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					                                                                                                    The Eurasia Center
                                                                                         1800 Connecticut Avenue NW
                                                                                               Washington, DC 20009
                                                                                                    www.eurasiacenter.org
                                                                                            Email: Eurasiacenter1@cs.com


                                     Romania: Economic Overview
The Path to EU Accession:
Following the 22 December 1989 overthrow and execution of Romanian
dictator, Nicolae Ceausescu, Romania was ruled by former Communists until
1996. NATO accession in 2004 and the beginning of EU accession process in
1993 were important mileposts in Romania’s transition from Soviet rule.
Positive Indicators:
 In the first quarter of 2006, Romania’s GDP saw a real growth of 6.9%
  and is forecast to continue growing around 5% in coming years.1
 Construction, agriculture, and consumer goods sectors have been behind
  the strong real GDP growth.2




                                                                                                                         3

 Romania, along with Bulgaria, is scheduled to enter the European Union
       in January 2007. This has been the primary reason for much of the
       changes being made in Romania and will also result in many more
       positive economic changes and growth after accession. In June 2006, EU
       enlargement commissioner Ollie Rehn said that Romania must strengthen




1
    The Economist Country Briefings: Romania, (http://www.economist.com/countries/Romania/profile.cfm?folder=Profile-Forecast)
2
    Ibid.
3
    World Bank, Romania at a Glance, August 25, 2005 (http://devdata.worldbank.org/AAG/rom_aag.pdf)
     anti-corruption and anti-organized crime efforts in order to create the
     business environment necessary for accession to the EU.4

Economic Structure:
    Construction, agriculture, and consumer goods sectors have been behind
     the strong real GDP growth.5
    The European Union has provided a strong market for Romanian exports
     (67% in 2005)6 and helped Romania come out of a three year recession
     in 2000.7

Political Considerations:
 Romania has a Senate and Chamber of Deputies.              All members are
     elected for 4-year terms by proportional vote based on party, except for
     the president and mayors. The center-right alliance of the National
     Liberal Party/Democratic Party and the Social Democratic Party each won
     roughly half of the seats in the House of Deputies in November 2004. A
     majority was created with the alliance of National Liberal Party, the
     Democratic Party, the Hungarian Democratic Union of Romania, the
     Conservative Party and ethnic minority parties.8

Attractions:
    Currency disinflation: Romania was confident enough in the disinflation
     of its currency that it revalued its currency in 2005, making 10,000 lei
     worth 1 leu, the new Romanian currency.9
    Market Size: Romania is one of the largest markets in Eastern and
     Central Europe, with over 21 million inhabitants.10
    Tax Policy: Romania instituted a flat income and corporate tax of 16% in
     2005, which advocates argue encourages those already employed to work
     more and those without jobs to more actively seek work. Ultimately, the
     increased incentive, even at a lower tax rate, increases tax revenue while
     promoting economic activity.11

Troubled Spots:
 Tax Policy and Budget Deficit: The International Monetary Fund was
  concerned enough by Romania’s tax policies and budget deficit that a July
  2004 24-month standby agreement for $367 million collapsed.12
 Corruption: Corruption is a serious problem in Romania. According to
  Transparency International’s 2005 Corruption Perceptions Index, Romania
  scored a 3.0 out of 10, placing it 85th out of 158 places. A score of 10


4
  “Bulgaria and Romania to cooperate on EU integration,” Sofia Echo (http://www.sofiaecho.com/article/bulgaria-and-romania-to-co-operate-on-
eu-integration/id_16186/catid_68)
5
  Ibid.
6
  Ibid.
7
  CIA World Factbook, Romania (http://www.cia.gov/cia/publications/factbook/geos/ro.html)
8
  Romania, State Department Background Notes (http://www.state.gov/r/pa/ei/bgn/35722.htm)
9
  CIA World Factbook, Romania (http://www.cia.gov/cia/publications/factbook/geos/ro.html)
10
   Romanian Agency for Foreign Investment, Reasons to Invest
(http://www.arisinvest.ro/level1.asp?ID=198&LID=2)
11
   BBC, “East Europeans opt for flat-rate tax,” Jan. 7, 2005 (http://news.bbc.co.uk/2/hi/business/4155907.stm)
12
   CIA World Factbook, Romania (http://www.cia.gov/cia/publications/factbook/geos/ro.html)
     indicates no perception of corruption in a given country by business
     persons and country analysts.13


Acknowledgements:

Research and Data Development Provided by: Drew Beck, Research Assistant

Under the Supervision and Coordination of: Dr. Samuel Lee Hancock, CM, Executive Director




13
  Transparency International, 2005 Corruption Perceptions Index
(http://ww1.transparency.org/cpi/2005/cpi2005.sources.en.html)

				
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