ROMANIA: ECONOMIC SLIDE ENDS, BUT ECONOMIC REFORM FACES UPHILL BATTLE

• Document Type: FOIA
• Keywords: EASTERN EUROPE
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 0005657432
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 2
• Document Creation Date: June 24, 2015
• Document Release Date: July 14, 2011
• Case Number: F-2011-01070
• Publication Date: July 7, 1994

Prime Minister Vacaroiu is seeking external support for restructuring Romanian
industry, but three years of gradual reform have prolonged Romania's painful transition,
squandering resources and delaying recovery. A 1994-1995 IMF agreement commits Romania
to accelerate privatization and restructuring, but growing poverty risks undermining support
for a market economy.
Economy Bottoming Out
1988.
Industrial production grew 1.3 percent in 1993.
Agricultural production grew 12 percent in 1993, the first increase since
Romania's inflation rate--nearly 300 percent last year--led the region. Workers' real
wages fell 15 percent as prices soared.
Subsidies for nonviable industries increased inflation and diverted credit
needed by the growing private sector.
High inflation created negative real interest rates, eroding savings.
IMF Pushing Economic Reform
The Vacaroiu government signed a tough IMF program last December pledging to take
measures to reduce inflation and accelerate reforms in return for over $700 million in new
loans.
Bucharest has already raised interest rates and tightened the money
supply, sharply reducing inflation.
(b)(1)
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 Reforms Face Growing Opposition
The Vacaroiu Government probably no longer has the political strength to implement
the program, however, If the current government is unable to attract support from more
reform-minded parties Bucharest is likely to fall short of at least some of the agreed targets.
Support for labor protests is growing. Unions, protesting higher
unemployment and falling wages, brought thousands of supporters to
Outlook for Stability
Bucharest, which believes its national security lies with integration into Western
economic institutions and security arrangements, will almost certainly continue market-
oriented reforms in the near term, although its political weakness rules out full compliance
with the IMF program.
In the end, the population is likely to judge the new political and
economic system by its success or failure in improving living standards.
By putting off painful economic reforms in the state sector, Bucharest is
postponing economic recovery, leavine the new institutions with less