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Department of State report submitted to the Senate Committees on Foreign Relations and on Finance and to the House Committees on Foreign Affairs and on Ways and Means, January 1998.
| Income, Production, and Employment | 1995 | 1996 | 1997 1/ |
| Nominal GDP 2/ | 35.3 | 35.52 | 31.4 |
| Real GDP Growth (pct) 3/ | 7.1 | 4.1 | -2.0 |
| GDP by Sector: | |||
| Agriculture | 7.0 | 6.9 | 6.8 |
| Industry | 12.3 | 12.7 | 10.6 |
| Services 4/ | 16.2 | 15.9 | 14.0 |
| Per Capita GDP (US$) | 1,565 | 1,564 | 1,389 |
| Labor Force (millions) | 10.5 | 10.4 | 10.4 |
| Unemployment (pct) | 9.5 | 6.3 | 9.0 |
| Money and Prices (annual percentage growth) | |||
| Money Supply Growth (M2) | 71.6 | 66.0 | 111.8 |
| Consumer Price Inflation | 27.8 | 56.9 | 151.4 |
| Exchange Rate (Leu/US$ - annual average) | |||
| Official | 2,033 | 3,082 | 7,161 |
| Balance of Payments and Trade | |||
| Total Exports FOB 5/ | 7.9 | 8.1 | 8.8 |
| Exports to U.S. (US$ mlns) 6/ | 200.8 | 180 | 300 |
| Total Imports CIF 5/ | 9.5 | 10.6 | 10.5 |
| Imports from U.S. (US$ mlns) 6/ | 419.4 | 375.8 | 347.6 |
| Trade Balance 5/ | -1.6 | -2.5 | -1.7 |
| Balance with U.S. (US$ mlns) 6/ | -218.6 | -195.8 | -47.6 |
| Current Account Deficit/GDP (pct) | 4.9 | 7.3 | 5.1 |
| External Public Debt | 6.8 | 9.1 | 10.4 |
| Debt Service Payments/GDP | 3.8 | 5.6 | 8.0 |
| Fiscal Deficit/GDP (pct) | -2.6 | -3.9 | -3.7 |
| Gold and Foreign Exchange | |||
| Reserves 7/ | 2.27 | 2.54 | 4.41 |
| Aid from U.S. (US$ millions) 8/ | 39.0 | 26.0 | 33.1 |
| Aid from All Other Sources 8/ (US$ millions) | 200.7 | 142.6 | 76.9 |
1/ All figures for 1997 are estimates extrapolated
from data available in October, 1997.
2/ GDP at factor cost.
3/ %age changes calculated in local currency.
4/ Government expenditure is included in services.
5/ Merchandise trade.
6/ Source: Romanian National Statistics Commission.
7/ Total banking system net international reserves; end of period.
8/ Does not include military aid.
1. General Policy Framework
In early 1997, Romania's newly elected government adopted an economic reform program, backed by a stand-by agreement with the IMF. The Government of Romania has seen some success in implementing the macroeconomic stabilization program: inflation has dropped, the current account deficit has been reduced, foreign exchange reserves have increased, and the exchange rate has stabilized. The government deficit is within the IMF-target of 4.5% of GDP. The government has been less successful, however, in its restructuring and privatization efforts. More than half of industrial production remains in state hands.
Romania is committed to becoming a member of the European Union, which is by far Romania's largest trading partner. In the first seven months of 1997, the EU received 57.3% of Romania's total merchandise exports and provided 51.7% of its merchandise imports. In contrast, the United States accounted for only 3.95% of Romania's exports and 3.92% of its imports during the same period.
2. Exchange Rate Policy
The foreign exchange market was liberalized in February, 1997 and has been functioning effectively since that time. Romania has passed legislation to implement full leu-convertibility by the end of January, 1998, which will increase domestic confidence in the economic reform program.
3. Structural Policies
Economic reform has entailed creating new laws in virtually every sphere: commerce, privatization, intellectual property, banking, labor, foreign investment, environment, and taxation. While new legislation is necessary to create a basis for a market economy, the rate of change of legislation has also served as a brake on trade and investment. For example, an emergency law on foreign investment was issued in June, 1997, but the necessary implementing regulations were not put in place until October. In the interim, Parliament decided to redraft the legislation to provide a level playing field for domestic as well as foreign investors. The result has been to significantly slow the inflow of investment until the legal framework is clarified.
In the agricultural sector, Romania has made significant progress in its reform program. Prices for almost all products have been liberalized, export quotas have been lifted, and tariffs have been reduced. Privatization and liquidation of state-owned farms is on track.
In contrast, Romania has moved slowly to privatize and reform state-owned banks or to restructure heavy industry, which remains largely in state hands. In August, 1997 the government announced plans to close 16 energy- intensive industries which cannot pay their bills. Implementation of the plan has been uneven.
4. Debt Management Policies
At the end of 1996, Romania's medium and long-term external debt amounted to $6.9 billion. At the same time, the short-term debt amounted to $1.2 billion. The National Bank's foreign exchange reserves amounted to $550.7 million, and the commercial banks' reserves reached $1.6 billion. At the same time, Romania had claims against foreign countries worth $3 billion, stemming from economic transactions prior to December, 1989.
Romania's foreign indebtedness and external debt service ratio remain relatively low and manageable. The ceiling for 1997 foreign borrowing has been set at $3.2 billion by law.
5. Significant Barriers to U.S. Exports
Traditionally defined trade and investment barriers are not a significant problem in Romania. There are no laws which directly prejudice foreign trade or business operations, although EU and members of the Central European Free Trade Area (CEFTA) enjoy tariff preferences for some goods as a result of Romania's Association Agreement with the European Union and membership in CEFTA as of July, 1997.
Bureaucratic red tape and uncertainties in the legal framework can make doing business in Romania difficult. There is little experience in Western methods of negotiating contracts and, once concluded, there is no effective means to enforce contracts. In addition, title insurance is not available for property acquisitions and purchasers are potentially subject to legal challenge by former owners or managers. The absence of effective legal means for pressing claims against debtors is a further complication for foreign investors.
The cost of doing business in Romania is high, particularly for office rentals, transportation, and telecommunication services. Lack of an efficient, modern payments system further delays transactions in Romania. The capital requirements for foreign investors are not onerous, but income taxes are steep. Foreign companies investing over certain amounts qualify for some tax exemptions.
Investment barriers are few in Romania. The Foreign Investment Law allows up to 100% foreign ownership of an investment project (including land), and there are no legal restrictions on the repatriation of profits and equity capital. Governmental approval of joint ventures requires extensive documentation. U.S. investment in Romania is increasing and by November, 1997, totaled $254.5 million, ranking the United States second among foreign investors after the Netherlands.
Romania is a member of the World Trade Organization, but not a signatory to the agreement on government procurement or civil aircraft.
6. Export Subsidies Policies
The Romanian government does not provide export subsidies but does attempt to make exporting attractive to Romanian companies. For example, the government provides for the total or partial refund of import duties for goods that are processed for export or are incorporated into exported products. The Romanian Export-Import Bank engages in trade promotion activities on behalf of Romanian exporters of goods produced in Romania.
There are no general licensing requirements for exports from Romania, but the government does prohibit or control the export of certain strategic goods and technologies. For example, the government has on occasion banned the export of various commodities due to domestic shortages. There are also export controls on imported or domestically produced goods of proliferation concern.
7. Protection of U.S. Intellectual Property
Romania has made significant progress in the area of intellectual property protection since the end of the communist era. Patent and trademark laws are in place and legislation on pipeline protection for pharmaceuticals is expected to be passed by the Parliament early in 1998. Copyright legislation, which was enacted in 1996, has sparked new interest among American technology firms in investing and marketing their products in Romania. The Romanian government has proven receptive to offers of international assistance in enforcement, but has yet to establish a strong enforcement record in the copyright area.
Pirated copies of audio and video cassette recordings are available, but not openly displayed. In a few cases, pirated films are broadcast via local cable television stations. Illegal compact discs sold in Romania are imported, but there are no known exports of pirated products from Romania. An industry association representing U.S. companies estimated annual losses due to piracy of intellectual property at roughly $45 million in 1996.
Romania is member of Berne (the Stockholm Convention of (1968), World Intellectual Property Organization, the Paris Industrial Property Convention, the Patents Cooperation Treaty, the Madrid Convention, and the Hague Convention on Industrial Design, Drawings and Models. As a country in transition, Romania will implement the WTO agreement on intellectual property on January 1, 2000.
8. Worker Rights
a. The Right of Association: All workers except public employees, police, and military personnel, have the right to associate freely and to form and join labor unions without prior authorization. Labor unions are free from government or political party control but may engage in political activity. Labor unions may join federations and affiliate with international bodies, and representatives of foreign and international organizations may freely visit and advise Romanian trade unionists.
b. The Right to Organize and Bargain Collectively: Workers have the right to bargain collectively. Basic wage scales for employees of state-owned enterprises are established through collective bargaining with the state. There are legal limitations on the right to strike only in industries such as defense, health care, transportation, and telecommunications, which the government considers critical to the public interest.
c. Prohibition of Forced or Compulsory Labor: The Constitution prohibits forced or compulsory labor. The Ministry of Labor and Social Protection effectively enforces this prohibition.
d. Minimum Age for Employment of Children: The minimum age for employment is 16. Children as young as 14 may work with the consent of their parents or guardians but only "according to their physical development, aptitude, and knowledge." Working children under 16 have the right to continue their education, and employers are obliged to assist in this regard.
e. Acceptable Conditions of Work: Minimum wage rates are generally observed and enforced. The Labor Code provides for a standard workweek of 40 hours, with overtime for work in excess of 40 hours, and paid vacations of 18 to 24 days annually. Employers are required to pay additional benefits and allowances to workers engaged in dangerous occupations. Nevertheless, some labor organizations press for healthier, safer working conditions. The Ministry of Labor and Social Protection has established safety standards for most industries, but enforcement is inadequate and employers generally ignore the Ministry's recommendations. On average, women experience a higher rate of unemployment than men and earn lower wages despite educational equality. The average gross monthly wage in September 1997 was around $100.
f. Rights in Sectors with U.S. Investment: Conditions do not appear to differ in goods-producing sectors in which U.S. capital is invested. Extent of U.S. Investment in Selected Industries -- U.S. Direct Investment Position Abroad on an Historical Cost Basis -- 1995
| Category | Amount | |
| Petroleum | 0 | |
| Total Manufacturing | (1) | |
| Food & Kindred Products | (1) | |
| Chemicals & Allied Products | (1) | |
| Metals, Primary & Fabricated | 0 | |
| Machinery, except Electrical | 0 | |
| Electric & Electronic Equipment | 0 | |
| Transportation Equipment | 0 | |
| Other Manufacturing | 1 | |
| Wholesale Trade | -1 | |
| Banking | (1) | |
| Finance/Insurance/Real Estate | 0 | |
| Services | 0 | |
| Other Industries | (1) | |
| TOTAL ALL INDUSTRIES | 63 |
(1) Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
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