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					FISCAL DECENTRALIZATION INITIATIVE IN MOLDOVA Soros Foundation-Moldova Public Administration and Good Governance Program Rodica Nosko – Program Director The launching of a comprehensive project on Fiscal Decentralization and Local Financial Autonomy in the Republic of Moldova is an important initiative of the Public Administration and Good Governance Program of the Soros Foundation – Moldova. The implementation of the FD Project in Moldova started in 2004. The Public Administration and Good Governance Program initiated negotiations with FDI, Moldovan Ministry of Finance and local NGOs. Consequently, Moldova was involved in several types of activities and projects on fiscal decentralization issues. In this context, a NGOs’ Coalition for Fiscal Decentralization, which participated in the implementation of these projects, was created. The Coalition includes 3 organizations – the Business Consulting Institute, CASE Moldova and CASI Counterpart. The FD projects in Moldova were financed mainly by FDI OSI/LGI Budapest and Soros Foundation-Moldova with the participation of other local donors for specific activities. 1. 2. 3. 4. 5. 6. • • • • • • • The FD Project in Moldova has the following components: development of a report on fiscal decentralization situation in Moldova (2004) organization of roundtable discussions with all the main stakeholders (2005) participation in FDI regional forums (2004-2005) technical assistance to the Moldovan Ministry of Finance (2005-2006) organization of the FD Forum in Moldova (2006) post-Forum activities and dissemination (2006) The main partners who participated during the whole project period are: FDI OSI/LGI Budapest (financial support for FD Forum and TA MoF Project) Ministry of Finance of Moldova (participation in roundtable discussions, FD Forum, implementation of TA MoF Project, post-Forum activities and dissemination) Parliament of the Republic of Moldova (roundtable discussions, FD Forum, postForum activities) NGOs’ Coalition for FD (Business Consulting Institute, CASE Moldova and Counterpart) (the implementing group of NGOs, participated from the beginning) Local independent experts (participated in all events organized from 2004 till present) Center for Fiscal Policy, Russia (cooperated with the NGOs’ Coalition during the Forum preparation stage, participation in one roundtable discussion, FD Forum, TA MoF Project) Local Government Associations (participated in all events)

Other partners and local donors participated for specific activities as specified below: • Economic Growth and Poverty Reduction Strategy (EGPRS) Participation Council Secretariat (co-financed 2 roundtable discussions) • Ministry of Local Public Administration (started to participate in FD events from the period it was created - June 2006)

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Local Government Reform Project (USAID) (participated in roundtables, cofinanced the FD Forum) UNDP (co-financed the FD Forum)

The close cooperation between FDI and Soros Foundation-Moldova was focused on the following types of activities: • Forming groups of experts for participation in FDI regional forums • Conducting a needs assessment in the field of fiscal decentralization in Moldova in January 2005, including visits to the Ministry of Finance, the Parliament, active NGOs • Providing technical assistance to the Ministry of Finance of Moldova • Organizing the Forum for Fiscal Decentralization in Moldova • Organizing FDI visits to Moldova • Organizing visits to Moldova for the staff of the Center for Fiscal Policy – TA MoF project’s external consultant The History of the FD Project in Moldova: Between 2004 – 2005, Moldovan groups participated and presented reports in three FDI Regional Forums: • “Reforming Fiscal Equalization in South East Europe”, Belgrad, Serbia, 19 - 20 November, 2004 • „Financing Public Education”, Sofia, Bulgaria, March 21-22, 2005 • “Regional Development and Fiscal Decentralization”, Tirana, Albania, December 1 – 2, 2005 The Soros Foundation-Moldova contributed to the selection of mixed groups of representatives from the Ministry of Finance, active NGOs, academics and the Parliament for the participation in regional forums organized by FDI OSI/LGI. During the Belgrad Regional Forum, Moldovan MoF representative requested technical assistance from FDI. The request was based on the need to reform the intergovernmental transfers system in Moldova. FDI conducted a needs assessment in Moldova in January 2005. The Soros Foundation- Moldova provided assistance in organization of meetings with main stakeholders – the Ministry of Finance, NGOs’ Coalition, the Parliament and local independent experts. Following the needs assessment, FDI developed the terms of reference for a technical assistance project to the Moldovan MoF and explored the necessity to finance the organization of a FD Forum in Moldova by the NGOs’ Coalition. FDI approved in April 2005 financial support for the TA MoF project on “Reform of Intergovernmental Transfers in Moldova” and FD Forum organization. The implementation of the components of the FD Project in Moldova 2004 – Implementation of the "Polish Experience on Fiscal Decentralization: Lessons for Moldova“ project developed by the Center for Social and Economic Research (CASE Moldova and CASE Poland), financed by the Soros Foundation – Moldova and the Polish Ministry of Foreign Affairs. A comprehensive report on the fiscal decentralization situation in Moldova was developed and then presented at one of the roundtables, serving as a starting point for other activities in the FD field.

2005 – In order to consolidate the capacities and to create the communication and collaboration framework for local experts, six roundtables were organized on various issues related to fiscal decentralization and financial autonomy. The roundtables raised a great interest of representatives of many governmental and non-governmental organizations. Roundtable discussions were financed by SFM Public Administration and Good Governance Program and organized in close cooperation with the NGOs’ Coalition for FD and the Ministry of Finance. The roundtables were focused on the following topics: • “Fiscal Decentralization: Poland’s Experience and Lessons for Moldova” organized on April 8 (38 participants) • “Fiscal Framework Title VII: Local Taxes and Their Role in Consolidation of Local Budgets”, organized on April 21 (28 participants) • “Local Economic Development in the Context of FD: Challenges and Opportunities”, organized on May 25 (31 participants) • “Regional Development in the Context of FD: Models, Issues and Opportunities”, organized on July 01 (50 participants) • “FD and Financial Autonomy in Moldova: Challenges, Opportunities and Solutions” with the participation of CFP experts, organized on November 08 (31 participants). • “Medium-Term Expenditures Framework: Achievements, Problems and Opportunities” organized on November 16 (31 participants ) A total of 209 participants joined the roundtable discussions • Two of the roundtables were co-financed by the Economic Growth and Poverty Reduction Strategy (EGPRS) Participation Council Secretariat. In order to monitor the project implementation and to ensure wide participation of all involved partners and transparency of decision making, a Steering Committee (SC) was created. The SC consists of representatives from all interested stakeholders – Ministry of Finance, Ministry of Economy, Parliamentary Committees, LGs and NGOs’ representatives, academics and independent experts. Five meetings of the Steering Committee were organized throughout the project implementation process. An Editorial Board was created to ensure the high quality of developed papers. The EB consists of MoF representatives, NGOs’ Coalition, academics, independent experts, other active NGOs representatives. The EB members are also members of the Steering Committee. Eight meetings were organized throughout the project period. The Technical Assistance to MoF on “Reforming the system of intergovernmental transfers in Moldova” has the goal of developing a new system of direct transfers from the state budget to the first and second levels of LG. The implementation of the TA project started in 2005. The TA MoF project is financed mainly by FDI and co-financed by Soros Foundation-Moldova (a grant for one local expert). A very important achievement in the process of collaboration between the governmental and non-governmental sectors was the signing of a Memorandum of Understanding between the Ministry of Finance, OSI/LGI Budapest and the Soros Foundation-Moldova, which stipulates the responsibilities of the parties in the FD project implementation process.

The project is implemented by a local team of experts nominated by the MoF (3 MoF experts and 2 independent experts) in close cooperation with the project external consultant – the Center for Fiscal Policy from Russia. FDI has had a very important role during the project preliminary phase and throughout its implementation: • The FDI carried out the needs assessment in Moldova • As a needs assessment follow-up, the FDI developed the ToR for TA MoF Project based on the MoF request. The ToR was approved by the Moldovan MoF • The FDI facilitated negotiations with the MoF • The FDI selected the external consultant for the TA project – Center for Fiscal Policy from Russia • The FDI organized a study visit for the Moldovan MoF team to the Hungarian MoF • The FDI participated in March 2006 at the FD Forum in Moldova SFM cooperated closely with FDI in the process of project preparation and implementation. The Soros Foundation Moldova: • Participated with the FDI at the needs assessment • Negotiated with the MoF regarding the project implementation • Created the framework for public discussions • Proposed to sign a Memorandum of Understanding in order to establish the responsibilities of involved parties • Contributed to the organization of working visits of external consultants and FDI representatives to Moldova • Contributed to the organization of a visit to the Hungarian MoF • Organized a two-day training for the MoF staff and local experts provided by Center for Fiscal Policy within the TA Project • Facilitated the communication between the MoF and the FDI, the MoF and the CFP • Co-financed the TA Project by awarding a grant to one local expert Another project component was the organization of the National Forum for Fiscal Decentralization and Local Financial Autonomy. FD Forum in Moldova was funded by FDI and Soros Foundation-Moldova. The organization of the Forum was the responsibility of the NGOs’ Coalition for Fiscal Decentralization. The Ministry of Finance, a number of governmental and non-governmental institutions, donors, local and international experts participated in the Forum. The Soros Foundation- Moldova awarded grants for the development of 10 independent studies which addressed various aspects of fiscal decentralization and local financial autonomy. They included the analysis of the current situation and offered recommendations for public policies. The results of the studies were presented at the Forum within several workshops. On 9-10 March 2006, at the Palace of the Republic the National Forum was held, bringing together over 180 representatives of the Parliament, Government, Ministry of Finance and other ministries and state institutions, international organizations, 1 st and 2nd level local public governmental authorities, academics, nongovernmental organizations, mass media. The Forum Program raised wide participation and interest due to its complex content and structure. The discussions were organized according to several types of activities:  plenary sessions  workshops

Presentation, discussion and signing of the Memorandum regarding the strengthening of local autonomy in the Republic of Moldova. Several international experts joined the FD Forum. International experience in the field of FD was presented during the plenary session. Ginka Tchavdarova from the National Association of Municipalities of the Republic of Bulgaria participated with the report “Reforms in the field of decentralization: experience of local authorities in Bulgaria”. Wojciech Marchlewski form the Association of Rural Communities from Poland presented the report on “Principles of local fiscal decentralization: Polish experiences”. Casandra Bischoff from the World Bank Office in Romania had a speech on “Current approaches to decentralization of administrative and financial competencies”. Galina Kurliandskaya, the director of the Center for Fiscal Policy, Russia, who is the external consultant of the TA MoF project presented two reports: 1. “Budgetary equalization in the conditions of fiscal decentralization” during the plenary session and 2. “Intergovernmental relations in Moldova: stimulating financial autonomy of local public authorities” within one of the workshops. The discussions in workshops and working groups were focused on the following issues: 1. Financial autonomy and the intergovernmental relations system 2. Local economic development in the framework of fiscal decentralization 3. Local autonomy and ensuring social services 4. Decentralization of public services and patrimonial aspects of local autonomy • • • • The titles of papers presented during the FD Forum are: Estimation of the Economic and Financial Effects of the National Policies and Their Impact on Local Financial Autonomy, Angela SECRIERU Decentralization of Public Services and Consolidation of Local Autonomy, Eugenia CIUMAC, Alexandru BOTOŞANU Fiscal Decentralization in Central and East European Countries: Comparative Study and Recommendations for Moldova in the Context of European Integration, Cristina CHIRIAC, Ala CÎŞLARU, Andrei PETROIA Analysis of the Evolution/Devolution of Public Policies and of the Legal Framework Regarding Local Autonomy and Fiscal Decentralization and the Development of Recommendations in the Field for Decision Makers, Ion CREANGĂ, Alexandru ARMEANIC Equalization of Budget Revenues Based on the New Calculation Method of Specific (normative) Expenditures, Tatiana MANOLE Sustainable Financial Autonomy – the Main Premise for Economic Development of Local Governments, Eugen HRISTEV, Iurie ŢAP Public Services Decentralization and Administrative Autonomy, Maria ORLOV, Liliana BELECCIU Social Assistance and Support in the Context of Local Autonomy and Fiscal Decentralization: Problems and Solutions, Eugenia VEVERIŢĂ Defining Development Regions and Disadvantaged Areas, Mihail ROŞCOVAN, Lilian GALER Patrimonial Aspects of Local Autonomy in Moldova: Current Situation and Solutions, Viorel FURDUI


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Duane Beard, Director of the Local Government Reform Project, USAID, presented a report on “Positive Impacts of an « Ad Valorem” Property Tax at the Community Level »

The MoF informed about their TA Project: • Marina Batan, MoF Project supervisor informed the forum about the initiation, goals, and content of the project • Galina Kurliandskaya, presented two reports on international experience and the project in Moldova • Mihai Perebinos, one of the independent experts, spoke about LG competences in the context of local public finance As the result of discussions, there were developed a series of recommendations that were further developed in the post-Forum stage and that became a component part of the Moldova Fiscal Decentralization Strategic Concept. The sustainability of the whole process was ensured by the Soros FoundationMoldova through funding a new project for post-Forum activities, implemented by the NGOs’ Coalition (regional – mini-forums, dissemination etc) and approval of the TA project’s second phase on reforming intergovernmental transfers, which will be implemented by the Center for Fiscal Policy, Russia, in close cooperation with the Moldovan MoF. The OSI/LGI Budapest will administrate the grant awarded to CFP. FD Forum – additional activities and dissemination In order to make the process transparent and to ensure wide participation in the process of the Forum organization, preparation, during and post Forum, the NGOs’ Coalition carried out different types of activities: • Three regional seminars before the Forum organization • Eight regional mini-forums for dissemination of results and discussion of Forum recommendations • Over 10 presentations on the TV and national radio • Over 15 publications and press-releases in mass-media • Working meetings with MoF staff – at least 10. The working meetings with MoF were organized mainly by the Soros Foundation-Moldova in cooperation with the Coalition • One public debate which was organized by the Coalition in close cooperation with the Ministry of Local Public Administration The implementation of the FDI Project in Moldova has had a great impact on the whole society, on the main stakeholders and the overall situation in the field. The following outcomes can be pointed out: The MoF became more cooperative in relationship with various nongovernmental stakeholders, welcomed cooperation with NGOs, and proposed monthly joint working sessions The project made possible the cooperation between the MoF, the academics and NGOs The MoF staff is requesting assistance of NGOs representatives during its routine work The MoF staff continues to participate in all events organized by NGOs in the FD field The MoF provides space for common meetings with the NGO Coalition and independent experts

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The Project will help the MoF in developing the new draft version of the Law on Local Public Finances before the end of this year Wide participation of MoF representatives during both days of the Forum – it has been commended by foreign experts, donors, the Parliament and other participants Some experts mentioned that the Forum was a professional event with no political affiliation unlike many others Participation of all main Associations of Local Authorities - Association of Mayors and Local Collectivises from RM, League of Mayors Association of RM, Association of District Presidents and Councillors of RM, Association of Mayors from TAU Gagauzia. The President Apparatus was interested in the FD Forum and sent its representative Increased collaboration between all participants. Organizations which never cooperated before started to work together. USAID, UNDP, World Bank representatives participated during the Forum and commended the high importance of the event for Moldova The Parliament took the initiative to develop a new draft Law on the Decentralization process in Moldova. The need to develop such a law was discussed for the first time during the Forum Three working groups were created to continue the work on the Forum recommendations The Coalition consolidated the local expert community A participatory mechanism was developed (Steering Committee and Editorial Board) The partnership between governmental and non-governmental organizations is established The MoF and the civil society became familiar with international practices in the field of FD

FD Project in Moldova - results • A new reform in the field of public administration is initiated by the Parliament – the Law on Decentralization, the Law on Local Public Administration and amendments to the Law on Local Public Finances were approved in the first reading • The edition „Fiscal Decentralization: challenges for Republic of Moldova” which consists of all studies and reports presented during the Forum is published • The concept for the Strategy for fiscal decentralization has been developed and discussed during a public debate organized with the MoF, Ministry of LG, the Parliament, NGOs and academics • 150 participants were invited to join the Forum, but over 180 participated • 43 organizations and institutions of LPA and the civil society, which represents approximately one third of the total number of participants to the Forum, have signed the Memorandum regarding the strengthening of local autonomy in the Republic of Moldova and created the Coalition for Fiscal Decentralization • Over 60 recommendations on amendments of the legal framework on fiscal decentralization are developed and sent to the Parliament, Ministry of Finance and Ministry of Local Governments • Proposals to modify the legal framework in the field of local autonomy consolidation are developed

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The Steering Committee and Editorial Group of the Project – consultativerepresentative structures which activate on consensus base - are created Six round tables for debates on major problems faced by fiscal decentralization, organized by the PAGG Program in partnership with the Coalition and MoF (about 200 participants: experts, representatives of central and local authorities, NGOs) 10 studies in the field of fiscal decentralizations have been developed 40 national and foreign experts were involved Two regional seminars and eight regional mini-forums with over 300 participants have been organised Mass-media campaign unfolded The project web page is launched

During the implementation of the FD Project in Moldova we faced some difficulties, which delayed the implementation and required more time and efforts to solve them. • In 2005 Moldova had Parliamentary elections, and the Chisinau municipality had four rounds of local elections. In this context, the former Minister of Finance was involved in the election campaign and was out of the office for four months. This period was inefficient for any cooperation with the Ministry, and thus delayed the whole project • The local team of tge TA MoF Project consists of three MoF officials (the MoF insisted on having three officials on the team) and two independent experts. The MoF staff does not have the necessary expertise to develop complete analytical papers and therefore the process was lengthier and involved extensive effort from external consultants in order to complete the reports • The MoF is not transparent enough (the Ministry was not willing to provide information on the status of the project) • Due to MoF staff’s limited e-communication skills, SFM had to provide additional assistance in order to facilitate data exchange among donors, external consultants, and the NGOs’ Coalition • The MoF wanted to create the impression that they have overall control over any activity and to be permanently informed about every step • The Forum was postponed three times from September 2005 to November, then to February 2006 and finally to March 2006 • The Ministry of Finance tried to refuse the presentation on the TA MoF project during the Forum. It took a lot of efforts and time to make them realize that a public discussion would be useful for the project • Local NGOs do not have the practice of working together on the implementation of one project, so it took a long time to develop common principles of work • Active NGOs specialized in the field are usually involved in more than one project at the same time FD Project in Moldova – lessons learned • It was very difficult to launch and implement activities when the country was in the pre-election and right after election periods • Participation mechanisms should be carefully developed and planned before launching an initiative • Establishment of partnerships in every participatory process needs time and efforts from all stakeholders

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A neutral facilitator is needed for a successful policy dialogue Partnership building needs well-informed actors Communication strategies are necessary for a greater impact The consolidation of efforts are needed for better and successful promotion of changes and improvements in the field of LG and decentralization It is necessary to build upon capacities of local experts and to develop their abilities for cooperation in groups It is needed to have excellent communication and conflict-management skills to be able to get over frictions, which can appear because of excessive politic affiliation of all involved actors The cooperation with state institutions has some risks – they would like to have control over any activity and to be permanently informed about every step

FD Project in Moldova – further needs The FD project had its results and impact because it was consisted from a set of complementary activities carried out for almost three years by a group of organizations. The Soros Foundation-Moldova tried to involve all relevant stakeholders and partners who are interested in this field and have capacities and willingness to work in teams for a better result. It is obvious that it is necessary to continue the activities and projects in this field through different types of support: • Consolidation of local capacities and expertise through continuing participation in regional events • Exchange visits between countries that implemented similar projects within FDI • Trainings for the MoF and the Parliamentarian Commissions on mechanisms of cooperation with civil society in the field of FD, mechanisms for reform implementation, coordination of efforts • Mentoring program for governmental institutions in the field of PA and FD • To study mechanisms for legislation adjustment in the field of public administration and local public finances • Foreign expertise in the field of PA reform and adjustment to EU standards • Assistance to the MoF in implementation of the newly developed system of intergovernmental transfers