Romania - Economic development

The economy of Romania before 1990 was centrally planned and, for the most part, under complete state control. The nationalized industries and other economic enterprises operated within the state economic plan and were governed by the directives issued by the pertinent ministries. Economic planning, conducted by the State Planning Commission, emulated the Soviet example.

Nationalization of industry, mining, transportation, banking, and insurance on 11 June 1948 was followed by one-year economic plans in 1949 and 1950. These were succeeded by the first five-year plan (1951–55), which laid the groundwork for rapid industrialization, with emphasis on heavy industry, primarily machine-building. The state's second five-year plan (1956–60) provided for an increase of industrialization by 60–65%. Greater attention was given to consumer goods and to agriculture. A subsequent six-year plan (1960–65) envisaged an overall industrial increase of 110%, especially in producer goods. The five-year plan for 1966–70 realized an overall industrial increase of 73%. The five-year plans for 1971–75, 1976–80, and 1981–85 called for further industrial expansion and, according to official figures, during 1966–85 industrial production grew by9.5% annually. The eighth five-year plan, for 1986–90, projected a 13.3–14.2% annual increase in Romania's net industrial production.

In the farming sector, the government has assiduously pursued a policy of collectivization. By virtue of the 22 March 1945 land reform, most farms over 50 hectares (123 acres)—a total of about1.5 million hectares (3.7 million acres)—were confiscated without compensation. In 1949, the remaining large private farms were seized, and their 500,000 hectares (1,236,000 acres) organized into state farms. Various pressures, including coercion, were used to force peasants into joining. In April 1962, collectivization was announced as virtually completed. Agricultural development in following years was comparatively neglected.

As of 1 January 1979, Romania began implementing the "new economic-financial mechanism," an attempt to introduce into the Romanian economy the principle of workers' self-management as previously developed elsewhere in Eastern Europe, notably in the former Yugoslavia and Hungary. Accordingly, autonomous production units were expected to plan for their own revenues and expenditures and manpower needs. These separate plans were, however, to be harmonized with the national economic plan, so that Romania's centralized system of goal and price setting was not significantly altered.

One of the major economic targets in the 1980s was the reduction of foreign debt, which was achieved but at the cost of drastic austerity measures and reduced industrial growth. After the fall of Communism, a major objective was the privatization of 6,200 state enterprises. The economy was to be completely restructured, with the emphasis on private ownership and adherence to the market for the allocation of resources. By late 1996, nearly all the country's agricultural land had been returned to private ownership, but only 65% of all eligible recipients had been officially given title. By 2002, Romania had privatized many major state-owned enterprises, with the help of the World Bank, International Monetary Fund (IMF), and EU. Nonetheless, an estimated 45% of industrial assets remain owned by the state, particularly in the energy and mining sectors. The private sector in 2002 accounted for an estimated 65% of gross domestic product (GDP).

Economic growth declined in the late 1990s, but picked up in the early 2000s. Inflation remains a problem (it stood at 18% at the end of 2002). Foreign direct investment into the country grew to $8.4 billion by mid-2002. In 2001, the IMF approved an 18-month (later extended to two years), $413-million Stand-By Arrangement for Romania. Romania is seeking admission to the EU, with accession envisaged for 2007.

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