Disappointing Romania: Holes and corners [The Economist 09Dec2010]
Holes and corners
By the standards of its region, Romania is a big country with problems to match
STABILITY is better than crisis and collapse. But what about recovery? After squandering time and cash in a binge that ended in a bust, Romania has sobered up and is trying to cope with its daunting problems. The most pressing is the economy. In the excitement of joining the European Union in 2007, Romania enjoyed a three-year boom in which annual growth peaked at a stonking 8%. Where a prudent government would have hit the brakes, Romania’s stamped on the accelerator, running a big budget deficit. The crash in 2009 forced the country to seek a €20 billion ($26 billion) IMF bail-out in 2009.
That has at least created a welcome external straitjacket for fractious and dithering politicians. But the conditions of the rescue, such as a target for the budget deficit of 4.4% of GDP next year, were harsh. Big spending cuts included a 25% reduction in public-sector wages, which are high for a few, puny for most. In two years the bloated public sector has sacked more than 100,000 employees. After the constitutional court vetoed a pension reform, the government raised VAT to 24%.
Many Romanians see the central bank as their most solid institution. Governments come and go but its boss since 1990, Mugur Isarescu, is a powerful background presence. The bank keeps the leu, Romania’s currency, fairly stable, inflation down and a watchful eye on the financial system (which is in good shape, unlike many others). But it can’t do much to stoke growth, set to be a mere 1.5% next year.
A bright spot is booming exports, up by a quarter on last year. That is good news for mainly foreign-owned manufacturers. But exports count for only a small chunk of the economy. Construction is still in the dumps. So are investment and consumer spending. Help could come from the €30 billion that the European Union has set aside to modernise Romania, the largest and poorest of its new members. But only a measly €1.5 billion has been spent so far. Among many scandalous bottlenecks, Romania still lacks a proper road between Bucharest and its main port, Constanta.
The government is an unpopular coalition of the PDL, the party of the charming but dodgy president, Traian Basescu, and an alliance representing the Hungarian minority. Even critics do not accuse it of cheap populism. On paper, its reform programme looks impressive, if belated. But many doubt if it can cure the perennial ills of corruption, bad bureaucracy and poor public services.
A good example of good intentions but poor results comes from Snagov, an island monastery where the real-life Dracula, a prince called Vlad Tepes, is supposedly buried. With much fanfare, the authorities have built a bridge across the lake, a beauty spot, in the hope of attracting tourists. That is welcome: past governments perversely shunned Romania’s most famous son. The new tourism minister, Elena Udrea (a vivacious and wealthy blonde), wants him to take centre stage. She will lead foreign ambassadors on a “Dracula tour” of his castles in the summer. But for humbler visitors, finding the unsignposted way to Snagov is hard. The ill-built bridge is an eyesore. A rough-spoken monk demands a hefty fee and refers to local gypsies (Roma) as “scum”.
Nor are foreign investors queuing up to take advantage of Romania’s fertile soil and beautiful scenery or its flexible, cheap and multilingual workforce. Services are particularly underdeveloped. “This could be the back office of Europe,” says a foreign banker, who tries hard to stay optimistic. It could also be a regional hub for companies interested in smaller neighbouring countries. But investors like certainty, not the murky, jerky decision-making that typifies Romanian politics.
They would also like more deregulation, much-promised but seldom delivered. And they complain particularly about ignorant and incompetent judges. On paper, the laws are increasingly up to European standards. In practice, the results are unpredictable. One big business, Austrian-owned Petrom, which faces lots of minor lawsuits, is trying in vain to get the courts to identify plaintiffs properly, to specify the size of payouts in judgments and to aggregate identical cases.
Big corruption cases inch forward, as do some judicial reforms such as new criminal and civil codes. The climate of impunity for the rich and powerful is largely gone. Even senior politicians risk jail if their cases eventually come to court. “Corruption is a risky business in Romania now,” says the justice minister, Catalin Predoiu. But the biggest problem in the legal system is that it is so hard to shift ignorant, incompetent or even blatantly corrupt judges. The constitutional entrenchment of the judiciary’s independence in 2003 looks, in hindsight, like a big mistake. Some blame for that lies with outsiders’ advice.
Anti-corruption campaigners are getting ready for another big push, though the corrosively gloomy media make many feel that such efforts are hopeless. Previous victories, such as the election of Mr Basescu in the “orange revolution” of December 2004, have proved fleeting. Scandals, in part politicised, have tainted the former sea-captain’s image, though he may yet return, Putin-style, as prime minister when his term runs out in 2014.
But his greatest fans now are abroad. Many welcome his mended fences with neighbouring Moldova (a province of pre-war Romania in which he once promoted the issue of Romanian passports). A strong Atlanticist, he is a rare remaining ally of the Georgians, who feel bereft of most of their old friends. They would vote for him there, whatever his own people might do.