Romania's Privatization Program: Is It Progressing?

Abstract

The purpose of this project is to reach an understanding of Romania's privatization program and to analyze the problems and difficulties the government has in accomplishing a successful privatization. It attempts to demonstrate that Romania's privatization process is actually slowing down, while it should, in fact, be accelerated. After the December 1989 revolution, following 44 years of Communist Party rule, Romania joined the other Eastern European countries in implementing a long and difficult transition to a market economy. Under the harsh control of Communist dictator, Nicolae Ceausescu, Romania became one of the most centralized power structures in Eastern Europe. The later Ceausescu years were a tragedy for Romania, socially and economically. Ceausescu's drive to pay off all foreign debt by the end of the 1980s exported most of the nation's food and halted imports of new technologies and raw materials. As a result economic growth slowed down drastically. By the end of the decade, Romania had the lowest standard of living and was one of the poorest communist countries in Eastern Europe. In December 1989, Ceausescu was overthrown and executed, and a new democratic government was formed. As Romania began its change from a socialist to a capitalist economy, the new government faced many obstacles. Romania's output continued to decline, the industrial capital was highly obsolete and old, and the country lacked market-oriented institutions and management experiences. Immediately after the revolution, the government embarked upon a rigorous economic reform program to facilitate the transition to a market economy. The transfer of most of the state-owned property to private owners became the government's top priority. The objective of this paper is two-fold. The first part of this project deals with a detailed analysis of Romania's privatization process. The discussion proceeds as follows: In Section I, an historical background of Romania is presented. Section II discusses Romania's macro-stabilization program which is essential for a successful privatization. Section III illustrates a theoretical model, "optimal sequencing of privatization, " and this theoretical model is applied to Romania's agricultural industry. In Section IV, Romania's effort to privatize the state-owned enterprises is discussed. Section V contains a summary and conclusions. This is followed by personal observations and conclusions about my experience in Romania.