This Selected Issues paper analyzes the macroeconomic impact of workers’ remittances on Moldova. The paper focuses on Moldova’s labor emigration since the late-1990s using survey data designed to shed light on the economic and social consequences of migration. The survey results are broadly consistent both with the findings from balance-of-payments data and with the stylized facts in the labor migration literature. The paper also examines various indicators to assess the appropriateness of the current exchange rate level.


This Selected Issues paper analyzes the macroeconomic impact of workers’ remittances on Moldova. The paper focuses on Moldova’s labor emigration since the late-1990s using survey data designed to shed light on the economic and social consequences of migration. The survey results are broadly consistent both with the findings from balance-of-payments data and with the stylized facts in the labor migration literature. The paper also examines various indicators to assess the appropriateness of the current exchange rate level.

V. Enterprise Privatization47

A. Introduction

135. Moldova’s first privatization program was launched in early 1993 and implemented during 1993–1994. This was quickly followed by a second privatization program covering the 1995–1996 period. The dominant component of these first two privatization programs was mass privatization undertaken through the distribution of Patrimonial Bonds. Out of a total number of 1,306 “objects” (821 included in the privatization programs and 485 resulting from de-monopolization), 225 companies were entirely privatized, while partial privatization took place in 933 companies.

136. The high expectations surrounding the use of Patrimonial Bonds were largely unmet. More than 3 million Moldovan citizens were shareholders of companies or investors in Privatization Investment Funds by the end of 1996. The Investment Funds—a hybrid between a mutual fund and a holding company—ended up holding some 70 percent of the Patrimonial Bonds. Fund managers, however, did not have the incentives, power, experience, and capital to carry out the much needed restructuring of the enterprises. While 14 of the original 35 Investment Funds are still operating, they are in serious financial distress and their assets have continued to deteriorate.

137. The third privatization program, covering the period 1996-97, marked the beginning of cash privatization in Moldova. The 1,042 objects included in the third program were categorized into three groups (called annexes). The first group contained 510 enterprises and stand-alone assets that could be privatized without special approval by Parliament. The second group contained 39 enterprises whose sale required individual privatization plans approved by Parliament. The final group contained 180 unfinished buildings. In addition, the program included the sale of residual state shares in 313 enterprises.

B. The Privatization Program as of 2001

138. As a result of slow implementation, the 1996–1997 program was extended a number of times. By 2000, after the first program extension, only 295 enterprises and 10 unfinished construction projects had been privatized. In 2001, when the program was extended for a second time, Parliament simplified the privatization program by merging the first two annexes and authorizing the government to approve individual privatization plans without the need for Parliamentary action. The privatization program inherited by the current government, as amended in 2001, included 482 enterprises and 160 unfinished construction projects. Reflecting the agricultural nature of the economy, slightly over 40 percent of the number of firms (30 percent of the value of the social capital) in the privatization program are in the agricultural sector (Table 1). The ten largest of these firms, mainly wineries, comprised nearly 50 percent of the total social capital in this sector. In the transportation and communication sector, over 90 percent of the total social capital in the sector is in one firm, Moldtelecom. Finally, among firms in the energy sector, the CET-2 power plant and the two Northern electricity distribution companies made up over 50 percent of the value of the social capital in the sector.48

Table 1.

Enterprises in the Privatization Program, as of 2001

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139. Even minority state ownership in partially privatized firms can have important implications for corporate governance. In terms of state ownership, slightly less than a quarter of the firms in the 2001 privatization program were completely owned by the state (Table 2). According to Moldovan company law, the ownership of at least 25 percent of the total capital in joint stock companies grants stakeholders a right to block certain decisions by imposing quorum requirements. This law confers a key position for the minority shareholders, who can prevent an extraordinary shareholder meeting from taking place through their refusal to attend, or block a proposal requiring ¾ majority by voting against it. The state holds a blocking position—between 25 percent and 50 percent of share capital—in 78 firms, while in 330 firms it holds the majority shares. In the remaining 69 firms, the state holds only a residual share (largely the legacy of mass privatization).

Table 2.

Distribution of State Shareholdings, as of 2001

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C. Changes to the Privatization Process Since 2001

140. Before coming to power in 2001, the communist party had been very critical about the privatization implemented under previous governments. These programs were viewed as corrupt and showing little in the way of positive results for Moldova. In addition, the communists were strongly opposed to the privatization of enterprises in the strategic wine, tobacco, energy, and telecom sectors, and spoke out against the sale of state property to foreign investors.

141. Upon assuming power, the government expressed its intentions regarding state property and privatization in its April 2001 program entitled “Economic Revival is the Revival of the Country.” The program indicated that the state should become a full participant in the market economy, where state enterprises would play an important role. In this context, the establishment of state monopolies for the production and sale of certain goods was considered necessary. Moreover, the program sought to “delegate some of the functions of the Department of Privatization to the sectoral ministries and focus the Department’s efforts on the enforcement of privatization contracts”, stressing that “enterprise privatization would be carried out as proposed by sectoral ministries.”

142. Subsequently, the government announced that it was going to adopt different privatization methods to increase the transparency of the privatization process. It also decided to impose more responsibilities on the buyers of privatized firms by requiring investment commitments. As announced in the Revival program, the function of managing state property was transferred from the Department of Privatization to the line ministries, under the premise that the Department did not have sufficient capacity to perform its duties efficiently. While largely acknowledged as being true, unfortunately line ministries face similar capacity constraints. Insofar as the line ministries have a vested interest in excluding objects from the privatization program and keeping enterprises under ministerial control, the new arrangement contributed to a slower pace of privatization.

143. The current government also amended the Privatization Law. The original Privatization Law, adopted in 1991, was aimed primarily at governing the mass privatization process. The amendments, adopted in March 2003, sought to clarify the roles and responsibilities of different government bodies, define new privatization methods, and specify a number of post-privatization activities. Although the new law did not address the shortcoming in state property management, leaving it in the hands of the line ministries, it was generally perceived as an improvement over the previous law. Nevertheless, expectations that the revised law would contribute to the acceleration of privatization have not yet materialized.

D. Privatization Performance since 200149

144. Since 2001, state shares in 59 enterprises of the 482 enterprises listed in the 2001 privatization program have been sold. These represent slightly less than 6 percent of total value of state share capital in the entire privatization program, and sold for less than $11 million. Only 13 of the 160 unfinished buildings were privatized over the 2001-2004 period. Given that most of these constructions were initiated before or at the beginning of the 1990s, it is likely that their monetary value is small and most of them would qualify to be sold only at a “symbolic” price. Of the firms privatized, the state had an initial shareholding of less than 25 percent in 17 firms, a shareholding of between 25 and 50 percent in 15 firms, and a controlling block of shares in the remaining 27 firms. Among these later firms, 5 can be categorized as “large” enterprises, with share capital of more than MDL 10 million. The three largest firms (Vismos, Călăraşi-Divin, and Nis-Struguraş wineries), were privatized with the support of the World Bank’s Third Structural Adjustment Credit (SACIII). Among the larger firms, investment commitments in the amount of roughly $20 million were part of the privatization contract (the three wineries mentioned above accounted for about 60 percent of these commitments). Over the course of the entire privatization program, roughly 25 percent of the new private owners have fully complied with their purchase commitments.

Table 3.

Privatized Enterprises, 2001-2004

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145. A perceived failure to fulfill agreed investment commitments or other contractual obligations has resulted in the cancellation of 28 privatization contracts, with an additional 4 cases still pending in the courts. In 2003, for example the sale-purchase contract for the Dacia Hotel, privatized in 1999, was declared null and void as a result of irregularities and violations committed during the privatization process. In a number of other cases, such as Farmaco (pharmaceuticals), Moldova-Tur (travel agency) and Nis Struguras (wine producer), the privatization contracts were annulled after it was determined that the investors had failed to undertake agreed investments commitments.

146. As part of the privatization process, and as envisaged under the program supported by SAC III, the government agreed to write-off state share-holdings in enterprises where the state held 10 percent or less of the total shares outstanding and whose book value was less than $50,000. Although the government decree enabling these write-offs was issued in May 2002, to date residual state shares have been transferred to only 18 enterprises. The government’s effort to reduce its residual shareholding was addressed again in a September 2004 resolution. This new resolution allows the government to transfer its residual shareholdings, in the form of treasury bills, in those companies where the government holds less than 10 percent of the social capital and where the past five privatization attempts have failed. To speed up privatization, the government is currently considering the possibility of increasing the limits for writing-off residual shares from 10 to 33 percent.

147. Since 2001, 27 enterprises (and a number of other “objects”) have been excluded from the privatization program by Parliamentary decree. Among the excluded enterprises, the largest was the Cricova winery, declared a national heritage by Parliament at the end of 2003. A number of big Cereale (grain storage and processing) companies, one tobacco and several road and transport enterprises were also excluded from the program. The value of the states shares in the social capital of these excluded firms was slightly greater than the value of the state shares in the firms that were actually privatized.

E. Unsuccessful Privatization in Telecom and Energy Sectors

148. The government has made a number of unsuccessful attempts to privatize the state-owned telecom operator and the two remaining northern electricity distribution companies.50 Following an unsuccessful attempt to sell “Moldtelecom” in 1998, another effort to privatize the company, with the assistance of a reputable international investment bank, was undertaken in 2002. Reflecting, in part, the depressed nature of the international telecom market, only one foreign company qualified to submit a tender offer, which was considered inadequate and thus was rejected by the government. Similarly, following an earlier unsuccessful attempt to privatize the two northern electricity distribution companies, they were again offered for sale in 2003. The privatization offer was cancelled, however, after only one bid was submitted. In its official declaration, the government noted legal restrictions on undertaking direct negotiations when only one bid was submitted. Following the cancellation, the individual privatization law for the energy sector was amended to reduce the required state share offered for sale in these companies from “75 percent +1” to “50 percent +1.” The restriction on direct negotiations with a single bidder, however, was not addressed.

149. In 2004, the pace of privatization slowed down to a crawl, as the government attempted to redefine its policy toward state property and privatization. In particular, the government is considering dividing enterprises into four groups: (i) those remaining under state property, to allow the state to perform its role in strategic sectors; (ii) those that can be offered for sale immediately; (iii) those that should be restructured prior to privatization; and (iv) those that can only be sold at a symbolic price.

F. Conclusion

150. The modest performance in privatizing state assets in Moldova reflects a privatization process that has effectively stalled. Over the last four years, only 59 enterprises included in the privatization program have been privatized while 27 enterprises have been removed from the program. The general lack of interest on the part of strategic foreign investors in the privatization program reflects, in part, the perception that the business environment in Moldova is poor. Importantly, the cancellation of a number of privatizations, either for non-fulfillment of investment commitments or because of illegalities surrounding the original privatization effort, has contributed to denting investors’ confidence in Moldova’s privatization program.

151. With limited access to foreign financing, the state budget is increasingly dependent on the mobilization of domestic financial resources, including privatization revenues. The original 2004 budget envisaged privatization revenues in the amount of MDL 356 million. By the end of 2004, however, this number was revised downward to MDL 85.6 million. For 2005, the budget includes privatization revenues in the amount of MDL 193 million. While the budget did not identify the enterprises that would be offered for sale, there are still a number of state enterprises that could attract investor interest. In addition to the telecom and energy companies, a number of large wineries, Cereale, and tobacco companies, as well as some enterprises in the light industry sector, remain in state hands.51

152. In contrast to 2001, there now appears to be a greater interest in privatization on the part of government. This interest is reflected in the recently-adopted EGPRSP which includes acceleration in the privatization of industrial enterprises as a priority action.52 At the end of 2004, in a meeting of the Privatization Committee chaired by the Prime Minister, a decision was taken to compile a much-needed inventory of state property. This analysis is the first step in the process of identifying which enterprises will remain under state property and which ones will be sold—either immediately, or after restructuring, or at a symbolic price. The decision also prohibits line ministries from promoting any proposals to eliminate enterprises from the privatization program. These and other efforts—most importantly actual privatizations—will be needed if Moldova is to foster confidence in its privatization program and improve its international reputation in this area.


Prepared by Maya Sandu and Lawrence Bouton (World Bank). It covers the privatization of enterprises listed in the government’s privatization program.


The social capital of a firm recorded in the privatization program reflects its book value as of 1997. Current market values are likely to be substantially different than these recorded book values. As such, the social capital should be viewed as an indicator of firm size.


Privatization in Transnistria has been underway since 2000, with thirty-eight large enterprises privatized, mainly to Russian investors. Transnistrian authorities report that in 2004, over $35 million was earned selling enterprises to private investors. Under a law passed at end-2004, effective January 1, 2005, all privatization agreements in Transnistria are considered invalid unless sanctioned by the Moldovan government.


The three southern electricity distribution companies were privatized to a Spanish investor, Union Fenosa, in 2000.


As of 2003, some 24 percent of the firms in the industrial sector had public or mixed ownership. These firms produced some 28 percent of total industrial output and employed 31 percent of the workers in the sector. (Statistical Yearbook of the Republic of Moldova, Table 15.2 - Main indicators of Industrial Enterprises Activity, by forms of ownership, 2004).


Economic Growth and Poverty Reduction Strategy Paper (2004-2006), Section 6.6 Industry, Government of the Republic of Moldova, 2004.