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Romanias Transition Experience

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Transition more difficult in Romania than in other C/E European Countries ... Still difficult to tell if Romania will be accepted into European Union by 2007. ... – PowerPoint PPT presentation

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Title: Romanias Transition Experience


1
Romanias Transition Experience
  • Econ 508
  • Blake A. McMullin
  • 3/8/05

2
(No Transcript)
3
Quick Facts
  • 2nd largest country in C/E Europe by population
    with 21.7 million as of 2004
  • Larger than 19 of 25 current E.U. members
  • Still is not a member of the E.U.
  • They have applied and are due for membership
    sometime in 2007.

4
Quick Facts (contd)
  • As of 2002,
  • Population growth is -2.7
  • GNI per capita is 2,310 U.S. ( up from 1,920
    U.S. in 2002)
  • GDP is 45.7 Billion U.S.
  • GDP growth is 4.9
  • 28.9 population is below national poverty line,
    most of these people live in rural areas.

5
Percent of People Living on Less than 2 a day
6
Government Transition
  • Formerly was a country run under Soviet Model by
    a Communist Party led by Ceaucescu Family
  • Anyone with links to family lived in luxury, in
    contrast to others not being able to consume
    anything over what is available ( lower and
    middle classes)
  • Former Communist Dictator Nicolae Ceaucescu
    overthrown on December 22, 1989
  • New National Salvation Government formed

7
Government Transition (contd)
  • New President Ion Iliescu elected in May 1990 as
    a part of national salvation government
  • Transition more difficult in Romania than in
    other C/E European Countries
  • Economy almost destroyed by Ceaucescu
  • Strict control of Commanding Heights, including
    all of energy sector

8
Domestic Credit to Private Sector ( GDP)
9
Challenges
  • Adjusting to rules of Common Agricultural Policy
    of E.U.
  • How much to produce, who actually owns and has
    right to farm what land?
  • Reform of Pension System
  • 1.4 beneficiaries for every contributor
  • Reform of Judicial System
  • Reform Educational system
  • Will help to decrease poverty

10
Economic Reform
  • Previous trade under Soviet model controlled by
    Comecon, only traded with other socialist
    countries
  • Previously supported by USSR
  • Built Galati Steel Mill using Western Money
  • Started large scale Steel industry in Romania
  • Bad decision since it lacked iron ore and energy
    resources
  • 1st reform program launched on price
    liberalization and stabilization of the economy
    in April 1991
  • Law on Privatization in August 1991

11
Economic Reform (contd)
  • Romania regains Most Favored Nation Status with
    U.S. in 1993
  • Tariffs on many products lowered, if not
    completely waived
  • Steel, chemicals, shoes, clothing
  • GDP increases

12
GDP per capita growth
13
Economic Reforms (contd)
  • WorldBank has committed to provide approximately
    4 Billion U.S. for reforms from 1991 to 2004
  • 2.9 Billion U.S. dispersed to Romania as of 2004

14
Agriculture Reform
  • Land is redistributed to farmers and peasants at
    beginning of privatization
  • Question of property rights and restitution.
  • Most people elderly or city dwellers
  • Agricultural Output
  • Average annual percentage change from 1980 to
    1990 was 1.2
  • From 1990 to 2002, average annual change was
    -1.4
  • Due to land privatization

15
Banking Reform
  • In 1996 Rasdaq was created, an over the counter
    market for stocks and bonds
  • Two-tier banking system created
  • Central Bank along with independent commercial
    banks
  • Central Bank providing agricultural sector with
    low interest loans
  • NBR- Romanian National Bank
  • Independent of Government, main duty is price
    control and printing of money.

16
Banking Reform
  • Loans often not repaid, which led to high
    inflation at beginning of transition since
    monetary base was increased
  • Subsidies given to Energy sector constantly to
    bail state owned enterprises out of bankruptcy
  • Faulty loans also lead to high inflation from
    1996-1997

17
Results of Privatization Under new Government
  • Industry average annual growth from 1980 to
    1990 was -1
  • Average annual growth from 1990 to 2002 was
    -.3
  • Services sector has seen a 1 annual growth from
    1990 to 2002 under new economic reforms

18
Private Sector Reform
  • Domestic Credit to Private Sector
  • GDP in 2002 8.3 (NA 1990
  • Czech Republic was 33.4
  • FDI as of GDP was 0 in 1990
  • 2.5 in 2002
  • Gross Private Capital Flows
  • 2.9 of GDP in 1990
  • 8.5 of GDP in 2002
  • Czech Republic was 28.6 in 2002

19
(No Transcript)
20
Population
  • 69.1 of population is between ages of 15 and 64
    as of 2002
  • 17.2 is between ages of 0-14
  • 13.7 is 65 or over
  • 13 deaths per 1000 people in 2002
  • 10 births per 1000 people
  • 45 of population lives in rural areas in 2002,
    down from 51 in 1980
  • 25 of population lives below poverty line
  • 60 in rural areas

21
Population and Land Use
  • 40.8 of land used was arable land
  • Down from 42.7 in 1980
  • Permanent cropland decreased from 2.9 in 1980 to
    2.3 in 2001
  • Use of other lands increased from 54.4 in 1980
    to 56.9 in 2001
  • Residential, recreational, industrial, forest,
    and wooded areas

22
Trade
  • Trade has risen dramatically from 42.9 of GDP in
    1990 to 76.7 of GDP in 2002
  • Increase in the labor force has only been .1
    annually from 1997-2003
  • Gross Domestic Savings has decreased from 24 of
    GDP in 1993 to 16.8 of GDP in 2003

23
Conclusions
  • Romanian Economy had a rough beginning in the
    transition to a market economy
  • High Inflation because of cheap loans to
    agriculture and energy sectors.
  • GDP has been increasing steadily.
  • Starting to utilize natural resources and land to
    develop manufacturing and other industries

24
Conclusions
  • Still difficult to tell if Romania will be
    accepted into European Union by 2007.
  • Even if they are, it may do more harm than good
    to the still developing economy
  • Reforms to the pension system, medical practices,
    and poverty must be accomplished for the Romanian
    economy to flourish
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