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- iHaveNet.com: Europe
Romania's Missed Opportunity
by John Feffer
By failing to implement economic reforms, Romania has lagged behind the rest of East-Central Europe.
Bucharest was once known as the Paris of the East. In the 1930s, it was a vibrant city of cafes, artists, and poets. The playwright Eugene Ionescu, the historian of religion Mircea Eliade, and the essayist Emil Cioran all became friends at this time at the University of Bucharest. Romania was also enjoying a brief economic boom, and many of Bucharest's most beautiful houses were built during this period leading up to World War II.
Some of those houses are still standing, including the family home of economist Dragos Negrescu. That's where I met him in 1990 when we talked about the future prospects of Romania.
Negrescu chose to study economics because, back in the 1980s, it offered a better shot of getting a job in a city. Otherwise, as a historian for instance, he would have forced to take a position in the countryside. During the waning years of centralized planning, he worked for a short time at a steelworks in Targoviste and then in a ministry in Bucharest. Since 1989, he has had a series of jobs in and out of government. Currently he works for the European Union in Brussels, and that's where I caught up with him in August 2013.
Negrescu argues that Romania missed an opportunity in 1990 to embark on the same kind of "shock therapy" economic reforms that Poland began. "Prior to October 1990," he told me, "there was no movement toward economic reform. And the government built up a debt to the miners. I don't remember the exact figures, but there were about 100,000 workers in a sector that required no more than 20,000, and they not only kept the miners in place for a decade but increased their salaries. Another brilliant idea was dropping the retirement age for scores of workers because of difficult working conditions. And allowing people to retire wholesale. So basically for the first year the government radically increased all sources of macroeconomic imbalances."
In 1993, Negrescu worked for the government of Nicolae Vacaroiu for eight months, but it was not a satisfying experience. "I worked for the Council for Coordination, Strategy, and Economic Reform, which was headed up by Misu Negritoiu," he told me. "We were writing the strategy of reform, because Vacaroiu had promised a full-fledged program when he got his investiture vote. But our strategy was never implemented. I used to describe the council this way: we were all typing in front of an unplugged keyboard. We were talking to people in the ministries who didn't give a shit what we said. They had their own ways of doing things."
Could Romania have caught up with the rest of the region if it hadn't delayed implementing economic reforms? "It definitely would have lost fewer years than otherwise," Negrescu responded. "When things began to work economically in Romania, when the economy was booming, in 2003-4, then the world crisis happened a few years afterwards. This is very similar to what happened to Romania in the inter-war period, with exactly a 70-year difference in time. Between 1934 and 1938, Romania's economic boom came to a stop because of the world war."
The accession process to the European Union provided Romania with the necessary impetus to push through economic reform. I asked Negrescu if Brussels, too, missed an opportunity to use the leverage of accession to demand further reforms.
"There wasn't much left to reform," he replied. "It is just regular decisions of economic policy. If you look at the fundamentals, Romania compares advantageously to many countries. Look at the fiscal consolidation. You now have a budget deficit after seven months this year that's less than one percent of GDP. Even with the slippage that takes place every December, it will be at most around three percent. Romania's public debt has been increasing at a fast pace in recent years, but it's still only 40 percent of GDP. Compare that to Belgium or France, where it's hovering around 100 percent."
In other words, Romania has become, basically, a normal country. "One can talk a lot about the infrastructure, which is still missing a few parts," Negrescu concluded. "It still takes decades to build a highway. You can pay billions and still get nothing. But we see lots of new buildings. The airport is now looking like a regular airport. Of course the railway network is in shambles, but it's in shambles because there's no demand. Romania is a normal country, that's the point. From the standpoint of economic policy, there might be mistakes, but they're not radically bigger than in other countries."
Do you remember where you were and what you were thinking when you heard about the fall of the Berlin Wall?
Where I was, I don't remember -- most likely at home. I must have heard about it from Radio Free Europe. The thing that I was thinking at that point in time was that it wouldn't happen in Romania. Even in Bulgaria, you had the overthrow of Todor Zhivkov. I still didn't think it would happen in Romania.
When did you think it would happen in Romania?
I was not sure it would succeed even on the night of December 21.
Were you in Bucharest?
What was your experience on that night?
On December 21 in the afternoon, I was at work. I was working pretty close to the square where Ceausescu gave his last speech. I heard the gunfire. When we got out, around 5 pm, I was between the Hotel Intercontinental, where a group of people was gathering, and Piata Romana, where there was another group. I tried to join the latter. But the police were already there, so I didn't have the guts to join them. I went home. We were listening to Radio Free Europe. There were rumors that people were gathering. I went outside with my wife onto the main street in our quarter that goes to the center of the city to see if anyone was joining them. But we didn't see anyone, and again we went home. And then in the night I called a friend of mine. He was at some point at the Intercontinental. I talked to him. He had managed to return home and he told me a bit of what happened.
Twenty-three years later, do you have any clearer understanding of what happened at that time?
No, I don't think anyone will ever have a clear understanding of what happened at that time. But I'm still not buying many of the theories of manipulation. For a simple reason: it's very difficult in Romania to organize things to make them happen as you plan.
So what do you think happened?
Most likely, the Securitate really thought that it was not worth supporting Ceausescu. The costs of supporting him would have been pretty high in terms of lives. And there was pretty widespread discontent. Even people close to power were not living particularly comfortable lives.
When did you decide you were going to focus on economics?
That's what I decided to study, and I didn't have many options afterwards.
Why did you study economics?
The other option would have been studying history, and that would have meant, after finishing university studies, being assigned to a school in a village. Economics offered better options to find a place in a city.
Did you grow up in Bucharest?
What did you do when you graduated?
Prior to December 1989, I had been assigned in a steelworks in Targoviste, and I was commuting on a weekly basis. Ceausescu was shot maybe 50 meters from the railway station that I was using. Maybe 60 meters, not more than that.
I heard they're setting up a museum there.
That's a macabre idea. Honestly, I must be among the few who would say that I would shoot him even now. They should not have done all that circus with the trial. They should have shot him like Mussolini. No pretense of legality. Not to mention that with the guy alive the next year he might have been free again and running for election and possibly even winning.
They did a poll of the most popular Romanians in history but deliberately did not include his name in the poll.
Yes, well. Better to have got rid of him. His children did not deserve what they got, particularly the two that died.
He had a son in Sibiu. And a daughter too, yes?
All three of them were imprisoned immediately afterwards. That was overdoing it.
So, you originally got an assignment to work for an industry in Targoviste.
At that time, we were supposed to stay there for three years. After one-and-a-half years, I managed to get to Bucharest to work in the ministry while still being connected to the steelworks. That's because my father still had connections. My father used to be the general manager of a foreign trade company dealing with metals. In all the socialist countries, the state had a foreign trade monopoly, and different companies focused in specific products. My father's counterpart in the Soviet Union was Yuri Brezhnev. Whom I met when I was 10 years old.
What was it like in Targoviste for that one-and-a-half years?
I was there with my wife. If we had not been able to get a heating device, a rudimentary one from people at the steelworks, I'm not sure we would have survived. The heating simply didn't exist in that apartment block. We put the heating device next to the bed and slept with our clothes on. I don't think we ever took a shower there during the winter. Fortunately we were commuting on a weekly basis. This and other things that I'm not going to forget made me and continues to make me say that the guy deserved to get shot. Plus I remember commuting in unheated trains. Once it was so cold outside, my wife couldn't cope any more and just starting to weep. Fuck Ceausescu!
You got back to Bucharest and you were working…?
In the ministry of metallurgy -- until December 1989. Immediately afterwards I went to the Institute of World Economy.
What was it like to work at the ministry until 1989?
I worked there for eight months. I was able to see the complete chaos of the system. Nothing worked as it was supposed to. Enterprises were supposed to buy and sell products to other enterprises on the basis of contracts. But to close a contract you had to have an allocation, which came from the ministry. In order to get the allocation, you had to meet a quota. Actually, it never worked. To get their allocation, people coming from the provinces to the ministry with meat and eggs. I was working in a department devoted to planning. We were juggling various products and the balances connected to the product inputs and outputs. Whenever these balances were calculated, there were more claims than assets. So, to make the two balance, we had to put "recoveries" on the asset side. But those recoveries never happened! At some point, there were more recoveries than there was consumption! I was able to see from the inside how completely dysfunctional it all was.
Was that an opinion all your colleagues shared? Or did some of your colleagues think it as a functioning system?
Honestly, I never talked to anyone in the ministry who thought it made any sense. Most people were disabused of any faith in the system.
After December 1989, what did you think was going to happen in Romania?
Immediately afterwards I thought it would be easier than it eventually got. Then of course came the preparation for the elections. And all the crap started to come out, with the newspapers and in particular the TV favoring the National Salvation Front. I did not completely lose hope. But I thought it would be far more difficult and that it was not impossible that we'd fall into a completely stalled situation. There is still a lot of talk about the coming of the miners to Bucharest in June 1990. I distinctly remember the morning of June 14. I was at the institute listening to the radio. At some point, some of the miners were listening to a speech by Iliescu, possibly from the balcony of the Victoria Palace. The idiot was saying something like, "I call on the population to denounce those who made…" It had a distinct flavor from six months before.
What did you think of the protests at University Square that eventually prompted Iliescu to call in the miners?
They definitely should have stopped after May 20, after the elections. We used to go there, along with my three-year-old daughter. But after the elections, come on, it was 85 percent for Iliescu! Irrespective of what irregularities there might have been and the role the national TV played, it was a clear majority for those guys. People who stayed on after the elections were the lunatics that we still have in Romania. They helped give a bad name to the protests. In a free country, you have to deal with those idiots as well.
I interviewed Marian Munteanu….
I'm really not interested in his version of the facts, because that definitely can't be the truth. I wonder whether he was manipulated by the Securitate. This was not impossible. He clearly had a legionnaire [Iron Guard] flavor. At some point, before 1990, he was close to some people who used to harbor hard nationalist ideas. And that's a camp that has not lost membership.
What do you think were the economic options were for Romania at that time? Could the government, any government, have done a better job with the economic reform?
Definitely. Especially at the very beginning, Romania had some assets, which the government threw out the window in a single month. I'm not talking about no longer having foreign debt, because that was stupid to begin with. As a parenthesis, every now and then, here in Brussels, I come across locals who try to explain to me how clever Ceausescu was in paying off all of Romania's debt, and I try to make them understand with a simple example. You borrow money to build a house, you build it, and then you start paying back the loans without maintaining the house any longer, and you let it decay -- that's exactly what Ceausescu did. Recently I was talking to my Greek son-in-law who said, "At least Romania had no foreign debt." Yes, but who made this debt in the first place? Ceausescu! Prior to the late 1960s, no socialist country could have borrowed from abroad. Ceausescu built up a small debt by the Eastern European standards of the time, which he used to build factories. Then he started paying back by restricting imports so that those factories either didn't have raw materials or spare parts or could not modernize their product. The Dacia [Romanian-built car] was the same in 1989 as it was in 1970! How idiotic could you be? And Ceausescu is given as an example of a great economist? Okay, closed parenthesis.
But there was a foreign reserve of about $2 billion, which would be the equivalent of about $5 billion now. What did the government do? They started importing oranges!
They wanted to satisfy consumer demands.
Then they didn't liberalize prices for 10 months, while at the same time immediately going to a five-day week. Petre Roman said that there were such pent-up expectations that he couldn't have opposed it. Yes, he couldn't have opposed it -- because he wanted to be in power. And actually what he did was bribery, not giving in to legitimate demands.
What other major mistakes were made?
It all boils down to the fact that prior to October 1990, there was no movement toward economic reform. And the government built up a debt to the miners. I don't remember the exact figures, but there were about 100,000 workers in a sector that required no more than 20,000, and they not only kept the miners in place for a decade but increased their salaries. Another brilliant idea was dropping the retirement age for scores of workers because of difficult working conditions. And allowing people to retire wholesale. So basically for the first year the government radically increased all sources of macroeconomic imbalances.
Who was making these decisions? Were there economists providing recommendations?
There might have been economists as well. There used to be two categories of economists: real economists and the "geniuses" that Ceausescu was using, for whom the only the thing that mattered was production, with a capital "P."
So they didn't have any real economists giving them advice.
Right. On the other hand, I don't think they would have used their advice anyway. There were political demands, then political debts. Also because of doing all that crap in the first months like coming down hard on the opposition and creating a shitty reputation, Romania had no access to external funding any longer. The government could have done it in an intelligent way. They could have used foreign funding as a way of rounding the angles of liberalization.
Later on, of course, it was more difficult and more costly to make the simple -- simple in the sense that they weren't rocket science -- reforms that Balcerowicz did in Poland on the spot. Even now 23 years later, I still favor "shock therapy," in spite of what happened from 2008 onwards. Those reforms just put the economy on the path to the market, and afterwards we can talk about how much market and how much intervention and so on. But 23 years ago, we did not have a sophisticated financial system that could "give birth to monsters," as people say.
If somehow a Balcerowicz-style plan had been instituted in Romania 23 years ago, do you think Romania would have been at the level of Slovakia or the Czech Republic today?
Possibly. It definitely would have lost fewer years than otherwise. When things began to work economically in Romania, when the economy was booming, in 2003-4, then the world crisis happened a few years afterwards. This is very similar to what happened to Romania in the inter-war period, with exactly a 70-year difference in time. Between 1934 and 1938, Romania's economic boom came to a stop because of the world war.
That wasn't a particularly good time in the world economy.
The crisis was mostly over. But the starting point for Romania was lower than for other countries. In the richer quarters in Bucharest today -- Kiseleff, Aviatorilor, Cotroceni, in Dacia where the World Bank is located -- all those beautiful villas were built during those four years. My house was built in 1936.
When Bucharest was called the Paris of the East. In October 1990 economic reform started in some fashion. Why did it happen then?
That's when the first round of price liberalization took place. In 1993 there were still prices to be liberalized. But the first move, however timid, only happened after 10 months. And during these 10 months government policies only increased the imbalances.
Poland liberalized prices in the summer of 1989, but the country also suffered major inflation.
High inflation in Poland lasted for one to two years. Romania had three-digit inflation between at least 1991 and 1999. Okay, in the last two years of Vacaroiu, it was two-digit inflation -- that was the best performance. And that was because Vacaroiu, an old apparatchik of the State Planning Committee, started to…
Massage the numbers?
Not so much the numbers but the mechanisms. The government basically blocked prices one way or another: blocking the exchange rate, revoking licenses, using moral suasion, and so on.
One of the complaints from that period of time was that there were many opportunities for some people to make a lot of money. I interviewed Dinu Patriciu when he was just a politician. Not long after, he became very wealthy with Rompetrol --
Rompetrol was definitely not just Patriciu's company. Some Americans must know much more than that, including his deputy, Philip Stephenson, an American. Whatever money Patriciu got from the Kazakhs didn't end up 100 percent in his accounts. It was a more complex deal.
But coming back to your question, sometime in 1994 or 1995, I read an article by Anders Aslund that confirmed my impressions. He was talking about Russia, but it applies to Romania as well and possibly other countries. The big fortunes were made not, despite common belief, because of privatization. We didn't have meaningful privatization until 1997 or 1998. It happened because of keeping in place the systems that I mentioned to you -- quotas, allocations, price controls. Some people had access to products at the controlled (hence, low) prices and were subsequently free to export them at world market prices. This enabled them to make their first million, which allowed them afterwards to jump on the bandwagon of privatization.
They took advantage of the differentials between the real prices and the subsidized prices.
Exactly. They arbitraged the prices. One of the first decrees having anything to do with the market economy was the 15 March 1990 Decree on free initiative. Ever since March 1990, it was possible to set up private companies in Romania. These companies mainly bought from state-owned enterprises and then exported at a huge profit.
Were you tempted at that time to do that kind of business?
For that you needed connections as well. And I was in my twenties. These were things being done by people of a certain age with certain connections, and preferably having had important positions in 1989, which for instance was not the case for my father who did not have any position since 1982. Actually it was late in the 1990s that he was able to start again to do something. He died in 2002, but in the meantime he managed to get his head above water. It's also a matter of having a talent for business, which is not true in my case.
You joined the government in 1993.
I worked for the government for eight months. I worked for the Council for Coordination, Strategy, and Economic Reform, which was headed up by Misu Negritoiu. We were writing the strategy of reform, because Vacaroiu had promised a full-fledged program when he got his investiture vote. But our strategy was never implemented. I used to describe the council this way: we were all typing in front of an unplugged keyboard. We were talking to people in the ministries who didn't give a shit what we said. They had their own ways of doing things.
You had no political leverage.
None at all.
You did that for eight months. And then you went back to the Institute?
No, because at the end of 1990, I had left the Institute to go to the Romanian Development Agency, which was supposed to be an investment promotion agency and which was headed up at the time by Misu Negritoiu. After three months, after the elections, Negritoiu became the deputy prime minister, and we went with him. When he resigned, I returned to the agency for two months, and I managed to get a job at the Delegation of the European Commission in Romania. I stayed there until 1998. Then I went for four or five months to the State Ownership Fund, heading the division on privatization on the capital market. When I saw what things looked like there, I returned to the Delegation. At the beginning of 2000, I left the Delegation once again and became Undersecretary of state in the Ministry of Foreign Affairs, dealing with European issues. At that time, Petre Roman, the prime minister in 1990-1991, had become foreign minister and the former "Ministry of European Integration" was combined with the Ministry of Foreign Affairs. I stayed there for four months, returned once again to the Delegation until Romania joined the EU at the beginning of 2007. Between then and coming here, I was at the central bank.
You said that you were involved in the privatization process. But you were not happy with what you saw.
Honestly, I also got scared, not so much because of things being done in the institution as such, though I don't have any doubt that there were also fishy things (the boss of the state privatization fund at the time was the guy who is now the father-in-law of Basescu's daughter). But the main reason I got scared was that I was feeling the whole atmosphere. You could have gotten implicated for doing nothing wrong. You manage to privatize something, but then people ask: why did you sell it so cheap, or why did the new owner lay off so many people?
Immediately after leaving the State Ownership Fund, I contributed a paper on privatization to a collection of studies that appeared under the aegis of the World Bank. I was writing it with the impressions very fresh in my mind. The main problem at that point in time, as well as some years before and some years afterwards, was that there were several conflicting goals assigned to privatization in clear breach of Jan Tinbergen's policy-assignment theory, which says that you should have one tool for each goal. With privatization, they wanted to raise money, keep people in place, get new investments, and so on. What scared me was the societal pressure: 99.9 percent of people were thinking the same way.
After you left, as you continued to observe what happened, your fears were confirmed?
It was only in the latter half of Adrian Nastase's mandate that even at a governmental level these ideas of keeping employees in place and maintaining investments were downplayed. They started looking at things with a more business-like approach. Then came the good years, which for instance allowed for the sale of BCR, the biggest bank, at a price that was probably two or three times what it was worth.
Compared to other countries in the region, the Romanian state maintains about the same number of assets?
It's fully comparable. The state has practically nothing left in manufacturing, unless you say that Oltchim is worth anything. But since I'm an official in the Commission working on chemicals, I can't possibly comment any further.
The financial sector as well?
With the exception of the Saving Bank (CEC), the sector is fully private and foreign-owned. Which is now fueling nationalist theories.
There just wasn't much capital in the region at that time to keep entities in national hands, with the possible exception of Slovenia.
Slovenia actively discouraged foreign investment in the financial sector. Of course there could not have been enough capital. But whether the entity is foreign-owned or owned by nationals doesn't really matter. Capital is free to flow, especially when Romania is a member of the EU. And would Romanian tycoons keep their capital in Romania? That, on the face of it, would be the only difference between foreign and domestic ownership -- a theoretical protection against capital flight.
I've been told by several people that significant change took place in Romania up to EU accession, that membership was an important lever --
The most important one by far.
But as soon as Romania joined the EU that lever no longer existed, and subsequent reform hasn't taken place.
There wasn't much left to reform. It is just regular decisions of economic policy. If you look at the fundamentals, Romania compares advantageously to many countries. Look at the fiscal consolidation. You now have a budget deficit after seven months this year that's less than one percent of GDP. Even with the slippage that takes place every December, it will be at most around three percent. Romania's public debt has been increasing at a fast pace in recent years, but it's still only 40 percent of GDP. Compare that to Belgium or France, where it's hovering around 100 percent.
The fundamentals are in place, but the Romanian economy is not doing particularly well.
We're in a crisis situation all across Europe. There was still positive GDP growth last year  in Romania. And it will definitely be positive this year . It was positive in 2011 as well. There was a substantial downward correction in 2009, and I don't remember the figures for 2010. I don't care so much about economics any longer. And I don't live in Romania any longer.
When you go back, what strikes you as important in terms of changes in Romania these days?
Mostly the fact that Romania looks like a regular country. One can talk a lot about the infrastructure, which is still missing a few parts. It still takes decades to build a highway. You can pay billions and still get nothing. But we see lots of new buildings. The airport is now looking like a regular airport. Of course the railway network is in shambles, but it's in shambles because there's no demand. Romania is a normal country, that's the point. From the standpoint of economic policy, there might be mistakes, but they're not radically bigger than in other countries. You always make compromises because of political considerations. There are always rivalries. But at this stage, I don't identify any dangerous vulnerabilities.
If you were suddenly granted the power to change anything economically in Romania --
I'm not thinking about these things any longer. Honestly. But there is one thing that I don't understand. How can a country like Romania not exert a better control on public investments? How come it manages to lose so much money on nothing?
Like on highway construction.
Also this new subway line that is already far behind schedule in Bucharest. It's not so much that there's no money, though of course the financing is not at the approved level. There's a big discrepancy between what you put into it and what comes out. Of course there is corruption. But how can it be so severe? This I don't get. It also has something to do with culture.
Yes. Most people are not really able to do something unless there is something in it for them personally. This applies across the board. I'm reading articles from people criticizing the current government only so that they can get into a similar position at some point and do basically the same thing. As a parenthesis -- and I acknowledge the fact that I'm totally unfamiliar with these things in other countries -- but I'm struck by how many journalists in Romania at some point become decision-makers and then return to journalism. Come on!
A revolving door. You also mentioned this troubling trend of nationalism.
I'm noticing it. I don't think it has any real power of influence. But it's annoying.
Is it just historic nationalism, or is this a different kind of nationalism? In other countries, an anti-EU nationalism has emerged, in Hungary for instance.
I would say that this is because of historical immaturity. You have a bunch of guys who are trying to revive or even invent new theories of Romania. They say that the territory of Romania is the center of civilization under the Pelasgians. Jesus! Unfortunately in Romania you can find on YouTube short opinions about this expressed by people, including two former chiefs of the army!
What are they saying specifically?
The theory in a nutshell is that the Romanian language doesn't come from Latin. No, Latin comes from a language that was spoken by the Dacians. Forget about the fact that we don't have a single written text from these Dacians. Those are details! Normally, these guys should consulted psychiatrists and, if need be, institutionalized. Or at least put on drugs. And now on the Internet, you can see from the comments that many people believe this. That's why I call it immaturity. Now, with the autonomy of the "Szekler Country" that these Hungarian-speaking guys seem to strive for, a raison d'etre is provided for the local lunatics. But this is where it will continue to dwell, on the level of discourse.
What's your impression of Romanian attitudes of the EU?
This I can't tell you. I lack the information. However, relative to most other member states, the Romanian authorities are far more respectful of European institutions. Far more.
Can you give me an example?
Romania won't grant state aid if the Commission says no. It's also a matter of not fighting too much, but this also reflects the fact that Romania doesn't have the tools other countries have. If you look at the highest levels of the Commission, you don't have a Romanian beyond the level of director [a Romanian Deputy Director General has since been appointed in DG AGRI],and there are at least 100 directors in the Commission. And you have only four Romanians as directors, and they serve in areas that don't really matter, with the exception of agriculture. Also I don't see in Romania a public mood that is in any way hostile to European institutions.
Where do you see Romania's future within the EU? It's a reasonably large country with some natural resources, with an important location. Or will it be perennially on the periphery?
It's difficult to say. In a sense, European integration, if I compare it to a Formula One race, is at the stage where the safety car is circling the track. Practically, the positions of the countries are frozen. Until the economy starts moving again, nothing much will happen, and then we'll see. It's also a matter of gaining more influence at the level of the institutions. Possibly the Presidency of the Council will help, which won't happen before 2017. Definitely in this town Romania is punching far below its weight.
It would require having more people in higher positions for it to punch above its weight?
That's a bit too schematic. What really would be important would be not to use the European institutions to solve domestic disputes as the imbecile who currently serves as President of Romania did in 2012 with that completely stupid theory of the putsch. It is discouraging that some decision-makers have lent an ear to this shit, not to mention the ones that have even taken sides, which is completely unacceptable from my point of view.
What do you think the political future of Romania is, considering the fallout from that dispute?
The problem, as I see it, is that Basescu is a terrifically efficient servant of disorder. In a sense, he is doing to the country what King Carol II did to Romania in the interwar period. He did exactly what Carol did when I.G. Duca, the head of the liberals, was assassinated while prime minister. The liberals were in power and wanted Dinu Bratianu as prime minister. What did Carol do? He picked Gheorghe Tatarescu. And Basescu did exactly the same when, in late 2009, his government became the only Romanian government ever ousted by a parliamentary vote of no confidence. There was a clear majority in favor of another candidate for prime minister, Klaus Iohannis [Romania's current president] -- forget about the fact that Iohannis is another idiot -- and Basescu disregarded this and instead nominated Lucian Croitoru (someone I've known for 20 years and regard as a friend, so it's nothing personal). If we're talking coup d'etat, this was a coup d'etat. Basically he stalled the whole process for two or three months in order for the presidential elections to occur. The regularity of his election can be disputed. When you lose the vote in Romania and win in the aggregate thanks to the votes outside the country… But again, it's not a catastrophe. Because this is not a fight between dictatorship and democracy.
You brought up King Carol. I have a memory when we were at your house in 1990 that we had a discussion about royalism. I can't remember whether it was your mother --
My mother is probably still a royalist.
Is there still support for that position?
In the country? Probably far more than 20 years ago. But not sufficient. But for me this is a closed matter. For me, royalist means the king, not '"Prince Radu," the imbecile who is now colonel in the Romanian army and the son-in-law of King Michael. There is nothing left with this generation. Princess Margareta and her husband, who was a member of the Communist Pioneers? Come on, can you have a king who was a member of the Communist Youth? Are we talking Norodom Sihanouk here? At least that guy was born a prince. It's done. Not to mention that this imbecile asks everyone to refer to him as "Your Royal Highness." Again, normally such people should be institutionalized.
Did you ever imagine that you would be working in a European institution like this?
Yes. But okay, what I imagined is entirely different from the reality. And the reality is not so much because of the institution being far different from what I imagined but because of personal reasons. I managed to make some personal choices that were… At least I managed to keep my head above water, which considering what I went through, is not such a bad thing.
When you think back to your worldview in 1990, has it changed in any significant ways?
Definitely not. Nothing fundamental. I still consider that the United States, by and large, exerts a positive influence on the world scene, although there are scores of stupid things that it is doing. I still believe that there is no better working economic system than one based on the free market, private ownership, and all that. Nothing is easy. Everything comes with problems.
I end every interview with quantitative questions. When you look back to 1989, and everything that has changed or not changed in Romania since then until now, how would you evaluate that on a scale of 1 to 10, with 1 most dissatisfied and 10 most satisfied?
More than 5. Anything between 6 and 10 based on expectations.
Same scale, same period of time: your own personal life?
More than 5. Given that I have a grandson who is now 10 months old, that pushes it up higher.
Looking into the near future, how would you evaluate Romania's prospects over the next 2 or 3 years, on a scale of 1 to 10, with 1 most pessimistic and 10 most optimistic?
Between 5 and 6.
Brussels, August 30, 2013
Dragos Negrescu works at the Institute for World Economics in Bucharest and specializes in tariffs and trade relations. He has not been particularly involved in the economic reform process in Romania because he is of the opinion that one cannot evaluate the situation without the appropriate data and that data is presently lacking. His colleagues at the Institute believe that a theoretical model can be built without such data. One of the reasons why he concentrated on non-tariff protection was that he could publish on such topics during the Ceausescu regime. Until recently, in fact, he couldn't even work at the Institute because his twin brother had left for Germany. Therefore he was assigned a rote job in the centralized planning process in the Ministry of Metallurgy.
We discussed Romanian trade relations. Romania was the first country of the former "socialist" bloc to recognize the European Community and establish a favorable agreement with it. Of the countries in the region, Romania had the most significant access to the Community market. Romania also enjoyed certain privileges under the General System of Preferences [see Press Notes in, I think, Report 14]. In order to do this, of course, Romania had to declare itself a developing country. Nevertheless, the GSP scheme was not particularly helpful since as soon as a country became reasonably competitive in a certain area, the preferences were removed. Therefore, in Romanian's "comparative advantage" -- steel or petrochemicals -- GSP did not apply. In the second half of the 1980s, as the EEC began to consider sanctions against Ceausescu, Romania fell behind the other countries in Comecon. And this year, in May, Romania applied for a general agreement with the EEC and was refused. Now the previous agreements on various commodities are beginning to elapse.
We turned to trade with other countries. Trade with Japan has not been particularly significant. Bi-lateral trade with the U.S. is rather hard to evaluate since the bulk seems to be with U.S. firms that are not located in the U.S. and these exports may have been listed under exports to the third party countries. This has led some Romanian economists to say that MFN status is not that important for the Romanian economy -- but he disagrees. Exports to the Third World, meanwhile, were very important in the beginning of the 1980s. These consisted mainly of manufactured goods and chemical products often made on credit. Romanian firms were also involved in building industrial facilities in the Third World (cement factories, pipelines, railways). On the import side, the most important commodity to enter Romania was oil, from the Middle East.
I asked Negrescu's opinion of the present Romanian reform. His chief criticism of the government was that it hadn't liberalized prices first, the necessary precondition to his mind of economic reform, more important than privatization. The Prime Minister has proven to be surprisingly pro-reform. The government, however, has promised a smooth transition to a free market, without a shock. Negrescu does not think that such is possible. The process of reform cannot take place without a fall in the standard of living of the population. He suspects however that were the government to follow through with a radical plan, it would be unseated by a vote of no confidence from the Parliament and an even more static government would take its place.
Reflecting a moment, Negrescu put forward a counter-argument. Although according to the textbook, price increases would lead to industrial expansion, he was not sure the Romanian economy would respond in the proper way [certainly the Polish economy didn't!]. Perhaps, he reconsidered, privatization was more important than price liberalization. Through such privatization, a transformation both rapid and personalized, a necessary change in mentality might take place that could guarantee greater efficiency and output and therefore industrial expansion.
As for the National Salvation Front, he posited the following contract: the conservatives had imposed their ideas during the campaign and the liberals were allowed to choose the government.
I asked him for a prediction of Romania's future. Would it look like Austria or Sweden as the NSF had promised? Not for another 20 years minimum, Negrescu responded. Considering how the Romanian economy functioned during the interwar period, he expected that the future would look much like Latin America: a bias toward state intervention, a strong bureaucracy, an attendant degree of corruption, an important parallel economy developed to avoid the leverage of the bureaucracy, a lax work ethic, possible political instability though probably not as extreme as periodic coups d'etat.
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Article: Courtesy Foreign Policy in Focus.
"Romania's Missed Opportunity"