BR SPECIAL! Romania’s economic adventures in the past 20 years

In just over two decades, Romania has lost more than 3.5 million inhabitants, 2 million employees and around 1.6 million jobs. Over the same period, the country’s GDP has expanded fivefold, while wages have also grown exponentially. Meanwhile, foreign investment flows have jumped more than 10 fold.

By Ovidiu Posirca

After the painful early 1990s, marked by triple-digit inflation and attempts to privatize large state-owned companies from the communist era, the economy continued to remain in the red up until 2000. Huge layoffs and chronic unemployment were among the major issues in the mid-90s. More than a million people were out of work in December 1998, according to the National Institute of Statistics (INS). By comparison, in December 2017, some 350,000 Romanians were looking for a job.

Output fell by 16 percent in the 1997-1999 period, as the central bank made last ditch efforts to prevent Romania from slipping into a sovereign debt crisis. Following a series of bankruptcies in the banking sector in the late 90s, the authorities enforced new rules that aimed to make lenders more sustainable. This marked the start of a period in which foreign financial groups began to take over local banks through privatization.

“Up until 2000, there was a period of major structural transformation, but without defined approaches or continuity in reforms, and there wasn’t a normal economic cycle. The economy was mainly dominated by agriculture,” says Ionut Dumitru, president of the Fiscal Council.

From 2000, Romania started aspiring to be a member of NATO and the European Union. The country’s international ambitions also made foreign investors more confident about launching operations in Romania.

Average wages climbed slightly to USD 134 per month, while Romania’s GDP hovered around USD 40 billion. Romanians’ purchasing power stayed low as the average inflation rate stood at 45.7 percent. Unemployment remained stubbornly high at around 11 percent, while the number of employees shrank by 2.2 percent compared to 1992.

“In 2000, Romania resumed its fight with inflation and re-started its economic growth based mainly on exports,” said Horia Braun, chief economist at BCR.

Two key moments for the economy

In 2004, when Romania joined NATO, the economy was riding the growth wave, at least on paper. GDP expansion hit a record of 8.5 percent, while the median wage reached USD 185. Inflation dropped below 12 percent, with GDP per capita at USD 4,577. Jobs remained hard to come by, with the unemployment rate edging close to 7 percent.

By joining the EU, Romania’s borders opened for the free trade of merchandise, allowing free flows of capital, but also removing restrictions on the labor market. In July 2007, the population fell by 50,000 people year-on-year. The number of employees climbed significantly to 4.88 million.

The fruits of Romania’s EU membership were truly felt after 2008, when the economy grew rapidly, up by 8.5 percent, as a lending boom boosted consumption. The number of employees exceeded the 5 million milestone for the first time in a decade, while the unemployment rate fell to 4 percent.

Thanks to EU membership, the Romanian economy became more connected in terms of trade. In 2009, Romania entered its first recession in 18 years, with a 7 percent contraction in output. Wages in the public sector were slashed by 25 percent the next year. The economy began to post a solid recovery in 2013, when GDP grew by 3.5 percent, while the number of employees was up by around 100,000 versus 2010. Over the next few years, the economy climbed steadily, posting a record 6.9 GDP hike in 2017.

DMCA

PROTECTED