likewise to economic performance, Moldova's trade turnover decreased dramatically throughout 1990s, which was additionally hit by Russian financial crisis in 1998. Domestic growth and improvement of external trading environment, gradually contributed to intensification of Moldova's foreign trade. Moldova became a member of the WTO in July 2001. Although a high share of exports is directed to Russia and Ukraine, increasingly EU is becoming a major trading partner of Moldova. Imports from the EU constitute 28% of the total, while the shares of Ukraine and Russia are 23% and 13%, respectively. Agricultural products constitute almost two thirds of all exports and wine alone accounts for one third of total exports. This reveals the heavy reliance of Moldova's export trade on agricultural products and also pinpoints to the agrarian structure of economy and trade, which may become a constraint for Moldova's speedy and effective economic transformation and growth.

Furthermore, economic growth and increase of domestic consumer demand considerably depends on inflows from labour migration abroad. According to Moldovan official estimates, more than half a million or 35-40% of economically active people have left the country to become labour migrants, mostly in Russia and, among others, in Italy, Portugal and Greece. The importance of transmittals from abroad has been increasing over years. In 2004 remittances from abroad reached more than $ 700 million and accounted for 27% GDP. The negative side of this development pertains to the tendency of losing increasing number of economically active people with share of young people prospectively rising.

Regional economies remain backward and a massive discrepancy exists between socio-economic development of Moldova's capital and other regions. Gross Regional Product per capita outside Chisinau constitutes only one third of that in the capital. Regions of Moldova are strongly reliant on subsidies from the state budget in order to finance current expenditures. Furthermore, political dissection of Moldova hinders effective economic transformation, as considerable proportion of the country's energy and industrial base is located in breakaway Transnistria region. The region produces steel, mechanical and electric equipment, electric energy, furniture, textiles, footwear, wine and brandy as well as there are several arms-producing factories in Transnistria. Significantly, power plants are located in the region. Moreover, Transnistria has accumulated a considerable foreign debt and this may be a burden after reunification of the country is implemented.

Thus, partial stabilization has been achieved and economic growth experienced, which provides impetus for further socio-economic development. However, considerable structural impediments and imbalances remain, above all, the unbalanced structure of economy, mono-structural character of exports and low capital investments. Moreover, despite the growth and reducing the segment of population living under the poverty line, poverty remains an acute problem. The country's political division aggravates the situation by complicating the economic recovery of the country and retaining a source for potential tension.

 

3. Moldova: development cooperation target sectors

The Government of the Republic of Moldova has produced the Economic Growth and Poverty Reduction Strategy Paper, with the aim to "develop a strategic, systemic and participative vision for socio-economic development and launch it for discussions and contributions to the entire society." This comprehensive document also identifies needs, sets major directions and mechanisms in domain of development cooperation in order to contribute to an effective allocation of resources and technical assistance from international financial organizations and donors.

The target sectors have also been identified by international donor organizations, such as the IMF, the World Bank and UNDP. Recently, a comprehensive and detailed diagnosis and recommendations have been given by the European Union in its Report on Moldova and Action Plan signed by both sides.

On the basis of these policy documents and recommendations from the involved donors and local stakeholders it can be concluded that development cooperation efforts in Moldova currently must focus on the following initiatives: strengthening civil society, upgrading public administration, improving business environment, reducing poverty and diminishing regional inequality. The key participants and beneficiaries of the development assistance are the poor, civil society, public administration and business community.

3.1 Macroeconomics: monetary and fiscal policies

In the context of considerable debt commitments and trade deficit, the Moldovan government needs to design and implement a balanced monetary policy in order to reduce inflation, maintain fiscal stability and contribute to sustainable development in Moldova. The current monetary and fiscal environment has led to a negative balance of payments, and, and a temporary suspension of funding from international financial institutions. Moldova's efforts need to be directed for enhancement of debt payment discipline, attraction of credit resources, re-assurance of transparency of investments and fiscal legislation and further restructuring of the foreign debt with bilateral and multilateral creditors.

Fiscal reform must be further implemented with objectives to enhance the structure of tax rates, reduce fiscal exemptions and increase the efficiency of fiscal administration. The more effective fiscal management would require improvement of tax collection mechanisms, increasing the efficiency of control methods, computerization of fiscal procedures and popularization of fiscal legislation.

In 2004, public expenditure structure discerned the following allocation of resources: social protection- 30%, education-20%, health protection-14%, general public services, public order and national security-18% infrastructure and national economy branches- 13%. Under conditions of restricted access to financial resources, elaboration of comprehensive strategic expenditure programs for sectors are necessary in order to proceed with effective allocation of resources. Mandatory health insurance and creation of relevant insurance companies, rationalization of education system, deepening the control of expenditures, among other efforts, would contribute to optimization of expenditures, which has to be aligned with goals of sustainable human development. Thus, a balance needs to be found between increasing efficiency of resource allocation and ensuring sustainable human development of the population.

3.2 Public sector: public administration, judiciary, and enforcement mechanisms

Public administration needs considerable improvement. Enhancement of the institutional capacity is an important and necessary undertaking in order to implement economic and social reforms effectively. Moldova needs modern, responsible, predictable, transparent and capable public administration system, which could ensure sustained socio-economic progress. A coherent, consistent and long-term reform plan is required.

Insufficient institutional capacity, ineffective human resource and public finance management, low level of work remuneration, lack of transparency, imperfection of the legal framework, and unclear separation of functions and responsibilities, among others, characterize the situation in the public administration. Moldova's public administration reform must include clearly defining the roles and functions of the institutions, reasonable delegation of responsibilities to local administrations and private sector, elimination of overlapping and duplication, effective use of limited budget resources, separation of policy development and implementation, participatory policy development, harmonization with the EU and the Council of Europe standards of pubic administration, improving electronic distribution of information and enhancing transparency and access to public administration activities. The government has proceeded with public administration reform, but functional assessments, clear establishment of framework and principles of the reform and plans for optimization of human capital must yet be accomplished.

Corruption represents a massive problem. Corruption prevents establishing a favourable entrepreneurial environment and investment climate as well as hinders effective management of public finances. In order to combat corruption successfully regulatory and institutional framework must be improved and public procurement, police, customs and health and education services targeted as the sectors of primary importance for fighting the corruption. Although the government has revealed the determination to fight corruption, this remains a potentially significant constraint to effective state administration.

 

3.2.1 Judiciary sector must be reformed with the aim of strengthening judiciary power and ensuring enforcement of court decisions. Legislative reform of the judiciary system must be further advanced. Although certain progress has been achieved in terms of training judges through the joint program of the European Commission and the Council of Europe to promote the rule of law and judiciary power in Moldova, further progress must be encouraged.

The major problems and challenges Moldova needs to address in order to establish efficiently functioning judiciary system include the organizational imbalances in the judiciary system, legislative deficiencies, insufficient financing of the judicial bodies, inadequate management of courts, ineffective recruitment of qualified persons for legal positions, ineffective enforcement of court decisions and an alarming situation in state prisons with regard to conditions and observation of the human rights.

3.2.2 Police, border guarding and customs need improvement and require major reforms. Moldova faces a wide range of security threats and risks, including organized international crime, drug trade, human and arms trafficking and illegal migration. A coordinated and comprehensive system must be created in order to deal with those challenges. Building of police, border guarding and, especially, custom capacities is an imperative task.

Although the custom law has been enacted and following Moldova's accession to the WTO new customs tariff regulations were adopted, provisions for implementing the customs code effectively are still missing. Standardization of custom procedures and controls, a unification of tariff classification system, and developing information systems lists among several actions to be implemented. In terms of organization, the Customs Department has been re-organized, but its administrative and operational capacities need enhancement. The Department aims to review and simplify the customs procedures and formalities, modernize the customs border posts, fighting corruption and implementing an IT strategy.

Furthermore, it is necessary to assist Moldova in ensuring effective control over its entire customs territory, especially on the border between Ukraine and Moldova's Transnistrian region. The European Commission has facilitated meetings between Moldova and Ukraine since 2003 as the result of which the two countries reached an agreement that Ukraine would recognize only the new official Moldovan custom stamps issued by Chisinau and agreed on international border monitoring and assistance mission. Although this has contributed considerably to strengthening Moldova's control over its custom territory, Ukrainian-Transnistrian border and custom control remains a complicated and yet-to-be-solved issue.

 

3.3 Poverty reduction and social services sector

Poverty reduction has remained one of the most acute and important tasks Moldova faces in its transformation process despite the fact that due to the economic growth in recent years, the segment of society living under the poverty line decreased from almost 70% in 1999 to 40% in 2002. However, according to the 2004 Human Development Report, Moldova's Human Development Index (an aggregate socio-economic indicator that measures income, education and health of the population) placed it as 113th out of 177 countries.

Poverty as a multidimensional phenomenon consisting of material (monetary) and non-material (non-monetary) aspects of an individual or family welfare, such as reduced income, consumption and employment, insufficient quality nutrition, poor health condition and limited access to education, has especially affected the less educated, unskilled, children and rural population. Poverty has been accompanied by increasing inequality. In 2002, the least wealthy 20% of the population were given only 6.6% of total social transfers, while the wealthiest 20% received 46%. The poor have an inferior access to education, especially at the university level. Enrolment of the poor at universities is three times lower than for non-poor, which eventually intensifies inequality between the poor and non-poor.

Moldova needs to create and strengthen conditions for poverty reduction and increased prosperity. Ensuring sustainable economic growth, increasing income, establishing social security safety net, strengthening institutional capacities and reducing inequality are among the major tasks in Moldova's endeavour to combat poverty. The comprehensive and accurate assessments must be continuously carried out and enhanced pertaining to the scope, composition, and social and economic status of the poor. Strengthening the relevant institutional capacities must lead to improvement of the data basis, development of an appropriate methodology, and enhancement of poverty diagnosis, which would eventually contribute to more accurate and sound policy decisions. The overall optimization of the social service sector and further implementation of structural reforms in the domains of health and medical care would have a positive impact on poverty reduction efforts by decreasing the scope of inequality and increasing social security of the poor. As an unequivocal correlation exists between limited access to education and poverty, universal access to the primary education and more extensive enrolment of the must be ensured for the disadvantaged segments of society.

 

3.4 Infrastructure and energy

Moldova's infrastructure, which includes roads, water supplies, heating, electricity and gas, and telecommunications, requires considerable improvement. Lack of financial resources impedes effective maintenance and development of the infrastructure network.

Enhancement of the Moldova's road and railroad infrastructure is necessary in order to intensify external interaction, contribute to regional development and address socio-economic imbalances between the capital and regions. Although Moldovan authorities have attempted to advance connections and co-operation in the context of the relevant Pan-European corridors network, progress has been slow and the international transport and main local networks remain inadequately developed and maintained. Most of the roads have surpassed their economic life span and financial sources are insufficient.

Moldova needs to modernize its energy infrastructure. The country imports 98% of energy resources it consumes, among which the dominant one is natural gas supplied by Ukraine and, especially, Russia. The pipeline network that provides gas requires enhanced maintenance and rehabilitation. Although the EU has supported instalment of gas metering devices on Moldova's borders, further technological improvements are necessary. The country's energy equipment and power lines are substantially depreciated and the heating system has experienced a virtual degradation. This entails high level of energy loses and a worsening situation in the sector, aggravated by large debts on the part of the population, economic agents and state institutions for the consumed energy. Moldova needs to restructure the energy sector, improve the regulatory framework, liberalize the energy market and implement a modern heating system. Moreover, the country would need to contemplate diversifying its energy supplies as it is almost entirely dependent on Russian gas and oil deliveries and Ukrainian coal supplies.

Water supply and sewage facilities are considerably degraded. More than 50% of the supplied drinking water does not comply with sanitary norms. Thus, water treatment technology must be enhanced, the regulatory framework for water consumption needs to be rationalized and more emphasis placed on environmental protection in general. Although Moldova aspires to harmonize environmental regulations for water in line with the provisions of the EU norms on environment, the relevant institutional and financial support must be provided yet.

Furthermore, the telecommunications sector requires modernization, which would entail implementing the most recent technologies, liberalizing telecommunications market, harmonizing the national legislation with European standards and developing international partnerships.

3.5 Education and research, human resource development, information society

Enhancement of standards of education and scientific activities must become an important building block towards development of high quality human resources in Moldova and successful economic and social transformation of the country. In order to develop and implement appropriate and qualitative macroeconomic, sectoral and regional policies, Moldova needs thorough academic and policy research and its application in the process of country reformation.

Moldova needs further improvement with regard to all-level education as well as research system. The country needs to facilitate access to education, especially for the poor, increase the quality of education by adopting and implementing state education standards, promote integration of children with special educational needs and enhance the efficiency of human, financial and material resource management within the education system.

The country's higher education system remains to be optimized. Moldova lacks investment in education and research. It is necessary to develop Moldova's capacity in technological research and development as well as assist integrating into European Research Area and EU Research and Educational programs. Furthermore, Moldova would benefit from scientific and university exchanges, as well as assistance with regard to elaboration of university curricula. In the context of Moldova's aspirations to EU integration, "European dimension" of expertise and curricula must be expanded. Similarly, enhancing the quality of education in business administration and legal studies constitutes an important effort in order to contribute to the overall transformation process. It is also imperative to strengthen and harmonize the national legislation in the area of intellectual property.

Moldova needs to develop expertise in and widen access to information technologies. This entails providing computer access within a significant portion of Moldova's territory, as well as optimizing the existing infrastructure in the public sector.

3.6 Rural development

Agriculture plays an important part in Moldova's economy. Moldova's agriculture and food industry accounts for about one third of the country's GDP and two thirds of the total exports. The agricultural sector experienced a considerable transformation during the 1990s as an extensive privatization project was launched. Although the privatization process is almost complete, some obstacles remain and some negative repercussions have appeared that hinder effective rural development. The major challenges in the agricultural sector are, among others, the very fragmented structure of land ownership, substantial loss of jobs, rural to urban migration and agricultural exports that are primarily oriented to the CIS markets.

Continued reforms in rural areas are necessary, with special emphasis on agricultural business management, increasing production capacities, building an appropriate commercial and institutional framework, developing non-agricultural activities, such as tourism developing infrastructure and ensuring effective usage of the donor financial and technical assistance.

 

3.7 Regional development

Moldova has experienced unequal regional development, which manifests in substantial developmental differences between various regions, especially the capital city and other regions of the country. Moreover, the legislative and institutional frameworks for regional development are underdeveloped. Hence, regional development policies must be aimed at reduction of differences in socio-economic development among regions, improvement of infrastructure and support for local administrative bodies. International donor assistance could be used to promote international cross-border cooperation, which could considerably contribute to regional development.

The breakaway region of Transnistrian presents a major socio-economic and political problem for Moldova. Creation of a relevant political, legislative and economic framework for the reintegration of the country is imperative. Securing the Moldova-Ukraine border and developing the post-conflict development program would be among many tasks Moldova and international actors may cooperate in order to ensure the integrity and stability of the country.

 

3.8 Financial sector

The optimization of Moldova's financial sector is imperative in order to contribute to the overall development of economy, attract investments and assist private businesses. Progress in the financial sector, especially with respect to the banking system notwithstanding, further consolidation of the financial capital and improvement of supervision and regulation process are necessary.

The stock market remains underdeveloped due to such factors as low market liquidity, inadequate investment and inefficient corporate management. Hence, it is important to improve the legal and regulatory frameworks for financial institutions, optimize the mechanisms for attraction of foreign and domestic investments, ensure the protection of investors and shareholders and increase transparency.

 

3.9 Private sector

Although the private sector has increasingly become the driving force in the economy, the state involvement in the economy remains considerable. For example, the private sector accounted for only 50% of the GDP in 2002. Moldova's corporate governance and enterprise restructuring reveal considerable inadequacies. According to the European Bank of Reconstruction and Development, Moldova's rating in this category has been among the 4 lowest of 27 transition countries. The private sector faces such impediments as unstable legal and regulatory framework, excessive bureaucratic procedures and corruption, insufficient human and financial resources, difficult access to domestic and foreign markets and weak marketing services.

Moldova needs to implement activities leading to enhancement of business and investment climate by adopting transparent and efficient regulatory policies, encouraging competition, fighting corruption, creating a real estate cadastre, and assisting small and medium-sized businesses. Training in business administration and management, especially for small and medium-sized enterprises is a vital task in order to improve corporate management. Moreover, Moldova is expected to harmonize it regulatory framework with international standards and practices, such as ISO quality and environment management systems, the WTO obligatory provisions in enhancing competitive environment and custom services, as well as European regulations, especially regarding ensuring product conformity. The reforms do not necessitate considerable financial expenses due to their legislative and administrative nature, which should facilitate rapid implementation process.

 

3.10 Civil society and democratic governance

Moldova reveals components of a brisk and active NGO community, which has embraced almost three thousand non-governmental organizations. At the same time, further enhancement of the role and influence of NGOs on political and social developments of the country must be envisaged. Thus, in the context of country's transformations, civil society must act as a "social watchdog", participate in the policy dialogue and take upon itself the responsibility of forming and implementing specific initiatives.

Ensuring media independence could contribute considerably to strengthening the civil society and democratic processes in the country. Although progress can be observed, further undertakings would be important in this regard. According to the European Commission, the 2003 amendments to the Law on Access to Information and draft law on the restructuring of the public broadcaster raised concerns about the independence of journalists and freedom of press. Moldova can be assisted in ensuring effective freedom of media, increasing their role in public debates and enhancing the skills and effectiveness of local journalists.

Promoting civil society development and freedom of press in Transnistria region is an especially complicated and urgent task. The Transnistrian regime has established a strict control over NGOs and media and, to date, their role in regional development has been minimal. Donor efforts can become an important tool in achieving a considerable progress in this regard.

 

4. Activities of international donors: participants, directions and funding

The major donors in Moldova have been international organizations, such as the International Monetary Fund (IMF), the World Bank, European Union through the Technical Assistance to the Central Independent States (TACIS) component and the United Nations Development Program (UNDP), as well as bilateral donors such as Sweden, Germany, United States, United Kingdom, the Netherlands, Japan and others. Several private organizations, for example, the Soros Foundation run small development programs in Moldova. The donor support has been instrumental, especially in macroeconomic transformation, public administration reform and social sector development.

 

4.1 Assistance to macroeconomic transformation and strengthening of private sector

The international financial institutions have been important in facilitating Moldova's economic restructuring. The IMF and World Bank played a key role in devising economic and social policies, while technical assistance provided by other donors, such as, USAID, Japan, Netherlands, helped the government to meet the IMF targets and conditionality. The IMF has granted Moldova access to several financial facilities: after Moldova successfully implemented the initial liberalization and structural reforms Stand-by Agreement facility was granted and afterwards, in the context of the deteriorating economic situation, Moldova also received access to the IMF Poverty Reduction and Growth Facility. The World Bank has also been instrumental in Moldova's economic transformation as it has disbursed more than $300 million in investment and technical assistance for economic restructuring since 1992.

The EU has provided assistance between 1991 and 2003 to Moldova tantamount to EUR 253 million for activities, to a large extent, geared toward economic restructuring. The EU has provided financial and technical assistance mainly in the framework of the TACIS program, focusing on macro-economic transformation, promotion of private sector development and enhancement of the relevant regulatory frameworks and institutional capacities. The European Union also granted financial support for macro-financial assistance, which was to complement the implemented IMF and World Bank programs. Furthermore, Moldova has received financial support from European financial institutions. The European Bank for Reconstruction and Development aims at strengthening Moldova's private sector. The bank provides private companies with direct investment, or through key local banks, or by extensive use of the Turn Around Management Program. The bank also supports privatization processes in the country.

 

4.2 Enhancement of public administration

The World Bank together with TACIS funded projects pertaining to enhancement of Moldova's public administration. Starting with 2002, the drafting of relevant documents in the field of public finance management was assisted financially and by know-how by the World Bank and the UK Department of International Development. UNDP in collaborative effort with other international donors, such as USAID, SIDA and others, has increasingly considered it important to strengthen the Moldova's capacity to implement development assistance effectively by strengthening capacities of the local development actors, such as elected representatives, public services, non-governmental and individuals, by planning the development process in a participatory manner and by measuring the progress towards planned development objectives. This has been, for instance, the focus of UNDP's "Local Agenda 21" project especially aimed at strengthening the local capacity and strategic planning at the regional level. UNDP has also contributed to optimization of the knowledge management and dissemination through building the information and learning network with the aim to "enhance national, cross-regional and international integration of knowledge-makers in Moldova, increase the effectiveness, practical relevance and local applicability of indigenous knowledge management and facilitate regionally equitable capacity development and access to international networks."

4.3 Contribution to poverty reduction, social and gender equality

International donors have provided considerable resources and expertise with aim to help to reduce poverty and strengthen social and gender equality. As the result, the social sector development and poverty reduction has been thoroughly covered by various international multilateral and bilateral donors. The donor activities can be identified in form of interventions at the policy level, such as development of poverty reduction programs, contributions to capacity building and direct technical and financial assistance.

UNDP in Moldova has been among the central players in providing assistance, coordinating and implementing development projects targeted at poverty reduction and equality enhancement. The World Bank and UNDP have provided financial and technical assistance to increase analytical capacity for poverty studies in order to identify the effectively the situation and elaborate prospective recommendations for poverty reduction mechanisms. The UNDP has collaborated with other international bilateral donors, with the aim to contribute to the social development at local level by creating safety nets and to the implementation of the National Action Plan to Combat Trafficking in Human Beings. The EU has implemented Food Security Program intended to address poverty and to enhance food security, including measures in the agriculture sector, land and social reform, and public finance management.

4.4 Assistance to rural and regional development, and cross-border cooperation

The World Bank has been instrumental in transformation of the agricultural sector. The World Bank has supported a Social Investment Fund, which funds micro-projects at the village level. In 2000, the WB initiated the Rural Investment Support Project, in the framework of which credit lines have been developed for agricultural enterprises and individual farmers through commercial banks and rural associations. Moreover, recently, a large number of international donors, such as USAID, EU TACIS, SIDA, DFID, Soros Foundation, Japan, Germany, Poland and the Netherlands have supported Moldova's agricultural sector by providing investments, grants, soft loans and guarantees to banks and technical assistance.

Sweden, for instance, has focused extensively on supporting reform process for local self-governance and local budget management, strengthening the gender equality and increasing role of women in society, as well as contributing to establishment of national audit institution in Moldova. Sweden assisted in Moldova's land reform programs for land-surveying and property registration, elaboration strategic plan for heat supply, and enhancement of debt management and budget legislation.

The EU, on the whole, is considerably increasing its development assistance to Moldova pertaining to regional development and regional cross-border cooperation initiatives. The existing TACIS cross-border cooperation program reveals the primary objectives of the Neighborhood Policy: "to allow partners on both sides of the EU's external border jointly to address common challenges such as economic and social development of the border areas, environment and communicable diseases, illegal immigration and trafficking, efficient border management, and people-to-people contacts".

 

4.5 Support to the democratic governance, human rights and civil society

International donors have contributed to enhancement of Moldova's democratic governance, observation of human rights and strengthening civil society activities. In 2004, the UNDP facilitated the process of approving by Moldova's Parliament the National Action Plan for the promotion of Human Rights, the document that includes recommendations and identifies practical steps on how to improve the situation. The UNDP actively contributes to the implementation of the Plan, with co-funding from the Dutch Government. In the context of regional projects in the years 2002-04 Moldova received support under the European Initiative for Democracy and Human Rights with an objective to support civil society initiatives that aim to promote democracy and human rights. In the context of closer cooperation with European Union, Moldova already participates in the youth and educational programs that promote people-to-people contacts and co-operation between associations and NGOs. In general, various international donors have supported wide range of non-governmental activities.

5. Latvia's development cooperation with Moldova: Directions and measures

Latvia's experience in fundamental domestic transformation and integration into international structures contributes to Latvia's comparative advantages with regard to providing development assistance to Moldova in the domains of good governance, human development and integration into international economic and political organizations. As concentration of development activities in a limited number of target sectors is considered to be imperative in order to produce a greater impact, Latvia's development cooperation with Moldova should be aimed primarily at strengthening democratic governance and civil society, providing technical assistance in terms of know-how support for institutional transformation and capacity building, and assisting in creation of effective and harmonized mechanisms and legislation for Moldova's closer integration with the European Union. Latvia can also contribute to improvement of Moldova's education system and establishment of information society by providing expertise in these fields. Furthermore, Latvian ODA to Moldova should positively emphasize the importance of cross-cutting themes, such as ensuring environmental protection, human rights and gender and social equality. Such efforts would contribute to the overall objectives of Latvian development cooperation with Moldova- assisting the country to establish stable conditions for economic growth, increased prosperity and poverty reduction. This would also follow the identified priorities of Moldova's Poverty Reduction and Strategy Paper and recommendations provided by international and domestic stakeholders in development cooperation.

Although Latvia holds strong comparative advantages over most of its European partners in terms of experience of fundamental systemic transition from centrally planned economy of a Soviet republic to market economy of an independent country and the obtained expertise effectively could be applied in the framework of Latvia's development cooperation with Moldova, limitations in Latvia's development assistance to Moldova exist. Alongside the fact that its economic links with Moldova in terms of trade and investments have been insignificant to date, and Latvia does not have either diplomatic or development assistance representation in Moldova, Latvia also lacks extensive resources for development cooperation. This further emphasizes the necessity to concentrate Latvian development efforts in selected target sectors and to cooperate actively with other international donors in Moldova.

Latvia can employ a range of measures to effectively channel its development assistance to Moldova. Through consultations with Moldovan representatives, the Latvian MFA is in the position to coordinate elaboration and implementation of grant schemes for NGO sector development and cooperation, and long and short-term technical assistance projects to be implemented by government and non-government experts. In the process, Latvia could support assignment of Latvian experts, consultants and other specialists to Moldova in order to provide training, consultations or other kind of
technical assistance, visits of Moldova's representatives to Latvia which may take form of study tours, specialized training sessions and other activities, sending of Latvian experts to missions to Moldova to further study and analyse opportunities for
Latvia's assistance, and granting of scholarships to Moldovan governmental and non-governmental representatives for studies and professional training in Latvia, Moldova or third country. Although capacity development should become the primary form of Latvia's development assistance to Moldova, under relevant circumstances Latvia should be ready to provide grants for investments and equipment purchases. In the development assistance process, active employment of local expertise and resources should be promoted. The establishment of Latvia's diplomatic representation in Chisinau must be considered as it would help to facilitate the political and development cooperation and coordination with international donors and domestic governmental and non-governmental organizations.

Latvia should actively take advantage of bilateral donor cooperation and multilateral frameworks of development assistance. Donor assistance to date has been considerable and has covered most areas of priority. Much of this assistance has focused on establishment of legal, institutional and policy frameworks in various sectors. Latvia, particularly, can provide assistance with regard to implementation of these frameworks. Where appropriate, Latvian projects could be "twinned" with development assistance endeavours of other international donors already actively engaged in Moldova. This is especially important in the context of prospectively and comparatively limited recourses on the Latvia's side and the essential need to complement international donor activities. The European Union, for instance, provides an opportunity to implement "twining" of Latvian and EU TACIS program projects. This approach may be further developed under the framework of the new EU Neighbourhood Policy, which would endow Latvia with an effective multilateral setting for its development assistance to Moldova as well as strengthen joint efforts of international donors in the country for economic growth and poverty reduction.

Latvia has already made considerable steps with regard to development cooperation with Moldova. Latvia's MFA has organized an extensive fact finding mission to Moldova which consisted of representatives of various state institutions with the purpose of identifying the prospective sectors and mechanisms of cooperation between the two countries. As a consequence, Latvia has provided financial support for elaboration and implementation of four development cooperation projects. The projects have aimed to provide expertise and contribute to the enhancement and strengthening of Moldova's penitentiary system, custom broker institution, administration of border guarding, and coordination mechanisms of the EU integration. These projects establish a solid foundation for a prospective extension of development cooperation between Latvia and Moldova and indicate the directions, in which Latvian development assistance is most appreciated and expected.

5.1 Democratic and good governance

Latvia holds considerable potential to contribute to strengthening of democratic governance in Moldova, development of civil society and implementation of good governance practices all of which have become essential tasks on the road to active and effective involvement of society in the policy making processes, and to increased prosperity and poverty reduction.

5.1.1 Democratic governance

Latvia is well placed to provide technical assistance for strengthening effective governance mechanisms and ensuring transparency in various governmental and non- governmental sectors. Latvia is willing to intensify the established cooperation in Moldova's parliamentary reform. Latvia envisages collaboration with UNDP to optimize Moldova's parliamentary law-making, oversight and internal management functions, and to increase its transparency and cooperation with civil society groups. Latvia has considerable and increasingly successful experience in effective engagement of non-governmental representatives into policy formulation and implementation process on parliamentary, governmental and municipal level.

On the municipal level, Latvian municipality representatives could assist in strengthening the administrative capacity and role of local municipalities in democratic processes of governance and provide expertise on cooperation mechanisms among municipalities, central authorities, international donors, private sector and civil society groups. Latvia can contribute with its experience in addressing regional inequalities. Latvian representatives from regional municipalities and rural support centres, as well as other relevant experts, may assist Moldovan counterparts in terms of enhancing institutional and human capacity in the process of project elaboration and promotion of financial sustainability as well as effectiveness - for example, in receiving and coordinating financial support from the Social Infrastructure Fund, as well as other international donor organizations.

Latvia recognizes the importance of civil society for democratic governance and supports strengthening the role of non-statutory civil society actors such as the media, research institutions and non-governmental organizations in Moldova. Cooperation of NGOs of both countries is very important in order to strengthen civil society in Moldova. The establishment of a joint platform for development cooperation between Latvian and Moldovan NGOs and their joint effort to increase the role of the non-governmental sector in policy making must be supported. Joint undertakings in addressing urgent social needs of society, gender equality, and freedom and efficiency of public media should also be envisaged. Latvian NGOs are well-positioned to contribute to enhancement of public activities, public awareness raising, optimization of resource centres, organizational efficiency and financial sustainability (for instance, with respect to both international and, especially, local fund-raising) of Moldovan non-governmental organizations through training sessions, expertise and human resource exchanges and joint projects. Latvia is willing to assist enhancement of civil society in the Transnistria region. Since democratization alongside demilitarization of the region has been identified as an important precondition for reintegration of the country, Latvian NGOs can play an important role in helping local NGOs to strengthen the standing and impact of civil society in these processes. Hence, active engagement (for instance, through internships in Latvian NGOs) of Transnistrian civil society organizations, and support to development of independent mass media outlets could constitute a valuable contribution of Latvia's non-governmental organizations.

5.1.2 Public administration reform

Strengthening Moldova's public administration in a collaborative effort with other international assistance providers is envisaged as an important part of Latvia's ODA to Moldova. Latvia is well placed to contribute to the implementation of the principles of good governance such as accountability, transparency and participation. Enhancement of the regulatory framework and civil service consolidation are among the most important steps to be undertaken. Latvia should actively cooperate with other international donors, such as UNDP and SIDA, to support elements of coordination, monitoring and evaluation related to implementation of Moldova's Poverty Reduction Strategy Paper, and linking medium term strategies with longer development objectives. Latvia would further support ensuring the participation of civil society groups in policy-making processes on both regional and local level. Latvia should make a contribution to public administration optimization on various stages and measures. Latvian technical assistance can be provided with regard to need and functional assessment, poverty reduction analysis monitoring on regional and local level, human resource training programs in line ministries and regional administrations, participatory monitoring or civil society involvement, and indicating and designing good governance practices.

Latvia is well placed to provide its expertise in the transformation of the security sector, especially with regard to implementing structural reforms and strengthening civil control mechanisms over the military. As Moldova faces a complicated task identifying a successful and appropriate model for security sector reform, Latvia possesses expertise of a small country which has successfully reformed its security sector and is willing to assist Moldova by providing technical assistance on effective organization, management and oversight of the sector. Latvia should contribute to Moldova's security sector optimization by assisting in designing legal framework with a clear definition of tasks, rights and obligations, and civilian, parliamentary, judicial and public control mechanisms. Latvia is well placed to support Moldovan authorities in elaborating and implementing Moldova's strategic defence review which will become an important tool towards closer integration in the Transatlantic organization and to transfer its norms and standards through a partnership in the context of Moldova becoming NATO IPAP country. Latvia should also consider cooperation in the framework of the NATO program "Science for Peace" for industrial research and development.

Enhancement of Moldova's border guarding and custom capacity is another priority of Latvia's development assistance to Moldova. Latvia should continue existing cooperation in these areas by providing consultations in the area of customs laboratory, a customs brokers system and an efficient border guarding structure and procedures. In addition, Latvia should provide expertise on mechanisms of coordination between various border related institutions. Latvian representatives must take part in international efforts, such as border-monitoring missions, aimed at strengthening Moldova's border and custom control.

Latvia should also provide development assistance pertaining to other sectors and aspects of public administration reform. Moldovan institutions dealing with environmental issues are in need of restructuring and optimization. Moldova has insufficient institutional and human resource capacity. The situation in the public administration of the environmental sector remains complicated, and environmental protection is increasingly becoming an urgent task for Moldova, especially in the context of limited development assistance in this sector and the envisaged adoption of the EU environmental standards. Latvia is well-placed and possesses significant experience in order to provide examples of "good practices", help building institutional capacity, support public awareness raising projects, draft relevant legislative framework, train civil service and non-governmental representatives and, assist in attracting and coordinating investments.

Latvia is increasingly becoming an information society, including in the domain of public administration. The acquired knowledge and experience could be used in the framework of development cooperation between Latvia and Moldova, which lacks financial and human resources to implement efficient informatization of society, in general, and public administration, in particular. State institutions and private companies could be invited to share their experience in developing technological networks, creating centralized electronic data basis, enhancing e-governance, equipping IT hardware with licensed software products, enhancing information gathering and statistical data management.

5.2 Human resource development

Importance of human resource development was indicated already in the context of Latvian development cooperation with Moldova in the sphere of democratic and good governance. Moldova faces the complicated task of effectively reforming the public administration system, which requires well-trained human resource. Latvia is in a good position to provide technical assistance through staff exchanges and training sessions and designing training programs for Moldovan counterparts. Latvia should also consider providing internship opportunities for Moldovan civil servants in Latvian governmental and non-governmental institutions. On the societal level, Latvia could and should contribute to raising awareness within Moldova's society and among non-governmental groups to take an active part in the process of formulation and implementation of Moldova's development priorities.

Latvia can particularly contribute to the enhancement of quality education and research. Thus, Latvia's development cooperation efforts should support education and research projects. Latvia could also assist with regard to developing education standards and regulations at the state level, as well as elaborating curricula for higher education institutions. The envisaged cooperation may involve research institutes and universities of both countries. Latvia could also provide expertise with regard to implementing policy research projects and needs assessments on poverty reduction, economic transformation and upgrading public administration. Using available European education support frameworks and in cooperation with other European partners, modernization, especially in terms of informatization of Moldovan universities may be planned and implemented. Latvian governmental and non-governmental organizations are well experienced and prepared to assist in elaboration and implementation of education standards.

5.3 European integration

Latvia is in a good position to support Moldova's aspirations for integration into the European Union. In line with its aspirations to join the European Union, Moldova has pledged to fulfil the Copenhagen criteria, including fostering an efficient market economy, building capacity to support competition and ensuring sufficient state capacity to execute the relevant legislation.

Latvia can assist Moldova in fulfilling the Copenhagen criteria, in general, and stipulations set in the EU Action Plan for Moldova, in particular. Latvia is in the position to contribute to the harmonization of Moldova's legislation with European regulations in the fields of trade, business, customs, banking, tax and social systems and infrastructure. Moldova is strongly interested in elaborating and setting up appropriate institutional and legal frameworks in sectors outlined in the EU-Moldova action plan, such as sanitary issues and intellectual property rights. Latvia's previous experience in coordinating domestic institutions in adopting numerous EU directives and legal norms can be utilized in enhancing Moldovan institutional capacities and regulatory frameworks. Latvia and Moldova are already making considerable progress in this direction of development cooperation. Latvia should contribute to the upgrading of expertise of civil service representatives in line ministries taking into account that there is a lack of sectoral expertise in complying with the EU standards. Expert exchanges, training sessions or long-term internships for civil servants in line ministries responsible for advancement of EU integration could be helpful. Latvia could contribute to optimization of the procedures for EU investment in Moldova, better and more intensive use of European Commission finances for education and training, harmonization of information systems with the relevant EU regulations. In the context of Moldova's prospective closer integration with the European Union and enhanced cooperation related to the Justice and Home Affairs issues, Latvia should assist in the development of effective law enforcement structures, customs and border control institutions, elaboration of harmonized asylum and immigration policies, as well as harmonization of the police and judicial cooperation. Latvia should consider assistance pertaining to the product quality and food safety standards which may be applied by European countries and imposed on external competitors as non-tariff barriers to trade. Latvia could be in a position to assist Moldova to renegotiate access to the European markets, and, simultaneously, contribute with technical expertise to reaching those standards.

Conclusions: cooperation, coordination, complementarity

Successful development assistance implies effective cooperation, coordination and complementarity among involved domestic and foreign donor institutions in the phases of formulation, implementation and monitoring of development assistance initiatives. Hence, Latvia ODA Country Strategy Paper on Moldova underlines necessity to cooperate with its Moldovan partners in identifying the development cooperation objectives and strengthening the bilateral mechanisms. The alignment with partner country's own procedures, policies and systems provides appropriate means to address effectively the target issues. Effective coordination of domestic donor activities and complementarity to projects implemented by foreign donors would allow avoid duplication of development efforts and contribute to the synchronization and overall efficiency of the development assistance to Moldova.