Moldovan economics

So, I haven’t mentioned yet, about three weeks ago, I started taking Microeconomic Principles online through our community college network in Arizona.  Basically, as I’m looking at graduate programs that I plan to apply to this year, many of them strongly recommend applicants to have taken both micro and macro economics, along with some additional math courses.  Well, I only took macro as an undergraduate student, so when I found a micro course online, I figured it certainly couldn’t hurt to take the course.  In fact, I might actually learn something.  And I’m a classic study-loving nerd, so I sort of live for this stuff.

That said, when the professor found out that I was in the Peace Corps in Moldova, he asked me to post a bit about the Moldovan economy, so this week I finally got around to it.  And then I figured, maybe I should share this information on my blog, too.  Below is what I wrote.  Enjoy!

The Moldovan Economy:

First, to give a brief background of the country, Moldova was actually part of the Soviet Union until the Soviet system collapsed and the country declared independence in 1991. So the country has only been a democratic, market economy for 20 years now.

The country itself is about a third the size of Indiana and has a total population between 3 and 4 million people. It is also the poorest country in Europe. Actual population and population on paper varies greatly because many Moldovans emigrate to other parts of Europe to find work due to the lack of employment opportunities and low salaries within the country.

Chișinău, the capital city, is very modernized, but the majority of Moldova is very rural. In smaller villages, many households lack indoor plumbing and must bring their water in from nearby wells. Electricity is more common, and heat systems vary from electric, to gas, to the use of an indoor fireplace known as a “soba.” Roads around the capital are paved, and major highways across the country are paved, but most villages have only dirt roads. Cars are common in the major cities and the capital, but in villages you will often see horse-drawn carts.

The economy itself is primarily agriculture and wine.  During Soviet times, there were industries here and the USSR provided jobs for all citizens in some capacity. But when the Soviet Union collapsed and Moldova declared independence, the Russians abandoned those industries. You can still see the remains – many abandoned buildings are still standing in very poor condition today. Additionally, it is estimated that remittances make up more than 30 percent of the country’s GDP.

Salaries are very low. Some of the highest paid workers in the country earn only about 600 USD per month. Granted, the cost of living is significantly lower, but it is still a small amount in comparison. To give you an idea, I share a 3-bedroom apartment with another volunteer here and we pay less than $200/month for rent. Our utilities (including gas, electricity and water) amount to about $90/month (which is high since it is winter and we’re using our heat), and internet payment is about $10/month. Public transportation within the capital city costs about $0.30 per ride.

It should also be noted that the country is very politically polarized. Many citizens, mostly older Moldovans, look back on the Soviet system and say communism was better than its current market economy. The reason, they say, is because everything was free and inexpensive, but now everything is very costly and pension is very low. Among younger generations and more educated populations, this opinion seems to change quite drastically. But, in my personal opinion, I believe this is probably because they have benefitted more from the market economy.

Moldova also operates primarily as a cash economy. People do not have credit cards and generally do not trust banks. Many lost money in the banks during a past financial crisis, and people have been slow to let cash out of their hands again. This also makes it very difficult to track income and collect taxes.

In my opinion, Moldova is an example of a country that has failed to specialize. They have fantastic, fertile soil that will grow almost anything, but most land is divided among individual farmers who all grow many different fruits and vegetables. Farmers are hesitant to enter into co-ops, which might enable them to produce on a larger scale. Many farmers are also not versed in business management, marketing, or export regulations (if they wanted to trade with the EU, for example). But this is something the country and many international organizations are working to change.