U.S. Department of State

Annex A: Assessments of Progress in Meeting the Standards of Section 498A of the Foreign Assistance Act of 1961

Throughout FY 2003, the Moldovan Government generally maintained its commitment to democracy and the rule of law, although there were some problems related to local elections.

The current Parliament was elected February 25, 2001. The Communists received 50 percent of the total vote and 71 seats in Parliament in elections that OSCE (Organization for Security and Co-operation in Europe)/ODIHR (Office of Democratic Institutions and Human Rights) observers declared free and fair. Parliament selected Communist Party Chairman Vladimir Voronin as President on April 4.

Nationwide local elections took place in Moldova in May and June 2003. OSCE/ODIHR observers declared that the voting itself generally met international standards, but there were problems in the campaign period, including bias in government-run media, the arrests of two opposition mayors, and misuse of governmental resources for campaign purposes. An election for governor of the Gagauz Autonomous Region in October 2002 generally met international standards, but it involved some irregularities, including the disqualification of one candidate and multiple instances of voting fraud. Regional elections in Gagauz in October 2003 generally met international standards, also with some irregularities.

Corruption is widespread in Moldovan society, undermining the rule of law and hindering political and economic development. The Government of Moldova has shown resolve to combat corruption, creating and staffing a Center for Combating Corruption.

Section 498A(a)(2): "make significant progress in, and is committed to the comprehensive implementation of economic reform based on market principles, private ownership, and integration into the world economy including implementation of the legal and policy frameworks necessary for such reform (including protection of intellectual property and respect for contracts)."

Moldova's transition to a market economy has made some progress, but has been slow. There are structural problems, particularly in the energy sector and in implementing legal system reform. Progress on privatization has slowed, and corruption is widespread. Since the Communist victory in 2001, the Government has reverted to "planned-economy thinking with tinkering," according to IMF mission staff. Moldova will record its fourth consecutive year of GDP growth in 2003, with year-end real GDP growth predicted at six percent, the same rate of growth as in 2002. While this growth rate is impressive considering that, prior to 2000, Moldova had recorded only one year of GDP growth since independence, it is largely driven by remittances from Moldovans working abroad, which the IMF estimates, at the high end, to be one-third of the population. The IMF regards the present GDP growth rate as unsustainable without structural reform. Inflation is estimated to be 18 percent in 2003, up significantly from the eight percent rate in 2002. Higher grain and food prices, due to the poor 2003 harvest, fueled the increase in inflation, as did higher than expected remittances. Sporadic and ineffective enforcement of the law combined with economic and political uncertainty and low levels of income continue to discourage inflows of foreign direct investment. Investment as a percentage of GDP is low and in decline. Moldova's external debt in 2002 was 60% of GDP. Low revenue collecting capacity and the loss of external financing from the international financial institutions (IFIs) will make full debt servicing difficult. Moldova remains the poorest country in Europe, with GDP per capita at $422. Poverty indicators have remained unchanged over the past five to six years. Without structural reform, the country is likely to remain poor, even with fiscal and monetary stability.

Moldova has adopted many of the basic reforms necessary for a market economy: prices have been largely freed, foreign trade has been almost fully liberalized, and the Moldovan leu is fully convertible for current account transactions. The IMF has lauded Moldova's management of macroeconomic policy, in particular, its handling of the devaluation and inflation during the Russian financial crisis. The financial sector is well supervised and developed. Customs revenues increased by approximately 40 percent in 2003. Export quotas have been eliminated, and import tariffs have been substantially reduced. Moldova became a member of the World Trade Organization in 2001. Moldova enjoys Normal Trade Relations with the United States, subject to compliance with the freedom of emigration requirements of the Jackson-Vanik Amendment (which is the subject of semi-annual reports to Congress).

In 2003, the IMF suspended its Poverty Reduction and Growth Facility (PGRF) for Moldova, which was due to expire in December 2003, and the World Bank stopped its SAC-III program, after the Government failed to meet conditions agreed to for these loans. Moldova suspended debt service to Paris Club creditors in summer 2003. In November 2003, the Bank approved its $35 million Energy II Project for Moldova. In late 2003, the IMF determined that there was no basis for a new IMF program based on current government policies. It underlined the need for much stronger ownership of reform and actions on structural issues, as well as corrections to fiscal and structural backsliding. The lack of an IMF program is holding up bilateral grants from Sweden, the Netherlands, and the EU.

A law governing the sale and purchase of land took effect in September 1997. Citizens and foreign investors can buy and sell land at market prices. More than 900 former collective farms were privatized as a result of the land privatization efforts, and about one million Moldovan citizens received land titles through 2001. A largely completed enterprise privatization program fully privatized 2,114 enterprises from many economic sectors, with an additional 321 enterprises privatized in cases where the state holds less than 49 percent of the shares. Privatization results in FY03 were mixed: several small companies and wineries were privatized; but the Government of Moldova was unable to privatize several larger state enterprises, notably the two remaining, state-run electrical distribution networks.

In 2003, the Government of Moldova, the energy regulator, and the Department of Privatization agreed to withdraw any claims regarding the 2000 purchase of three state-run electrical distribution companies by the Spanish firm Union Fenosa. In November 2002, the Supreme Court had upheld a lower court's finding of irregularities in the 2000 Union Fenosa purchase, calling into question Union Fenosa's purchase. The Government of Moldova insisted that the court's ruling was directed at Moldovans involved in the privatization, and not at Union Fenosa. Nevertheless, the court ruling damaged Moldova's image amongst foreign investors. The resolution of the Union Fenosa case, as well as the amicable resolution of a long-running dispute with Lafarge, a French investor, has helped restore Moldova's image.

The U.S. and Moldova have a Bilateral Investment Treaty that entered into force in 1994 and Moldova has an OPIC agreement. Moldova has also made a number of important legal reforms to enhance intellectual property protection in the past several years and was not a subject of the US Special 301 report in 2003.

Section 498A(a)(3): "respect internationally recognized human rights, including the rights of minorities and the rights to freedom of religion and emigration."

The Government generally respects the human rights of its citizens, but there are continuing problems in some areas. The Council of Europe recommended in April 2002 that the state-run media company be transformed into a public institution and be made more independent. Although Parliament and the Government have undertaken a series of re-organizations of these broadcasters, critics charged that state-run broadcasting remained heavily biased in favor of the ruling party throughout FY 2003. Observers say journalists frequently practice self-censorship because of a provision in the press law that allows public figures to sue for defamation without distinction between their public and private persons. Members of opposition parties are sometimes denied access to government-owned media. Nevertheless, there was an active and independent media.

The 1994 constitution provides the legal framework to ensure protection of minority rights, and has received positive assessments from international experts. The Gagauz, a Turkish minority in southern Moldova, enjoys autonomous status. Trafficking in persons remained a very serious problem as Moldova is considered a source country, but the Government has increased efforts to combat trafficking. Some persons have reportedly received beatings in police custody. Prison conditions remained harsh, with attempts to improve them hampered by lack of funding.

The Government generally recognizes freedom of religion in practice. The Government has continued to deny registration to some religious groups, although the most contentious case ended with the registration of the Metropolitan Church of Bessarabia in July 2002, after ten years of refusal. A number of minority religious groups in Transnistria, a break-away region not under the control of the Moldovan Government, continued to be denied registration and are subjected to official harassment.

Reports exist of human rights abuses by the authorities in the separatist Transnistrian region, among them discrimination against Romanian/Moldovan speakers. Transnistrian "presidential" elections on December 9, 2001 were reportedly plagued by abuses. The OSCE remains involved in investigating reported severe human rights abuses by Transnistrian security police in the village of Chitcani between 1992 and 1997, including severe beatings, murder, and disappearances. The OSCE attempted to negotiate a compromise in the long-running case of Transnistrian authorities attempt to shut down Latin-script schools. Despite some progress, at least one school remained under threat of closure at the end of FY 2003. Legal battles involving the Jehovah's Witnesses continued in Transnistria in 2003, including a liquidation trial brought by the Prosecutor General.

Moldova has abolished the requirement for exit visas for travel abroad but individuals wishing to emigrate must settle financial and judicial obligations before permission to emigrate is granted. The Government may also deny permission to emigrate if the applicant had access to state secrets; such cases are very rare, however. No cases of denial of permission to emigrate were reported in 2003.

Section 498A(a)(4): "respect international law and obligations and adhere to the Helsinki Final Act of the Conference on Security and Cooperation in Europe and the Charter of Paris, including the obligations to refrain from the threat or use of force and to settle disputes peacefully."

Moldova takes seriously its participation in the OSCE and its commitments under the Helsinki Final Act. The Transnistria region of Moldova, along the Ukrainian border, remains under the control of separatist forces. A Russian-brokered cease-fire in Transnistria has held firm since July 1992. The cease-fire established a tripartite peacekeeping force comprised of Moldovan, Russian, and Transnistrian units that have prevented a return to the use of force in the region. Since its election in 2001, Moldova's Communist government has made resolution of the ongoing conflict a top priority. Nonetheless, it has been unable to make significant progress because of fundamental disagreements with the separatist authorities in Transnistria over the status of that region.

In July 2002, the mediators to the conflict - the OSCE, Russia, and Ukraine - presented to the parties a document that called for right-bank Moldova and Transnistria to be re-integrated as a federal state. Negotiations continued on this basis, with the two sides agreeing in April 2003 to set up a Joint Constitutional Commission, but differences over key questions remained. In late November Russia unilaterally proposed a settlement, outside the framework of the ongoing mediation. The Russian proposal was not endorsed by the other mediators, and was rejected by Moldovan President Voronin. Demonstrations protesting the deal were managed peacefully.

Section 498A(a)(5): "cooperate in seeking peaceful resolution of ethnic and regional conflicts."

At the November 1999 OSCE Summit in Istanbul, Moldova reached a bilateral agreement with Russia, reflected in the Treaty on Conventional Armed Forces in Europe (CFE) Final Act and the Summit Declaration, on the withdrawal of Russian forces and equipment from the Transnistria region of Moldova. Ahead of schedule, Russia met its commitment to withdraw from Moldova all its equipment limited by the CFE, despite significant Transnistrian opposition. At the Istanbul Summit Russia also agreed to withdraw all of its forces based in Moldova by December 31, 2002. Moldova has supported OSCE efforts to work with Russia, Transnistrian authorities, and OSCE experts to lay the basis for disposal of the more than 40,000 tons of munitions and approximately 40,000 small arms stored at Russian depots in Transnistria. The U.S. and many other OSCE states have committed to assist with contributions to an OSCE Voluntary Fund to help defray the cost of destroying or removing the Russian ammunition stored in Moldova, provided all necessary accounting and verification requirements are met. Russia did not meet its withdrawal commitments in 2002, principally due to the magnitude of the task, the obstructionism of the Transnistrians, and a lack of political will. At the December 2002 OSCE ministerial in Porto, Russia committed to complete the withdrawal as soon as possible and stated its intent to do so by December 31, 2003. Although some progress was made during 2003, Russia again failed to meet this commitment on schedule primarily due to a lack of political will as the withdrawal process remained bound up in Transnistrian machinations in the political settlement negotiations.

Section 498A(a)(6): implement responsible security policies, including --

(A) adhering to arms control obligations derived from agreements signed by the former Soviet Union;

(B) reducing military forces and expenditures to a level consistent with legitimate defense requirements;

(C) not proliferating nuclear, biological, or chemical weapons, their delivery systems, or related technologies; and

(D) restraining conventional weapons transfers."

Moldova has formally declared its willingness and intent to accept all of the relevant arms control obligations of the former Soviet Union. Moldova ratified the CFE Treaty on July 6, 1992 and the 1996 Flank Document on May 15, 1997. Compliance with these obligations has been good. Moldova participates in the CFE Joint Consultative Group and was an active participant in negotiations on adaptation of the CFE Treaty. At the OSCE Summit in Istanbul, Moldova reached a bilateral agreement with the Russian Federation for withdrawal of Russian troops and equipment from Moldova according to a specified timeframe and also signed the Adapted CFE agreement. Moldova has actively cooperated with efforts to overcome continuing problems resulting from the unwillingness of Transnistrian separatists to allow Russian force withdrawals and unimpeded CFE inspections of Russian forces located in the region. Moldova has regularly submitted its CFE Treaty data, including in 2003.

Moldova has submitted Confidence- and Security-Building Measures (CSBM) annual data declarations regularly, including in 2003, and has willingly undergone CSBM inspections and evaluation visits in accordance with the OSCE Vienna Document.

Moldova's armed forces are reorganizing and developing, with U.S. assistance, a peacekeeping battalion capable of interoperation with international peacekeeping forces. This battalion will form the core of Moldova's armed forces, which have a current strength of about 6,900, including about 1,900 civilians. The peacekeeping battalion is currently in training to participate in a peacekeeping operation with NATO-led SFOR forces. A portion of the battalion is deployed in the Moldovan/Transnistrian security zone. Forty-two soldiers deployed to Iraq for post-conflict humanitarian assistance. Two Moldovan staff officers are currently serving on the staff of U.S.-led Multinational Division (North) in Bosnia. Moldova has one army officer serving as a liaison officer to CENTCOM in Tampa, Florida.

Moldova acceded to the Nuclear Non-Proliferation Treaty (NPT), as a non-nuclear-weapon state, on October 11, 1994. The Government of Moldova signed a safeguards agreement with the International Atomic Energy Agency on June 14, 1996, but this has not yet entered into force. In May 2002, penalties were imposed on two Moldovan entities, under the Iran Nonproliferation Act of 2000, for the transfer of missile-related equipment to Iran. In May 2003, sanctions were again imposed on these entities and an individual under the U.S. Missile Sanctions Law. On November 25, 2002, Moldova subscribed to the International Code of Conduct against Ballistic Missile Proliferation. The Government of Moldova has supported international nonproliferation efforts.

Moldova has increased efforts to strengthen control over its borders, including participation by Moldovan customs and border guards in U.S.-assisted counter-proliferation programs designed to halt the flow of illicit WMD materials and conventional arms. Moldova issued new customs stamps in September 2001, with U.S. assistance, as required subsequent to its WTO admission, in an attempt to reduce smuggling operations across and along the Transnistrian part of the Ukrainian/Moldovan border. The GOM and the Government of Ukraine signed a Customs Protocol in May 2003, whereby the Ukrainian Government promised to honor only Government of Moldova-authorized customs seals, a positive step towards stopping the movement of contraband in the region. The U.S. is facilitating this effort by providing the GOM new embossed Customs stamps and seals, which also will limit the potential for forgery and fraud, for deployment at all Moldovan points of entry/exit in January 2004. Moldova is also attempting to set up joint Moldovan/Ukrainian border posts on Ukrainian territory along that portion of its border with Ukraine controlled by the Transnistrian separatists to minimize smuggling. To further increase GOM control over sensitive Transnistrian exports, in 2004 the U.S. plans to assist the GOM in outfitting twenty-two mobile customs inspection teams to patrol the "internal" border between Transnistria and Moldova. The U.S. is continuing its efforts to cooperate with Moldova in developing Moldova's export control system, in terms of both regulatory structure and enforcement capabilities - in particular, with respect to enhancing the Moldovan Government's ability to target and inspect suspicious cargo.

Moldova is a State Party to the 1993 Convention on the Prohibition of the Development, Production, Stockpiling, and Use of Chemical Weapons and on Their Destruction (CWC) and in September 1997 became a member of the International Atomic Energy Agency. The U.S. considers Moldova to be a party to the INF Treaty as a successor state to the Soviet Union. Moldova has taken no action, which would call into question its commitments to that treaty.

Moldova is not a State Party to the 1972 Convention on the Prohibition of the Development, Production and Stockpiling of Bacteriological (Biological) and Toxin Weapons and on Their Destruction (BWC).

Section 498A(a)(7): "take constructive actions to protect the international environment, prevent significant transborder pollution, and promote sustainable use of natural resources."

While information on specific "constructive actions" undertaken by the Moldovan Government to reduce cross-border pollution is limited, Moldova is taking steps to reduce overall levels of pollution. With U.S. help, Moldova increased awareness of environmental issues by completing a biodiversity assessment and by increasing awareness of the benefits of low-till farming methods via demonstration projects.

The Government announced in 2002 its intention to create Moldova's first national park. The 55,000-hectare Lower Dniester Park project is funded by the World Bank / Global Environment Facility.

The U.S. cooperated with the EU in the creation of a Regional Environmental Center (REC) in Moldova, the mission of which is to strengthen civil society and support sustainable development by promoting public awareness and participation in environmental decision-making. The REC successfully executed one round of small project grants to environmental NGOs.

Section 498A(a)(8): "deny support for acts of international terrorism."

The Government of Moldova does not grant sanctuary from prosecution to individuals or groups having committed acts of international terrorism or otherwise support international terrorism. Moldova is a party to ten of the 12 international counter-terrorism conventions.

Following the September 11 attacks in the U.S., Moldova quickly passed the Law on Combating Terrorism on October 12, 2001, a new anti-terrorism law that provides the legal framework for combating terrorism, sets out the rights and obligations of law enforcement agencies, and details the manner in which the agencies will be coordinated and supervised. The Moldovan Government cooperated with all USG requests on blocking terrorism financing in 2003.

In October 1991, shortly before the Soviet Union dissolved, Russia and nine other Soviet republics signed a Memorandum of Understanding declaring themselves jointly and severally liable for the foreign debts of the Soviet Union. In December 1991, Russia and seven other republics signed an agreement that assigned to each of the newly independent states shares of both all the external assets and all foreign debt of the former Soviet Union (FSU). Moldova signed the October, but not the December 1991, agreement. The December 1991 agreement provided that Moldova's share of the FSU debt would be 1.29 percent. Beginning in 1992, Russia sought to replace the principle of joint and several liability with full liability for the debt in return for all the external assets. On October 19, 1993, Moldova signed a "zero option" agreement with Russia under which Russia will pay Moldova's share of the FSU debt in return for Moldova's share of FSU assets as defined by the December 1991 agreement.

(Please see section 498A(a)(9) of the Russia assessment regarding indebtedness to the United States incurred by the former Soviet Union.)

Section 498A(a)(10): "cooperate with the United States Government in uncovering all evidence regarding Americans listed as prisoners-of-war, or otherwise missing during American operations, who were detained in the former Soviet Union during the Cold War."

The U.S. effort to uncover evidence of American POWs and MIAs in the former Soviet Union is being conducted through the U.S.-Russian Joint Commission on POWs/MIAs, established in March 1992. Moldovan officials warmly welcomed the U.S. side of the Commission in August 1995. With the full support of the Moldovan Government, the U.S. Chairman also made an appeal to the people of Moldova, asking them to come forward with information. Moldova has also fully supported subsequent inquiries in Moldova.

Section 498A(a)(11): "terminate support for the communist regime in Cuba, including removal of troops, closing military and intelligence facilities, including the military and intelligence facilities at Lourdes and Cienfuegos, and ceasing trade subsidies and economic, nuclear, and other assistance."

We have no evidence from which to conclude that the Government of Moldova is providing military, intelligence, economic, nuclear, or other assistance to the Government of Cuba.

No. The President has not made such a determination at this time.

Section 498A(b)(2): Has the President determined that the Government of Moldova "has failed to take constructive actions to facilitate the effective implementation of applicable arms control obligations derived from agreements signed by the former Soviet Union"?

No. The President has not made such a determination at this time.

Section 498A(b)(3): Has the President determined that, after October 24, 1992, the Government of Moldova "knowingly transferred to another country --

(A) missiles or missile technology inconsistent with the guidelines and parameters of the Missile Technology Control Regime (MCTR); or

(B) any material, equipment, or technology that would contribute significantly to the ability of such country to manufacture any weapon of mass destruction (including nuclear, chemical, and biological weapons) if the President determine(d) that the material, equipment, or technology was to be used by such country in the manufacture of such a weapon"?

No. The President has not made such a determination at this time. However, in May 2002, penalties were imposed on two Moldovan entities, under the Iran Nonproliferation Act of 2000, for the transfer of MCTR-controlled equipment to Iran. Additional sanctions were imposed on these entities and an individual in May 2003 under the U.S. Missile Sanctions Law. These penalties are specific to these private entities and the individual and do not apply to the Moldovan Government.

Section 498A(b)(4): Is the Government of Moldova "prohibited from receiving such assistance by section 101 or 102 of the Arms Export Control Act or sections 306(a)(1) and 307 of the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991?"

No. We do not have information from which to conclude that the Government of Moldova is prohibited from receiving assistance under these statutes.

Section 498A(b)(5): Has the President determined and certified to the appropriate congressional committees that the Government of Moldova "is providing assistance for, or engaging in non-market based trade (as defined in section 498B(k)(3) with the Cuban Government? If so, has the President taken action to withhold assistance from Moldova under the Foreign Assistance Act within 30 days of such a determination, or has Congress enacted legislation disapproving the determination within that 30-day period?"

No. The President has not determined that the Government of Moldova is providing assistance for, or engaging in any non-market-based trade with, the Cuban Government.