Romania - Politics, government, and taxation



Since the overthrow of communist leader Nicolae Ceaucescu in 1989, Romania has been ruled by a succession of new or reformed parties, each claiming that they will be able to revive the economy. The most dominant has been the Party of Social Democracy in Romania (PDSR), a leftist party that developed out of the former Romanian Communist Party. It is headed by Ion Iliescu, a former communist who took over from Ceaucescu in 1989 in what many see as an insiders' coup.

Iliescu recognized the need to turn Romania into a democratic market economy and called elections in 1990 and 1992. These resulted in his being declared president and the PDSR becoming the main party in the governing coalition. The PDSR advocated a slow reform program and started to liberalize the economy, restitute land to its pre-Communist owners, and privatize smaller companies. But it kept state controls over some prices, particularly in the energy sector, and over foreign exchange markets. It also failed to break down many of the big state monopolies . The economy, after a recession in the early 1990s, revived on the back of government subsidies . But Romania's economic problems and allegations of corruption led to Iliescu and the PDSR losing the presidential and government elections in 1996.

They were succeeded by a multi-party coalition that promised more rapid reforms, including faster privatization and liberalization. Unfortunately, this new government, headed by the Democratic Coalition, proved too inexperienced and quarrelsome to push through many of the necessary measures. Others proved unexpectedly painful. Price liberalization pushed up inflation and a credit crunch boosted unemployment, while privatization was slow and scandal-ridden. The coalition went through 3 prime ministers in 3 years as politicians squabbled and the economy went into a 3-year recession.

By November 2000, when new government and presidential elections were held, the coalition government had become deeply unpopular. Romanians voted overwhelmingly for the return of Iliescu and the PDSR. However, the PDSR did not receive a majority of the votes. The ultra-nationalist Greater Romania Party received the 2nd highest percentage of votes, which generated anxiety in many national and international circles because of the party's isolationist and xenophobic rhetoric. Instead of forming a coalition with other parties to create a majority government, the PDSR formed a single-party minority government. The party claims to have changed since its previous term in office and is now presenting itself as a European-style social democratic party. It has announced its support for Romania's bids to join the EU and NATO and is trying to woo foreign investors by pushing through reforms recommended by the EU and International Monetary Fund.

In general, the elections confirmed that democracy in Romania is on a stronger footing than the economy. The European Commission says that substantial progress has been made in establishing political parties, a plural-istic media, and civilian control of the army. None of these things is yet assured, however. Parties often have similar platforms and are continually splitting, while the media is under pressure from both politicians and business lobbies. Meanwhile, corruption is widespread, according to a report published in March 2001 by the World Bank. Romania passed new anti-corruption legislation in May 2000 establishing several agencies and tightening up rules on public administration, but it will take years for the effects to show.

The trade unions, particularly in the mining industries, form a powerful and potentially disruptive lobby group. In the past decade, notably in 1991 and 1998, the miners and other unions have stepped in at moments of crisis by marching on Bucharest. Rival politicians are often accused of triggering these miners' marches for their own ends, and disagreements with the unions was one reason for the problems faced by the Democratic Coalition and its partners in government. The PDSR enjoys closer ties with the unions and is trying to use this relationship to contain wage increases. In February 2001, it struck a key social pact with the unions and employers, trying to set a framework for all 3 sides to work together.

One perennial source of political and economic problems is taxation. Weak administration and collection, the collapse of several big tax-paying firms, and widespread tax avoidance have led to a sharp decline in revenues. Some 30 to 40 percent of the real economy is probably not registered in the official figures, and the government runs a persistent deficit (7 percent of GDP in 2000) as it struggles to fund social security systems, health care, and education. In 2000, the government tried to boost its tax take partly by lowering tax rates and broadening the tax base, in a bid to lure non-payers back into the system. Despite all this, government spending still accounts for 40 percent of the economy because of slow privatization of state industry.

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