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Development Challenge Other Donors FY 2002 Program Activity Data Sheets Summary Tables Program Summary Strategic Objective Summary USAID Search: Romania Previous Years' Activities 2001, 2000, 1999, 1998, 1997 Last updated: 02     Introduction A democratic and free market Romania is strategically important to the United States. Continued progress in Romania serves to fortify the deepening democratic and free market traditions in the whole of Southeast Europe. Success will bring stability and prosperity to a country with great potential and with a pivotal position near areas and countries that are making the transition from ethnic violence to democratic governments with market economies. Success will facilitate expanded trade not only between the United States and Romania, but with the rest of Europe as well, thereby accelerating Romania's integration into the West. Success will also help alleviate poverty and improve humanitarian conditions. Development Challenge The USAID program supports the U.S. Mission Program Plan (MPP) objectives of economic development and consolidating democracy, while contributing to regional security and American citizen goals. Assistance to Romania underpins U.S. economic, democracy, humanitarian, global, and national security interests. Economic Performance: Official GDP increased by 2.1% in 2000 after three consecutive years of decline. Growth was driven by exports, which rose by 25% in dollar terms. Firm's foreign sales were boosted by cost advantages stemming from a depreciating currency. Growth occurred despite economic problems associated with a severe and continuing drought. Economic losses attributable to the drought are estimated at over $250 million. The annual inflation rate is 45.5% owing mainly to the effects of the drought on food prices, rising energy costs, and Romania's continuing problem of gaining control of public expenditures and unprofitable state firms. The estimated budget deficit for the past year was 4.3% of GDP. Total employment has continued to fall due in part to rising business failures and enterprise restructuring. Current Government of Romania (GOR) statistics put unemployment at 10.5%. Reforms are needed to accelerate privatization and restructuring of state enterprises. Privatization of small and medium-sized companies continues to move forward, but the State still dominates the economy through ownership of large companies. Many pre-privatization operations are complete under the World Bank's Private Sector Adjustment Loans (PSAL), but few companies in the program have been marketed or sold. Presently the Authority for Privatization of State Ownership (APPS) still has in its portfolio commercial companies accounting for approximately 60% of its original capital. If large public utilities are added (with the exception of the state telephone company), only 20% of Romania's large state-owned enterprises have been privatized. Initial pronouncements from the recently elected Government (December 2000) indicate a commitment to fiscal discipline and reductions in the budget deficits. A Medium Term Economic Strategy and an Action Plan were adopted with the objective to meet the economic criteria for accession to the European Union. USAID's programs in this difficult setting are, nevertheless, making significant progress in the economic area. Romania has made progress in establishing a more competitive and market-responsive private financial sector. The percentage of private ownership of banking assets continues to grow. State-owned banking assets now account for less than 38% of total banking assets in Romania. Support in developing effective banking regulatory and supervisory structures is helping Romania improve a weak banking system. The private sector's share of the economy is 64 percent. Small and medium enterprises employ about 39% of the labor force and are critical to continued economic growth. Excessive regulations, the non-transparent influence of the public administration in the interpretation of regulations, the crowding out of credit, a crippling tax regime, and corruption in both the public and private sectors are all important factors in restraining the growth of enterprise. Consequently, many firms are moving to the informal sector (now 40% of GDP). USAID is prepared to assist with reform in this area having completed an in-depth analysis of red tape and bureaucratic constraints to business growth. USAID's assistance for the unbundling and reorganization of state monopolies in the energy sector is supporting the move toward the eventual privatization of those public utilities. These are important steps toward creating a more competitive and effectively regulated industry and enhancing greater private sector participation. Improvements have been made in Romania's environmental management and policy-making capabilities. Basic institutions and the regulatory frameworks are in place. However, the European Union (EU) has estimated that investments of over $19.38 billion are still needed in infrastructure for the sector. Democracy Performance: With local elections held in June, parliamentary elections in November, and the presidential run-off in December, many aspects of the democracy and governance sector were influenced by anticipated political change during this fiscal year. USAID assistance helped Romania maintain a high level of political freedom. Local election administration improved over the last elections four years ago, especially in terms of the accuracy of voter lists. Thousands of USAID-funded election monitors declared local elections to be basically free and fair. Romania's institutions guaranteeing democracy and the rule of law are characterized by weak policy formulation, the lack of inter-agency coordination, negligible cost-analysis, and inconsistent consultation with constituents has led to inefficient governance and a lack of compliance. The overuse of emergency ordinances by the government has been explained as a way to bypass parliamentary languor. Yet too few of these decrees have been conceptualized based on real-world fiscal assessment and impact analysis. Perhaps in anticipation of political change, the government finally adopted an initiative in November 1999 to create a more stable and professional civil service, overseen by a new Civil Service Ministry, which should improve the political independence and capacity of Romania's bureaucracy. Problems at the implementation stage of reform still exist. Although the legal framework for decentralizing power to local government was largely intact by 1999, inconsistencies in the interpretation of the law have prevented local officials from exercising new authorities. More transparent and predictable legal provisions should govern local finance; the central government should cover unfunded mandates and avoid transfer delays, and local government should improve its administrative ability to collect taxes. USAID has supported improvements in the ability of the judiciary to function more effectively, although law enforcement overall remains weak. There has been a notable decrease in the number of backlogged cases: the number of civil cases pending in the beginning of 1998 was 357,307. By July 2000 there were 173,056 pending. The current caseload is being addressed through a variety of administrative reforms including improved training for and recruitment of judges. Corruption continues to undermine the legal system and dampen economic growth. International donors have made ongoing support conditional on anti-corruption measures, inspiring the GOR to write a new law on corruption prevention. Generally, the non-profit sector has been stagnant. Although official databases indicate that there are some 23,000 organizations, far fewer are active. Civil society organizations continue to struggle from a lack of financial resources. On the positive side, the 1924 law which regulated the sector was replaced by a government ordinance setting up new principles aimed at facilitating NGO activity. Social Sector Performance: Mission programs have made significant gains in decreasing the number of children in state-run institutions, improving reproductive health, and the reform the institutions that oversee both sectors. A significant advance was the final consolidation of all institutions overseeing children under one cabinet-level agency. The final transfer of management responsibilities to a single agency took longer than expected, but it should assure that national standards for care are implemented. Another milestone was the adoption of a national strategy on the reform of the child welfare system. It clearly states that the primary goal is decreasing the number of institutionalized children. Success depends largely on the capacity of county councils. However, complicated methods of transferring funds from the central government to local county councils have led to occasional funding shortfalls in the child welfare sector and too many centers remain dependent on foreign assistance. The health care system remains disorganized and underfunded, but the GOR has pledged to undertake serious health care financing reform. While USAID is achieving results at the activity level, Romania's transition to a market-based democracy, where the majority of citizens have access to the benefits of reform, is taking longer than initially expected. The country is at a critical juncture. It needs to stay the course with concrete economic reforms in order to remain a credible candidate for EU accession and to demonstrate to a cynical population that the political leadership can deliver on promises to improve the quality of life. Other Donors USAID assistance ranks fourth behind the World Bank, the European Bank for Reconstruction and Development (EBRD), and the EU. Assistance resources are coordinated with other donors and leverage substantial financial contributions from multilateral banks. In some cases, USAID provides the technical assistance component to the loan, as in the energy sector and employment generation. The World Bank has a portfolio of nearly $1.5 billion, which focuses on energy, agriculture, privatization and financial reform, employment services, industrial pollution, health rehabilitation, and social development. The EBRD investment portfolio is about $1.5 billion, with projects in energy, municipal utilities, and the financial sector. The EU provides about $640 million annually in areas such as rural development, agriculture, banking, small and micro-lending, democracy, social sector, health and environment. FY 2002 Program During FY 2001, the Mission will formulate its new multi-year strategy for FY 2002 and the following years. The new strategy will consolidate activities and focus on areas where there is the highest potential for impact. The program will address private sector growth; increasing competition; improving financial services; enhancing agriculture production; energy privatization and environmental investment. Activities will also promote increased efforts to extend NGO partnerships; build a critical mass of forward thinking young political leaders; foster capable and responsive local governments; improve the status of women's health; expand access to and increased use of reproductive health services; and engender community and family-based alternatives for orphans and disabled children. Under cross-cutting themes, the 2002 program will address corruption; support development and use of information technology; and provide targeted training for all strategic objectives. Activity Data Sheets 186-013  Development and Growth of Private Enterprises 186-014  A More Competitive and Market Responsive Financial Sector 186-015  A More Economically Sustainable and Environmentally Sound Energy Sector 186-016  Increased Environmental Management Capacity to Promote Sustainable Economic Growth, 186-021  Increased, Better Informed Citizens' Participation in Political and Economic Decision Making, 186-023  More Effective, Responsive and Accountable Local Government 186-032  Improved Welfare for Women and Children 186-042  Cross-Cutting Programs Country Background Information Resources   CIA Factbook Library of Congress National Geographic Country Maps State Dept. Country Information

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