Romania Economy Overview

By | November 6, 2021

Like and more than other countries that were part of the so-called “socialist camp”, Romania lived in the last years of the century. XX a radical and dramatic transformation of its economy and only with the beginning of the following century did it resume a significant pace of growth, albeit marred by many inequalities and distortions. Until the moment of the outbreak of the revolution (1989) which overthrew the dictatorship of Ceausescu, Romania, in stark contrast to the foreign policy of decisive autonomy from the USSR was perhaps the Eastern European state in which the traditional Soviet-type economic system was most intact. In fact, having taken the path of an accelerated industrialization of the country since 1945 and specifically of the priority development of the basic industry, Romania had made its own, without ever questioning them, the centralized institutions of the Soviet model, as they were considered the most suitable to allow the rapid success of a radical productive reconversion: it should not be forgotten that until the second post-war period the country – typically Balkan – had remained very backward and with an economy in absolute agricultural prevalence, dominated by a largely parasitic large estate.

The industry, although not entirely absent, was in practice represented by the mining activity thanks to the good mineral resources, especially oil, which the country has; but the exploitation of these riches was exercised by foreign companies which, with an almost colonial regime, generally limited themselves to exporting raw minerals. With the foundation of the People’s Republic the land reform was launched by eliminating the large estates, which arose mostly between the century. XVI and XVIII; in the 1950s, while not completely abolishing private property, the absolute majority of farms were organized in cooperatives, in addition to which large state agricultural enterprises were founded (in 1980 they totaled approximately 5000 and approximately 400 respectively), the latter mainly intended for industrial crops and with a high level of agricultural machinery. But the major government efforts were devoted to the creation of a secure industrial base (industries, as well as mines, transport, communications, foreign trade, telecommunications, banks were naturally nationalized); the economic policy was based on a series of development plans, first annual and starting from 1951 five-year, also clearly of Soviet inspiration. Favored by natural resources, especially energy ones (until the discovery of the colossal fields of the North Sea, divided between the economic policy was based on a series of development plans, first annual and starting from 1951 five-year, also clearly of Soviet inspiration. Favored by natural resources, especially energy ones (until the discovery of the colossal fields of the North Sea, divided between the economic policy was based on a series of development plans, first annual and starting from 1951 five-year, also clearly of Soviet inspiration. Favored by natural resources, especially energy ones (until the discovery of the colossal fields of the North Sea, divided between Great Britain and Norway, Romania was the only major European oil producer, excluding the USSR), the country could have a considerable industrial apparatus with a clear prevalence of heavy industry, considered the undisputed starting point for further production developments (for some time, however, the country had understood the need to also incentivize an adequate industry supplying consumer goods). Those sectors that could make use of national resources (chemical and petrochemical, energy, construction, food, etc.) were initially strengthened, as well as those, such as metallurgical and the metalworker, based on imported raw materials, but equally fundamental for the economic progress of the country. And indeed this choice gave excellent results: the Romanian economic “miracle” allowed in the sixties of the century. XX an annual increase in national income of over 9%, with an increase rate for the industry of over 14%, among the highest in the world. Self-sufficient in terms of energy until 1976, Romania remained practically unscathed in the world economic storm of 1973-74, which also caused very serious crises for the economic structures of many other highly industrialized states; it then almost entirely achieved the objectives of the 1976-80 development plan, which planned a rate of increase in industrial production of approx. 10% per year. fuels – and an ever-increasing foreign debt, which reached a record 10 billion dollars in 1981.

According to programingplease, the Eighties were thus transformed into years of crisis for Romania: the Ceausescu regime – which in the meantime had entered a spiral of international isolation – therefore decided on a drastic change of policy, with the aim of canceling the debt at any cost. All imports were then cut to the extreme, while it was destined for export any national production, agricultural, mining or industrial, which is salable. In a decade this drastic choice caused a real collapse of the economy and of the population’s standard of living: in fact, the internal energy resources were not sufficient to support industrial production and the needs of the residents (starting from winter heating); agriculture in turn, despite a certain shift in its favor of resources previously destined for industry, was unable to cover both exports and domestic food needs, so all consumption, including the most basic ones (flour, milk, meat) were severely rationed; social services also suffered severe blows and finally industry itself, in the absence of investment, it decayed rapidly and found it increasingly difficult to compete with its products on international markets. This strangulation actually allowed Romania, in the space of seven years, to halve the foreign debt: but it was also the crucial element in determining a deep discontent of the greater part of the population and of large sectors of the communist ruling class, discontent that it would later lead to the overthrow of Ceausescu. During the first years of the transition to a market economy, the Romanian economy suffered the repercussions deriving from insufficient progress in microeconomic reforms and the inconsistency of structural reconversion, exacerbated by the disintegration of the network of commercial relations (with the COMECON and with the Yugoslav Federation) which caused a drastic reduction in exports starting from 1991. In 1993 the level of Romanian exports was half of that of 1989; in the same period the GDP also fell by 25%, mainly due to the collapse of industrial production, while inflation remained at very high levels, close to 200% per year. The first privatization program initiated by the government, and based on a mixed system (the 6,000 largest state-owned companies had to be sold for a third to a popular shareholder and the remaining two thirds to private companies) did not bring immediate improvements and the bulk of the companies he continued to live mainly on state subsidies; even the agrarian reform, which in the nineties had returned to the owners of the past or to their heirs the lands expropriated at the beginning of the communist regime, initially caused a decline in agricultural production, since many of the “new” owners were unable to take care of the land received.

Between 1993 and 1994, however, some positive signs emerged that indicated a significant change in the general picture of the economy: for the first time, since 1988, there was an increase, albeit minimal, of the GDP. At the end of 1994, the pressure of inflation dropped significantly (62%) and exports started to rise again. By virtue of these results, which had already been outlined in the first half of the year, the International Monetary Fund granted Romania a $ 720 million loan (May 1994), as part of a broader agreement, the most important elements of which were the imposition of a restrictive monetary policy, a prudent fiscal policy and an acceleration of structural reforms, including privatizations. In 1995, however, only 8% of the capital of the 6,000 enterprises for which privatization was planned was actually owned by private individuals and, overall, the private sector affected industrial production only to the extent of 14%. Its influence was greater in the tertiary sector (44%) and even more in agriculture (80%); however, the difficulties in accessing credit, the scarce mechanization and above all the persistent uncertainty about the formal titles of ownership of the land still made the development of this sector very slow, despite some good weather years. Overall, the 1995 GDP recorded an increase of 6.9%, one of the most significant at the European level, with a strong appreciation of the national currency and a parallel growth in imports; on this basis, the government launched a new program of liberalizing reforms which nevertheless had a negative result: GDP in 1996 registered a growth of 4%, which the following year became a loss of 6.6%, in 1998 of 7.3 % and in 1999 by 4.5%; the complete liberalization of prices also led to a rise in inflation, up to 50% per annum in 1999. Only in the course of 2000 was there a new stabilization, and the main economic indicators returned positive, with an average annual growth exceeding 5% for the entire period 2000-2005 (annual change in GDP in 2003 4.7%), accompanied by a progressive decline in inflation (reduced to 7% in 2005, compared to 15.1% in 2003) and unemployment (6.6% in 2003). Meanwhile, with intense diplomatic activity, Romania first obtained accession to the Central European Free Trade Agreement (Poland, the Czech Republic, Slovakia, Slovenia and Hungary were already members) and then, after a long negotiation concluded in 2002, the acceptance of the application for EU membership, scheduled for January 2007. Even international investments, that the Bucharest government had already tried to attract with the first reforms of 1990, began to grow after a long period of uncertainty and in 2005 exceeded 10 billion euros: a fundamental role played in this (as in general in the economic recovery of the country) having become, due to its political and social conditions (very low cost of labor, and its high qualification; very low tax burden on companies, few trade union ties, etc.) one of the main goals of industrial decentralization carried out over the years Ninety in many Western European countries, including Italy. However, it should be noted that the strong economic growth recorded by Romania with the beginning of the century. XXI did not translate into a parallel improvement in the living conditions of the population, a quarter of which lived below the official poverty level in 2004. In 2005, average wages were still among the lowest on the continent (€ 285 gross), with public services and welfare in bad conditions, while corruption in the public administration continued to be indicated as one of the most serious handicaps to full European integration.

Romania Economy Overview