Economy of Romania

By | April 29, 2022

In 1990 liberal market reforms began in the country. GDP in 2002 was $46 billion (82% by 1990). In terms of GDP per capita (about 2 thousand dollars), according to cheeroutdoor, Romania is almost 5 times inferior to the average in the EU. The number of employed people is 8.5 million people. (78% by 1990); unemployment in 1990-2002 8-10%. Inflation in these years is one of the highest in the region (an increase of 1600 times).

The service sector occupies the leading place in the structure of GDP, the share of which rose from 26.5% in 1990 to 46.5% in 2001, the share of industry decreased from 51 to 28%, and agriculture – from 22 to 14%. The loss of traditional sales markets in the countries of the former Council for Mutual Economic Assistance, import competition, contraction of domestic demand led to a decrease in industrial production in 2002 compared to 1990 by almost 2 times. In the process of privatization of property, demonopolization of production, approx. 40 thousand firms and companies, 95% of which have less than 250 employees. The dominant position is occupied by 600-700 medium and large enterprises, which provide 80% of the output. In the structure of gross output, 4/5 falls on the processing industries (food, metallurgy, oil refining, chemical, clothing, textile). Light industry works as a rule, on tolling raw materials. Production has sharply declined in the investment sectors (heavy engineering, machine tool building, electrical engineering), which use 10-15% of the available capacity. The share of the extractive industry is 7% of the gross output. In the 1990s at the insistence of the IMF, during the restructuring of the coal industry, a large number of unprofitable mines were closed; coal production fell from 66 million to 34 million tons in 2002. Low-calorie lignites and brown coals predominate, which generate 2/5 of electricity. Oil production, which makes it possible to obtain a high percentage of the yield of light petroleum products and mineral oils, decreased during this period from 9 to 7 million tons, natural gas – from 33 to 14.5 billion m3.

Foreign capital is playing an increasingly important role in the development of Romanian industry. Of the $8.94 billion in foreign direct investment, 45% was directed to industry (2002). International concerns have taken a leading position in the automotive industry: Daewoo, General Motors, Renault. Controlling stakes in metallurgical plants in the cities of Galati, Hunedoara, Targovishte, Resita passed into the hands of foreign investors. Steel production decreased from 14.4 million tons in 1989 to 6.6 million tons in 2002. More than 650 joint ventures for the extraction of minerals have been created in Romania.

The agrarian reform, launched in 1990, transferred 86% of agricultural land to private ownership. Individual, small-scale farms have become the leading type of land use. In 2002, there were 4.2 million of them, the average allotment per household was 2.6 hectares. Instead of the liquidated cooperative farms, share cooperatives and family associations arose. State farms have been transformed into joint-stock companies.

The area of agricultural land is 14.8 million hectares, incl. 65% is occupied by arable land, 32% by natural pastures and hayfields, 3% by vineyards and orchards. Almost 40% of the economically active population is concentrated in agriculture (28% in 1990). A variety of soil and climatic conditions contributed to the formation of a diversified complex. The leading role is played by grain farming (winter wheat, corn, barley); up to 2/3 of arable land is allocated for grain crops. There are significant industrial crops (10%), including sunflower and sugar beets. Industrial vegetable growing is widespread in suburban areas and floodplains. In the foothills and hilly regions, horticulture and viticulture have been developed since ancient times. The products of the “piedmonts”, wine-growing regions of Moldova (Cotnari, Iasi, Khush), Dobruja (Murfatlar, Nikulitsel), Oltenia (Sadova, Segarcha), Transylvanian plateau (Mures, Tirnava). Due to the decrease in the level of intensification of production, crop yields fluctuate noticeably. In 2001-02, grain production was approx. 14 million tons, grapes – 800 thousand tons, fruits – approx. 1 million tons Livestock in the 1990s almost halved. In 2002, there were 3.2 million cattle, 10 million sheep, and 8 million pigs. In the 1990s in the country’s food supply, the share of imports increased (up to 50-60%). pigs – 8 million heads. In the 1990s in the country’s food supply, the share of imports increased (up to 50-60%). pigs – 8 million heads. In the 1990s in the country’s food supply, the share of imports increased (up to 50-60%).

Romania is located at the crossroads of major European highways. All types of land, water and air transport are developed. The length of the railways is approx. 12 thousand km (2000), highways – 80 thousand km, the share of national roads is not more than 20%. Road transport accounts for up to 60% of passenger traffic and up to 80% of freight traffic. The largest transport hub of the country is Bucharest, through which the most important national highways and 8 railway lines pass, incl. connecting Romania with the capitals of a number of European states. River navigation goes mainly along the Danube. Sea vessels with a draft of more than 7 m can reach upstream of the river up to the town of Braila. Other important ports on the Danube are Galati and Giurgiu. Marine fleet 568 dry cargo ships with a displacement of 165-170 thousand tons. The largest seaport is the city of Constanta, through which passes up to 60% of the country’s foreign trade turnover. There are 17 airports. At the expense of foreign loans, the intensive modernization of the railway, highway network, airports in Brasov, Galati, Alba Iulia, the expansion of the capacities of the port of Constanta-South, and the aircraft fleet are being updated.

Tourism plays a significant role in the Romanian economy. The richness of natural landscapes, cultural monuments opens up wide opportunities for recreation, treatment and travel. There are almost 1700 mineral springs and lakes of therapeutic value. In the Carpathians, a network of resorts has been created on thermal waters (Baile Felix, Baile Herculane, Joadzha), mud lakes (Sovata, Vatra Dornei). The mineral springs of Borsec, Buziash, Covasna, Lipovy are popular. At an altitude of 800-1400 m above sea level, there are well-known ski resorts (Sinaia, Predeal, Poiana Brasovului, Paltinish). A unique nature reserve arose in the Danube Delta. Resorts on the Black Sea coast (Mamaia, Neptune, Eforia) received international recognition.

Socio-economic policy is based on the principles of the so-called. The Washington Consensus, a memorandum of accession to which Romania signed in 1993. Provides for the priority of private property, a free market, the withdrawal of the state from the economy, a tight budget policy, and the openness of the national economy to the world market. In 2002, more than 62% of GDP was created in the private sector, private business accounted for 90% of retail trade and more than 50% of foreign trade. In 2003, the privatization process is completed: only the most strategically important objects in mechanical engineering, the defense complex, nuclear power plants, and the pipeline network will remain in the hands of the state.

The priorities of macroeconomic policy are largely formed under the influence of the process of adaptation to the criteria and standards of the EU, the requirements of the IMF, the World Bank, which provide significant loans to Romania. The country’s budget in the 1990s was reduced to a deficit, which in 2002 was 3% of GDP. External borrowing plays an important role in covering the deficit. In 2001, 78% was covered by attracting funds from the world financial market, in 2002 – 60% of the missing resources.

The problem of filling the budget is largely associated with an increase in tax collection and removal from the shadow of taxes. The level of fiscality in Romania is relatively moderate (32% of GDP), but the total number of direct and indirect taxes, various payments and fees to off-budget funds is quite significant. In 2002, Romania carried out the modernization of tax legislation in accordance with EU standards.

Monetary policy is aimed at suppressing inflation, which leads to a contraction in the money supply, consumer demand, and the emergence of significant accounts payable and receivable. The volume of non-payments in 2001-02 was 40% of GDP. The lack of credit resources largely reflected the incompleteness of the formation of the banking system. The issuing body is the central bank. The main savings of the population (up to 2/3) are concentrated in the Savings Bank, the main shareholder of which is the state. 40 commercial banks with private and private-state capital have been created. Non-resident banks have equal rights with national institutions. In 2002, up to 40% of bank capital was owned by non-residents. Branches of foreign banks of France, USA, Holland, Greece, Italy, etc. have been opened.

Since 1991, partial convertibility of the national currency, a floating, partially regulated exchange rate of the leu against the US dollar has been introduced in Romania. Since 1998, the operations of non-residents on current payments have been liberalized, since 2002 – on the transfer of loans received by foreign borrowers from Romanian legal entities and individuals.

The deficit of public financial resources led to an increase in external debt from $170 million in 1989 to $15.5 billion in 2002 (34% of GDP). State medium- and long-term borrowings accounted for 2/3 of the external debt, private companies under state guarantees – 1/3 of foreign loans. In 2002, 19% of exports were directed to servicing external debt. The volume of the state’s internal debt increased to 15% of GDP. The country’s stock market is in its infancy. The capitalization of the Bucharest stock exchange in 2002 did not exceed 3 billion dollars. Foreign portfolio investors account for 1/3 of transactions with shares of enterprises. In 2002, non-residents were granted the right to purchase government securities.

According to the UN, Romania was ranked 79th out of 175 states in terms of the main indicators of the level and quality of life (1998). In 2002, the salary was $120/month. According to official data, almost 40% of the population (about 10 million people) have incomes at or below the subsistence minimum, among pensioners – 90%. The proportion of the poor and the poorest (income of $2 a day or less) rose from 4% in 1989 to 34%. There is a process of income differentiation, social stratification. The categories of the population with incomes below the average include the peasantry, pensioners, and the unemployed.

In the 1990s the nature of the country’s foreign economic relations has changed significantly under the influence of the openness of the national economy, the liberalization of the exchange mechanism with the world market. After 1990, imports exceeded exports, leading to a trade deficit. In 2002, exports amounted to 13.7 billion dollars, imports – 16.4 billion dollars. The EU countries accounted for more than 67% of exports, incl. Italy 25%, Germany 15.8%, France 8%. Exports are dominated by 5 commodity groups, which account for 70% of deliveries: textiles, knitwear and garments, leather and footwear products, machinery and electrical equipment, metal products, and mineral raw materials. The main imports to Romania also come from EU countries, incl. from Italy (25%), from Germany (15%), from France (6%), from Hungary (4%). In the commodity structure of imports, the leading place is occupied by machinery and equipment, fabrics, garments, mineral raw materials,

Romania, which signed the European Association Agreement with the EU in 1995, was included in 1999 among the countries recommended for starting negotiations on accession to the EU. A special Ministry of European Integration and other national bodies have been created, the main task of which is to adapt the legislative acts of Romania in the economic and other spheres of public life to EU standards. The most difficult process of coordinating positions is on the issues of free movement of goods, services, capital, people, and the creation of a competitive environment in the agricultural sector. Until con. 2003 it is envisaged to adapt 245 laws to European standards. Romania’s accession to the EU is scheduled for 2007.

Trade turnover between Romania and the Russian Federation in 2002 was $1.33 billion; Russian exports – $1.3 billion, Romanian exports – $40 million. Oil and gas were the main supplies of the Russian Federation to Romania.

In 2002, the “Romania-Russia Foreign Trade Association” was established in Bucharest, the purpose of which is to facilitate the establishment of direct ties between entrepreneurs, to promote the creation of mixed enterprises, and to eliminate administrative and customs barriers to economic cooperation between the two states. In October 2002, at a meeting of the Intergovernmental Russian-Romanian Commission on Economic, Scientific and Technical Cooperation, a decision was made to further develop cooperation in the gas, oil, metallurgical industries, and the electric power industry.

Economy of Romania