How the Rich Ate Moldova

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Moldova is a small country in Eastern Europe,  one of its poorest. It is also immensely corrupt. Over the span of two decades,  politicians made the businessmen rich. Then after that,   the businessmen became politicians and  took the whole state for themselves. One man in particular accumulated immense,  oligarchic wealth. He controlled the entire  

Country behind the scenes …  until it all came tumbling down. In this video, we are going to take  a look at how the rich ate Moldova. ## Meet Moldova The Republic of Moldova is a landlocked country   wedged between Romania to its west and  Ukraine on its north, east, and south.

Most of the country’s land lies between the Prut  and Dniester rivers. Its official size – more on   what I mean later – measures about 33,800 square  kilometers. Or just slightly smaller than Taiwan. The land is mostly forested hills and  steppes. The weather is quite nice with  

Moderate winters and warm summers.  The earth is rich and plentiful – it   has Europe’s third most arable land per  capita – so 40% of the population farm. Their most well-known export is wine,  with a prestigious wine culture that   dates back to the early 1800s. And at its  agricultural height during the Soviet years,  

Moldova produced 30% of the world’s  tobacco and 20% of its total grape harvest. ## History Moldova has a long and complicated history. Let us   run through it but I am going to  skip over a great deal of things. We can trace the modern republic  to the principality of Moldova,  

Founded in the 14th century. They were  a vassal state to the Ottoman Empire. In 1812, the Ottomans signed the Treaty of  Bucharest to settle the Russo-Turkish War   of 1806-1812. In it, they ceded a large  portion of the old principality – over  

45,000 square kilometers between the rivers  Prut and the Dniester – to the Russian Empire. Can the Ottomans cede a vassal state?  Questionable, but details right? The Russian Empire held onto this area for a  century as the Bessarabia Governorate region.  

The name likely comes from the founder of the  nearby principality of Wallachia – Basarab I. The remaining parts of the old Moldova  principality – those west of the River Prut   – would join the aforementioned Wallachia later in  the 19th century to form the Kingdom of Romania.

After the Russian Revolution, the Moldovan  lands between the Prut and Dniester passed   between various countries. First  they declared independence and   joined Romania as Greater Romania. The  Soviet Union never recognized this. In 1939, the Soviets sealed a  non-aggression pact with the Germans,   depriving Greater Romania of  their only ally against Soviet  

Expansionism. The Soviets promptly demanded  Bessarabia, which they got in June 1940. ## Soviet Rule Thusly, the Soviet Union founded the  Moldovan Soviet Socialist Republic,   its second smallest republic or SSR. Stalin is known to have aggressively persecuted   those exposed to non-Communist systems. He  subsequently purged the country – deporting  

And executing thousands as part of  his ideological cleansing process. The rest of Romania aligned with the Germans and   the Axis and re-invaded the area in  1941 as part of the German invasion   of the Soviet Union. They held it until  1944 when the Soviets retook control.

The Soviets retook a land  devastated by war. A massive famine,   collectivization, and another wave  of deportations followed soon after. The Moldova SSR was dominated at the  top by ethnic Russians and Ukrainians.   Ethnic Moldovans speaking the Moldovan language  never really entered the higher rungs of power.

That is unless they were from the  region between the Dniester river   and the Moldovan-Ukrainian border – called  the Trans-Dneister or Transnistrian. This   region fully integrated into Russian  culture. Their population is about   50% Russians and Ukrainians but  with a sizable Moldovan minority. It was the Moldovan SSR’s  most industrialized region,  

Providing 90% of the area’s power  despite taking up just 12% of its land. ## Collapse In the late 1980s, tensions between the ethnic   Moldovan majority and the Soviets led a  series of strikes across the republic. Two opposition organizations came together and  created the Popular Front. Like many such fronts,  

It was composed of a hodgepodge of people  believing different things. Some advocated   for Romanian reunification, others for state  sovereignty, and yet others Communist reform. In late 1989, a massive Popular Front  rally drew 500,000 people demanding full   sovereignty and the withdrawal of Soviet  troops. In 1990, they won the most seats  

In the Moldova Supreme Soviet and broke  the Communist Party’s monopoly on power. In May 1991, the Moldovan SSR renamed  itself to the Republic of Moldova. A   few months later in August, they declared its  independence from the collapsing Soviet Union. The Popular Front leadership had long  advocated for reunification with Romania,  

And began making moves towards it.  They adopted a flag with Romanian   elements on it. They loosened border  controls between Moldova and Romania. But this move towards reunification alarmed  Moldova’s ethnic minorities – about 35% of   the population – including those in  the pro-Russian Transnistrian area.  

Thus in December 1991, they declared  independence too, leading to a brief   war that ended with a ceasefire in July  1992. Moldova failed in their goals. For a while, it seemed inevitable that  the new nation would quickly merge with   Romania. But the Moldovan people  blamed leadership for this military  

Blunder as well as the deteriorating  economic situation and voted them out. Nation building is never easy. Like  many of the other post-Soviet states,   Moldova’s challenges were daunting. Their  transition involved a wholesale remaking   of their identity, economy,  and government all at once. ## Economy

The first thing was to address  the ailing economy – which was   collapsing faster than a diving peregrine falcon. This brought a sense of emergency  to the situation. The new Moldovan   economy was shrinking an average of 7% a year. And the country experienced hyperinflation. In the  

First six months of 1992, the  monthly inflation rate was 75%. Worse yet for the Moldovan people,  the government at the start had no   way to adjust salaries and pensions to  these new prices. So by the end of 1992,   79% of all the Moldovan people fell into poverty.

Adding to this problem, Moldova’s most  industrialized area Transnistria was   de facto independent and out of Moldova’s reach. To stabilize things, the new government announced  that it would transition to a functional market   economy by 1996. Such a system would have  two key things. First, liberalized trade,  

With the prices of essential goods like  milk, eggs, and bread set by the market. Second, the privatization of state property.  Shares in the state-owned firms as well as land   from the collectively-owned and state-owned  farms would be distributed to the people. The government moved quickly to implement  these reforms, hoping that they could get  

Through this “shock therapy” fast as  possible and be the better for it. ## People The country had to do this amidst immense  tensions between its various ethnic groups.   Like many of the post-Soviet states, the Moldovan  people struggled with their new identities. The years of Soviet oppression and  rule cultivated strong anti-Russian  

Feelings amongst some people. But  many Moldovans still support closer   relations with the Russians – like the  Transnistrians I mentioned earlier. And then there is Romania. Some nationalists still  advocate for Romanian reunification – pointing   to history and the close similarities in  the Romanian and Moldovan languages. And  

The Romanian government has before said that it  cannot accept that Moldovans weren’t Romanians. But as I mentioned, Romanian nationalism has its   own detractors too. And thus there are  people strongly for Moldova’s continued   independence, perhaps with aspirations  of eventually joining the European Union. It is all very complicated. And these complex,  

Multi-faceted feelings caused  great cleavages in governance. ## Government Other post-Soviet states like Belarus quickly  fell back into authoritarianism again. But Moldova’s weak state, terrible  economy, and deeply divided people   prevented a single authority from  rising to political power. At first. Throughout the 1990s, the Moldovan government  experienced several competitive elections and  

Peaceful transfers of power in  the presidency and parliament. Two incumbent presidents stepped aside for  their successors – their first President   Mircea Snegur in 1996, and then his  successor Petru Lucinschi in 2001. In addition, the Moldovan media was openly  critical of the government. And other branches  

Managed to curb the presidents’ powers – an  apparent check and balance. For instance,   in 1996 the judiciary struck down a  presidential attempt to fire a general. This intense political competition might seem  a good thing. We all want more competition,   right? But in Moldova, when the official  channels stop working then people resort  

To informal relationships like clans and patrons.   A parallel structure planting the seed  for unparalleled amounts of corruption. ## Chaos As a result of all this, the Moldovan people’s  situations did not improve throughout the 1990s. Many economic relief efforts came years too late.  

Inflation would not abate until 1994  when the government introduced a new   currency – the Moldovan Leu. And salary and  pension indexing would not come until 1995. The legislation for the privatization  passed in 1991 but did not start until  

1993 due to political squabbling and a lack of  funds. And much of the execution was bobbled. They distributed shares of state-owned  companies to the workers and the people.   But the companies’ managers had inside knowledge  of what was to be distributed. They either bought  

Shares at obscenely low prices or simply  pilfered the best assets for themselves. The agricultural land redistribution  was similarly botched. Quantitative   statistics might imply it to have been a  success – 1.5 million citizens received   1.7 million hectares of land – but the  reality on the ground is not so certain.

First, it also started late. Most of the  land was distributed in the 1998 to 2000   period. And second, workers received plots  without consideration of the land’s quality   and fertility. One guy might get a plot of grape  vineyard, the other guy rocks on a hill. Sometimes  

Multiple people got the same cow or tractor.  Sometimes the plots were not connected together. And again, “smart” people in-the-know  took advantage of their positions in the   land reform scheme to assemble massive  parcels of fertile land. Just like the   old collective farms of the Soviet age,  but now owned by private individuals.

So all in all, the state privatization  schemes failed to achieve its goals.   It enriched a select group of connected  individuals, creating a class of oligarchs. Meanwhile, the citizens stayed  cripplingly poor. By 1997,   Moldova’s GDP had fallen to just  35% of what it was 10 years earlier.

Over 50% of the population still  lived in poverty – less than $2.15   a day. Many turned to the black market, which  contributed 70% of the country’s livelihood. A 2000 poll found that 91% of the people  were dissatisfied with their lot in life. And by 2005, 20% of the  country’s population emigrated,  

Making personal remittances one of  Moldova’s biggest sources of income. In 2001, BBC reported on the growing  number of Moldovans willing to sell   their kidneys for money. Moldova continues  to deal with a bad organ trafficking issue. ## 2001 So what happens when the people are unhappy?  Things change. But not always for the better.

In 2001, the Communist Party of Moldova  – led by their First Secretary Vladimir   Voronin – surged back into power by winning 49.9%  of the vote and 71 of the 101 seats in Parliament. They won these elections by dodging questions  about their past legacy and playing off the  

Nostalgia of the good old Soviet days – promising  free healthcare and closer ties with Russia. They   remain the only post-Soviet Communist Party to  have recaptured power after the Soviet collapse. Once in power, they consolidated rule  using their strong and disciplined   organizational base – inherited from  their experiences back in the Soviet days.

In his first term, Voronin tried to tilt  the country towards Russia. For instance,   an attempt to expand Russian-language learning in   schools and a potential deal with Putin  to resolve the Transnistrian issue.   However, considerable pushback domestically  and abroad thwarted those plans. During the next presidential elections in 2005,  

Voronin proposed to bring Moldova into the EU.  Moldova back then had about as much a chance   at EU membership as I have at Taylor Swift, but  the platform nevertheless was genuinely popular. The Communist Party won 46.1% of the parliamentary   vote and Voronin assembled a  coalition to stay President.

This was good for Voronin because  power is quite enriching. The 2000s   was a decade of theft and corruption.  Party politicians gradually infiltrated   what was left of the Moldovan economy and  enriched themselves and their families.   Mostly by transferring public  assets over to private hands. Vladimir’s son Oleg headed a business  empire in banking, construction,  

Railway and more. Oleg’s companies  received rich government contracts – over   2,000 in Voronin’s 8 years in power. He  is arguably Moldova’s first billionaire. Voronin also struck good relations with  a businessman named Vladimir Plahotniuc.   Soon Plahotniuc – I am going to  mess up this guy’s name a lot  

But so be it – became one of his closest advisors. Plahotniuc’s background is difficult  to pin down. The son of a teacher,   he first worked as an economist for a  foreign company in 1991-1993. In 1996,   he began exporting wine to Russia.  Five years later, like as you do,  

He became vice chairman of one of  Moldova’s biggest banks – Victoriabank. By the end of the 2000s, Moldova  counted 70 billionaires and their   total wealth accounted for 138% of reported  GDP. Plahotniuc alone was worth $2 billion,   making him the richest man in the country. ## Fall of Communism (Again)

In 2009, the Communists lost power. Again. In April of that year, the country  held parliamentary elections. Polls   showed the Communists winning  49.48% of the vote and 60 seats. But tens of thousands of young  people poured onto the streets,   arguing that the results were rigged. Since  the protests were organized on Twitter – 2  

Years before a similar undertaking in Egypt –  the incident was called the Twitter Revolution. Parliament failed to come to a resolution  and dissolved. Sensing an opportunity,   Plahotniuc and another colleague defected  from the Communist Party to the nominally   European-oriented Democratic Party of Moldova.

He quickly dominated the party despite emerging  completely out of nowhere. The Moldovan media   didn’t even have a photograph of him to run back  in 2010. But with his wealth and resources – the   guy owns his own media company – he rose to  become one of the country’s most powerful leaders.

At the start, the politicians enriched the   businessmen. Now those businessmen  are entering politics themselves. Now why would they do that? ## Uneasy Alliance For the next five years, Plahotniuc  shared power with his coalition partner Vlad Filat, another Moldovan billionaire. He  got rich from illegal trading with Romania  

And then bought state assets while serving  as the State Secretary for Privatization. When the Communists came into power,  Filat founded the Liberal Democratic   Party of Moldova, and resisted their creeping  authoritarianism. Now he served as Prime Minister. Officially, the two are partners.  And they in fact needed each other  

In order to ensure a parliamentary  majority and keep themselves in   power. The two carved up the country’s  government into their own fiefdoms. For instance, Filat controlled the financial  regulators and the Ministry of Economy,   which was in charge of foreign assistance funds.  Plahotniuc solidified control of the judiciary  

And law enforcement. This proved to be the  crucial weapon to bring down his frenemy. ## Theft of the Century It all started when Filat went after Plahotniuc  after news emerged of a December 2012 scandal   during an illegal hunting trip at a  national park called Padurea Dumeneasca.

Various senior members of the judiciary  had attended this hunting trip – again,   illegal. During then a young bystander got shot   and killed. They tried to cover  up the incident but news got out. Filat made his move by moving to force out the   country’s Prosecutor General –  a member of Plahotniuc’s clan.

In response, Plahotniuc launched a  series of “anti-corruption drives”   and the uneasy alliance fell  apart. Filat’s gambit failed   to pay dividends because in November  2014, an even bigger scandal dropped. It came out that three Moldovan  banks were taken over and forced  

To issue nearly $3 billion of bad loans  – about 15% of the country’s entire GDP.   The money was laundered through various shell  companies, ending up in various Latvian banks. When those loans were never paid back –  surprise, surprise – the banks collapsed.   The Moldovan National Central bank  then secretly bailed them out.

To pay for this bailout, the Ministry of Finance  was forced to issue a billion dollars in 25-year   bonds. The Moldovan people will have to pay  for this theft over a quarter of a century. The Moldovan currency devalued by over  40%, causing inflation to explode.

The sophisticated scheme – masterminded  by an Israel-born Moldovan oligarch named   Ilan Shor – was dubbed the “robbery  of the century” in the Moldovan media. Opposition parties called for action. Over 100,000  people protested against corruption – the biggest   such since independence. Shor was arrested  and implicated Filat in exchange for leniency.

Prosecutors stripped the former Prime  Minister Filat of immunity and arrested   him for corruption. The oligarch’s assets  were seized and he was sentenced to prison. With no one left standing in his way,  Plahotniuc consolidated power. He tried   to formally become Prime Minister,  but was rejected by the president  

Who said that the guy did not meet the  necessary criteria of integrity. Ouch. It is a bit poetic that the quintessential  back room power broker – powerful as he   was – can’t make that final step  into the limelight. Fundamentally,  

The man was profoundly disliked with a 95%  disapproval rating and just a 2% trust rating. To get 95% disapproval in such a divided  society, I’m not even mad. That’s amazing. ## Disillusionment Plahotniuc was now the richest  and most powerful man in Moldova,  

With a fortune worth over 30% of  the country’s GDP or $2.2 billion. His clan of family members and close  associates control state owned companies,   financial flows, and 4 out of  the 5 country’s TV stations. By the mid and late-2010s, the Moldovan people  had lost trust in their government. A September  

2016 poll found that 80% of people felt their  country was going in the wrong direction. For three years, Plahotniuc had truly  captured the state, controlling the media,   judiciary and more. He attempted several  times to solidify his power for good,   “reforming” election policies in 2017  to create a shadow voting system.

Plahotniuc’s party is nominally pro-European, but  the oligarch ultimately doesn’t have a particular   ideology that he stands for. For instance, in  2016 he backed Igor Dodon of the pro-Russian   populist Socialist Party as President of Moldova.  So really, Plahotniuc cares for just one thing. ## Fall Then abruptly, he lost it all.

In February 2019, Moldova went to elect a  Parliament and to form a government. Major   winners included the pro-European ACUM  alliance – basically the anti-Plahotniuc   party – Dodon’s pro-Russian Socialist  Party, and Plahotniuc’s Democratic Party. The fourth significant winner was the SOR  Party, which is led by Ilan Shor. Yes,  

The guy who did the billion dollar bank theft. I  think that says something about Moldovan politics. Anyway, no party won an outright majority –  resulting in a hung parliament. This lasted   for a while until somewhat unexpectedly,  ACUM and the Socialists joined forces. This might seem a bit surprising, especially since  

Dodon is pro-Russian and first rose to  power with Plahotniuc’s backing. But it   is said that Dodon’s patrons in Russia  forbade an alliance with Plahotniuc,   afraid of losing their influence over the  Socialist party if such a thing were to happen. So despite their opposite leanings, the  two reluctantly worked together to throw  

Plahotniuc out of power. This strange new  alliance – strangely backed by the EU, US,   and Russia – formed a government in June 2019  with ACUM’s Maia Sandu as its prime minister. Plahotniuc did all he could to  stop this. He literally cut the   power to the Parliament building  the night of the announcement.

Soon after, he had the Constitutional Court  invalidate the government and reinstate the   old one. That was unprecedented and resulted in  two governments vying for power at the same time. After sustained, unified international pressure,   the Constitutional Court reversed  its decision a week after making it,  

Acknowledging their bias. The Democratic Party  gave up power and Plahotniuc fled the country. ## Conclusion Moldova started off with a tough break. The years spent in the Soviet Union left the  country ethnically divided. It struggled to   make it through a three-fold transition – in  governance, economy, and national identity.

These divisions helped bring  an oligarch into power. And   it helped that oligarch capture  the workings of the state for his   own financial gain. It took an entire  nation to come together to evict him. Coming up on five years after Plahotniuc’s fall,  

Moldova remains a profoundly poor and corrupt  society. A lot of time and effort will need to   be invested to reverse the damage from decades  of poorly executed policies and bad people.