EU Focus: Romania Favours Stability Over Reforms

In the small town of Bicaz, eastern Romania, former plumber Petre Agapiu scrapes a living from selling old clothes on street corners. "I have a daughter studying in Bucharest," he said. "I give her everything I earn. My wife and I are unemployed but our child has to have a future."

Agapiu's plight is shared by many people in small towns all over Romania as the country gears up for European Union membership in 2007 - and the forces of free market competition slowly push traditional industries to the wall.

Once a flourishing industrial community, Bicaz's factories have mostly closed and its young people have moved away. Almost 60 per cent of the remaining residents are pensioners, many of whom spend their time in bars, drowning their sorrows in cheap brandy.

The harsh reality of international economic competition is starting to bite all over Romania. In recent weeks, workers have been demonstrating almost daily across the country, demanding higher wages, increased pensions, job security and lower utility prices.

Rail and steel workers, miners and defence industry staff have all protested against government plans to cut jobs this year, which have been agreed with the International Monetary Fund, IMF. The government has promised the IMF, its main economic mentor, to lay off 23,000 public sector workers, including 7,000 miners, 6,000 railway workers and around 10,000 employees of non-profitable state companies.

In reality, the cuts are likely to be less dramatic than many workers fear, and analysts predict that economic reform will slow during this election year - parliamentary and presidential polls are scheduled for November.

Political analyst Mark Percival, of the Romanian Think Tank, predicts that the government will not want to risk major unrest in a year dominated by polling, in spite of the need to restructure state-run industries.

"The problem is that the government's failure to open the economy has only made the social impact of such restructuring worse," he added

Percival locates the economy's key problem in the slow flow of foreign investment. "This could have generated new jobs for those made redundant from state industries," he said. "If more companies had located to Romania, they would need railways to transport their goods, so the railway system would not need such drastic reduction."

The shortage of foreign investors has caused many economic side effects. As factories close and no alternative employers take their place, a growing number of Romanians have to go abroad for work. Around two million of them now work - mostly illegally - in Spain, Italy, Germany and Israel, among other countries.

The government has registered some successes in the economy over the last few years. Gross domestic product has been rising by about five per cent annually. The inflation rate, which peaked at 150 per cent in 1997, is expected to fall to nine per cent by the end of 2004.

The government claims it will accelerate the pace of reforms to meet the goal of European integration in 2007. Apart from the key areas of justice and administration, which the EU has identified as priority areas for a thorough shake-up, Prime Minister Adrian Nastase recently said his government would "courageously take on the restructuring of state-controlled bodies and the privatisation of public services".

But the creation of a real market economy remains a distant prospect. "I don't think the government can really speed up the restructuring process significantly, even if they try," said Sorin Ionita, director of the Romanian Academic Society, SAR, an independent think-tank.

According to Ionita, the authorities will instead declare "mission accomplished" with regard to EU harmonisation this autumn if they succeed in selling off some key enterprises in the energy sector, cut a few thousand public sector jobs and keep inflation under control. Beyond that, Ionita says, they will simply rely on "a bit of luck and spin".

Analysts say that while a large proportion of the public is unhappy with the government's performance, voters are unlikely to choose an alternative to the ruling Social Democrat Party party, PSD.

Polls show the PSD leading voter preferences with around 40 per cent - well ahead of a coalition of liberal and centrist parties on 30 per cent. The ultra-nationalist Greater Romania Party trails in third place with around 14 per cent support.

Analysts say the ruling party stands to benefit from the lack of a strong opposition and the traditional political apathy of a large section of the public.

Nevertheless, the public is aware of the government's shortcomings. An opinion poll published in mid-February showed more than 70 per cent were angered by what they see as increasing corruption.

"Corruption is problem number one here," said Mark Percival. "It is one of the main reasons why Romania does not have a functioning market economy, because normal economic transactions are distorted by a system which favours an insider with connections over any newcomer. And those who are willing to bribe [are given priority over] those who are not."

The unchecked growth of a private-sector economy that has little connection to market forces is a phenomenon that needs watching, Percival warned.

"The government seems more interested in consolidating its political control than in market reform," he said.

"Romania is evolving into a soft authoritarian state, with a semi-open economy still dominated by those with connections to the ruling party."

Marian Chiriac is an IWPR contributor in Bucharest.