Regional Factbooks

This Country Commercial Guide (CCG) presents a comprehensive look at Romania's commercial environment, using economic, political, and market analysis. The CCGs were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. CCGs are prepared annually at U.S. embassies through the combined efforts of several U.S. government agencies.

Reform has been the dominant preoccupation of the Romanian Governments since 1996, with the process accelerating beginning in the last quarter of 1998. The State Ownership Fund, which for the last eight years has had the responsibility for selling off state-owned enterprises to private investors, has sold more than 6,700 Romanian state-owned companies. Most of the sales have taken place during the last three years, bringing in an aggregate revenue of 20.7 trillion lei (approximately USD 2 billion). Despite progress on economic restructuring and privatization, remaining state-owned, loss-making enterprises cost an estimated USD 2 billion per year. These losses contributed to inflation and put pressure on the government's tight fiscal and monetary policy over the past three years. Moreover, the government was required to pay USD 2.1 billion in foreign public and public guaranteed debt in 1999. It met this requirement with no external financial support while also restoring its foreign currency reserves. Foreign debt servicing requirements for 2000 are just USD 1.4 billion.

The government has had a stand-by agreement with the IMF since November 1998, under which it has received two disbursements, in August 1999 and in June 2000. The IMF agreement has been important as a signal to the international financial community of Romania's creditworthiness and commitment to prudent macroeconomic policies. IMF stand-by agreement conditionalities have included reducing the current account and budget deficits, suspending generous investment incentives, raising tax revenue and controlling public sector wage costs and other measures. Some of these requirements have been at odds with Romania's need to attract new investment and stimulate economic growth.

Romania's economy moved into a recession in 1997. GDP decreased by 6.3 percent in 1997, decreased by another 7.3 percent in 1998, and declined by another 3.2 percent in 1999. However, by early 2000, there were growing indications that the economic contraction had reversed and economic growth for 2000 was expected to reach 1.3 percent. Imports declined in 1999, which helped cut the current account deficit, and increased again in the first quarter of 2000, which may indicate a resumption of economic growth. Meanwhile, the fall in real wages and the real depreciation of the leu have created a base for improved exports, and the current account deficit, which stood at USD 2.9 billion in 1998 and USD 1.3 billion in 1999, had become a surplus of USD 31 million by the end of February 2000.

A new tax law adopted in early 2000 created a global income tax and lowered the corporate profit tax rate, a step forward in establishing a more equitable taxation system in Romania. Nevertheless, the Romanian tax and regulatory environment continues to be complex and confusing to U.S. business looking for a bigger role in Romania's economy. U.S. investors, who have been able to discount the burdens of constantly changing regulations, disappearing investment incentives, and erratic taxation, have discovered that the Romanian marketplace is a valuable asset for their marketing plans. There are solid reasons to believe that they represent the start of a durable trend.

Demographics & Economic Situation

Source: Factbook.net