VALERIU PROKHNITSKY, IPP economic expert
3. EXOGENOUS THREATS AGAINST ECONOMIC SECURITY 1. The Impact of Social-Political Instability
The year 1989 was the turning point for the economic security of the Repub- lic of Moldova, when the separatist trends in the east and in the south started to appear under the form of strikes, protests, as well as railway and highway blockades. The political separatism could not gain ground without the economic separatism, which reduced the economic security and integrity of the country.
Thus, in 1990, the first economic decrease, of about 2%, was recorded. In the same year, the first government of the Republic of Moldova was elected. So far, during the 11 years, there were seven governments in the Republic of Moldova and the GDP decreased by over 60% compared to 1990. It seems that a greater political instability is found only in Italy, where, ever since World War II there were 50 governments. In the case of the Republic of Moldova, the natural conclusion brought to us by the political instability accompanies an economic decrease that has almost no precedents in economic history is that either political and indi- vidual selfish interests prevailed over national security interests or the Moldovan
political elite is unable to govern this country successfully. In fact, both conclu- sions seem partially valid.
First, as the experience of the mid-1990s shows, in the Republic of Moldova it is possible to tolerate a situation that is absolutely unacceptable in other states, in which a government ruled the country for over 5 years, with the GDP decreasing by 55%. Besides, during the same period, illicit transactions of signifi- cant state property were concluded with the direct support of some top officials.
Due to corruption and nepotism that have become a bad habit in the Republic of Moldova, most professionals in economics, law, and other fields prefer to go into private businesses rather than to gain employment in the governmental administration structures. So far the Republic of Moldova had only a few profes- sionals in its governments that were not affiliated to some political party. It is interesting that the Communist Party, which won the parliamentary elections on 25 February, 2001 also could not identify within the party the people that are qualified enough to run a government, although the number of votes they re- ceived would oblige them to undertake full political responsibility for establishing a unitary government.
We would also like to mention that almost every change in government was followed by a shift to the left of the internal reformatory message and a pro- Russian orientation of the external message. Thus, the first government chaired by Druc opted for the promotion of a liberal policy and their external political and economic course was clearly pro-Western and pro-Romanian. In a year the Druc Government was substituted by that of Muravschi, which adopted a more mod- erate policy. In 1991 the most important geopolitical change in the history of the 20th century took place the disintegration of the USSR. The GDP decreased by over 17%, and the relations with the Transdnistrian authorities grew worse. The Sangheli agro-socialist government, appointed at the middle of 1992, formulated policies that were even more interventionist than those of the previous govern- ment, and the external political and economic focus was on historical partners.
The year 1992, when an abrupt economic decrease was registered by over 20%, was the year when two major events of special significance for the economic security of the Republic of Moldova took place. Firstly, the armed conflict with Transdnistria started, which disintegrated de facto the industrial potential of the country. Transdnistria overtook the control of industrial and infrastructure objects of strategic importance for the economic security of Moldova. Secondly, the share of imports by economic agents (by over 30% during a year) in the trade balance grew, however, not quantitatively but as value pursuant to Russias adjustment of export prices almost up to the world level. This increase had a very clear geopo- litical objective, namely to make the newly independent states adopt a course of moving closer to Russia, through the CIS structures. This policy is followed by the Russians up to now, when in the press under the Russian Governments control
analyses by Russian experts are published that try to prove how good it is to be a dedicated ally of Russia (i.e. using the example of Belarus).
1994 was the year of the deepest economic decline recorded by the Mol- dovan economy during the 20th century (certainly, except for the damages caused by the World War II), falling by over 30%. The parliamentary elections were won by the agrarians, who kept the Sangheli government and blocked all reforms oriented towards the development of industry in favour of agriculture. Their choice proved wrong, as droughts annihilated their intentions to overflow Europe with Moldo- van tomatoes and wine. During 1995 and 1996 a more stable decrease of the economy was recorded. In fact, these two years were lost for the reforms, as unique opportunities were lost to move closer towards the European Economic Community and win new markets for Moldovan goods. On the other hand, a weird stabilisation of the currency exchange rate was recorded, despite the obvious inflation and the manifest economic stagnation.
The election program of Petru Lucinschi, elected president in January 1996, was based on a national policy that focused on preserving the national identity and the viable independence of the country. It should be mentioned that Presi- dent Lucinschi managed to preserve the national identity, indeed in the same amorphous shape as it was when he became president. One of the few successful reforms implemented during the term of President Lucinschi was the territorial- administrative reform. During his presidency Moldovas debts to the international financial bodies grew impressively. Despite substantial funding, the funds were not used to revive and re-launch the viable industries and businesses. For this reason, the Republic of Moldova so far does not yet have internal capacities to pay external debts and to ensure economic growth based on internal resources. The peak of the external debt payments will occur in 2002-03, which will undoubtedly increase the economic and political instability that may become even more severe than it has been.
Given these accomplishments, the impressive political ascension of the Communists seems logical. The people of the Republic of Moldova that have not left to work abroad and participated in the elections showed on 25 February 2001 not their trust in the Communists but their disappointment with the democrats
who have compromised democracy through corruption, weird alliances and po- litical schemes, without recording any economic success. In the latest years, the living standards are worsening, nobody is interested in positive macroeconomic trends, as they did not contribute to reducing poverty, and the importance of integration with the European Union is not fully understood by most people.
However, what will be the implications of the Communist ascension for the national economic security? We will not refer to the populist statements, e.g.
increases of monthly payments, pension and student fees, price control and total employment. In the short term this can be achieved only by eliminating some free market mechanisms and by partially cancelling the rights of the private property and free enterprise. Also, it might be necessary to review the privatisation results.
However, the Communists are not really interested in such changes. First, they might have to face the resistance of some businessmen that have enough power
to fight such despotic actions. Secondly, it is well known that quite a few Moldo- van Communists are owners of large companies or control important businesses in the area of tobacco processing, transportation, finance, and building. On the other hand, the Communists might review the privatisation of some companies that are not under their control and block the privatisation of Moldtelecom and the Northern Power Distribution Grids. As the latest negotiations with the Russian company Itera show, the Communists are willing to give the power grids as con- cession rather than to denationalise them.
As the Communists have the power now, we believe that the main threats against the economic security of the Republic of Moldova will come through external economic and political relations. Historically, the Communists are the partisans of Moldovas integration into all CIS economic, military, and political structures. Still, when it comes to the geo-economic and geopolitical interests of its members, the CIS is an extremely heterogeneous body. There is no common economic direction, and this is the reason why within the CIS several regional alliances have emerged, aiming at compensating the economic weakness of the CIS and meeting specific interests. Due to the establishing of such centrifugal alliances and the emerging of new centres of power in the former Soviet area, the CIS may split up in the nearest future and some member countries will join instead narrower regional bodies. The Moldovan Communists must have realised this and in the election campaign they have switched the focus from the final integration in the CIS onto the joining the Russia-Belarus Union and the Eurasian Economic Community.
One of the factors that hamper the creation of an appropriate framework for the economic security of the country is a transparency that should complement the legislative process, which leads us to the conclusion that quite a few times the economic security of the consumers or of the state are put at risk in favour of some narrow corporate or political interests. Non-transparency is one of the principles governing the legislative and political activities of the Communists.
Such an example is the mystery accompanying the Law on the Financial-Industrial Groups. At first sight, it seems to be a very good law, a needed law aiming at encouraging investments in the economy and creating a competitive production sector. For this purpose, the law sets forth that the needed conditions will be created for the association of banking capital and the companies in the real sectors of the economy.
Still, what are the premises that have determined the adoption of this law?
It seems that everything is clear, as the local producer, cut off from the banking sector through high interest rates, cannot provide the needed investments in the economy. We believe, however, that the law brings about more questions than answers. Its expected impact can become rather political than economic. In the Republic of Moldova there is already a financial-industrial group registered in compliance with the Law on Business and Enterprises of 1995. If the current legal framework allowed for the operation of a financial-industrial group already, it is not
clear why a special law was needed. It would have been easier to amend the Law on Business and Enterprises and the Law on Financial Institutions.
The registration procedure for the financial-industrial groups is very awkward as well. Thus, pursuant to Article 11 of the law, in order to be registered, a group must submit, besides other papers, the so-called organisational project, such as an explanatory note and a technical-economic argumentation of the timeliness of establishing the group. Some state authorities must review the project. Still, in compliance wit the law, they may reject registration, including on the reason that they consider that the technical-economic argumentation of the project timeli- ness is not credible enough. In accordance with Article 13 of the same law, the registration of a group cannot be rejected because of the non-timeliness of its establishment.
It is even more interesting that when the registration or rejection decision is made, one of the criteria taken into account by the experts will be the degree of the project focus on ensuring increased production efficiency by restoring integrationist relations, and it is certainly about restoring the integrationist rela- tions in the former Soviet area, because, as it seems, the law was developed in the interest of one enterprise that exports agricultural goods to Belarus and imports agricultural machinery to Moldova. 
According to this law, the state will support the financial-industrial groups operating in the key areas of the national economy. Still, a simple question arises from the very nature of the future financial-industrial groups, namely these groups will be combinations of long-term bank loans and the increased technological possibilities of the producers comprising the group; such a structure will already display redoubtable financial strength. What would be the reason for state sup- port other than the desire of the state to take over the control of the main economic areas? This hypothesis is confirmed by one more provision of the law.
Article 26 states that the debt to the state of one member of the group may be converted into shares or obligations issued by the group to be transferred to the state. However, meeting state economic security interests shall be ensured, by no means, on the account of corporate economic security, as it may be a warning sign for foreign investors, whose withdrawal can impact negatively the economy of the Republic of Moldova.
It should be mentioned that the law was promoted by the Communists in the previous Parliament, which clearly shows that the doctrine principles do not count when it comes to immediate benefits at the expense of the national economic security. In fact, the Communists should be concerned with the merger of banking and production capitals, as it means the victory of the retrograde capitalist forces. However, the Communist members of the Parliament have de- cided that the most credible way to use the banking capital in the real economy is the banks participation in corporate equity.
However, a regulation of the National Bank of Moldova limits the possibilities of the commercial banks to participate in the equity of other corporations, as it
might threaten the banks liquidity. The Law on Financial-Industrial Groups takes care of this as well, by allowing the National Bank of Moldova to grant privileges to some commercial banks by reducing the mandatory reserve requirements. First of all, it will generate distorted competition on the banking services market.
Secondly, given the consistency and the professionalism of the current adminis- tration of the National Bank of Moldova in establishing a stable banking system, it might happen that it will impossible to make new amendments to banking regulations without making changes in the administration of the National Bank of Moldova.
In March 2001 another event took place that does not seem to have a direct connection with everything mentioned above. We are talking about the search conducted at the National Securities Commission and the seizure of some min- utes written by the Commission regarding the application of administrative sanc- tions to participants in the securities market. The search warrant states that the arrest was related to the newly-opened case on some top officers overstepping their authorities while applying administrative sanctions. 
Alongside the outcomes of the Law on Financial-Industrial Groups, the event that took place in March 2001 shows that it is possible that soon a campaign of redistributing administrative positions in the institutions overseeing the finan- cial-banking system may start in the Republic of Moldova by appointing people that are loyal to the Communists. If this happens, the Moldovan financial system will be used to fund social and economic activities aimed at meeting the expec- tations of the electorate that cannot be achieved in any other way but by issuing additional currency and granting preferential credits to the state. From the eco- nomic experience of other countries, one can remember well the inflation out- comes of the political manipulation of the financial-banking system.
3.2. Faults in the Legal Framework
The concept of economic security is seldom used in the normative acts of the Republic of Moldova. Even in the National Security Concept of the Republic of Moldova no reference is made to the concept of economic security, except for the fact that the actions aimed at undermining or eliminating the economic potential are listed in the series of the main threats against national security, and
the development and settling of state issues that include economic measures  aimed at discovering, preventing, and suppressing timely the threats against the national security is a way to ensure national security. However, the impor- tance of providing appropriate resources is implicitly acknowledged, as the law states, when setting forth the system of ensuring national security, that it in- cludes the organisational integration of the administration bodies of the military and special-purpose units, funded and provided with materials and equipment within the limits of the available sources of the national economy, of the State and local budgets [...], ensuring the stability of the public authorities and the
protection of the individuals, the society, and the state from internal and external threats. The concept does not include in the list of bodies in charge of national security any ministries or departments from the economic-financial area, although the minister of finance is a member of the Supreme Security Council. In general, it seems that the National Security Concept was written from a too militarised viewpoint regarding security and cannot be considered an efficient legal basis for ensuring national economic security. For this reason, the general provisions of the National Security Concept must be detailed and developed in a National Eco- nomic Security Doctrine [see Appendix].
It should be pointed out that, in general, the development of economic security concepts or doctrines is not common practice in developing countries or countries undergoing transition to an open market economy. However, it does not mean that the Republic of Moldova should not develop its economic security legal framework either. Moreover, even in Romania and in Ukraine there are a number of organic laws aimed at ensuring and meeting the national economic interests, such as the interests related to the national economic security.
For instance, not so long ago (January 25, 2001) in Ukraine the Decision on Fighting the Shadow Economy of the National Security and Defence Council that refers directly to the national economic security, came into force. This decision sets forth the main principles especially regarding cash flow in the shadow eco- nomy. In compliance with the presidents decree, an inter-ministerial committee in charge of national financial security shall be established under the National Security and Defence Council. Also, they shall develop a state strategy on fighting the shadow economy, aiming at limiting the extra-banking cash flows and at developing a national payments system. It is planned to set limits and controls regarding the credits coming from offshore zones and loans exceeding the inter- est rate in the local market, as well as at developing the tools, including fiscal ones, to oversee businesses that take such credits. During the first half of 2000 the Ukrainian government and the National Bank of Ukraine shall develop propos- als on legislative amendments to limit the number of accounts an individual may have at commercial banks and establish the control over trans-border currency and credit card flows. An example that might be followed by the Republic of Moldova is that the Ministry of Internal Affairs, the Ministry of Economy and the Security Service of Ukraine have received orders to develop a set of actions for fighting the establishing of so-called phantom companies.
In the same context, we should mention that the Republic of Moldova does not yet have any laws to fight money laundering (the legalisation on money obtained from criminal activities). The establishing of a legislative framework will be an extremely positive sign for the European economic and security bodies that the Republic of Moldova wants to join it. It seems at least strange that the Republic of Moldova, although it joined several international agreements on fight- ing financial-economic crimes, has no local law to fight them. Moreover, as far as we know, during the last decade several initiatives were launched by the