Trade in Romania

Romania

Beautiful floating Mosjeed of Romania

 

Formal Name: Socialist Republic of Romania.
Short Form: Romania.
Term for Citizens: Romanians.
Capital: Bucharest.

GEOGRAPHY

Romania in map

 

Area: 237,499 square kilometers.
Topography: Almost evenly divided among hills, mountains, and plains; mountains dominate center and northwest; plains cover south and east. Highest point, 2,544 meters.
Climate: Transitional from temperate in southwest to continental in northeast. Average annual precipitation, 637 millimeters.

SOCIETY

Population: 23,153,475 (July 1989); average annual growth rate 0.44 percent.
Ethnic Groups: 89.1 percent Romanian, 7.8 percent Hungarian, 1.5 percent German, 1.6 percent Ukrainian, Serb, Croat, Russian, Turk, and Gypsy.
Language: Romanian spoken in all regions; Hungarian and German commonly used in Transylvania and Banat. Systematic discrimination against minority languages.
Education: Mandatory attendance, ten years; literacy, 98 percent. Highly centralized. Marxist ideology and nationalistic values stressed at all levels. In 1980s technical and vocational education emphasized.
Religion: About 70 percent Romanian Orthodox, 6 percent Uniate, 6 percent Roman Catholic, 6 percent Protestant, 12 percent unaffiliated or other.
Health and Welfare: Free health care provided by state. Most serious health threats cancer, cardiovascular disease, alcoholism. Infant mortality rate, 25 per 1,000 live births (1989). In 1989 life expectancy for men 67.0 and for women 72.6 years. Pensions inadequate; health care for elderly generally poor. Rural areas neglected.

ECONOMY

Industry in Romania

 

Gross National Product: US$151.3 billion (1988), US$6,570 per capita, with 2.1 percent growth rate. Industry accounts for 52.7 percent, agriculture 14.9 percent, other sectors 32.4 percent (1987).
Administration: Extremely centralized, directed by communist party. Detailed economic planning. State ownership of most fixed assets.
Fuels and Energy: Once extensive oil and gas reserves nearing depletion. Increasing dependence on imported fuels. Coal reserves large but of poor quality. Coking coal reserves inadequate. Significant hydroelectric potential under development. Nuclear power program lagging badly.
Minerals: Deposits of ferrous and nonferrous ores, salt, gypsum. Increasingly dependent on imported iron ore.
Foreign Trade: Split almost evenly between socialist and nonsocialist countries. Large surpluses run during 1980s to repay foreign debt. Major exports metallurgical products, machinery, refined oil products, chemical fertilizers, processed wood products, agricultural commodities. Major imports crude oil, natural gas, iron ore, machinery and equipment, chemicals, foodstuffs.
Industry: Fuels production and processing, metallurgy, chemicals, machine building, forestry, food processing, textiles.
Agriculture: About 91 percent collectivized. Primary crops: corn, wheat, barley, oilseeds, potatoes, sugarbeets, fruits and vegetables. Cattle, sheep, hogs, and poultry widely raised.
Exchange Rate: 14.5 lei per US$1 in January 1989.

ECONOMIC STRUCTURE AND DYNAMICS

Evolution

From earliest times, the Romanian lands were renowned for their fertile soil and good harvests. As the Roman colony of Dacia, the region supplied grain and other foods to the empire for nearly two centuries. During the subsequent two millennia, a succession of foreign powers dominated the area, exploiting the rich soil and other resources and holding most of the native population in abject poverty. It was not until the middle of the nineteenth century that a unified, independent Romania finally emerged, opening the way for development of an integrated national economy.

Modern machines in Romania

But even after Romania had gained independence, foreign interests continued to dominate the economy. Large tracts of the best grain-growing areas were controlled by absentee landlords, who exported the grain and took the profits out of the country. Outsiders controlled most of the few industries, and non-Romanian ethnic groups--particularly Germans, Hungarians, and Jews-- dominated domestic trade and finance. The centuries of outside control of the economy engendered in the Romanian people an extreme xenophobia and longing for self-sufficiency--sentiments that would be exploited repeatedly by the nation's leaders throughout the twentieth century.
On the eve of World War II, agriculture and forestry produced more than half of the national income. Reflecting the country's limited economic development, about 90 percent of export income in 1939 was derived from raw materials and semifinished goods, namely grain, timber, animal products, and petroleum. The most advanced industry at that time, oil extraction and refining, was controlled by Nazi Germany for the duration of the war and suffered severe bombing damage.
For several years following the war, the devastated economy was burdened with reparation payments to the Soviet Union, which already by 1946 had expropriated more than one-third of the country's industrial and financial enterprises. By mid-1948 the Soviets had collected reparations in excess of US$1.7 billion. They continued to demand such payments until 1954, severely retarding economic recovery.
After the installation of a Soviet-styled communist regime, Romania's economic evolution would faithfully follow the Stalinist pattern. Adopting a centrally planned economy under the firm control of the PCR, the country pursued the extensive economic development strategy adopted by the other communist regimes of Eastern Europe but with an unparalleled obsession with economic independence. The development program assigned top priority to the industrial sector, imposed a policy of forced saving and consumer sacrifice to achieve a high capital accumulation rate, and necessitated a major movement of labor from the countryside into industrial jobs in newly created urban centers. The first step on this path was nationalization of industrial, financial, and transportation assets. Initiated in June 1948, that process was nearly completed by 1950. The socialization of agriculture proceeded at a much slower pace, but by 1962 it was about 90 percent completed.
Beginning in 1951, Romania put into practice the Soviet system of central planning based on five-year development cycles. Such a system enabled the leadership to target sectors for rapid development and mobilize the necessary manpower and material resources. The leadership was intent on building a heavy industrial base and therefore gave highest priority to the machinery, metallurgical, petroleum refining, electric power, and chemical industries.
Shortly after Nicolae Ceausescu came to power in 1965, PCR leaders reevaluated the development strategy and concluded that Romania would be unable to sustain the rapid rate of economic growth it had achieved since the early 1950s unless its industry could be streamlined and modernized. They argued that the time had come to assume an intensive development strategy, for which the term "multilateral development" was coined. This process required access to the latest technology and know-how, for which Ceausescu turned to the West.
Economic growth during the first twenty-seven years of communist rule was impressive. Industrial output increased an average 12.9 percent per year between 1950 and 1977, owing to an exceptionally high level of capital accumulation and investment, which grew an average 13 percent annually during this period. But with the concentration of resources in heavy (the so-called Group A) industries, other sectors suffered, particularly agriculture, services, and the consumer-goods (Group B) industries.
After 1976 the economy took a sharp downturn. A severe earthquake struck the country the following year, causing heavy damage to industrial and transportation facilities. Ceausescu's vision of multilateral development had made little headway, as the bureaucracy was unable to steer the economy onto a course of intensive development, which would have necessitated major improvements in efficiency and labor productivity. The population was demanding production of more consumer goods, and an incipient labor shortage was hindering economic growth. By 1981 the country was in a financial crisis, unable to pay Western institutions even the interest on the debt of more than US$10 billion accumulated during the preceding decade. Obsessed with repaying this debt as soon as possible, Ceausescu imposed an austerity program to curtail imports drastically, while exporting as much as possible to earn hard currencies. Rationing of basic foodstuffs, gasoline, electricity, and other consumer products was in effect throughout the 1980s, bringing the Romanian people the lowest standard of living in Europe with the possible exception of Albania. In April 1989, Ceausescu announced that the foreign debt had been retired, and he promised a rapid improvement in living conditions. Most foreign observers, however, doubted that he could fulfill this pledge.

FOREIGN TRADE

Goals and Policy

During the postwar era, Romania used foreign trade effectively as an instrument to enhance the development of the national economy and to pursue its goal of political and economic independence. In this context, earning a foreign-trade surplus was not a primary concern until the late 1970s. The primary goal, rather, was acquisition of the modern technologies and raw materials needed to create and sustain a highly diversified industrial plant. The export program was geared to earning the required hard currency to purchase these materials and technologies. But in the 1980s, the focus of foreign trade was shifted to curtail imports and run large hard-currency surpluses to repay the debt that had accrued in the previous two decades. Enterprises that produced for export received preferential treatment in resource allocation and higher prices for their output.

Foreign exchange graph

Foreign trade was a state monopoly. Trade policy was established by the PCR and the government, and its implementation was the responsibility of the Ministry of Foreign Trade and International Economic Cooperation. Subordinate to the ministry were special state agencies--foreign-trade organizations--that conducted all import and export transactions. In 1969 the ministry was reorganized to become essentially a coordinating agency, and within a year only three foreign-trade organizations remained under its direct control. This decentralization was short-lived, however, as the number of foreign-trade organizations was reduced from fifty-six in 1972 to forty in 1975, and all but four of these were returned to the ministry's control.

Trading Partners

Before World War II, the West accounted for more than 80 percent of Romania's foreign trade. During the postwar period up to 1959, however, nearly 90 percent of its trade involved Comecon nations. The Soviet Union was by far the most important trading partner during this period. But the PCR's insistence on autarkic development led Romania into direct confrontation with the rest of the Soviet bloc. In the late 1950s and early 1960s, Soviet leader Nikita Khrushchev had envisioned an international division of labor in Comecon that would have relegated Romania to the role of supplier of foodstuffs and raw materials for the more industrially developed members, such as the German Democratic Republic (East Germany) and Czechoslovakia. In April 1964, however, General Secretary Gheorghe Gheorghiu-Dej threatened to take Romania out of Comecon unless that organization recognized the right of each member to pursue its own course of economic development.

Export areas in Romania

As early as the 1950s, Gheorghiu-Dej had begun to cultivate economic relations with the West, which by 1964 accounted for nearly 40 percent of Romania's imports and almost one-third of its exports. When Ceausescu came to power in 1965, the West was supplying almost half of the machinery and technology needed to build a modern industrial base. In 1971 Romania joined the General Agreement on Tariffs and Trade and the following year it won admission to the IMF and the World Bank. In 1975 Romania gained most-favored-nation trading status from the United States.
Between 1973 and 1977, Romania continued to increase its trade with the noncommunist world and initiated economic relations with the less-developed countries. In 1973 about 47.3 percent of its foreign trade involved the capitalist developed nations, with which it incurred a large trade deficit that necessitated heavy borrowing from Western banks. During this period, major obligations to the IMF (US$159.1 million) and the World Bank (US$1,502.8 million) were incurred.
To gain greater access to nonsocialist markets, Romania set up numerous joint trading companies. By 1977 twenty-one such ventures were in operation, including sixteen in Western Europe, three in Asia, and one each in North America and Africa. Romania held at least 50 percent of the start-up capital in these companies, which promoted its manufactured goods and agricultural products abroad. In 1980 Romania became the first Comecon nation to reach an agreement with the European Economic Community (EEC), with which it established a joint commission for trade and other matters.
During the 1980s, however, trade relations with the West soured. Ceausescu blamed the IMF and "unjustifiably high" interest rates charged by Western banks for his country's economic plight. For its part, the West charged Romania with unfair trade practices, resistance to needed economic reform, and human rights abuses. In 1988 the United States suspended most-favored-nation status, and the following year, the EEC declined to negotiate a new trade agreement with Romania. Meanwhile, attempts to increase trade with the less-developed countries had also met with disappointment. After peaking in 1981 at nearly 29 percent of total foreign trade, relations with these countries deteriorated, largely because the Iran-Iraq War had cut off delivery of crude oil from Iran.

Evolution of Romania

Frustrated by the downturn in trade with the West and the lessdeveloped countries, Romania reluctantly returned to the Soviet fold during the 1980s. By 1986 socialist countries accounted for 53 percent of its foreign trade. But the Ceausescu regime continued to assert its independence, refusing to endorse the Comecon program that would allow enterprises to circumvent routine bureaucratic channels and establish direct business relationships with enterprises in other member countries. And he refused to cooperate in Comecon attempts to establish mutual convertibility of the currencies of the member states.

Structure of Exports and Imports

The assortment of export products changed dramatically during the postwar era. Before the war, raw materials and agricultural products accounted for nearly all export income, but in the 1970s and 1980s, the primary exports were metallurgical products, especially iron and steel; machinery, including machine tools, locomotives and rolling stock, ships, oil-field equipment, aircraft, weapons, and electronic equipment; refined oil products; chemical fertilizers; processed wood products; and agricultural commodities.

Import, export statistic of Romania

Retirement of the Foreign Debt

After 1983 Ceausescu refused to seek additional loans from the IMF or the World Bank and severely curtailed imports from hardcurrency nations while maximizing exports--to the great detriment of the standard of living. As a consequence, Romania ran balanceof -trade surpluses as large as US$2 billion per year throughout the rest of the decade. With great fanfare, Ceausescu announced the retirement of the foreign debt in April 1989, proclaiming that Romania had finally achieved full economic and political independence. Shortly thereafter, the GNA enacted legislation proposed by Ceausescu to prohibit state bodies--including banks-- from seeking foreign credits.