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3.2.1.4 1997 – 2000: New Wave


Academic Research paper and Study of the Economy of Romania and Romanian Business

“Big Bang” in Romania came in 1997 when reforms were resumed with the assistance of the IMF and the World Bank.[1] The extent and pace of the Romanian shock-therapy was qualified as “impressive”, even when assessed against other CEECs (OECD 1998: 2). Over 100 new laws were adopted during 1997 reforms; among them a new law with regard to FDI and foreign investors were granted the right to buy land in Romania. About 2,700 companies (about 263 of them large industrial enterprises) remained to be privatized, some 50 % of them during 1997.

The Romanian exchange rate was driven by markets after reformation, tariffs on imports further reduced, prices for energy, agricultural output and public services liberalized. Credits to the agricultural sector phased out and most subsidies were subsequently abolished (cf. ibid: 2ff.).[2] The social costs of “Big Bang” should be buffered by a partly indexation of low incomes and an increase of family allowances (cf. ibid: 6), whereas the general monetary policy turned restrictive and budget deficits (including the large quasi-fiscal deficits) were refrained.

Attempts to separate the Romanian economic policy and current political coalitions were made in 1999 via the adoption of a medium-term strategy for EU-accession (cf. Scrieciu & Winker 2002: 9). A first result of “Big Bang” in Romania was another recession in terms of negative GDP growth, rising unemployment and interior migration (Ianoș 2006: 609ff.) while inflation decelerated more modest than initially hoped. The latter was partly due to the resume in price liberalization. The exchange rate was further depreciated.

Nonetheless, in spite of a shrinking GDP in Romania and a growing shadow economy (i.e. reduced government revenues) the budget deficit in Romania decreased due to the “cuts in public expenditures” (Dăianu 2000: 15) and growing foreign reserves from privatization revenues via stock markets (ibid: 18).

The global environment was unfavorable. Beside the Russian crisis in 1998, which affected the confidence in the new markets negatively, the UN ban on Romania’s traditional trading partner Yugoslavia was a costly issue for Romania (cf. Scrieciu & Winker 2002: 16f.) all over the nineties further aggravated by the accompanying “blockage of the Danube” (World Bank 2004 a: 81). The social strain resulted in the end of 2000 in a reelection of the left-wing coalition which already conducted Romania until 1996.

Footnotes

[1] One World Bank document rather sees 1999 as the turning point when a short but sharp financial crisis changed politicians’ attitude toward far reaching fiscal reforms (cf. chapter 3.2.2.5 and World Bank 2005: v–vi).

[2] Some of these restructurations had to cope with heavy resistance. The restructuring of the mining sector in 1999 was accompanied by massive protests of the miners. Some 10,000 of them tried to invade the Capital and nearly brought the country into the state of emergency (cf. Gallagher 2005: 202). However, the failure of this fifth “Mineriada” 1999 marked a positive change in the Romanian society and politics (cf. Angelescu 2006: 11).