Download The Evolution of Post – Communist Romania

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The Evolution of Post – Communist Romania
Elena Druică1)
University of Bucharest, Professor
At the end of 1989 Romania was the last Eastern European Country to begin the
transition to a free market economy. Political and economic transition in the
rest of communist Eastern Europe had begun much earlier, with Hungary and
Poland engaging in meaningful and gradual economic and political reforms. In
the fall of 1989, the die-hard communist regimes of Czechoslovakia and of the
German Democratic Republic collapsed. After the fall of the Berlin Wall on
November 9, 1989, the regime of Nicolae Ceausescu remained the last Stalinist
rampart of the Warsaw Pact. By December 23 1989, however, it too had
collapsed amid massive social protests and political confusion that led to
bloodshed and devastation.
In 1990, Romania was one of the poorest European countries2). The forced
industrialization
process that began
in
the
early 1960s generated
serious
structural problems. Although industrial production had grown tremendously
during the communist regime, it was not sustainable. It required massive
investments in obsolete industries, using obsolete technologies to produce
low-quality products destined to flood Western markets in an attempt to
generate the much sough-after hard currency. It drained the natural resources
of the country, it produced massive pollution and it left the population in a
permanent state of near-starvation. To get a better idea of the situation, it is
fair to say that to some extent, the policies of the Communist regime were
partially inspired by the economic, political, and cultural example of North
Korea, who in the early 1970 became a source of admiration and envy for the
late dictator Nicolae Ceausescu (Kim, 2013). Fortunately for the Romanian
people, communism in Romania was never willing nor able to achieve the same
1)
2)
The opinions expressed in this document, as well as all remaining mistakes, are of the author alone and do not
represent the opinion of the University of Bucharest.
World Bank data shows that GDP per capita expressed in current US$ in Romania was $1,650.7 in 1990.
http://data.worldbank.org/indicator/NY.GDP.PCAP.CD
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degree of despotism and political indoctrination.
When transition began in the early 1990s it proved to be painfully slow and
incredibly confusing. The lack of political transparency and stability played a
major role in delaying meaningful reforms early on (Dimitrova & Dragneva,
2001; Racovita, 2011). After years of poverty and lack of hope, the population
wanted stability and the perspective of the shock therapy was too much to bear.
Privatization proved to be one of the most significant challenges because the
economy, nominally owned and controlled by the government, would not and
could not function in the absence of the ruthless and overbearing iron fist.
The 1990s were characterized by declining industrial output, declining exports,
declining productivity, high inflation, and recurrent financial blockages that put
tremendous pressure on the government budget and the few emerging healthy
enterprises. Imports of consumer goods skyrocketed in order to pacify the
population and compensate for the excesses of the previous regime, leading to
government deficits and unsustainable levels of foreign debt.
In 1996, a shift of political regime to the right promised significant economic
reform and a speedier privatization, but its efforts faltered. Between 1996 and
2000, Romania did not do much better economically than in the first phase of
the transition, and continued to lag behind other Eastern European countries,
such as Hungary, Poland, and the Czech Republic. Political scandals and
controversies alternated with economic and financial crises. Nevertheless, it
became clear that the reforms entailed at the beginning of the decade were
irreversible and their influence was slowly becoming noticed. The only country
that experienced a very similar transition in the 1990s was neighboring Bulgaria,
also
relatively
impoverished
and
stagnant.
Both
Romania
and
Bulgaria
experienced economic hardship and inflation, however, inflation in Bulgaria was
much more severe and devastating than it has ever been in Romania.
Economic and political stabilization did not occur in earnest until after 2000.
Although contrived and hesitant, reforms began to produce results. Relative to
the early 1990s, the Romanian economy began to strengthen. By the time
Romania
gained
EU
membership,
gross
domestic
product
increased tenfold in terms of current US dollars, from a low of
per
capita
had
$1,100 in 1992
to a high of $10,130 in 20083). The sub-prime financial meltdown reached
Romania with some delay, and its impact, although significant, appears to have
been proportionally less severe than in other countries, such as the United
States, UK and Iceland. After all, ever since the communist period, Romania was
a country in a perpetual economic downturn, and the terrible economic shock
felt in Western Europe and North America seemed less dramatic in Eastern
3)
Author’s calculation using World Bank data
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Europe. Of all former communist countries, Poland was best able to weather the
storm, becoming one of the most dynamic European economies4).
The pace of economic and political reforms accelerated substantially in the first
decade of the new millennium. With a new goal on the horizon and a firm
deadline, successive Romanian governments were able to implement meaningful
changes in order to ensure EU membership. While neighboring Bulgaria was still
reeling from the effects of a devastating period of hyperinflation, the National
Bank or Romania was finally able to tame the runaway increase in prices. A
sweeping monetary reform was introduced in 2005 and the Romanian currency
gained some much-needed stability.
After a failed attempt in 1997, Romania was finally admitted in NATO in 2004
and this proved to stimulate more fervor and optimism with respect to the goal
of achieving full European integration. Romania and Bulgaria managed to accede
to the European Union in 2007. Croatia was the last country to gain EU
membership in 20135), and it remains unclear whether and when the EU will
proceed with another enlargement in the near or more distant future. It is
certain, however, that the accession process gave a boost to the embattled
Romanian economy.
During the last two years, Romanian industrial production remained sluggish,
but in spite of a global economic slowdown, particularly in China, it has not
contracted yet. There are signs, however, that even the existing modest growth
is about to evaporate; there are some worrisome indications that exports are
slowing down and consumer confidence is declining6). Romania has an economy
that relies to a good extent on foreign markets as exports represent about 40%
of the GDP at the end of 2015. Internal demand is not sufficient to fuel
economic expansion, and just like many other smaller economies, growth is tied
to mood swings in international markets.
Although the country is still lagging behind economically when compared to
other EU members such as UK, Italy, and France, the public finances of
Romania are nevertheless in a better shape. Gross government debt hovers
around 40% of GDP, still well bellow the EU average, at about 70 %. When
taking into account the government's financial claims, the net debt is only 32%
of GDP, and foreign currency reserves stand at 4.6% of GDP at the end of 2015.
It is estimated that foreign debt represents only one third of total public debt,
and of this, another third represents US dollar denominated government bonds.
4)
5)
6)
Piatkowski, Marcin (2015), Four ways Poland’s state bank helped it avoid recession, | June 12, 2015 9:00am
http://www.brookings.edu/blogs/future-development/posts/2015/06/12-poland-financial-crisis-pia
tkowski
http://europa.eu/about-eu/countries/member-countries/
http://www.economistul.ro/barometrul-industriei-irsop-amp-snspa-facultatea-de-management-s1290/
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Although Romania is faring better than the average when it comes to public
finances, there is a concern among Romanian economists and commentators
that the burden of public debt would become critical if it grows above 45% of
GDP7).
The most delicate issues negotiated between Romania and the European Europe
prior
to
the
2007
accession
were
social
reforms,
political
stability,
and
corruption. The government has moved swiftly in the direction of harmonizing
social policies with those of the more developed member nations. The internal
political situation, although relatively stable, has proven acrimonious and ridden
with bitter power struggles. To make things more complicated, Romania adopted
in 1991 a presidential system fashioned after that of France. This meant that the
usual two-way political disputes between the executive and the legislative
acquired a whole new extra-dimension. The president is claiming his own
specific
prerogatives,
making
the
political
decision-making
process
more
cumbersome. As a result, the National Assembly, the Government, and the
President are frequently locking horns amid mutual accusations and political
posturing, creating confusion, frustration, and disillusionment among voters. The
latest presidential elections in 2015 produced a president who is a member of
the small German minority from Transylvania. Klaus Iohannis won the elections
on a political platform that makes the fight against corruption one of the
central political pillars of the new administration. Romania had for sometime a
less than enviable reputation for endemic corruption, and Romanians need not
read international rankings to be reminded of this problem. The public mood
and the political discourse on this topic is fierce and uncompromising. For a
society with a low level of social trust and tolerance, this national obsession is
about to turn into a veritable witch-hunt. While the perception of corruption is
indeed poignant, it is not clear if in reality it is as widespread as claimed by all
political sides in the debate. No doubt, corruption is a troublesome reality, but
Romania is a country with a byzantine bureaucratic apparatus that imposes
tremendous costs and inefficiencies on almost every economic and political
process. In a paradoxical sort of way, the more bureaucratic safeguards are put
in place to ensure fairness, the more costs are imposed on an already
frustrated population. One of the major challenges that lie ahead is to replenish
the stock of social capital so that social trust will engender more cooperation
and goodwill across the nation. In spite of a large initial handicap, Romania has
made substantial progress since 1990. Its economy has recovered, prices have
7)
http://www.economistul.ro/la-cumpana-anilor-2015-2016-datoria-publica-tema-de-controverse-perpetue-si-sol
utii-acceptate-tacit-de-toata-lumea-a8340/
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stabilized, democracy is surviving, and the standard of living is inching higher,
slowly closing the gap that separates it from the more prosperous European
countries. Much remains to be done, and only time will tell if Romanians will be
able to muster the social and material resources needed to maintain the
momentum.
[참고문헌]
1. Dimitrova A., Dragneva A. (2001) Bulgaria's road to the European Union: Progress,
problems and perspectives, in Perspectives on European Politics and Society 2 (1), 79-104
2. Kim, Yvonne (2013), Romania-Korea Relations: A Case Study in Foreign Policy Change
(22 Nov. 2013),
http://asiasociety.org/korea/romania-korea-relations-case-study-foreign-policy-change,retrievedonJan
uary15,2016
3. Piatkowski, Marcin (2015), Four ways Poland’s state bank helped it avoid recession, June
12, 2015 9:00am
http://www.brookings.edu/blogs/future-development/posts/2015/06/12-poland-financial-crisis-piatko
wskiretrievedonJanuary17,2016
4. Racovita M., (2011) Europeanization and Effective Democracy in Romania and Bulgaria, in
Romanian Journal of Political Science, Vol 11 - No 1 – 2011
5. The Industry Barometer, IRSOP & SNSPA, Faculty of Management, ECONOMISTUL
INFO, 2015-12-22 09:15,
http://www.economistul.ro/barometrul-industriei-irsop-amp-snspa-facultatea-de-management-s1290/(
publishedinRomanian;retrievedJanuary9,2016)
6. The public debt: never-ending controversies and tacit solutions, ECONOMISTUL Nr. 49 50, 2015-12-14,
http://www.economistul.ro/la-cumpana-anilor-2015-2016-datoria-publica-tema-de-controverse-perpet
ue-si-solutii-acceptate-tacit-de-toata-lumea-a8340/ (published in Romanian; retrieved January 9,
2016)
World Bank Data:
http://data.worldbank.org/indicator
Other online sources
EU member countries:
http://europa.eu/about-eu/countries/member-countries/,retrievedJanuary15,2016
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Date: 2016.01.20
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