Romania’s Transition to Market Capitalism

by Michael Rhodes

With less than 23 million people living in the country, Romania has the second largest population among the East European transition economies, though it is only fourth in terms of dollar GDP.  During the first six years of post-Communist rule, the economic policy has easily been diversified between all the demands it must meet it its role as “multilateral lenders” and Western trade partners in which it must privatize.  Additionally it must still stabilize its fiscal policy, and figure out how to manage its labor unions without Communism.  The Romanian government was also receiving growing pressure from the IMF and the World Bank to increase its structural reforms.  Finally, in 1994, the IMF approved an agreement allotting Romania 720 million dollars in stand-by and “Structural Transition Facility” funds for over 18 months.  However, this endowment came with strict conditions they had to oblige in their budget and fiscal policies.  Thus, Romania’s inflation rate fell from 300% in 1993 to a dramatically lower 28% in 1995.  The decreasing input was also reversed and in the GDP grew by 1.3% in 1993 and 3.9% in 1994 and, subsequently, all the way to 7.1% in 1995.  By the end of 1995, with the beginning of large-scale privatization, such legislation as bankruptcy laws, energy price increases, and even the opening of a stock market Romania was able to cement its agreements with the World Bank and IMF.  After a GDP growth of 4.1% in 1996, the trend was quickly reversed in 1997 with a decrease in the GDP to –6.6%.  The Economist Intelligence Unit (EIU) forecasts that it will level off at around 0% in 1998 and even predicts another increase to 3% for 1999.  Additionally, in 1997, Romania experienced a decrease in the gross industrial output by 5.9%, as well as coal output more than 20.5%.

              At the end of March 1998, only15 months into power and 3 months into political crisis, Victor Ciorbea resigned as Prime Minister.  His resignation brought to a close the political stalemate that was hindering the progress of economic reforms since September of last year.  However, it has not yet removed the distrust between the coalition partners.  On April 1, 1998, the Steering Committee of the National Peasant Party Christian Democrat (PNTCD) nominated Radu Vasile as its candidate for Prime Minister.  Subsequently, on April 2, President Constantinescu officially announced the nomination and on April 15 Vasile and his cabinet where put into office.

Since December 1989, Romania has definitely been at its most critical juncture.  For Romania to prosper, a successful transition to a market economy is vital.  For, Romania is distantly falling behind the Central and Eastern European countries that chose to pursue more serious market reforms.  It is important for the economy to do well, not only for economic reasons, but also for the success of democracy in Romania.  Thus, the new government has tried to quickly introduce the reform program to Romania.  These reforms, however, will not take place over night.  Although the future of Romania is uncertain, there is a strong sense that the new reforms will place Romania on the right track.

Bibliography

             Electric Library:

                        Economy of Romania

             Links.Romania.org

              Romanian Foundation for Democracy:

                     

 HYPERLINK http://www.frd.ong

www.frd.ong

Romania Online:

                       

 HYPERLINK http://www.rol.ro

www.rol.ro

Romania and the enlargement of the European Union:

                       

 HYPERLINK http://www.europarl.eu

www.europarl.eu

BarnesandNoble.com

              Romania Economy:

 HYPERLINK http://www.rumaenien.de

           

 

 

 

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