Title: Towards a Market Economy: The Romanian Effort
Abstract: Romania ... is reforming faster than commonly believed in the West. The Economist(1) Romania was one of the last countries of Eastern Europe to break away from communism in 1989. Since then, the structures created during almost 45 years of authoritarian rule collapsed, bringing along a profound and inevitable crisis. Romania was not only the last country to open its arms to democracy, but it was also the country in the worst possible state. Since the Eastern Block was not at all monolithic as it has been previously thought and because the component countries are different from one another, it is difficult and wrong to explain the present situation in Romania by what is happening in other East European states. The economic apparatus was much more centralized and deteriorated, the society was resigned and apathetic, power alternatives were missing; that is why the starting point is not the same as for its regional neighbors. As an International Monetary Fund study well explains: The Romanian economic system at the end of the 1980s was one of the most tightly controlled and centralized in Eastern Europe. The Ceausescu regime deprived the country of the experience of any significant economic reform leaving the administration, the managers and the institutions tied to a Stalinist model that had by that time been abandoned by almost all the countries in the region. In addition, the economic policies of the regime further distorted the economic system.(2) During the 1980s, while the other countries of the Eastern Block began slowly to liberalize their economies, in Romania the process was evolving the opposite way, towards tightening centralization in all fields of activity. The state had absolute control over the economy and the administration increased its already high level of bureaucracy.(3) Therefore, Romania's isolation led to involution in all spheres with a negative effect especially on the economy. Last but not least, the collapse of the system in December 1989 came so suddenly that nobody expected it and therefore new structures could not be implemented rapidly to avoid the crisis. Bearing all this in mind one can easily figure out that restructuring the Romanian economy is not an easy task; it will take longer than previously expected and the process will be far more complex. 1. The Economic Situation During the First Years of Transition: From Past to Present After the Second World War, communist rule was brought to Romania by Soviet intervention within the framework of historic events. For the economy, it was the beginning of the socialist industrialization era, based on rapid, oversized and high-rate industry implementation, central planning and quantitative criteria of output evaluation. Forced industrialization and the neglect of the economy's comparative advantage contributed to the disequilibrium created by an irrational economic policy. This brought along the setting up of gigantic productive units, distortions in resource allocation, waste, non-marketable products, scarcity of services and consumer goods, creating a production oriented economy with all that it entailed. By the use of centrally administrated price and wage mechanisms, in absence of competition and enterprise autonomy, the allocation of resources was worsened. Hard currency exports were not sufficient to cover imports - mainly for energy and raw materials - and thus contributed to the country's external indebtedness.(4) The foreign debt had reached such proportions that by the beginning of the 1980s president Ceausescu focused his policies on its repayment. To achieve this, decision making became even more centralized and the economy more export oriented as imports were discouraged(5) and, as a result, Romania became the only CMEA country with no foreign debt at the end of 1989.(6) Trade surpluses(7) were a result of cutting imports and production costs and of non-competitive products exported at low prices and in large quantities. …
Publication Year: 1994
Publication Date: 1994-12-22
Language: en
Type: article
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Cited By Count: 1
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