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GDP: $34.0 billion (1999); $36.7 billion (2000); $45.76 billion (2002); $50.26 billion (2003 est.).
Annual GDP growth rate: -3.2% (1999); 1.8 (2000); 5.3 % (2001); 4.9% (2002).
Per Capita GDP: $1,585 (1999); $1,645 (2000); $1,772.90 (2001); $2,120 (2002).
Natural resources: Oil, timber, natural gas, coal, salt, iron ore.
Agriculture: Percent of GDP--11.4% (2000); 13.2% (2001); 11.7% (2002). Products--corn, wheat, potatoes, oilseeds, vegetables, livestock, and forestry.
Industry: Percent of GDP--27.6% (2000); 28.2% (2001); 29.1% (2002). Types--machine building, mining, construction materials, metal production and processing, chemicals, food processing, textiles, clothing. Industrial output increased by 6% from 2001 to 2002.
Services: Percent of GDP--60.9% (2000); 44% (2001); 44.7% (2002).
Construction: Percent of GDP--4.9% (2001); 5% (2002).
Trade: Exports--$10.4 billion (2000); $11.46 billion (2001); $13.96 billion (2002); $16.26 billion (2003). Types--textiles, chemicals, light manufactures, wood products, fuels, processed metals. Major markets-- Italy, Germany, France, U.K., U.S. (4.3%), Turkey. U.S. exports: $490.7 million (2001); $535.3 million (2002); $616.4 million (2003). Imports--$15.5 billion (2001); $17.96 billion (2002); $19.96 billion (2003). Types--fuel, cooking coal, iron ore, machinery and equipment, and mineral products. Major suppliers--Italy, Germany, Russia, France, U.K., Hungary, Austria, Turkey, and U.S. (3% in 2002). U.S. imports: $357.1 million (2001); $597.8 million (2002); $670.6 million (2003).
Exchange rate: 33,500 lei=US$1 (December 2002); 33,016 lei=US$1 (June 2003); 32,846 lei=US$1 (December 2003).
Economy of Romania
Romania is a country of considerable potential: rich agricultural lands; diverse energy sources (coal, oil, natural gas, hydro, and nuclear); a substantial, if aging, industrial base encompassing almost the full range of manufacturing activities; an educated, well-trained work force; and opportunities for expanded development in tourism on the Black Sea and in the mountains.
The Romanian Government borrowed heavily from the West in the 1970s to build a substantial state-owned industrial base. Following the 1979 oil price shock and a debt rescheduling in 1981, Ceausescu decreed that Romania would no longer be subject to foreign creditors. By the end of 1989, Romania had paid off a foreign debt of about $10.5 billion through an unprecedented effort that wreaked havoc on the economy. Vital imports were slashed and food and fuel strictly rationed, while the government exported everything it could to earn hard currency. With investment slashed, Romania’s infrastructure fell behind that of even its Balkan neighbors.
Since the fall of the Ceausescu regime in 1989, successive governments have sought to build a Western-style market economy. The pace of restructuring has been slow, but by 1994 the legal basis for a market economy was largely in place. After the 1996 elections, the coalition government attempted to eliminate consumer subsidies, float prices, liberalize exchange rates, and put in place a tight monetary policy. The Parliament enacted laws permitting foreign entities incorporated in Romania to purchase land. Foreign capital investment in Romania has been increasing slowly, but remains significantly less in per capita terms than in most other transition economy countries in East and Central Europe.
In November 2001, the government negotiated an 18-month standby agreement with the International Monetary Fund (IMF) for a total amount of $431 million. The IMF board approved Romania’s completion of the standby agreement in October 2003, Romania’s first successfully concluded agreement since the 1989 revolution. The IMF acknowledged that sound macro-economic policies and progress in structural reform contributed to continuing disinflation and economic growth, and credited the government with implementing prudent budgetary measures toward reaching IMF directed targets. High tax arrears, largely on the part of state owned firms, hinder government programming. Significant levels of public and private sector corruption also impede economic growth and undercut public trust in new democratic institutions.
Privatization of industry was first pursued with the transfer in 1992 of 30% of the shares of some 6,000 state-owned enterprises to five private ownership funds, in which each adult citizen received certificates of ownership. The remaining 70% ownership of the enterprises was transferred to a state ownership fund. With the assistance of the World Bank, European Union (EU), and IMF, Romania succeeded in privatizing most major state-owned enterprises. In 2002, 112 small and medium sized companies in which the state had been majority shareholder were sold and 35 large companies were privatized. By the end of the year, the State Authority for Privatization had sold about 36% of the state capital in its portfolio at the beginning of 2002. From the beginning of privatization until the end of 2002, 7,218 companies were privatized, including 288 large companies. However, an estimated 42.3% of industrial assets remain under state ownership, mostly in the energy and mining sectors. Progress in 2003 includes an agreement between the Government of Romania and European Bank for Reconstruction and Development (EBRD) and International Finance Corporation (IFC) for the acquisition of a 25% stake in Romania’s largest bank, Banca Comerciala Romana (BCR), with a view to prepare the bank for the sale to strategic investor by 2006. In addition, three key privatizations in the energy sector were initiated: Petrom, the state-owned oil company, and two natural gas distribution networks, Distrigaz North and Distrigaz South. Despite delays in privatizing certain companies, the overall balance of the economy has shifted decisively. Even in 2002, the private sector produced about 69% of GDP, accounted for approximately 55% of assets, and employed approximately 55% of the work force.
The consolidated budget deficit has dropped significantly from earlier levels. In 1999, the budget deficit represented 4.0% of GDP; 3.7% in 2000; 3.5% in 2001; and 2.6% in 2002. Although domestic arrears -- resulting mostly from state-owned enterprises not paying pension and health insurance contributions and utility bills -- rose to around 40% of GDP in 2002, public sector expenditures have been more tightly controlled and limited.
The return of collectivized farmland to its cultivators, one of the first initiatives of the post-December 1989 revolution government, resulted in a short-term decrease in agricultural production. Some four million small parcels representing 80% of the arable surface were returned to original owners or their heirs. Many of the recipients were elderly or city dwellers, and the slow progress of granting formal land titles was an obstacle to leasing or selling land to active farmers.
Unemployment is officially 7.8% of the active labor force in mid-2003, although this figure does not capture high levels of under-employment.
In the early 1990s, inflation was one of Romania’s most serious economic problems. Retail price inflation, which monthly averaged 12.1% in 1993 (the equivalent of 256% annually), declined to 28% annually in 1995. However, inflation picked up again in 1996 and 1997 due to excessive government spending in late 1996, and price and exchange rate liberalization in early 1997. Inflation in 1999 hovered around 54%, but dropped in 2000 to 40.7%, and 33.7% by the end of 2001. After a diminished 2002 inflation rate of 17.8%, economists predict inflation to further decline to about 14.5% in 2003. The government target for 2004 is below 10%.
Financial and technical assistance continue to flow in from the U.S., European Union, other industrial nations, and international financial institutions facilitating Romania's reintegration into the world economy. The International Monetary Fund (IMF), World Bank (IBRD), the European Bank for Reconstruction and Development (EBRD), and the U.S. Agency for International Development (USAID) all have programs and resident representatives in Romania. Romania has also attracted foreign direct investment, which in 2000 grew to $6.47 billion, of which an estimated 7.7% was U.S. direct investment. U.S. direct investment was 7.8% in 2001 and 8.9% in 2002 (2.4% of 2002 GDP). According to Romania’s National Office of Trade Register, as of October 2003 Romania attracted over $10.1 billion in foreign direct investment, of which $694 million (approximately 6.9%) was U.S. direct investment.
Romania was the largest U.S. trading partner in Eastern Europe until Ceausescu's 1988 renunciation of Most Favored Nation (MFN or non-discriminatory) trading status resulted in high U.S. tariffs on Romanian products. Congress approved restoration of MFN status effective November 8, 1993, as part of a new Bilateral Trade Agreement. Tariffs on most Romanian products dropped to zero in February 1994 with the inclusion of Romania in the Generalized System of Preferences (GSP). Major Romanian exports to the U.S. include shoes, clothing, steel, and chemicals. Romania signed an Association Agreement with the EU in 1992 and a free trade agreement with the European Free Trade Association (EFTA) in 1993, codifying Romania's access to European markets and creating the basic framework for further economic integration. At its Helsinki Summit in December 1999, the European Union invited Romania to formally begin accession negotiations. Romania's targeted date for EU accession is 2007. As of early December 2003, Romania had closed 22 of 30 EU accession chapters. However, in 2003 the EU Commission failed to grant Romania the designation of “functioning market economy status,” a prerequisite to becoming a member of the EU.