Central Europe Review: politics, society and culture in Central and Eastern Europe
Vol 0, No 37
7 June 1999

Catherine Lovatt M I O R I T A:
Is Romania's Government Crumbling?

Catherine Lovatt

The Romanian government is facing severe problems. Public confidence in the government is dwindling, the economy has reached its lowest point since the collapse of Communism in 1989 and the conflict in Kosova has only intensified that economic deterioration. Prime Minister Radu Vasile is grappling with a situation that is spiralling out of control. Consequently, the position of Vasile and his government is increasingly threatened. Could this threat lead to collapse?

The 1996 Romanian elections saw Emil Constantinescu (pictured) chosen as President and a democratic coalition brought to power with a convincing majority. May 1999 saw Prime Minister Vasile confronted with the Cabinet's second vote of no confidence in five months.

Luckily, Valsile survived - defeating the leftist and nationalist opposition by a vote of 248 to 147. Vasile then told the assembly "The problems now facing the country are extremely difficult, and we must learn to show solidarity... in order to weather this period" (Reuters, 20 May 1999). Solidarity is a necessity if Romania is to overcome its debt-servicing peak which is expected to reach USD 900 million this month. The nation is becoming sceptical, however, and any links of solidarity are tenuous.

Austerity is taking its toll. Ten years after the fall of Communism, Romania faces a third consecutive year of a contracting economy. Average monthly wages of USD 100 are among the lowest in Europe. Prices are rising, taxes are high and the banking sector is crumbling.

The Romanian President is not unaware of the growing social discontent, stating that "...Romanian reforms have stagnated or have progressed very slowly, which has fuelled a general feeling of mistrust" (Reuters, 24 May 1999).

This mistrust is represented in the Trade Unions. Romania's four largest Trade Unions have staged a one-day general strike to pressure the government into easing its austerity policies. Bogdan Hossu, leader of the Alfa Trade Union, saw the strike as a "cold shower" for the government - a threat of what may come if the situation does not improve. The realisation of an open-ended general strike would prove disastrous for the Romanian government and economy. Trade Union pressure is potentially hazardous in an already rapidly deteriorating situation. Vasile recognises this hazard - arguing that an all out shutdown would affect Romania's stability and dash her hopes for inclusion in international plans to rebuild the Balkans.

The desire to attain credible political and economic international status has encouraged Romania to enforce policies rapidly. This has been detrimental to her domestic economy and is now creating problems for the government who are unable to control the spiralling situation.

On a recent visit to Romania, President Clinton suggested a possible reform plan for the Balkans in order to ensure the region's entry into NATO and the EU after the conflict in Kosova has been resolved. If Romania's economy continues to worsen, there is a possibility that she will be too unstable to reap the possible benefits of such a plan.

The Kosovan conflict has severely weakened the Romania economy. The Romanian government has toed the NATO line on action in Kosova, but the conflict has cost the sagging economy an estimated USD 750 million in lost trade and blocked Danube shipping. Romania's desire to gain NATO entry has raised questions over government priorities.

Although Romania is faced with severe problems, the government recognises the situation and is attempting to resolve it. One major disadvantage has been that banking and privatisation have been placed in the hands of the government rather than in the hands of specialised government bodies. In response to this problem, the government have endorsed a new programme of accelerated reforms which aim to boost the flagging economy. Radu Vasile told the two chambers of Parliament that "unjustified delays in privatisation and lack of coherent structural reforms have brought Romania to the brink of bankruptcy" (Reuters, 12 May 1999). The reform programme will amend the privatisation law and change corporate, bankruptcy and leasing laws. The success of the amendment is, as yet, unknown but appears to be a last ditch attempt by a weakening government to resolve a multitude of problems in a limited time period. Time, however, is the most important factor.

Over the years, many areas of potential income have been neglected by the Romanian government. Consequently, economic problems could be softened through the development of a more efficient and effective system. One major area of neglect has been the tax system, which has been plagued by tax dodgers and corruption. The latter discourages potential investors who do not wish to lose out due to avoidable abuses. In response, Constantinescu has appointed a commission to develop a new tax code.

The code is seen as the key to improving the business climate and attracting much needed investors. The commission is composed of businessmen, lawyers and tax specialists who understand the importance of a viable and workable tax code. Stability in legislation is extremely important for investors. A strong tax code could encourage those investors.

The influence of the amendments and the new tax code will only be noticeable in the long term. This could be dangerous for the government. Trade Unions are demanding quick and effective solutions; without them the country will be faced with striking workers and the complete stagnation of the economy. Although the government are attempting to remedy these problems, they may have left it too late.

However, in the short term they have verbal confirmation from the IMF of supplement funds for new standby credit for Romania. The government had initially sought a loan of USD 475 million but have also requested additional loans of USD 300 million. Roxana Dascalu, reporting for Reuters, has noted: "Romania is seeking around USD 1 billion from the IMF and the World Bank, but fresh loans are tied to quicker sell-offs and restructuralisation of oversized industry" (Reuters, 20 May 1999). Seeking out loans has some short term benefits, but in the long term it brings greater debt and merely postpones problems.

The Romanian government are precariously poised. They still hold a majority and tenuous support. The period of austerity has seriously damaged their position, the economy is on the brink of collapse and society is growing increasingly mistrustful. The situation is running out of control. How many more votes of no confidence can the government survive? The government is attempting to resolve the problems but time is not on their side. At present, solidarity still exists and is essential for the success of the government and their reforms but the future of Constantinescu's coalition is extremely fragile.

Catherine Lovatt, 7 June 1999


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