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Romania is a large, upper-middle-income economy of central-eastern Europe, the 17th largest in Europe (purchasing power parity), and 13 in total GDP. Romania is an acceding member of the European Union, its most important trading partner. Its capital, Bucharest, is one of the largest financial centres in the region. Romania stands to benefit from the size of its market (about 21 million people).

Template:Economy of Romania table

Historical overview

After the collapse of the Soviet Bloc in 1989-91, Romania was left with an obsolete industrial base and a pattern of industrial capacity wholly unsuited to its needs. In February 1997, Romania embarked on a comprehensive macroeconomic stabilization and structural reform program, but reform subsequently has been a frustrating stop-and-go process. Restructuring programs include liquidating large energy-intensive industries and major agricultural and financial sector reforms. In 1999 Romania's economy contracted for a third straight year, by an estimated 4.8%. Romania reached an agreement with the International Monetary Fund in August for a $547 million loan, but release of the second tranche was postponed in October because of unresolved private sector lending requirements and differences over budgetary spending. Bucharest avoided defaulting on mid-year lump-sum debt payments, but had to significantly draw down reserves to do so; reserves rebounded to an estimated $1.5 billion by year end 1999. The government's priorities include: obtaining renewed IMF lending, tightening fiscal policy, accelerating privatization, and restructuring unprofitable firms. Romania was invited by the European Union in December 1999 to begin accession negotiations.

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 intelligent, well-trained work force; and opportunities for expanded development in tourism on the Black Sea and in the mountains.

In 1993, the economy reached the end of a decline in output that had begun well before the 1989 revolution. The Romanian Government had borrowed heavily from the West in the 1970s to build a massive state-owned industrial base. Following the 1979 oil price shock and a debt rescheduling in 1981, Nicolae Ceauşescu 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 technological infrastructure rapidly fell behind that of even its Balkan neighbors.

Since the fall of the Ceauşescu 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 move rapidly and eliminate consumer subsidies, float prices, liberalize exchange rates, and put in place a tight monetary policy. The Parliament has enacted laws permitting foreign entities incorporated in Romania to purchase land and has identified a large number of government enterprises for rapid privatization or restructuring. Foreign capital investment in Romania has been decreasing and is significantly less than in some other Central European countries.

Privatization of industry was 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 a mandate to sell off its shares at the rate of at least 10% per year. The privatization law also called for direct sale of some 30 specially selected enterprises and the sale of "assets" (i.e., commercially viable component units) of larger enterprises.

Subsidies to loss-making state-owned enterprises continue to be a serious drain on the state budget. Despite delays in privatizing certain large companies, the State Ownership Fund has made progress. Altogether, the private sector now accounts for an estimated 55% of gross domestic product and employs approximately 52% of the work force.

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.

An acute shortage of foreign exchange and a poorly developed financial sector have also been obstacles to rapid economic transition. Outside factors such as the collapse of trade with Soviet bloc trading partners, economic slowdown in the industrialized West, increases in imported energy costs, and large losses from United Nations sanctions against Iraq and the former Socialist Federal Republic of Yugoslavia, contributed to a precipitous drop in industrial output after 1989. The fact that the Danube River remains blocked from the Kosovo conflict denies Romania an important transportation route for its goods and has further hampered economic recovery.

In 1993, Romania embarked upon an adjustment program that showed some results. GDP, which had fallen for three consecutive years, stabilized in 1993 and registered 3.4% growth in 1994, 6.9% in 1995, and 4% in 1996. Since 1997, there has again been a decline in GDP of -6.6% in 1997, -7.3% in 1998, and (est.) -4.5% in 1999. Monthly retail price inflation, which averaged 12.1% in 1993 (the equivalent of 256% annually), declined to 28% 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 50%. The government has committed itself to reduce the inflation rate by half in 2000. Nowadays, the inflation rate is around 9% annually, although estimated by the BNR at coming within 6% for the year 2006. Also, since 2001, the economy has grown steadily at around 4-5%. Therefore, the PPP GDP of Romania is $8,200.

Subsidies on most basic consumer goods were lifted in May 1993, but support for under productive and loss-making state-owned industries continues to be a serious drain on the budget. The government nonetheless managed to cut the deficit, which totaled almost 4% of GDP in 1992, to only 1.7% in 1993. By 1995, however, the budget deficit had again risen to about 4% of GDP. The consolidated deficit, including internal arrears, climbed to more than 10% of GDP in 1996.

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 1997 rose to $2.5 billion.

Romania was the largest U.S. trading partner in Eastern Europe until Ceauşescu's 1988 renunciation of Most Favored Nation (non-discriminatory) trading status resulted in high U.S. tariffs on Romanian products. Congress approved restoration of MFN status effective 8 November 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 and 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. In 2002, the target date of 2007 was set for Romania, along with Bulgaria, for its accession efforts. This was confirmed in 2003 at the Thessaloniki Summit and then in early 2005 Romania and Bulgaria signed the adherence treaty to EU and Romania is set to join the EU in January 1, 2007.

During the latter part of the Ceauşescu period, Romania earned significant credits from several Arab countries, notably Iraq, for work related to the oil industry. In August 2005, Romania agreed to forgive 43% of the US$1.7 billion debt owed by an Iraq still largely occupied by the military forces of the U.S.-led "Coalition of the Willing", making Romania the first country outside of the Paris Club of wealthy creditor nations to forgive Iraqi debts.

Romania's economic strength

Romania's main industries are clothing and shoe manufacturing, metal, extracting and processing of primary goods (timber, marble, rock), food processing, oil refining and chemical derivates, and to a lesser extent pharmaceuticals, heavy machinery, household electronics, etc. In recent years vehicle manufacturing (see Dacia Logan) has become an important industry. The information-technology-related industry is also growing.

Romania's economic strength is in the processing and the manufacturing of goods, primarily in small and medium-sized family-owned firms. Its major industries are precision machinery, motor vehicles, chemicals, pharmaceuticals, electric goods, and fashion and clothing.

Romania has a number of fashion houses, such as Agnes Toma, Steil, Steilmann.

Dacia Logan, Aro and Daewoo Romania are some car models manufactured in Romania. The Dacia Logan led sales in Central/Eastern Europe in the first six months, ahead of the Skoda Fabia, Skoda Octavia (up 20% on a new model introduction), Opel Astra and Renault Mégane. Logan was also the top selling car in the region in Q2 2005, ahead of Skoda Fabia and Octavia (up 14.4%), Renault Mégane and Suzuki Ignis (up 5.1%).

Several positive growth factors for Romania:

• GDP: USD 183.6 million and increasing
• 75% of economic output from private sector
• Second largest consumer market in Central and Eastern Europe
• 90% of companies expect sales and profits to grow over next 3 years
• 70% of companies experienced profit growth in last 3 years
• Profit margins in Romania are higher than in Poland and Hungary
• GDP growth has been fastest in the CEE region in 2003-2004, and is expected to grow over next 2 years
• Growth factors include: private consumption, consumer credit, corporate investment and exports

Member States	GDP (PPP) millions of int. dollars	GDP (PPP) per capita int. dollars	GDP (nominal) per capita int. dollars
European Union	12.95bn	28,477	29,763
Acceding Countries	GDP (PPP) millions of int. dollars	GDP (PPP) per capita int. dollars	GDP (nominal) per capita int. dollars
Romania	204.4	9,446	5,254
Bulgaria	76.70	10,003	3,686

Sectors of the economy

Industry

Romania has been very successful in developing dynamic telecommunications, industrial robots, aerospace, and weapons sectors.

Energy

Romania has the largest oil and gas reserves in Eastern Europe, substantial coal deposits and it has substantial hydroelectric power installed. However, Romania imports oil and gas from Russia and other countries. To ease this dependency Romania seeks to use nuclear power as an alternative. So far, the country's only nuclear reactor, located at Cernavodă, accounts for about 9-10% of the country's electricity production, while a second one is scheduled to start functioning in the fall of 2006 and two more to start construction the same year. Nuclear waste is stored on site at reprocessing facilities. - Possessing substantial oil refining capacities, Romania is particularly interested in the Central Asia-Europe pipelines and seeks to strengthen its relations with some Persian Gulf states.

Electricity (Gwh)

Agriculture

Romania is one of the European major agricultural producers, accounting for about one-fifth of all agricultural land compared to EU. Baragan is characterized by large wheat farms. Dairy products, pork, poultry, and apple production are concentrated in the western region. Beef production is located in central Romania, while the production of fruits, vegetables, and wine ranges from central to southern Romania. Romania is a large producer of many agricultural products and is currently expanding its forestry and fishery industries. The implementation of the reforms and the Uruguay Round of the GATT Agreement have resulted in reforms in the agricultural sector of the economy.

Romania is the world's eleventh-largest agricultural producer and the sixth-largest agricultural exporter. However, the destination of 75% of its exports are other EU member states. Wheat, beef, pork, poultry, and dairy products are the principal exports. U.S. agricultural exports to Romania, totalling some $200 million annually, consist primarily of soybeans and products, feeds and fodders, seafood, and consumer oriented products, especially snack foods and nuts. Romania exports to the United States are mainly cheese, processed products and wine. They amount to more than $150 million annually.

The Romanian agricultural sector is heavily dependent upon subsidies from the European Union, which account for $1bn. Specific government policies, such as the infamous reclassification of French wine as a 'health food' to avoid VAT, also goes a long way to create a thriving domestic sector.

Tourism

Tourism is a significant contributor to the Romania Economy. In the 1990s the government heavily promoted the development of skiing in the Romanian Carpathians.

Regional variation

The strength of the Romanian economy varies from region to region. GDP, and GDP per capita is highest in Bucharest. The following table shows the GDP (2005) per capita of the 4 counties:2 areas, with data supplied by Eurostat.

The Inner Bucharest has a $26 761 GDP per capita.

Statistical indicators

Main indicators of Romania's economy:

Romania's GDP over 2005-2007 is expected to go up by 10 billion dollars per year, and is expected to reach 2007 at 96.138 billion dollars.

All figures are in US dollars

Main indicators of the EXPORTS and IMPORTS of the Romanian economy:

The national budget is $28,9 billion dollars, which represents 31,2% from GDP estimated by RON 322,5 billions $90,8 billions according to the Prime-Minister Tariceanu.

Investment (gross fixed): 23.3% of GDP (2004 est.)

Household income or consumption by percentage share:

• lowest 10%: 2.4%
• highest 10%: 27.6% (2003)

Distribution of family income - Gini index: 28.8 (2003)

Agriculture - products: wheat, corn, barley, sugar beets, sunflower seed, potatoes, grapes; eggs, sheep

Industrial production growth rate: 4% (2004 est.)

Electricity:

• production: 56.53 TWh (2003)
• consumption: 57.5 TWh (2003)
• exports: 3.046 TWh (2003)
• imports: 0.962 TWh (2003)

Electricity - production by source:

• fossil fuel: 62.5%
• hydro: 27.6%
• other: 0% (2001)
• nuclear: 9.9%

Oil:

• production: 128,000 barrel/day (2004 est.)
• consumption: 253,800 barrel/day (2003 est.)
• exports: NA
• imports: NA
• proved reserves: 1.055 billion barrel (1 January 2002)

Natural gas:

• production: 12.6 billion m³ (2003 est.)
• consumption: 18.5 billion m³ (2003 est.)
• exports: 0 m³ (2001 est.)
• imports: 5.4 billion m³ (2001 est.)
• proved reserves: 111.1 billion m³ (1 January 2002)

Current account balance: $-3.631 billion (2004 est.)

Exports - commodities: textiles and footwear, metals and metal products, machinery and equipment, minerals and fuels, chemicals, agricultural products

Imports - commodities: machinery and equipment, fuels and minerals, chemicals, textile and products, basic metals, agricultural products

Reserves of foreign exchange & gold: $16.21 billion (2004)

Exchange rates: lei per US dollar - 33,260 (2004), 33,200.1 (2003), 33,055.4 (2002), 29,060.8 (2001), 21,708.7 (2000)

National budget

National budget, about $29 billions, represents about 31,2% of GDP of RON 322,5 billions ($90.8 billions), declared the Prime-Minister Tariceanu. National budget is increasing rapidly about 6 billions dollars each year for the interval of time 2005-2009. About 2 billions dollars/year are spent on national defense.

National budget of Romania:

See also

• List of Romanian companies

Stock exchanges

• Bucharest Stock Exchange
• Rasdaq

Stock indices

• Bucharest Exchange Trading index (BET)

Europe

• Economy of Europe
• Romania

Referecens

1. Country Groups, World Bank, 2005
2. Isarescu reduce inflatia cu legume si fructe "Pentru acest an, BNR si-a asumat o tinta de inflatie de 5%, cu un interval de variatie de plus/minus 1 punct procentual. Aceasta inseamna ca BNR isi va respecta angajamentul asumat daca inflatia se va situa la finele anului in intervalul 4-6%. "Pentru prima data putem spune ca avem sanse sa ne incadram in limita de 6%", a spus ieri guvernatorul." For this year, the BNR assumes a level of inflation of 5%, with an interval of variation of plus/minus 1 percentage point. That means that BNR will respect its plan if assumed that inflation at the end of the year will be in the region of 4-6%. "For the first time we can say that we have the chance that we won't exceed the limit of 6%", said the governor.

• http://www.mfinante.ro/venituri.htm

• Economy of Romania