|
|
|
|
|
|
|
|
|
|
  |
 |
  |
ROMANIA
>> Regional Overview >> Romania Overview 
Introduction
A democratically strong and economically prosperous Romania is critical to achieving U.S. economic, democracy, and security interests in Southeast Europe. Romania, Southeast Europe’s largest and most populous nation, identifies with U.S. interests as shown in its support of NATO actions in the former Yugoslavia. This support has been sustained through the current embargo against Serbia – Romania’s traditionally friendly neighbor -- at significant economic and political cost to Romania. Romania’s expressed interest in joining western institutions – and in fuller integration into the international economy – was demonstrated most recently in the intensified efforts of the Government of Romania to move forward on painful, long-postponed economic reforms. The U.S. program of assistance provides significant and sustained assistance to help bolster regional stability, promote economic development, strengthen democracy and address pressing social issues, while mitigating negative impacts of structural reforms. These broader, U.S. Mission Performance Plan goals are accomplished in large part through USAID’s programs targeting development of private enterprises, restructuring of financial and energy sectors, improved natural resources management, increased citizens’ participation in decision making, improved local government effectiveness and accountability, and improved welfare of women and children.
The Development Challenge
In 1999, Romania's leadership showed greater determination to make the structural changes required to turn around its struggling economy. Romania reached agreement with the International Monetary Fund and World Bank for a structural adjustment package of $1.5 billion based on measures taken by Romania to meet loan conditions such as tightening fiscal policy, privatizing and restructuring elements of the financial sector, and enacting legislation to improve the business climate. Progress was made in the sale of small and medium enterprises. Losses from unprofitable mines were reduced and some unprofitable mines closed. A few major industries were privatized. However, the banking system remained fragile, although the country weathered a potential banking crisis.
Romania’s economic picture in 1999 was dim. The economy contracted – GDP decreasing about 5%, on the heels of a 7% drop in 1998 – in part due to impacts of the Kosovo conflict on trade and investment. Estimates indicate that the informal economy produced almost 50% of recorded GDP, providing jobs and incomes for a significant segment of the population. However, this shadow economy exists at significant cost to the formal economy, and shows the extent to which government’s management is mistrusted. While close to 60% of GDP was in the private sector, this level fell below expectations. Inflation and exchange rate depreciation (by 53.5%) continued to reduce the purchasing power of the average Romanian. Pledged foreign direct investment through the third quarter of 1999 was $500 million – short of last year’s $620 million for the same period, and constrained by residual fallout from the Russian economic crisis, and the regional impact of the Kosovo conflict including cessation of Danube traffic.
USAID’s program in Romania has supported progress in key economic policy areas – including fiscal and financial sector reforms, privatization, stimulating private sector growth, energy sector restructuring and environmental policy. For instance, notable USAID achievements include provision of technical and financial assistance, and technology to firms and associations to improve management, productivity and sales. USAID assistance has helped also to create an independent electricity regulatory agency that is beginning to play a role in rationalizing the electricity market and improving prospects for investment. Working closely with international financial institutions, U.S. fiscal and financial sector advisors have worked to stabilize Romania’s financial system, liquidate Romania’s largest, loss-making state bank, and help it service almost one-third of its foreign debt. U.S. assistance is helping Romania’s Ministry of Finance to manage its current budgetary crisis while improving prospects for future fiscal soundness through enhanced debt management, improved budgetary processes and revenue generation, and modernized tax administration. Banking supervision assistance is strengthening the Central Bank in order to avoid future crises, and make the banking sector sound.
In 1999, Romania continued to deepen democratic practices though civil society remained weak. Local governments began implementing new powers granted the previous year, albeit with growing pains. The Government of Romania, non-governmental entities (NGOs), and the media gave increased attention to the endemic problem of corruption. NGOs began to assume larger roles in advocating policy changes important to their clients, and providing services in such sectors as health, child welfare, agriculture and environment. U.S. democracy assistance has expanded opportunities for citizen participation and involvement; e.g., by improving the abilities of private media and NGOs to influence public policy and participate in resolving local problems, particularly problems affecting the most vulnerable Romanians. Individual NGOs are making meaningful contributions to successful advocacy campaigns, local partnerships to solve community problems, and improvements in local services.
USAID assistance is furthering more constructive relations between the Government of Romania and its citizens. Assistance has been provided for institutional capacity building in government institutions at the local and national levels; e.g., to improve the effectiveness of the Executive and the Parliament, particularly in terms of constituency outreach; and enable local governments to effectively implement new responsibilities granted by law. Attracting municipal financing to local governments, enabling them to address local needs, is just one way in which the assistance program is helping local administrators better serve their communities. Public confidence in local governments is on the rise as a result of these measures.
USAID’s program of assistance to the social sector continues to promote women’s health and child welfare through a community-based approach that advances decentralization and local communities’ empowerment. Expanded information and service accessibility is improving women’s health, decreasing maternal mortality and reliance on abortion. Preventative intervention and the availability of a continuum of family-centered, community-based alternatives are gradually decreasing the institutionalization of children. Nevertheless, national and local budget shortfalls have produced crises in hospital care, and in care for institutionalized children and the disabled. Opinion polls reflect heightened public concern about the social and economic impacts of the reform process. Public confidence in the Government of Romania’s ability to achieve positive results is lagging.
Deep and sustained economic reforms are required before the economy can turn the corner. A healthy financial sector, extended access to credit, galvanized small and medium enterprises and an invigorated agricultural sector are required to spur economic growth and investment and to improve people’s daily lives. Attention to persistent environmental problems and energy sector restructuring are still needed. Local government development is still in its early stages and civil society remains weak. Corruption must be addressed in order to ensure economic and democratic stability. The economic crisis is not over and the needs of the most vulnerable Romanians could become more desperate.
Achieving reform progress in an election year will be a formidable task under these circumstances. In the months leading to the election, the opposition has every reason to confound the present government’s reform effort, making passage of reform legislation more difficult. Second, the severe economic decline does not inspire the government or the opposition to champion reform that will require additional sacrifices and pain. Donors need to acknowledge the social costs Romanians are paying for reform, and provide additional assistance to allay these costs to ensure that transition impetus is maintained. Graduating Romania from Support for East European Democracy (SEED) assistance in 2004 as planned in the current USAID strategy would be premature in light of these challenges. The negative impacts of the Russian and Asian financial crises, slower than expected progress on economic restructuring, and the Kosovo conflict have all impeded progress toward the results envisioned in the current plan. USAID continues to review the strategic parameters of its program in Romania, including the timeframe, in light of current realities such as U.S. commitments to support the Stability Pact for Southeastern Europe and other regional integration initiatives.
FY 1999 Kosovo Supplemental Funds
USAID received $19 million in supplemental funds for Romania in response to the impact of the Kosovo crisis -- $14 million in Economic Support Funds and $5 million from the FY 1999 SEED Supplemental. Economic Support Funds were used for balance of payments relief and, the Government of Romania programmed the equivalent amount in local currency to meet the funding crisis for institutionalized and disabled children. These funds will support approximately 47,000 children. About $3.0 million in SEED funds are expanding credit to micro, small and medium enterprises in Western Romania: those especially hard hit by reduced trade linkages with Serbia and the curtailment of the Danube traffic. To date, almost $300,000 has been lent at market interest rates. In November 1999, a $2 million grant to an American NGO was made to purchase Romanian products for humanitarian relief in Kosovo, fostering greater participation of Romanian firms in regional stability and development.
Other Donors
USAID assistance ranks fourth behind the World Bank, the European Bank for Reconstruction and Development (EBRD) and the European Union (EU) as an assistance provider in Romania. The United States coordinates with other donors and leverages substantial financial resources from multilateral banks. USAID frequently provides the technical assistance to complement a loan, as in the energy sector and employment services. Through 1999, total World Bank commitments to Romania of $3 billion, covering energy, agriculture, privatization and financial reform, employment services, industrial pollution, health rehabilitation and social development. The EBRD investment is about $250 million annually, with projects in energy, municipal utilities and financial sector. The EU initially committed about $130 million for 1998-2000 in banking, small and micro lending, democracy, social sector, health and environment, but will raise its contribution to about $850 million in 2001.
Country Background Information Resources CIA Factbook
Library of CongressNational Geographic Country Maps
State Dept. Country Information
 |
|||
Last Updated on: December 12, 2000 |
