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Last Updated:  Monday, 31 March, 2003, 08:58 GMT 09:58 UK
Europe's poorest economy in downward spiral
By Kieran Cooke

Cricova wine cellars
Moldova's wine industry has struggled since independence
Moldova is already Europe's poorest economy - and the crisis has been getting worse over the past decade. The downward spiral is graphically illustrated by the decline of the country's wine industry.

The Cricova wine cellar complex situated 15 kilometres north of Chisinau, the capital of Moldova, is one of the main tourist attractions of this small, landlocked country.

"There are more than 120 kilometres of wine vaults here," says the guide.

"We have millions of bottles. The temperature and high humidity is perfect for maturing and storage. We export all over the world," she adds.

The guide's tone is positive but it hides a grim reality.

Moldova's wine industry - like much of the country's economy - is in dire straits.

Falling wine sales

At one stage, the red, white and sparkling wines produced from Moldova's rich soil accounted for nearly 50% of the total value of exports.

However that changed following the country's independence from the Soviet Union in 1991.

These people left Moldova because the state failed them
Ala Mindicanu
Social Liberal Party
Traditionally more than 80% of Moldova's wine production went to the Soviet Union, but in the 1990s, Russia and the other former republics could no longer afford to import in such quantities.

Efforts by Moldovan producers to diversify into other markets have had only limited success.

And the European Union not only places high tariffs on Moldovan wine imports, it also undercuts Moldova's produce in Russia and elsewhere in the Commonwealth of Independent States (CIS) with its own subsidised wine exports.

Battle for survival

While state-owned wineries like Cricova still survive, some of Moldova's smaller producers have gone bust.

Woman selling cigarettes in Chisinau
A woman sells cigarettes on the streets of Chisinau
Others do not have sufficient capital to make vital investments in more modern production methods and marketing.

The same applies to the tobacco industry, another of the country's main export earners.

"If it wasn't for remittances from Moldovans working overseas and aid from the West, Moldova would be completely broke," says a Western diplomat in Chisinau.

"Smuggling and a large grey economy are other factors which keep it afloat."

Desperate measures

With per capita income officially put at $420 (267) a year, Moldova has the unenviable distinction of being the poorest country in Europe.

Over the past decade a large slice of the country's 4.5 million people have left in search of jobs - most of them to work illegally in the countries of the EU.

Thousands of Moldovan women - many kidnapped by people traffickers - are working in Europe's sex industry.

"These people left Moldova because the state failed them," says Ala Mindicanu, a member of the opposition Social Liberal Party.

"The irony is that it is these people who send home money and now help to sustain the state."

Glimmer of hope

Yet Vladimir Veronin, the Moldovan President, who along with his fellow communists swept to power in a landslide election victory in 2001, can point to some small successes.

Moldova country winter scene
Moldova is the poorest country in Europe

In the 1990s Moldova's economy contracted by nearly 40%, after the umbilical cord that had joined it to the former Soviet Union was severed.

The outlook has improved recently - in each of the past two years growth has been more than 5%.

Inflation, which was running at well over 30% for much of the 1990s, is officially put at 4.4%.

The leu, the Moldovan currency, is stable.

There is some foreign investment, particularly in the power sector, and there are far fewer blackouts these days.

Uphill struggle

However, Moldova - which is a member of the CIS but also has ambitions eventually to join the EU - is still faced with considerable problems.

Unemployment in some regions is as high as 50%.

The country's external debt, at more than $1bn, is a serious impediment to economic growth.

When independence was declared in 1991, a Russian-speaking majority living in the east of the country formed a breakaway zone - the so-called Transdniester Moldovan Republic.

This entity, recognised by no one but with its own police, border controls and currency, is a haven for smugglers.

Yet it also contains much of what was Moldova's industry, including a steel plant and power-generating facilities.

Analysts say there can be little economic progress until the dispute is solved.

Despite the problems the guide at the Cricova wine cellars is undaunted.

"This is one of our great national assets," she says, pointing to the hundreds of thousands of bottles which line the wide passages of the underground complex.

"We are fortunate to have such riches in our country."

Country profile: Moldova
07 Mar 03  |  Country profiles

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