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zens are allowed to own land. The government is eager to encourage foreign investments and open new trade ties with the West. Trade ties with Russia and other former Soviet republics are expected to continue, but at a reduced rate. Lithuania is seeking to further liberalize its foreign investment laws. The Lithuanian govern. ment is following a cautious, but Western-oriented program of economic reform in banking and monetary policies, price structure, tax laws, land ownership laws, fiscal policy and foreign trade legislation.
InNation subsided during 1994 as a result of tight monetary policies. Wage restraint, partly through the pursuit of a tight incomes policy, and significantly reduced subsidies to state agricultural and industrial enterprises have reduced the budget deficit. Tax reform, including the introduction in mid-1994 of excise taxes and a value added tax, has increased government revenues. Social programs and subsidies consume the bulk of budgetary expenditures.
In April 1994, Lithuania adopted a currency board arrangement under which central bank reserve money and liabilities denominated in the local currency are fully backed by foreign exchange at a fixed rate. Growth in the money supply is tied to growth in foreign exchange reserves. 2. Exchange Rate Policy
On June 20, 1993, Lithuania introduced its own national currency, the litas. In April 1994 the Lithuanian currency board fixed the rate of exchange at four litas to one U.S. dollar. 3. Structural Policies
Price Reform: The Lithuanian government has dismantled most of the centralized price controls formerly imposed by Moscow. Prices on most foodstuffs and manufac. tured goods have been liberalized. However, due to market monopolies and oligopol. ies in several sectors, the Lithuanian government has imposed measures to control anti-competition price fixing.
Tax Policies: Lithuania has begun to reform its entire tax system. In May 1994, Lithuania introduced an 18 percent value added tax. The value added tax is applied to most imports. Taxes are levied on wages through the personal income tax and through employees' and employers' contributions to the Social Insurance Fund. Enterprise profits are taxed at rates of between 20 and 30 percent. Reduced rates apply for agricultural enterprises, small-scale enterprises, and reinvested profits. Joint ventures with foreign capital are exempt from the profits tax for up to three years. Profit taxes of joint ventures are determined by the amount of foreign investment in the authorized capital and the type of activity (industrial or commercial). Dividends to foreign investors received in Lithuania are exempt from taxes. Income received legally by foreign investors and upon which a profit tax has been paid may be repatriated without additional tax.
Regulatory Policies: There are no performance requirements imposed by law as a condition for foreign investment. However, in tendering bids" for purchasing privatized companies or forming joint ventures with state companies, foreign companies are often required to offer employment guarantees or technology. Lithuanian law gives foreign investors the right to lease land for 99 years, but bars foreigners from owning land. 4. Debt Management Policies
Lithuania has acknowledged only that portion of the Soviet debt incurred by Lithuanian entities for use in Lithuania, Negotiations on this matter are in progress. Lithuania has received balance of payments support from the European Union and the G-24 countries. The IMF has provided a stand-by arrangement and a systematic transformation facility. The World Bank and the European Bank for Reconstruction and Development have contributed infrastructure and import rehabilitation loans. 5. Significant Barriers to U.S. Exports
There are no direct barriers to U.S. exports. However, U.S. exports are adversely affected by the absence of an established infrastructure for trade, such as in telecommunications and banking facilities. U.S. exporters are also hampered by the lack of import financing and other credit facilities. Customs procedures at border crossings are time-consuming and burdensome owing to the lack of trained personnel and inconsistent application
of customs regulations. The May 1991 law on prohibited and limited spheres for foreign investment determines the areas of economic activity where foreign investment is prohibited or limited. Foreign investment is prohibited in areas of defense and security. Foreign in. vestment is also prohibited in state enterprises holding a monopoly in the Lithuanian market. These are defined as enterprises producing more than 50 percent of their goods in the Lithuanian market. Enterprises which exploit existing commu.
nications, electricity delivery, gas, oil and water supply, heating and sewage systems are also considered to be monopolistic. 6. Export Subsidies Policies
The government exercises controls on exports of certain scarce commodities. There are no export subsidies. 7. Protection of Intellectual Property
Upon regaining its independence, Lithuania declined to assume formally any binding legal obligations undertaken by the former Soviet Union. In the area of intellectual property, Lithuanian policy has been to observe international standards and to consider subscribing to international conventions beyond those accepted by the independent Lithuanian governments before World War Iwo. In 1990 Lithuania joined the World Intellectual Property Organization (WIPO) and it plans to sign the Paris Convention for the Protection of Industrial Property. In April 1994 Lithuania signed an agreement with the U.S. for the protection of intellectual property. The Lithuanian parliament is considering laws for copyright enforcement, including amendments to the criminal and civil codes. 8. Worker Rights
a. The Right of Association.—The 1991 Law on Trade Unions and the Constitution recognize the right of workers and employees to form and join trade unions and, with certain limitations, to strike. There are no restrictions on unions affiliating with international trade unions.
b. The Right to Organize and Bargain Collectively.—The Lithuanian Collective Agreements Law confirms the right to organize and bargain collectively. Lithuanian trade unions engage in direct collective bargaining at the workplace as wage decisions are increasingly being made at the enterprise level. The government issues periodic decrees that serve as guidelines for state enterprise management in setting wage scales.
c. Prohibition of Forced or Compulsory Labor.–The constitution prohibits forced labor, and this prohibition is observed in practice.
d. Minimum Age of Employment for Children.—The minimum age for employment of children is 16. Twelve years of schooling are compulsory. These requirements are enforced through a system of inspections.
e. Acceptable Conditions of Work.-By law, white collar workers have a 40 hour workweek. Blue collar staff have a 48 hour work week with premium pay for overtime. There are minimum legal health and safety standards for the workplace. However, worker complaints indicate that these standards are sometimes ignored. The minimum wage is adjusted periodically by the parliament, but enforcement of the minimum wage is almost nonexistent.
f. Rights in Sectors with U.S. Investments. There is only a minimal level of U.S. investment in any one sector. Worker rights are applied uniformly throughout the economy and there are no known exceptions.
FORMER YUGOSLAV REPUBLIC OF MACEDONIA
War in nearby Bosnia has severely hurt the FYROM economy and complicated efforts at economic reform. The FYROM has suffered a break down of trade and cap. ital flows, and lacks the resources to shore up a weakened, inadequate infrastructure, let alone to finance new east-west links that will be needed for long-term development. The Greek embargo, imposed in February 1994, compounded the country's economic woes by cutting access to the region's main port of Thessaloniki. There has been limited success in efforts to reroute trade along existing east-west routes; nevertheless, significant bottlenecks remain at the border crossings with Bulgaria. The Greek embargo, in particular, has hurt industrial competitiveness by raising input costs, as overcrowded alternate transport routes are far more costly than shipping through Thessaloniki.
Despite a harsh economic climate, the FYROM government put into place a mod. est economic stabilization program in the spring of 1992. This program has received much praise from IMF officials. Inflation recently dropped to 2 percent per month. The average monthly salary was $126 by the end of 1993—less than the cost of food for the average family, but still considerably more than the average monthly salary in Serbia.
The U.S. contributed $5 million to a multilateral effort to clear the FYROM's ar. rears with the World Bank in early 1994, which in turn unlocked the country's first
Economic Recovery Loan from the Bank. The June 1994 World Bank Consultative Group meeting only partially succeeded in filling the projected 1994-1995 balance of payments gap of $110 million. Progress on this count is needed
to enable the MF and IBRD to move ahead with their planned programs in 1995.
Key Economic Indicators
Income, Production and Employment:
Real GDP (1991 prices)
Unemployment Rate (pct.)
Money Supply .....
Exchange Rate (USD/MDL)
Exports to U.S.8
Imports from U.S.5
Trade Balance with U.S. 5
$1994 figures are estimates based on January-October data. 1. General Policy Framework
Moldova is a small landlocked country located in the extreme southwest region of the former Soviet Union (FSU). The economic life of Moldova was highly inte, grated with that of the FSU, and disintegration of the FSU seriously affected Moldova's economy. The agriculture and industrial sectors each account for about
2 percent of total economic output. Moldovan industry previously was organized to
supply markets in the FSU, with production concentrated in consumer goods and defense-related products.
In accordance with a presidential decree dated January 17, 1994, the National Bank of Moldova (NBM) was charged with regulating the money supply. The National Bank of Moldova allocates about 80 percent its available credit through credit auctions. The volume of credit offered is determined by a monetary-credit program. Introduction of credit auctions has helped reduce inflation and the cost of financing.
The National Bank of Moldova has implemented faithfully the program agreed to
Moldova no longer has a policy of multiple exchange rates. Since the introduction
Moldova officially liberalized prices of most consumer goods in January 1992, though some products continue to remain subject to controls. Imported goods were exempted from regulation at the wholesale level, but can be subject to controls at the retail level.
Tax rates in Moldova are as follows: income tax for enterprises–30 percent; valueadded tax-20 percent; import tax, excise tax on wine and tobacco production, natural gas, and luxury items-from 10 to 80 percent; agricultural enterprises. Farmers pay a land tax calculated on the basis of the total land area and its quality.
The government has developed much of the legal framework needed to support a market economy. The Moldovan parliament has adopted laws covering private ownership of property, foreign investments, bankruptcy, leasing, privatization of state enterprises, as well as formation of joint-stock companies. 4. Debt Management Policies
Moldova is a member of several international financial organizations, including the IMF, the International Bank for Reconstruction and Development (IBRD), and the European Bank for Reconstruction and Development (EBRD). 5. Significant Barriers to U.S. Exports
Moldova has taken steps to simplify policies surrounding its trade regime. With the exception of unprocessed leather, energy products, cereals and cereal products, all export quotas were removed in June 1994. Export licensing was eliminated, except for national security, medical and cultural products. Moldova has observer status in the General Agreement on Tariffs and Trade (GATT).
In July 1994, the Moldovan government began requiring certification of imports by the Moldovan Department for Standards, Metrology and Technical Oversight or by the Geneva SGS International Association. The stated purpose of the certificate is to ensure the high quality of imported goods. Goods and services determined by the government to be harmful for customers may not be advertised. These include tobacco and tobacco products; hard alcohol; narcotic drugs; preservatives and food additives; and non-traditional curative methods that are not approved by the Moldovan Ministry of Health. The Department of Standards, Metrology and Technical Oversight is in charge of establishing and accrediting bodies that certify im. ported products.
Barriers to foreign trade and investments in Moldova include an underdeveloped banking, insurance, legal, and travel services.
Other investment barriers are as follows:
government stated it would give preference to investment in the following in-
dren. -Limitations on foreign equity participation: Although the government has taken
steps to liberalize the economy, only Moldovan citizens can participate in privatization of enterprises sold for patrimonial bonds at the auctions. However,
Moldovan citizens can sell their shares to foreign businessmen. The government plans to give greater opportunities for foreign investment. Once ratified, the U.S.-Moldova bilateral investment treaty will
provide substantial assurances to U.S. investments. 6. Protection of U.S. Intellectual Property
Laws protecting intellectual property (IP) and their enforcement are poor, result. ing in widespread piracy. There is serious infringement of software, cable television, audio and video cassettes, and books. The Department on Intellectual and Industrial Property Protection has drafted IP legislation which the parliament plans to review
7. Worker Rights
The 1990 Soviet law on trade unions, which was endorsed by Moldova's then Su. preme Soviet and is still in effect, provides for independent trade unions. Moldovan laws passed in 1989 and 1991, gave citizens the right to form social organizations, and provided a legal basis for the formation of independent unions. The new constitution, adopted in 1994, declares that any employee may form or join a union. However, there have been no apparent attempts to establish alternate trade union structures independent of the existing organizations that were part of the Soviet trade union system. Non-government workers (except those in essential services) have the right to strike, but there were no strikes in 1994. Moldovan law, which is still based on former Soviet legislation, provides for collective bargaining. Wages are set through a tripartite negotiation process involving government management and unions.
Forced labor is prohibited by Article 44 of the new constitution. No cases of forced labor have been reported.
The minimum age for employment under unrestricted conditions is 18. Employment of those aged 16–18 is permitted under special conditions, including shorter work days, po night shifts, etc. Moldovan industry does not employ child labor, al. though children living on farms do sometimes assist in agricultural production.
The average wage is 100 lei (about $25 in December 1994) per month. The new constitution sets the maximum workweek at 40 hours, and the labor code provides for at least one day off a week. The state is required to set and check safety standards in the workplace. Workers have the right to refuse to work but may continue to draw salaries if working conditions represent a serious threat to their health. The declining economic situation, however, has led to a decline in safety standards.