Transnistria – an unrecognised country within Moldova

The small Moldovan territory east of the Dniester River, which has approximately 550 000 inhabitants, has been seeking independence for eighteen years now. Transnistria – which calls itself Pridnestrovie, or the Pridnestrovian Moldavian Republic, according to its own constitution – is a secessionist republic, de facto independent but still legally a part of the Republic of Moldova. It is not accepted by any state or international organisation. The unrecognised republic, with its ‘capital’ at Tiraspol, declared independence from Moldova after the collapse of the USSR on 27 August 1991. Igor Smirnov has been President since the declaration and is currently serving his fourth mandate, seeking to resolve the political status of the region which, despite the lack of recognition, nevertheless professes its own government, parliament, constitution, flag and national anthem.


South-East Europe Review 4/2007
So, it is not the issue of ethnic division that has contributed to the 'never-ending' conflict between the two sides of the river. The Republic of Moldova is holding on to the region and has good economic reason to do so: in spite of Transnistria's small size (constituting 12% of Moldovan territory), most Moldovan industry is located in Transnistria. Back in 1990, Transnistria (with 17% of the Moldovan population) contributed nearly 40% of Moldovan GDP, 33% of its industrial output and 90% of its energy output. Besides losing this significant part of its domestic production, Moldova has had to face a range of practical problems regarding the eastwards orientation of its trade: the bypass of goods traded through Transnistria has been limited and, after consequently investing in diverting railways and roads to the north and south of the border with Ukraine, this has inevitably raised product prices in general since the increase in transportation prices has had somehow to be balanced.

Characteristics of the regional economy
Transnistria has achieved a relatively high degree of self-sufficiency during its nearly eighteen years of self-proclaimed independence. It enjoys a robust infrastructure (railways, gas and power supply networks, etc.), has introduced its own currency, and has implemented an effective 'export' policy. Its own central bank -the Transnistrian Republican Bank -is responsible for the 'Transnistrian rouble', the local currency convertible at a freely-floating exchange rate only within Transnistria. According to the Transnistrian Republican Bank's own statistics (which may vary), the annual real GDP growth rate in 2006 was 7.7%, while the rate of inflation was 8.9% year-onyear. Even so, the 'republic' has become a paradise for illegal arms sales, smuggling and money laundering. Due to the regional economy not being accounted for in official Moldovan economic statistics, Transnistria relies on three main sources of income: legal trade; Russian subsidies; and illegal trade, more commonly known as smuggling. Corruption is also one of the most critical elements of the regional economy, which is also a factor in its attraction to neighbouring shadow market economies.
The economy of the region is based on a mix of heavy industry, electricity production and manufacturing. Following a large-scale privatisation process in the late 90s, followed by the privatisation of state-owned enterprises in 2000, the problem of an evolving fiscal crisis was avoided since the region had, by that time, accumulated a massive amount of external debt. The separatist regime took over three-quarters of state assets which were then sold primarily to Russian companies. The sell-offs included such strategically important enterprises as the Moldovan Hydroelectric Power Station in Cuciurgan and the Moldovan Metallurgical Plant in Ribnita, which generates about 40% of the budget revenue of the region.
This makes clear how much the region continues to be a drag on the Moldovan economy, as the illegal regime took over income sources that originally concern the Republic of Moldova. In 2005, revenues from privatisation funded more than 50% of the region's budget, while its debt still exceeded $1.5bn in March 2007. The budget for 2007 was $246m, with an estimated deficit of $100m that is planned to be reduced by approximately $20m with income from tax increases and further privatisation. In addition, most of the debt accumulated during the past years is owed to Gazprom (ap- proximately $1.3bn in 2007), mainly for gas imports 1 even though Russia has conceded an extremely preferential rate for its natural gas and energy supplies.

Trade patterns
The regime cites its most important trading partners as Russia, Belarus, Ukraine and the Republic of Moldova; however, trade also takes place with the US, the EU, Africa and Asia. Trade turnover in the first nine months of 2007 was $1 346.1m (309.7% of 2006 GDP). Nevertheless, the breakaway region is a net importer: the Transnistrian Republican Bank reported 'exports' of $422.1m and 'imports' of $738.4m in 2006. Besides textiles and electricity, 'exports' consist mainly of steel products; steel produced by the state-owned plant in Ribnita accounts for approximately 60% of total 'export' earnings. Considering 'imports', food products make up 20% of the total but the regime also seeks energy, non-ferrous metals, transport equipment and chemicals supplies from elsewhere.
A brief explanation of Transnistria being referred to several times as the 'black hole of Europe' is apparent in that the Transnistrian authorities apply very low, or rather no, tax on trade; even Moldova agreed in the beginning to exempt Transnistrian trade from taxation. A highly profitable re-export business developed in this way until the Republic of Moldova introduced a registration system for Transnistrian companies selling goods to Ukraine in 2003. This was seen as a constructive approach by the Moldovan government to the resolution of trade issues but, in practice, no taxes have still been paid to the Moldovan state in respect of 'exports'. The actual winners in this unresolved problem have been individuals and their business partners in Russia and other countries bordering the region. Vladimir Voronin, the President of Moldova, recently said that the Transnistrian conflict is 'a conflict of interests'. According to Voronin, an estimated $2bn per year is generated illegally in the 'black hole', not to mention that the lack of accountability concerning human and arms trafficking through the breakaway state remains of significant concern to the European Union.

Source: Trans-Dniester Republican Bank
On 3 March 2006, Ukraine implemented a new customs regulation for goods imported from the separatist regime. The system was actually the realisation of a joint customs protocol between Ukraine and the Republic of Moldova, signed in December 2005, which allows goods from Transnistria to be imported only with documents processed by Moldovan customs offices. Additionally, the EU launched a border assistance mission (EUBAM) in Ukraine, on its Transnistrian border with the Republic of Moldova, in order to combat contraband trade. Not surprisingly, both the Transnistrian regime and Russia have denounced this as an economic 'blockade'. Transnistria responded by stopping all Moldovan and Ukrainian transport, although this was lifted two weeks later. Quoting the words of Helen Chernenko, of the regime's Ministry of Economy, the 'blockade' has not only meant the loss of several million dollars but: There is also another loss which is even more important: the loss of confidence in Moldova as a serious partner with whom Transnistria can build a common state in the future.

International attention
From the beginning of 2003, international attention towards the Republic of Moldova increased significantly with the establishment of a European Commission delegation office in Chișinau that has examined the Transnistrian conflict. The Organisation for Security and Co-operation in Europe (OSCE) opened an office in Tiraspol on 13 February 1995 but has not thus far been successful in resolving the conflict despite a selfprofessed 'primary objective' being to:

4/2007 South-East Europe Review
Facilitate the achievement of a lasting, comprehensive political settlement of the Transdniestrian conflict in all its aspects. 2 The mission also covers a wide range of human rights issues such as democratisation, minority rights and media freedom. In 2005, the EU as well as the United States gained observer status in the OSCE-led, five-sided negotiations between the OSCE, Ukraine, Russia and the two parties within Moldova which looked promising until the implementation of the customs regulations in 2006. Besides the EU, such foreign institutions as the Soros Foundation Moldova, the British Peacebuilding Framework Project and the US Embassy have also taken an interest in state and civil society issues.
Even so, western attention today is not particularly significant as most states and organisations have lost interest for particular reasons: the lack of any progress towards settling the conflict has led to a growth in discontent; several memoranda have already been proposed, such as the 2003 Kozak Memorandum suggesting an asymmetric federal Moldovan state 3 but, up to now, no proposal has been able to bring the issue any closer to resolution. Concerning Moldova, a central question has made it even more difficult to resolve the conflict: should the relationship and co-operation with Russia and the CIS countries be strengthened; or should trends towards European integration be given priority? It is clear that integration with the European Union would necessitate a democratic means of consolidating the ongoing conflict, offering Transnistria favourable conditions to re-unite with the rest of the country. The socalled '3D strategy', initiated by Moldovan civil society to demilitarise, decriminalise and democratise Transnistria so as to integrate it back into Moldova, has also remained a plan followed up with no action since no political, economic or social incentives have been taken which have urged Transnistria towards unification.
The position of the United States on the conflict is quite clear: 4 it fully respects the territorial integrity of Moldova and considers Transnistria to be a part of it and, by all means, considers separatism unacceptable since the secession of the region does not meet the appropriate conditions of international law. According to the US government, the citizens of Transnistria do not constitute a 'people'; they are not suffering serious damage and have other solutions to the problem than secession. Finally, as a de facto regime, the authorities in Tiraspol do not have the legal right to make any change in the economic structure of Transnistria by selling the assets of the Moldovan government, as referred to above.

Current status and concluding remarks
A referendum was organised on 17 September 2006 by the Transnistrian regime. The results -which may not be completely reliable -showed that the population of the re-