Report No.5832-10 Romania: Economic Memorandum: External Stabilization and Structural Adjustment On Two Volumes) Volume l: Main Report May 6, 1986 Europe, Middle E;st and North Africa Regional Office FOR OFFICIAL USE ONLY Document of the X,rM Bank This report has a restricted distribution and may be used by recipYients only in the performnanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Fiscal Year = Calendar Year Weights and Measures = Metric ysYtem Currency Equivalents Domestic Currency = Leu (L) (Plural: Lei) Average Rate 2' Lei per US$1.00 ' 1975 18.56 1980 - 10.90 1981 13.56 1982 14.31 Commercial Rate July 1983 '' 17.50 1984 18.33 1985 17.79 1986 15.73 Non-Commercial Rate 1975 14.38 1980 12.00 1981 12.00 1982 11.00 1983 12.50 1984 14.13 1985 12.70 1986 11.23 Rates are those in effect as of January 1 unless otherwise indicated. Nominal effective average exchange rate for trade in convertible currencies. A unified exchange rate for commodity trade was introduced on July 1, 1983. At the same date, the commercial rate was pegged to a basket of currencies. FOI OFFEAL USE ONLY ABSTRACT The following report reviews the performance of the Romanian economy in 1981-84. This period witnessed a program of external stabilization which achieved a remarkable turnaround in the balance of payments and permitted a substantial reduction in net external debt. The early 1980s were also intended to further the economy's trawsition from the traditional "extensive" growth pattern to "intensive' growth. The report examines the process of external stabilization and assesses to what extent it has been accompanied by more fundamental structural adjustments that are needed to realize "intensive" economic development and to sustain future economic growth and external balance. The Summary and Conclusions provides a comprehensive overview of the major points covered by the main report (Volume I). Chapters I and II review the nature of the macroeconomic adjustments made, and focus on the shifts in expenditure towards import substitution, particularly in the energy sector. Chapter III examines in detail the impact of stabilization on the major productive sectors, manufacturing and agriculture, as well as on energy, and discusses the issues and constraints pertaining to their longer-term growth and development. Chapter IV looks at investment policy as a tool of stabilization and adjustment, while Chapter V considers the role of the economic management system in these processes. The final chapter looks to the future and examines the possible macroeconomic impact of alternative policies regarding investment and trade. Volume II includes an annex on statistical issues encountered in the preparation of the report and presents the data base used in the analysis. This report is based on a mission to Romania in April 1985 led by Christine Kessides. Members of the mission included Zdenek Drabek (output and investment), Timothy King (incentives and living standards), and John Cuddington (balance of payments, trade and debt). The draft report was discussed with Romanian government officials in December 1985. Carlos Hinayon and Azita Amjadi provided valuable research assistance in the preparation of the report. Arlene Pastor was responsible for document production. Ibis document hue .uiced distribution and may be umid by mcipioa2 onty in th performance or dmw d** ckidutiL Its contet. umy not othore be dmiod without Wordd Bhk authofii m. ROMANIA ECONOMIC MEMORANDUM; EXTERNAL STABILIZATION AND STRUCTURAL ADJUSTMENT Volume I: MAIN REPORT Table of Contents Page No. ABSTRACT GLOSSARY OF TERMS ABBREVIATIONS COUNTRY DATA SUIHARY AND CONCLUSIONS ............. ...................... i-xxi I. THE NATURE OF THE EXTERNAL ADJUSTMENTS ................... 1 A. Balance of Payments and Trade Adjustment ............. 1 B. External Debt Management ............................. 13 II. THE IMPACT OF STABILIZATION ON OUTPUT AND EXPENDITURE .... 19 A. The Response of Output ... ............... 19 B. Adjustment of Aggregate Expenditures ................. 28 C. The Impact of Stabilization on Income, Consumption and the Standard of Living ............. 30 III. SECTORAL ISSUES OF STABILIZATION AND ADJUSTMENT .......... 34 A. Manufacturing ...... ...*.................... .... .... 34 B. Agriculture ........... .................sees......................... 42 C. Energv .................. 0.................. ........................... 53 IV. THE ROLE OF INVESTMENT IN STABILIZATION AND ADJUSTMENT .... 62 A. Sectoral Allocations of Investment .................... 62 B. Investment for Import Substitution ......... .......... 66 C. Technological Modernization ........................... 70 D. Completion of Investment Projects .................... 72 E. Investment Choices and Criteria ...................... 76 F. The Productivity of Investment ....................... 78 G. Conclusion .......... ......................................... .... . 80 V. RECENT EVOLUTION OF THE ECONOMIC MANAGEMENT SYSTEM ....... 81 A. T e Planning Process ................................. 82 B. Incentives for Plan Fulfillment ...................... 83 C. Enterprise Financing ........ . . . . . . . .............. ............ . 86 D. Prices and Exchange Rates ............................ 88 E. Conclusion ............ ...................... ......... 92 VI. ISSUES AND OPTIONS FOR THE FUTURE ........................ 94 A. The 1986-90 Plan ............ *........................................ 94 B. Bank Staff Projections of Medium-term Scenarios ...... 98 MAP Volume II; ANNEX 1 Statistical and Methodological Issues ANNEX II; Relationship between Growth of Investment and Growth of Productivity ANNEX III: Analvsis of Trends in Romanian Exports to Major Markets STATISTICAL APPENDIX LIST OF TEXT TABLES Table No. Page No. I-1 The Resource Balance and Current Account, 1976-85 .......... 3 2 Development of Merchandise Exports and Imports, 1975-85 ..... 5 3 Direction of Trade ..... ................................ ..* 7 4 Direction of Major Commodity Imports ....................... 8 5 Direction of Major Commodity Exports ....................... 10 6 Direction of Trade in Major Agricultural Products, 1978-84 .. 12 7 External Debt Outstanding, 1975-85 ......................... 15 8 Projected Service Payments on Convertible External Debt .... 17 II-1 GDP by Origin, 1977-84 .................................. 20 2 Structure and Growth of Net Output by Industrial Brauches, 1979-83 ....................................... 22 3 Plan Targets and ImplementatiLwn, 1976-80, 1981485 ...... .... 23 4 Selected Economic Indicators, 1981-84 .....4...........4.... 25 5 Growth of Net Production Per Worker in Industry, 1980-83 .... 26 6 Real GDP Per Person Employed . ................... ........... 27 7 Structure and Growth of Domestic Expenditures, 1980-84 ..... 28 8 Investments and Savings, 1978-84 ....4............ ............ 29 9 Trends in Incomes and Expenditures of the Population ....... 32 111-1 Structure of Output and Employment, Number and Average Size of Enterprises in Industry Sector . .35 2 Production of Selected Manufactured Goods in 1984 and Plans for 1985, 1986-90 ......40 3 Shares of Land and Agricultural Production by Type of Farm Unit, 1983 ..44 4 Agricultural Yields and Production, 1976-80, 1981-84, and 1986-90 . ...... .45 (Fig.)5 Trends in Production of Principal Livestock Commodities .... 48-49 6 Fixed Investments in Agriculture, 1981-85 and 1986-90 ...... 51 7 Planned Growth of Energy and Electricity Consumption ....... 57 8 Energy Demand and Supply ........ ........................... 59-60 IV-1 Gross Fixed Investment by Sectors, 1981-84 ................. 63 2 Industrial Investment by Subsectors, 1981-84 ............... 64 3 Investments in Sectors Producing Tradeables and Non-Tradeables ............... . ........ 67 4 Machinery and Equipment Investment by Origin . .............. 68 5 Structure of Investment, 1981-85 ........................... 71 6 Gross Fixed Investments Brought into Operation, 1971-85 .... 74 7 Indicators of Productivity of Investment ................... 79 V-1 Interest Rates on Enterprise Borrowing ..................... 87 VI-1 Plan Targets, 1986-90 .. .................................... 94 2 Allocation and Structure of Investments, 1981-85 and 1986-90 .............................................. 96 3 Bank Staff Projections of Medium-term Scenarios, 1986-90 ... 99 GLOSSARY OF TERMS Centrale: An economic unit subordinate to, but separate from, a ministry, with responsibilities for planning, supervising, and coordinating the operations of enterprises under its jurisdiction. It is also responsible, through subordinate enterprises, for research design and foreign trade. Comparable Prices: A form of constant prices used to value statistical series, particularly national income and aggregated production data, over a long period. Comparable price series are constructed through chain-indexing of data which are originally computed on different price bases, and thus the series are made on the basis of different price weights. For 1950-59, the comparable price series is constructed on the basis of 1950 prices, for 1959-65 on 1955 prices, for 1965-75 on 1963 prices, for 1975-80 on 1977 prices, and for 1980-83 on 1981 prices. Cooperative: A form of economic organization in both productive and non-productive sectors in which assets are collectively owned by its members. There are four types of cooperatives: agricultural, craft, consumer and credit. Their activities cover arable agriculture and livestock, small-scale industry, non-productive services, credit, and retail sales in rural areas. Delivery price: Producer price plus turnover tax: that is, the wholesale price at which goods are delivered to retail outlets. Domestic leu: The value of a leu converted at the commercial exchange rate (established in 1981). The domestic leu is used in actual foreign trade transactions as well as to express the value of foreign trade in official statistics as of 1981. Employee: A member of the labor force (occupied population) who works for a wage in the socialist sector; it therefore excludes members of cooperatives whose remuneration is considered as a share of net profits. Enterprise: The basic unit of economic and social activity in a legal sense. Gross production: The gross output of an enterprise in the productive sector, valued at producer prices. It includes the value of intermediate goods used as inputs, whether they are produced in the same enterprise or purchased from other enterprises. Judet: Territorial and Administrative Unit, of which there are 39 (excluding Bucharest municipality). Leu valuta: The formal gold price of the leu, termed the "official rate"; it was used only to express the value of foreign trade in government statistics up to the end of 1980. Marketable production: Gross output valued at delivery prices, whether sold or maintained as inventories. Marketed production: Gross output valued at delivery prices and actually sold at those prices (i.e., excluding inventories). National income (or net material product): A value-added aggregate concept in the Romanian national accounting methodology, defined as the sum of net production of all enterprises in the productive sector. Conceptually, national income is akin to GDP (at market prices) in the United Nations system of accounts, except that it does not include either depreciation or the net production of non-productive sector. Net production: Marketable production less material expenditures and depreciation. (If depreciation were included, net production would be equivalent to value-added.) Net production therefore equals wages plus profits and taxes. Non-productive sector (or nonmaterial sphere): Includes those activities not directly related to production: municipal services (not including distribution of water, gas, electricity, and urban transport); housing; education; health services; scientific services (not including scientific research related to production); finance; administration; and political and social organizations. Occupied population: The total number of persons working in all sectors of the economy. Participation Fund: An allocation from planned profits which is designated for distribution to workers. As of 1983, the Participation Fund is assessed as 4X (on average) of the planned salary fund of the enterprise, and may amount to 5Z for enterprises with substantial exports. Producer price: The ex-factory price, defined as the branch-average cost of production (including a profit margin), end the price at which state enterprises conduct transactions for inputs and outputs in the process of production. Productive sector (or material sphere): Includes industry, agriculture, forestry, construction, transport, trade, telecomunications, and other productive branches. Since 1970 it has specifically included services rendered to agriculture by agricultural mechanization stations, veterinary dispensaries, passenger transport, telecommunications serving the population, and administrative and sociocultural units, services rendered by hotels, catering units in hospitals and health resorts, scientific research for production, laundries, cleaning, dyeing, and photographic shops. Profit: Net production less wages and taxes. Salary fund: The total value of wage payments to employees. Socialist sector: The state sector plus the cooperative sector. ABBREVIATIONS BAFI Bank for Agriculture and Food Industry CAP agricultural cooperatives CC convertible currency CED Country Economic Memorandum (IBRD) CHUR Council for Mutual Economic Assistance CuE centrally planned economy CSO Central Statistical Office DME developed market economy EEC European Economic Comunity EOR enhanced oil recovery FTP five year plan FTO fEreign trade organization GriP gross domestic product ha hectare ICOR incremental capital-output ratio DMF International Monetary Fund ke kilocalories kg kilogram kuh kilowatt hours LDCs less developed countries LIBOR London Interbank Offer Rate MLT medium and long-term meh megawatt hours NCC nonconvertible currency NE! New Economic Measures N-L natural gas liquids OECD Organization for Economic Cooperation and Development SA Statistical Appendix SPC State Planning Comittee TOE tons of oil equivalent TR transferable rouble COLUTRY DATA AREA POPULATION (1984) DENSrTY JIR2) 237.5 thousand sq km 22.6 millton 95 per square km POPULATIaN CHARACTERISTICS (1983) NUTRITION tl983 Crude Birth Rate (per 1.000) 1S.0 Calorie intake as S of requirements 127.0 Crude Death Rate (per 1.O000 9.7 Per Capita protein intake (grams/day) 101.0 EUCATION (I9sal liHEALTH 1f9iB Adult literacy rate (Z) 98 Population per phystcian 680 Primary school enrollment (S) 101 Population per hospital bed 110 NATIONAL IrCOME IN 1984 ANNUAL RATE OF GROWTH (1', constant prI0es USSHln ~~1980l l9R1 ]iIZ l93 M8 GOP 39.624 3.3 2.7 2.8 4.2 7.2 Gross Fixed Investment 12.472 2.5 7.1 -3.8 2.4 6.1 Gross National Savings 15.681 Current Acecount Balance 1.719 Export of Goods 13.486 Import of Goods -11.108 OUTPUT. EMPLOYMENT AND PRODUCTIVITY rN 1934 Net Value Added Labor Force NVA/Worker UsSBEn A-m As Agriculture S5.08 13.9 3.03 1.818 Industry 21,725 S4.8 3.86 5.628 Construction 2.575 6.5 0.78 3.301 Others 9A816 24.8 2.82 3.4BO Total/Average 39.624 100.0 10.49 3.777 GOVM ENENT FINANCE (in billions of lei) 1980 1981 1 82 1983 1984 Total Revenue 298.0 280.3 277.6 259.4 310.9 Current Expenditures 203.6 179.5 152.2 144.0 149.4 Current Surplus 94.4 100.8 125.4 115.4 161.5 Investment Expenditures 93.1 92.3 105.4 92.8 110.8 Overall Surplus 1.3 8.5 20.0 22.6 50.7 March 31. 1986 EMl1B 5331H lU null 1nu2 1JM 1JU stfC D fLPblES- 1464 jftlJg mn. xports of Goods. IFS 12.017 13.462 12.314 12.223 13.486 Capital Goods 4.047 32 Zeorts of GOasi. IFS 13.73n -13.275 -10.493 -16.26 -11.105 Consusar Goods 2.2U3 16 1snsunce Ga -1.643 114 1.091 1,170 2.378 FoS_tMtWs 79 6 Interact mnn (not .l -1. 7 -a51 __- _.- 5 Intemadiate GastCs 3246 26 currant acosot -2.420 -333 1.040 1.160 1.719 faw Materials 2.923 16 (Industriall (1.6371 115) ILT arrowing (hAricultural 1 41231 JJl Iisbursavunts 2.80S 2.160 2.606 1.409 336 12.646 too Aortization _ii -J.dU -Liii -IJlM -1a072 Nat 1954 .a027 741 154 -736 T ut 01^ 1 atE . n 1 -Al" uifli PLT Lnding. nat -1l1 -176 -251 -246 -447 tanerilp csarr.netn Lin2 Short-tae Capital. net 449 -I.33S -Sn -925 -460 Ndaui and long-term 6.871 Short-term 327 hkzL:..LCutLL n.I.e. - 1.443- -934n 378 n- Errors and Oeissions 23 3 3 16 26 DlI Credit Change of leservels 160 -77 -37 -S -164 t- a 1ncreasol Mmn-Convertible rtiumlWtes lSZ Gross fls5v*flt* 4J9 s50 SS7 655 537 latal SZm DIRT sEcavc ATtao. lM4 a JL Convertible currencies 24.2 I.tnclud1ng Ifl (26.61 ncluding Arrears. paDYnt agreemnts and aE. eposits nd use or DW credit. 1/ Includes foreign oxchange and SDR holdings. V Including fore1an exchange. SOPs and sold. -/ Exports of goods and services. March 31. 1956 S331K SUMMARY AND CONCLUSIONS A. Introduction 0.01 Like many countries, Romania in the early 1980s was forced to undergo a severe program of external stabilization. What is unusual about Romania's case is the extraordinary speed and scope of external adjustment that has been achieved, as indicated by the shift from a current account deficit of US$2.4 billion in 1980 to a surplus of US$1.7 billion in 1984. This development has enabled the country to reduce the amount of outstanding external debt by over US$3.0 billion, from 232 to 192 of GNP, within three years. 0.02 The balance of payments crisis which peaked in 1980 had its origins in economic developments of the preceding decade. The traditional emphasis on rapid industrialization and heavy investment, coupled with pricing policies which insulated the economy from world price trends, created increased dependence on imported inputs of oil and raw materials. The performance of Romanian exports in convertible currency markets was insufficient to finance the needed imports, leading to growing reliance on foreign borrowing. In reaction to these trends, the authorities in 1979 launched a program of "new economic measures" (NEM) to increase incentives for higher efficiency. The 1981-85 Plan was designed to reduce the pace of investment and the economy's dependence on imported inputs. Despite these corrective steps, which were supported by an IMF Standby agreement, the country was subjected to a sudden withdrawal of short-term foreign credits in 1981. This event had a wrenching effect on the Romanian economy and provoked a debt servicing crisis. In light of this experience, the Romanian authorities acted decisively to restore economic stability by sharply reducing dependence on imports and by proscribing new external borrowing-both factors which were seen as proximate causes of the country's vulnerability to fluctuations in the international financial environment. 0.03 This Report reviews the performance of the Romanian economy in 1981-84. During this period, the main objectives of economic policy were to restore external equilibrium (stabilization) and to further the transition from traditional "extensive growth" (based on expansion of capital and labor inputs) to "intensive growth" (based on improved productivity). The Report examines the process of external stabilization and its impact on the economy; assesses the extent to which the stabilization effort has been accompanied by more fundamental adjustment of the factors determining economic efficiency and external competitiveness; and looks at the prospects and requirements for sustaining economic growth and external balance in the remainder of the decade. 0.04 There is an important caveat to the following analysis of recent performance and future prospects of the Romanian economy. Although access to Romanian economic data has considerably improved in the last few years, there remain significant gaps and shortcomings in the available information. Numerous aspects of the statistical methodology used in Romania make direct comparison of these data with those of other countries difficult, especially regarding prices, foreign trade, and the real value of output. Inter-country comparisons are also at times inappropriate, since the Romanian economic - ii - system is somewhat unique, even within the socialist world. Therefore, the authors have attempted to evaluate the recent achievements and shortcomings of the Romanian economy primarily with reference to its own historical record and to the objectives and expectations of the authorities as reflected in the central Plans. Some of the most important statistical problems and obvious anomalies in the data are discussed iL Annex I. Because of such issues, an effort has been made in this Report to focus the analysis on chanRes in trends and the structure of economic relationships rather than an absolute values of the data. In any event, statistical biases do not appear sufficient to call into question the major observations and conclusions of this report. 0.05 Developments in 1985. At the time of finalizing this Report, virtually no quantitative data were made available to Bank staff concerning the economy's performance in 1985. The Romanian authorities reported, however, that 1985 had been a particularly difficult year, most importantly because of a severe summer drought (following the extremely harsh winter), which hindered agricultural and power production. The grain harvest was estimated to have been substantially less than the bumper crop of 1984. Gross industrial production was reported to have overcome the setback of the winter months and increased by a total of about 4% over the previous year. Gross Table I: BAIANCE OF PAYMENTS, CONVERTIBLE CURRENCY (us$ Millions) Prelim. Official Outcome Forecast 1980 1981 1982 1983 1984 1985 1986 Export- 'f.o.b.) 6,503 7,216 6,235 6,246 6,892 6,270 7,380 Imports (f.o.b.) -8,037 -7,012 -4,710 -4,558 -4,706 -4,767 -5,290 Trade Balance -1,534 204 1,525 1,688 2,186 1,504 2,090 Net Services -865 -1,022 -870 -766 -650 -602 -516 (Interest) -836 -1,115 -962 -799 -768 -726 -620 Current Account -2,399 -818 655 922 1,536 902 1,574 M< Borrowing, net 1,920 1,001 752 137 -771 -977 -691 Disbursement 2,747 2,107 2,833 1,348 274 292 650 Amortization -897 -1,106 -2,081 -1,211 -1,045 -1,269 -1,341 Other Capital, net 1/ 319 -106 -1,370 -971 -581 -410 -253 Change in Reserves 160 -77 -37 -88 -184 484 -630 1/ Including arrears. Source: Statistical Appendix Table 3.2. - iii - fixed investment rose by only about 1S, however, in contrast to the expansion of over 8X which had been planned. The overall result was an increase of net material production by about 2% for the year. The current account in convertible currency resulted in a surplus of US$900 million, as against $1.6 billion which had been forecast (and US$1.5 billion realized in 1984). This outcome mainly reflected a shortfall of both oil and non-oil exports. Since the bulge of service payments on medium and long-term (MLT) debt fell due in 1985 (US$2.2 billion), the current account surplus and very modest capital inflows were insufficient to cover these obligations, causing international reserves (convertible currency) to decline by almost US$500 million, to some US$300 million by the year's end-less than one month's imports of goods and services. 0.06 Although the above information is insufficient to permit an interpretation of economic developments in 1985, it is evident that, whereas the Plan had forecast a continuation of strong growth led by investment for the year, the weather impeded rather than assisted this effort as in 1984. The outcome of 1985 also reflected the effects of the official emphasis on reducing net outstanding debt; the country was thus faced with an insufficient cushion of foreign reserves with which to ride out a temporary shock from the external environment. 0.07 Romania thus faces a very tight liquidity situation in 1986. The official balance of payments forecast for 1986 projects a recovery of international reserves to about 1.5 months' worth of imports of goods and services (Table I). This forecast is based on the assumptions that both non-oil exports and imports will exceed their levels of 1984, and that sufficient new comitments of medium and long-term loans will be forthcoming to make gross capital inflows more than twice those obtained in 1985. B. The Requiremeuts of Stabilization and Structural Adiustment 0.08 The nature of the external disequilibrium at the end of the 1970s called for restraint of domestic spending to reduce balance of payments pressures and service the country's external debt. Since in the past, domestic absorption was primarily a function of the rate of growth of investment, which has a high import content, restoration of external balance initially focused on investment. The real reductions of investment and imports during the first two years of the stablization program (1981 and 1982) had dramatic positive results for the balance of payments. 0.09 Even though certain of the controls on domestic demand (e.g., on investment) were relaxed in 1983 and especially, in 1984, the primary objective of the Romanian authorities continued to be short-run stabilization. This focus was demonstrated in actual policy decisions during this period, even though at the same time, the 1981-85 Plan reflected an orientation toward longer-term concerns of improved efficiency and export performance. Thus, despite an easing of the balance of payments situation, as reflected in growing trade surpluses since 1982, the official objective of repaying external debt without new borrowing led to a continued emphasis on actions with immediate effects on foreign exchange earnings or savings. Imports of capital goods needed to modernize production remained highly - iv - restrained, and the resumption of investment in 1983-84 was not directed preferentially to machinery and equipment purchases. Major adjustments in the structure of domestic production during the stabilization period were limited to the concerted development of import: substitution, which was indeed a notable accomplishment but may have already been carried too far in some subsectors. 0.10 The analysis of these points as presented in Chapters I through IV leads to the conclusion that this pattern of external adjustment is not a sustainable approach to maintain economic gr6wth-and-external balance. In the first place, the investment and savings rates are still very high; if economic growth remains dependent mainly on capacity expansion, the burden on consumption may become unacceptable, or growth will suffer. New investment should therefore be concentrated more on upgrading of the capital stock, thereby permitting growth to come from improved productivity. Secondly, it is not clear that import substitution is the most efficient path to either income growth or external balance, although the emphasis on import substitution in the energy sector did permit both objectives to be met in the short term. A related, and final, point is that the emphasis on import substitution implies a relative underinvestment in export-generating sectors as a source of growth and external equilibrium. 0.11 Although current economic policy remains focused primarily on stabilization, the Romanian authorities continue to recognize the importance of the shift towards longer-term structural adjustment. In fact, intensive growth constitutes the main theme in official statements about the Eighth (1986-90) Five-Year Plan (FYP). Bank staff fully concur with the Romanian authorities that intensive growth would require two main elements of structural adjustment: first, an improvement in economic efficiency, including increased ca=pacity utilization, labor productivity, and savings of energy and raw materials in production; and second, promotion of exports as the key to sustained external balance vis-a-vis convertible currency markets. The present Report further argues that increased efficiency would require two major policy measures: (a) new investment to upgrade the capital stock, including considerable imports of machinery and equipment from the developed market economies (DMEs), and (b) a coherent program of labor and management incentives to foster improved productivity. Both measures would tend to3 raise the competitiveness of Romanian exports. In addition, aggressive promotion of exports would require (a) a rational strategy to shift production towards goods in which the country has growing export prospects, and (b) an institutional and incentive system to support enterprises' efforts to penetrate highly demanding convertible currency markets. 0.12 The official directives for the 1986-90 Plan call for major improvements in efficiency and external competitiveness to be accomplished in the next five years, implying the realization of substantial behavioral and technical modifications in the economy. It is essential that official strategy become firmly focused on long-term development objectives while retaining an ongoing concern with external equilibrium, and that the longer-term goals of structural adjustment be backed by a consistent policy program as described further below. The highly centralized planning system, which mobilized the economy very effectively in response to an immediate external crisis, may also need to become more flexible to meet the challenge of longer-term adjustment. - v - C. Balance of Payments and Trade Adiustment 1. Recent developw- wts in the external account 0.13 As explained in Chapter I, trade policy during the 1981-1984 period was required to meet two objectives: first, to generate an immediate, sharp improvement in the convertible currency (CC) trade balance; and second, provide for sustainable growth and external equilibrium. As summarized below, actual trade policy during the stabilization period was aimed at maximizing the CC trade surplus in the short term, mainly by reducing import dependence. Greater efforts are needed to increase CC exports, which would permit a level of imports commensurate with the economy's structural adjustment needs and provide a strong basis for sustainable economic growth and improvements in living standards. 0.14 The turnaround in the balance of payments between 1980-84 primarily reflected adjustment of the convertible currency account, and in particular, the 43% cut in CC ijports (in nominal terms) between 1980 and 1983. Romania turned increasingly to the CMEA and, to a lesser extent, to LDCs, for key imports during this period. Consequently, the share of machinery and equipment imports from nonsocialist countries fell from about 40% in the late 1970. to 16-17 in 1982-83. Since many of the capital goods imported from the CMEA tend to be technologically less advanced than those available from the DMEs, the shift implies a difference in the extent or nature of technology transfer. Total imports of fuels/minerals/metals fell by US$1.0 billion during 1980-84, as a result of both demand restraints and expanded domestic production by the energy and metallurgical subsectors. When imported, these comodities have been procured increasingly from socialist countries, although mainly in exchange for hard currency or "hard goods". 0.15 The recent changes in the direction and composition of imports have resulted in capital goods representing only 71 of convertible currency imports, with the remainder heavily concentrated in fuels, minerals and metals (711 in 1984). The key requirement for import policy in the next few years should be to shift the pattern of imports towards commodities which cannot be produced more cheaply at home-thus exploiting the gains from trade specialization-as well as goods which would promote the economy's technological sophistication and growth potential. This approach would imply that import substitution be carried out more selectively than it has been to date, requiring a thorough assessment of the economic costs and benefits of domestic production relative to imports. 0.16 Romania's CC exports have stagnated at around $6.2-6.5 billion since 1980. except for sharp jumps in 1981 and 1984 (in nominal terms). Exports of capital goods increased significantly in 1981, primarily to nonsocialist countries; however, the level and share of these exports to nonsocialist trade partners have been falling since then, possibly reflecting the stagnation of investment and payment difficulties of LDCs, which are the main customers for Romania's capital exports in nonsocialist trade. After a brief drop in 1982, exports of fuels/minerals/metals (primarily refined oil products) to the CC area expanded again in 1983-84. It is not evident that a reduced dependence on refinery exports is planned in the future, even though continued reliance - vi - on energy-intensive industrial sectors may be contrary to Romania's dynamic comparative advantage,1' and the world market for refined oil products is particularly unpromising. Exports of industrial (manufactured) consumer goods have not grown significantly in response to the balance of payments difficulties, although it is noteworthy that the majority share of these exports has shifted from nonsocialist to socialist markets. One reason is that exports of consumer goods are increasingly demanded by the USSR in payment for oil. It is also likely that recession in the OECD countries in 1981-82, the tightening of protectionist measures, as well as the more exacting requirements of OECD consumers, accounted for the decline in sales to the nonsocialist area. 0.17 However, the overall performance of Romania's exports in the stabilization period cannot be attributed to a weakening of external demand, since Romania lost market shares for most commodities in the OECD area, and in the world,A' particularly in 1981-83. This deterioration in market position was most marked for food, non-fuel raw materials, basic and miscellaneous manufactures. The prospects, and the prerequisites, for recovering this loss in competitiveness merit careful study. With respect to LDCs as a group, Romania's export shares fluctuated sharply over the period, possibly indicating volatile markets and the need for efforts to establish a more secure foothold. 0.18 Romania has not depended on its relatively well-endowed agricultural sector in responding to the foreign exchange shortage. Rather, the import of agricultural inputs has been sharply curtailed (high-protein feeds and crop protection chemicals), at a high opportunity cost in terms of foregone crop and livestock production. 0.19 The major item in the services account, tourism, has suffered a decline in net receipts since 1980. One major factor may be the overvaluation of the non-commercial exchange rate, which implies a considerable taxation of tourism, thereby depressing demand. 0.20 In sum, trade strategy in the recent period has been focused on meeting short-term debt servicing obligations, with less attention given to fostering rational long-term patterns of imports and exports. Import substitution has been the main element of the strategy for external adjustment. Evaluations of the economic feasibility of import substitution need to take full account of international and domestic costs, including the cost of capital. An efficient and effective approach to achieving sustainable external balance would combine (a) a shift in the structure of production away from energy-intensive activities and towards goods with a strong comparative ' Throughout this report, the term "comparative advantage" is used to characterize commodities or subsectors in which Romania appears to have promising potential for profitable export (measured at world prices). -o '"orld" defined by the total of reporting countries in UN Trade Data System. - vii - advantage for exports to CC markets; and (b) a more liberal policy on imports to ensure uninterrupted access to those raw materials and capital goods which remain vital for growth. 2. External debt management 0.21 Following reschedulings of external debt in 1982 and 1983, the Romanian authorities proscribed new foreign borrowing from any source, even to ease the burden of debt service. This debt strategy reflects the country's long-standing concern with political and economic independence, and the traumatic effects of the credit crisis in 1981. Romania's debt servicing problems originated from the rapid increase of Eurocurrency borrowings for balance of payments support in the late 1970s, and the relatively unfavorable structure of deot (much of it short-term and at floating interest rates). The official commitment to debt reduction is evidenced by the country's accomplisbment in reducing the outstanding convertible currency debt by 30Z between 1981-84 (and by another 17S, or US$1.2 billion, in 1985) -L'. This repayment has nearly depleted foreign reserves, however. The authorities have recently indicated interest in resuming active relations with the WGrld Bank and possible cofinanciers, as well as willingness to borrow commercially if necessary for management of reserves, while retaining the strong political comitment to a continuous reduction of the total debt. 0.22 In the short-term (1986-88), while debt servicing obligations remain high, Romania will continue to face a tight liquidity constraint. The country's ability to meet these obligations and to initiate adjustment policies at the same time will depend on its seeking and obtaining new external capital inflows. These new inflows will be more forthcoming if the international financial community perceives that Romania is adopting an appropriate strategy to increase its productivity and export potential. 0.23 Despite Romania's current liquidity problem, the relatively low level of external debt outstanding in convertible currency (about 121 of GDP and 90S of convertible currency exports) implies that the country could sustain substantial new loan comoitments, provided these were of sufficiently long maturitv -o ease the schedule net debt repayments and to improve the term structure of toe loan profile. The authorities have indicated their continued intention to run balance of payments surpluses and to borrow only to build up reserves; official policy continues to curtail the use of external borrowing for imports of capital goods. A more positive borrowing strategy-i.e., permitting a positive inflow of foreign capital net of amortization requirements-by the end of the Eighth Plan might be more consistent witb the objectives of the Eighth Plan regarding intensive economic development. Irprovements in productivity and external competitiveness will require the continued mobilization of resources for investment and the import of capital goods, both conditions which are hindered by the present focus on a net transfer of resources abroad. It is likely that debt strategy will be reassessed by 1988 in any case, when scheduled amortization begins a sharp decline. -^' The extent of debt reduction also includes the effect of changes in the valuation of non-US dollar-denominated debt. - viii - D. The Impact of Stabilization on Output and Expenditure 0.24 During the first two years of the stabilization program, the real growth of GDP fell to 2.72 per annum, about a third of the rate achieved in the mid-1970s. The GDP is estimated officially to have risen by over 42 in 1983 and 7S in 1984; however, the actual rate of growth of output in 1983-84, in particular, is uncertain because of statistical problems. Nevertheless, there was a definite upturn of economic performance in 1983-84, which is noteworthy under a stabilization program. This outcome has involved high rates of investment and domestic savings, which have limited the growth of private income and expenditures. 1. The response of output 0.25 The slowdown of economic growth in 1981-82 reflected cuts in domestic demand (especially for investment and imports). weak external markets, and poor weather conditions. Positive growth of metallurgy, fueis and electric power was maintained as a result of preferential allocation of raw materials, foreign exchange, and investment resources to these sectors. The revival of production in 1983-84 occurred in response to a recovery of investment and imports, improved demand for exports, and (in 1984) the best harvest on record. 0.26 The growth of labor productivity (output per worker) remained low during the stabilization period. Labor productivity in industry grew considerably more slowly in 1980-43 (averaging 2-32 per year) than during the previous decade, although it is reported to have increased by 92 in 1984. The deliberate effort in the early 1980s to expand production of domestic raw materials, energy, and other import substitutes required large inputs of labor, as well as other inputs, and lowered average rates of labor productivity. A more rapid transfer of labor out of declining subsectors with low productivity into more dynamic branches of production might have led to a faster economic recovery and higher overall growth of labor productivity. 0.27 The slowdown in the growth of industrial productivity coincided with the decline in fixed investment. Analysis of historical trends suggests that the dependence of productivity growth on growth of fixed investment has been especially strong for the key subsectors of ferrous and nonferrous metallurgy, machine-building, construction materials, textiles and food processing. This dependence has important policy implications; productivity-enhancing factors such as improved organization and higher quality of labor might not be expected to have much effect in the absence of adequate investment aimed at increasing efficiency. 2. Adiustment of aggregate expenditure 0.28 Restraint of domestic expenditures has been the most distinctive feature of the adjustment process in Romania in the last four years. The authorities successfully reduced domestic absorption relative to GDP, at first by cutting investment more than consumption, and later by restraining growth of consumption relative to investment. Although the share of gross fixed capital formation declined from 361 of GDP in 1980 to 301 in 1984, it remains very high even by the standards of Eastern Europe. - lx - 0.29 The resumed growth of fixed investment in 1983-84 entailed an expansion of productive capacities, which was the principle factor of expansion in industrial production and construction activity. Renewed accumulation of inventories, after a sharp reduction in 1981, also contributed to a recovery of domestic demand. The growth of investment focused on the completion of unfinished projects. This rise in investment demand was supported by increased domestic production of the metallurgical and energy subsectors, thereby moderating the need for additional imports. Thus, the drop in oil imports during the stabilization period was absorbed by reduced exports of refined oil and by the switch to domestic solid fuels for electric power generation. The reduced imports of technology from the DMEs had little zinediate effect on production as a result of the underutilization of plant capacities caused by the slowdown in demand. Table II: STRUCTURE AND GROWTH OF DOMESTIC EXPENDITURES, 1980-1984 (Percentages) Item 1980 1981 1982 1983 1984 a/ Ratio to Real GDP (1981 Prices) Consumption 66 66 63 61 60 Gross Domestic Fixed Investment 36 33 31 30 30 Changes in Stocks 6 1 3 4 2 Ratio of Gross Domestic Savings to Current GDP 36 34 35 38 40 Real Growth Rate (1981 Prices) GDP 3.3 2.7 2.8 4.2 7.2 Consumption 2.5 2.7 -1.5 0.9 5.6 Gross Domestic Fixed Investment 2.5 -7.1 -3.8 2.4 6.1 Changes in Stocks b/ 8.5 -77.7 126.9 52.0 -46.6 ' mThe figure for change in stocks in 1984 is biased downward, as discussed in Annex 1, Section 3. ~' Rate of change in the growth of inventories. A negative sign means that the growth of inventories declined, not that inventories themselves declined. Source: Statistical Appendix, Table 2.2. 0.30 Although unaffected in the first year of the stabilization program, the growth of real consumption slowed in 1982-83, resulting in a decline in its share of GDP from 661 in 1980 to 601 in 1984. Nevertheless, the high growth of income in 1984 permitted a significant increase in consumption in that year. After an initial fall in 1981, the rate of grovth of domestic savings exceeded the growth of GDP in 1982-84, resulting in an increase in the domestic savings ratio to 40S, and a marginal savings rate (increase in gross domestic savings as a share of the .ncrease in GDP) of 501 between 1980-84, which are among the highest rates in the world. - x - 3. The impact of stabilization on income, consumption and the standard of living 0.31 Given shortcomings in the available data, it is difficult to measure precisely the impact of the stabilization program on private households. Average real wages dropped most sharply (by 5-7X) in 1982-83 because of price increases, but were restored by end-1984 to 6% above their 1980 level, according to the official price index for socialist and nonsocialist consumption expenditures. Other sources of income increased faster than inflation, except for peasant income, for which a real rise was planned in 1985. Retail sales in the socialist sector virtually stagnated in real terms over the 1981-84 period, however. Expenditure on services has expanded quite rapidly, although it corresponds to only one-fifth of retail sales. Meat consumption per capita, which is regarded as an important indicator of living standards in Eastern Europe, fell in 1982-83 significantly below its 1980 peak. Although the data indicate a rise in 1984, widespread meat shortages remain evident in urban areas. Construction of state-supported housing also was reduced in 1983-84; the effect is more likely to be a delay in upgrading the existing stock of urban housing, rather than an absolute shortage of individual units. In brief, the limited information available on private income and consumption indicate that there was not a major deterioration over the 1981-84 period for the average citizen, although the past record of a tangible improvement in living standards was clearly not continued in the stabilization period. The much publicized hardship during the winter of 1984-85 was not typical of the recent trend in personal consumption; however, it did result to some degree from the pursuit of industrial production targets and avoidance of new external debt as official priorities. E. Sectoral Responses to Stabilization 0.32 The most notable impact of external stabilization on the main sectors of the economy was a shift in investment towards energy production. The investment share of manufacturing declined over the 1981-84 period, while the output of both this sector and agriculture was constrained by shortages of raw materials and imported capital goods. The growth prospects of the major productive sectors depend on the focus of official policy shifting from short-term to longer-term adjustment issues. This shift is a central objective of the 1986-90 Plan. The present Report argues that to further the structural adjustment process, greater reliance needs to be placed on investment and imports directed to upgrading the capital stock, and on incentives. 1. The manufacturing sector 0.33 The major issues in the manufacturing sector at the outset of the stabilization program were the following: (a) an emphasis on industrial self-sufficiency, especially for producer goods, which diminished to a certain extent the realization of economic benefits from specialization; (b) an insufficient level of labor and capital productivity; (c) relatively high intensity in the use of raw materials and energy; (d) supply limitations, in part due to long periods of project implementation; (e) the quality of certain products inadequately adapted to the requirements of the international market; - xi - (f) delays in technological updating. Additional problems which became apparent in recent years included a shortage of labor in certain subsectors (aggravated by an inefficient use of labor in some enterprises), and demand constraints on the growth of industrial output as a result of domestic adjustment measures. 0.34 Rapid growth of investment and mobilization of labor have been the major sources of industrial expansion in the past. Neither factor can be relied upon as. heavily in the future, however, given the already high rate of fixed investment and the projected long-term decline in the growth of the working age population (despite the temporary surge in this age group in the 1980s). Further growth of the manufacturing sector will, therefore, become more highly dependent on the country's foreign trade strategy and performance-and primarily on the growth of exports, which is a stated focus of the 1986-90 Plan. However, in the view of Bank staff, the official industrial strategy places a disproportionate emphasis on import substitution and on the development of producer goods in preference to consumer goods. 0.35 The sine qua non of export expansion is increased competitiveness of Romanian manufactured goods, which requires (a) better utilization of raw materials and other intermediate inputs, (b) improvement in the quality and technical level of manufactured goods, and (c) higher labor productivity. In addition, the organization of export marketing and promotion aned the system of incentives, may need to be revised to increase the producers' responsiveness to foreign clients. 0.36 The official program to reduce consumption of raw materials and other inputs is based on Plan directives to favor highly efficient products and processes. Incentives for the saving of materials and other inputs have been introduced which link remuneration of workers to the fulfillment of planned norms. To improve product quality, targets have been set for the increase of output which meets "world standards". The authorities have developed a program for 1986-90 to define these standards of product innovation and quality on the basis of detailed product parameters. In the view of Bank staff, a greater level of domestic and import competition might provide the most effective source of pressure on enterprises to improve products and (what is equally important) after-sale servicing, by forcing products to meet the test of the market. 0.37 The official program for increasing productivitr is based on improvement in work discipline and organization, in the technological level of capital stock, and in capacity utilization. (The role assigned to incentives in the growth of productivity is summarized in Section H below.) The planned increase in productivity is based on the assumptions that (a) technoLogical change can originate almost entirely from domestic sources, even though the new vintages of domestic technology may be inferior to the older generation of capital stock available from the DMEs; and (b) new inventions can be very rapidly assimilated in production. It is not clear, however, that the domestic research and development sector, and the engineering subsector within manufacturing, have the capacity to generate the needed capital and equipment, which are also intended increasingly for exports. The official program for technological development, which the authorities recognize as crucial to the realization of materials savings, improved product quality and higher - xii - productivity, does not appear to contain sufficient concrete measures to realize these objectives-such as significantly increased investment in machinery and equipment, imports of technology, and expenditures on research and development. In particular, the pattern of planned investment is heavily oriented towards the completion of ongoing projects for new capacities in energy and mining. 0.38 Successful promotion of exports will require (a) positive incentives to enterprises, whose managers are naturally cautious about entering nonsocialist markets; (b) institutional support; (c) adequate access to foreign technology; and (d) investment in production of goods with a long-term comparative advantage. The existing incentive system implies an especially strong sanction against the underfulfillment of export targets; therefore, while enterprises, centrales, and ministries are clearly motivated to meet their export plans, the system appears to discourage them from trying new and potentially risky markets, or from achieving results that would lead to higher targets the following year. 0.39 The institutional support for foreign trade could be strengthened to improve coRmunication between domestic producers and foreign buyers/suppliers and to increase the efficiency of foreign trade transactions. There may be some benefit, for example, in gradually transferring the functions of Foreign Trade Organizations (FT0s) to the major manufacturing firms, as well as in introducing an element of competition through wider participation by domestic enterprises in foreign trade operations. The FTOs or other entities might retain a service role by performing the marketing functions for the smaller exporting/importing firms. The system of export financing also could be further developed to assist firms in competing abroad. However, export credits to foreign customers need to be used judiciously to ensure that exports generate the flow of foreign exchange revenues as intended. 0.40 New investuent is needed to permit enterprises to adjust to changing external demand and to allow for restructuring of activities. Such restructuring should concentrate on the promotion of subsectors which are relatively efficient and with good export potential, such as specialty metals and chemicals, engineering products, and consumer goods. However, successful participation in the highly competitive world markets for these goods may require greater use of arrangements such as joint ventures. The prospects of oil refining and traditional metallurgical exports should be carefully reassessed. Reliance on countertrade (barter) to permit entry into new markets should be pursued with caution, in order to avoid sub-optimal trade choices. 0.41 In sum, the official strategy in the manufacturing sector emphasizes both a rapid expansion of manufactured exports and a continued priority of import substitution. Yet, there is likely to be an increasing trade-off between these two objectives, given the scarcity of overall investment resources and the reliance being placed on domestic suppliers of capital goods. The Plan targets for industrial production in 1986-90 emphasize an expansion of high-technology products; however, the measures envisaged to realize these targets appear insufficient, in particular regarding planned investment and imports of technology. - Yiii - 2. Agriculture 0.42 The growth of agricultural and livestock output since 1980 has been marked by wide fluctuations, largely as a result of vagaries of weather. Annual production of maize and soybeans averaged 10-12S higher in 1981-84 than in the previous Plan period (1976-80), and most vegetables and fruits have shown substantial increases over the past decade. Average production of sugarbeets and sunflowers, meat, and milk declined, however, between the two Plan periods. The trend in yields of most crops between these periods, for the country as a whole, has been unimpressive; notable exceptions are the significant increases in yields of maize, grapes, and most major vegetables. There is considerable regional variability in performance, and yields achieved in the irrigated areas compare favorably with these in many developed countries. 0.43 In addition to poor weather in several years, this uneven performance reflects a low level of efficiency in the sector. The major factor behind the poor record of crop and livestock yields in the last few years has been the shortage of farm inputs, largely as a result of the cut in imports of crop protection chemicals, feed, and fuel. Despite the relatively large share of the total labor force employed in agriculture, the seasonal supply and structure of agricultural labor is a constraint to certain activities, particularly maize harvesting. Organizational and managerial issues include deficiencies in grain harvesting, storage, and distribution. Despite Roomnia's good capability for agricultural research, technical recommendations are often not followed adequately, and the supply of improved seeds is frequently insufficient. Moreover, cropping patterns in each district (Judet) are based on technical, not economic, feasibility, and thus the potential for economic benefit from specialization in production is not exploited. O.4 The immediate priority in the agricultural sector is to ensure the adequate provision of material inputs, to at least bring the rates of input use back to their levels in the pre-stabilization period. This measure will require a reassessment of recent trade choices. There is a clear trade-off between imoediate savings of foreign exchange and livestock production. Factors which can improve the efficiency of the existing application of inputs also need to be explored. In the medium and long run, the main issue concerns the appropriate pace of development of irrigation, soil protection and drainage to reduce the sector's vulnerability to climatic variation. Addressing these issues may require modifications of investment plans as well as in the incentives system and management practices. 0.45 Although increased investment in mechanization, crop storage, and land improvement may be called for over the medium to long term, the evaluation of new investments should take account of needs to improve the efficient use of the existing capital stock as a possible alternative to expanding fixed assets. The rapid growth of irrigation investment proposed in 1986-90 may be questioned, in view of the delays in completion of ongoing projects. 0.46 The system of incentives (pricing and labor remuneration) in the socialist sector of agriculture may not generate clear signals for improved efficiency, given that State farms and cooperatives must meet multiple planning targets. Moreover, although official policy is to encourage - xiv - individual farming, which accounts for about half of fruit, vegetable, and livestock production, the actual framework of regulations (especially as modified in 1984) may tend to make it less attractive. In particular, the limitation on peasant market prices and on private farmers' sales to this market would certainly seem to constrain the returns to private farming. Given the relatively high productivity of this sector, however, as evidenced by its output relative to land ownership, consideration should be given to providing individual farmers better access to material inputs and credit for investment, as well as to easing price and other regulations on the individual sector. An improved availability of consumer goods in rural areas would also be likely to have a positive effect on incentives to agricultural labor. 0.47 Incentives and institutional support for improved farm management may be a key to better overall performance in the sector. Greater technical and economic efficiency of farming may also require a more consistent application of the findings of agricultural research. Adapting technological innovations in agriculture to the specific conditions of actual farms calls for a flexible, individualized approach to farm management which need not conflict with the basic collectivized structure of the agricultural sector. 3. EoerRY 0.48 The need for adjustment in the energy sector has rightly been a primary concern of the Romanian authorities during the 1981-85 Plan, since the extent of import dependence has had a major impact on the overall external balance of the economy. Net oil imports have been reduced from about 10-12l of domestic demand in 1979-80 to 5S of demand in 1984. The program for adjustment in the energy sector calls for expanded production of indigenous fuels, a shift from high-value to low-value fuels, improved efficiency of conversion and transmission, and reduced energy demand through more efficient use and direct conservation. 0.49 Efforts to restrain eneray consumption since 1981 have been focused on the application of stricter planning norms for energy use in production. Pricing has been used relatively little as a means of regulating demand, although stiff penalties are charged for consumption of natural gas and electricity above the quotas for households and firms. According to the available aggregate data, the elasticity of total energy consumption with respect to GDP in local currency declined from 0.46 in 1976-80 to 0.38 in 1981-84. This apparent improvement in the intensity of energy consumption includes the effects of the decline in output of certain industrial subsectors during the stabilization period. The mission was not provided with data regarding changes in the efficiency of energy utilization by industrial subsectors or products. Energy demand appears to have been restrained primarily as a result of reductions in industrial output and by administrative controls. During the 1981-85 Plan, there has been relatively little shift in the structure of industrial output away from relatively energy-intensive activities as a means of conservation. Such structural change will need to become a major priority in 1986-90. 0.50 The strategy for energy production is focused on enhanced exploitation of petroleum reserves, and expanded output of coal and lignite to permit a svitch from oil/gas-based to coal-based power generation. Further petroleum production depends essentially on enhanced oil recovery, the economic justification of which needs to be kept under close review, - xv - especially given the reccnt decline in world petroleum prices. Although major investment has been devoted to expanding lignite production for use in thermal power generation, the required conversion of oil-and gas-fired plants is proving costly and the generally low effective utilization of thermal stations has led to a relatively slow growth of power output. Considerable success has been achieved in the use of secondary ("waste") energy and in maintaining a low level of losses in power distribution. Romania's plans for future development of the power sector are based on the principle of import substitution, in particular through hydroelectric and nuclear generation. Care should be taken to ensure that this strategy does not have the effect of substituting high-cost power plants based on indigenous fuels in place of potentially lower-cost plants using imported fuels. 0.51 The Government's formal objective in the energy sector is to achieve energy self-sufficiency by 1990, defined as reducing net oil imports to a mini um . In the view of Bank staff, the most likely outcome of the energy balance by 1990 would be that the current rate of dependence on oil imports would be approximately maintained or slightly decreased. The projections of supply are highly sensitive, however, to assumptions about the level of future natural gas imports and the time-frame for comiissioning of nuclear power capacity. The strategy for energy supply should focus on improvements in the efficiency and capacity factor cf power generation and os rapid completion of those ongoing projects which are economically justified at world prices. The projected energy balance to 1990 also depends importantly on the growth of energy demand. The scope for future savings lies in the industrial, not household, sector. Further improvements in the intensity of energy use may require considerable new investment in technological upgrading of industry, as well as structural shifts in production. F. The Role of Investment in Stabilization and Adjustment 0.52 Although during the early phase of the stabilization period there was no imediate need to increase production capacity, given the slowdown in the growth of aggregate demand, there were two valid claims on investment even at that time. The first was the need for rationalization of production and technological modernization in industry, in order to increase its efficiency and competitiveness. The second requirement was to expand consumer goods industries to meet domestic demand and to develop a base for exports. 0.53 Flxed investment in machinery and equipment--which is a partial proxy for technological modernization-declined between 1980 and 1982, however, both in value and sbare of total investment. The recovery of this investment in 1983 and 1984 was heavily concentrated on the expansion of productive capacities in four sectors: electric power, fuels, agriculture and food processing. Thus, Romania's investment strategy remained focused on "capital widening," in contrast to the emphasis on technological upgrading ("capital deepening") during the same period in many of the countries (e.g. DMEs) with which Romania must compete for export markets. 0.54 Investment in machinery and equipment in 1981-84 came predominantly from anmestic sources of supply as the Romanians began to replace technology from nonsocialist countries by locally-produced investment goods. While this - xvi - policy switch has probably had no significant effect in the short-run, it could have seri us implications on the growth of productivity in the long run because of the technological lag of many Ronanian suppliers as well as their capacity limitations. 0.55 The sectoral direction of investment policy during the stabilization period was focused on the expansion of capacities in the productive sectors, and mainly for producer goods (including energy). Consumer goods, which were originally designated to grow faster than producer goods industries in the 1981-85 Plan, ultimately received a much lower priority (except for agriculture and food processing), as did "non-productive" sectors. Given the importance of exports on future balance-of-payments strategy, the emphasis on productive sectors was sensible, since it is these which produce tradeable goods. However, by concentrating on producer goods, the investment strategy did not lead to ade.uate expansion of production capacities in those sectors which faced the best demand prospects both domestically and abroad, i.e. the consuier goods industries. At the same time, new capacities were created in sectors which have been traditional exporters but face stagnating demand prospects (e.g. nonspecialty steel). 0.56 The thrust of investment policy was heavily oriented towards import substitution, especially in the energy sector. This emphasis led to an increase in the sectoral concentration of investment, which has traditionally been high in Romania. Machine-building, electricity/thermal power and fuels, all primarily import-substituting subsectors, absorbed almost two-thirds of investment in 1983-84, thereby limiting investment resources for other lines of production. While these investments may be economically justified at present, both oil and natural gas extraction and coal mining represent rising-costs industries and their long-run efficiency, therefore, needs to be carefully evaluated. Judging from the structure of Romania's imports, which consist primarily of complementary goods, the policy of import substitution has probably already been pushed beyond the point of economic efficiency in some subsectors, possibly implying fragmentation and high costs of production. sub-optimal plant sizes or underutilization of plant capacities, and reliance on domestic machinery and equipment which may be less appropriate than foreign models. 0.57 There are some indications that capital productivit- declined during the stabilization period. Although the emphasis on completion of ongoing projects was a reasonable strategy, given that a considerable share of investment resources were tied up in unfinished projects, it may have had the effect of creating some uneconomic expansion of capacity in the steel industry and oil refining. The prospects for a further significant reduction in the stock of unfinished projects are limited, however. because new projects introduced during the current FYP tend to be large and of long duration. There is insufficient evidence to indicate that the productive capacity of the engineering and construction sectors has been increased sufficiently to allow adequate maintenance of capital stock throughout the economy. All these factors may tend to constrain the growth of capital productivity in the future. - xvii - G. The Evolution of the Economic Management System 0.58 Sue main revision in Romania's post-war system of economic management occurred in 1979 with the institution of the New Economic Measures, which were designed to enhance efficiency by increasing enterprise autonomy and sharpening rewards and penalties for enterprise performance. In practice, this has meant an increase in the responsibility of enterprises for drawing up their own production and investment plans in participation with the central authorities. To strengthen the impact of plan directives, rewards and penalties to labor and management as a function of plan fulfillment have been strengthened. However, the use of "incentives" in this sense has not involved any significant shift towards the use of indirect regulators of economic activity in preference to central planning as a means of allocating resources. The present outlook is for a reinforcement of the central direction and control of the economy. 0.59 Planning. Since the adoption of a new planning law in connection with the NEM, the principal planning indicator has shifted from gross to net production, which is used in conjunction with physical targets for output, consumption of inputs, labor productivity, investment, exports, domestic sales, and technological development. The degree of physical detail in the annual plan has tended to increase since the 1970s. The major substantive change in the planning process since 1970 has been the introduction of forward contracting among enterprises for inputs and outputs as a basis for formulating enterprise-level production plans. The intention of contracting is to permit annual plans to reflect supply and demand, and to reduce inventory accumulation. However, the potential effect of contracting in signalling "market preferences" is constrained by the limited amount of damestic or import competition; the system may also reduce enterprises' ability to respond promptly to changes in market opportunities, especially for export. 0.60 Incentives for Plan fulfillment. In an effort to more closely link labor incomes with Plan outcomes, a system of "global workers' contracts" has been in practice since 1983 to establish the performance targets, and therefore the basis for salaries and bonuses, of each work unit within the firm. In the event of underfulfillment of these targets by a work unit, its members' salaries can be cut accordingly, with no guarantee of a minimum salary. Also since 1983, enterprises' overall performance in relation to their plans has been evaluated according to a weighted index of targets for physical output, net production, marketed production and export sales. Under (or over) fulfillment of the production plan implies that managers and white-collar workers of the firm lose (or gain) a corresponding percentage of their salary fund, provided other targets regarding input use, size of work force, etc. are observed. The distribution of a share of profits (especially above-plan profits) to workers also constitutes a direct link between enterprise performance and employee benefits. In 1984, the scope was broadened for allocation of above-plan profits to individuals or groups of workers who are responsible for increased profits from improved labor productivity, materials and energy savings, technological innovation, and exporting. At the same time, half of all fines levied for the nonfulfillment of contracts, late payment of loans, etc. by the firm are to be deducted from the employee profit-sharing fund. - xviii - 0.61 The above policies have definitely increased the importance of rewards and penalties in relation to Plan fulfillment, particularly since 1983-84. However, remuneration of labor and management is linked to a multitude of performance indicators for the enterprise, requiring managers to trade-off among potentially competing targets. Moreover, the weights applied to the different Plan objectives vary. For example, materials savings has a much higher weight than exports in the allocation of above-plan profits; exports have a greater weight in the performance index for managers, but physical output is almost as important. Thus, the system may not in fact produce clear signals to workers and managers. 0.62 Investment financing. The NEM was intended to create a greater reliance on enterprise self-financing, and operating subsidies from the State Budget have indeed been sharply reduced. Firms' demand for credit and its uses are strictly determined by the planning process, with interest rates not intended to play an allocative function. Although interest rates on investment credits were briefly raised in 1983, purportedly to increase the efficiency of resource use, in 1984 the rates were dropped again to their pre-1983 levels (or even lower for some type of credits). The new interest rates remain positive in real terms, because of the authorities' resumption of their traditional emphasis on administered price stability in 1984. 0.63 Pricing and exchange rates. Prices play a significant role in short-run production decisions by firms, which have an incentive to save on inputs in order to raise Laeir net production target and above-plan profits. However, prices do not reflect opportunity costs in the economy but are basically formed through a mark-up on costs; therefore, prices are not used as signals for more efficient resource allocation. 0.64 A major adjustment in the pricing system was instituted in 1981 with the abolition of the "price equalization fund", which had existed to keep do-zstic price levels distinct from those abroad. The prevailing system of multiple exchange rates was abolished at the same time, resulting in the adoption of a single commercial exchange rate for all convertible currency transactions (except individual tourism). Although the link between foreign prices and domestic prices has been strengthened by these measures, the allocative effects have been minor because of the many quantitative targets regarding factor inputs, outputs, exporting, importing and domestic sales which are specified in the enterprise plans. In the short run, enterprises are constrained in their response to changes in world prices; in the longer run, however, the planning process may react to the price signals, leading to corresponding adjustments to the Plan. Since the authorities remain comitted to domestic price stability even while allowing world prices to pass through to importers and exporters, the resulting price discrepancies may continue to require some form of enterprise-specific taxes and subsidies, even in the absence of a price equalization fund. 0.65 The potential incentive effects of the 1983-84 exchange rate devaluations, as well as of the subsequent revaluation in 1984, were circumscribed by the planning process. Following the devaluations, for example, the domestic prices of imports and exports were raised in proportion to the shift in the exchange rate, but the quantitative production targets were initially unchanged. Any resulting impact on the level of profits was - xix - incorPorated in the following period into planned profit. Since the major source of incentive to firms is to generate above-pIan profits, the adjustment of profits targets after devaluation reduced any incentive effect. 0.66 The 1984 revaluation has been explained on various grounds: to restore purchasing power parity, given that Romanian inflation has been well below the world level; to facilitate the achievement of domestic price stability and reduction of costs; and to improve incentives for export, an objective which would normally call for devaluation in a market economy. However, given the Romanian system described above, the appreciation may require firms to sell a larger volume of exports or save more on imported inputs in order to produce the same amount of above-plan profits they achieved before revaluation. Hence, exchange rate adjustments in the Romanian context may do not have the same short run effect on production and marketing decisions by firms as in a less centrally planned economy. It should be noted, however, that the adoption of an overvalued exchange rate can still lead to misjudgments regarding the gains from trade and therefore result in inappropriate resource allocation through the Plan. A 17.8S devaluation of the leu was carried out in mid-March 1986, to counteract the upward float of the currency which had occurred during the previous twelve months. 0.67 The evolution of the economic management system since 1979 has initiated an increased involvement of enterprise managers in the setting of enterprise plans, and sharpened the rewards for plan fulfillment and penalties for failure. At the same time, the use of multiple planning indicators to monitor the numerous (and very valid) objectives of pursuing efficiency, growth, and exports appears to have increasingly constrained the ability of individual managers to respond to changing opportunities. The penalties for failure to fulfill the plans are greater than the rewards -or the scope-for innovation. Thus, although the economic-financial management system has been effective in responding to external crisis, it appears to have become less suited to fostering the greater efficiency and competitiveness essential for sustained growth. A more flexible approach could be to assign a greater role to prices and profits as signals of allocative efficiency. However, modifications of the incentive system would have to be accompanied by a fundamental revision of the planning process, in particular to allow managers more independence in decision-making and greater financial responsibility, and to introduce elements of competition among firms. Such elements of structural reform need not be inconsistent with the basic framework of central planning, and would further the principle of "economic-financial self-management". H. Issues and Options for the Future 0.68 The Bank staff fully agrees with the Romanian authorities' position that the primary development objective for the medium term is to maintain external equilibrium, while returning to sustainable growth based on improved efficiency. The major strategic issues concern assumptions about the sources of efficiency and productivity, and therefore the requirements for investment, imports, technological change, and incentives. - xx - 0.69 The 1986-90 Plan directives. The macroeconohic targets for the next Plan call for high growth of output, especially for industry. based on minimal increases in investment and employment and with tight restraints on personal consumption. There is an apparent structural imbalance implicit in the Plan's assumption that a high level of income growth can be sustained with negligible increases in consumption (as indicated by the growth of retail sales). The proposed investment strategy maintains the current emphasis on import substitution and on the producer goods industries (mainly energy), without a discernable shift towards increasing specialization in areas with high export potential or towards investment in machinery and equipment. The directive of the next Plan to increase labor productivity by 10 annually, while industrial investment is to grow only 2% per year, suggests a large share of non-investment factors in generating productivity. The assumptions regarding export growth imply a significant penetration of world markets at a time of growing competition. The Plan parameters indicate a substantial improvement in the productivity of investment over the five-year period, allowing fixed investment to fall to 221 of GDP by 1990, and a very low elasticity of total imports. 0.70 Bank staff scenarios for the medium-term. In the view of Bank staff, given the likely constraints to rapid improvements in efficiency and export performance over the next five years, the growth of both imports and investment will have to be greater than planned in order to support the adjustments needed to achieve sustainable economic growth and external balance. A medium-term scenario has therefore been sketched which assumes that the ratio of fixed investment to GDP declines slowly to 27.5S by 1990, to permit a high level of technological modernization on the basis of a renewed influx of capital goods imports from the developed market economies. As a result of improvement in the quality of capital stock and production, growth of GDP and exports would rise to a healthy pace by the end of the decade, althoub, at a lower rate than planned. This projection entails a moderate opening to new external borrowing to ease the debt service burden, rebuild reserves, and finance imports for investment, while still allowing the ratio of external debt to GDP and the debt service ratio to fall to very manageable levels by 1990 (5.1X and 13.4X, respectively). 0.71 Alternatively, if fixed investment only grew at the average rate specified in the Plan and the desired performance of productivity did not materialize, the growth of output and of exports would be significantly less favorable. This "low" case might occur because import policy remained too restrictive regarding necessary capital imports, investment was not sufficiently directed to modernization, and/or because the other factors contributing to productivity (e.g. labor effort) were ineffective as result, for example, of inadequate incentives. 0.72 The analysis of alternative future scenarios indicates that the first, and most critical, variable in the formulation of development strategy in the medium term is the allocation of investment. While it is highly desirable to reduce the investment-to-GDP ratio below its current level of 301, such reduction could only be done in the near term without sacrificing growth if investment expenditure was more strongly directed to machinery and equipwent rather than capacity expansion. A policy of focusing investment on modernization of the capital stock in sectors with a strong comparative advantage is therefore essential to ensure a healthy rate of growth of output - DCi - and exports in the 1986-90 period. The contribution of productivity-enhncing factors other than investment will probably depend on the development of more positive incentives to labor and management. Finally, the degree of external borrowing for new investment and capital imports may also be a key factor in the realization of sustainable growth. The achievements of external stabilization in 1981-84 provide the authorities with a margin for maneuver in the next Plan period, and should allow a redirection of economic policy to the concerns of longer-term adjustment. CHAPTER I THE NATURE OF THE EXTERNAL ADJUSTMENT 1.01 The record of Romania's balance of payments adjustment since 1981 demonstrates the authorities' clear perception of immediate crisis-namely, the shortage of foreign exchange to meet debt servicing obligations-and the capacity of the centralized planning system to mobilize the entire economy in response. The external disequilibrium had its roots in the rapid increase in import dependence in parallel with a decline in exports to convertible currency markets. Economic policy since the adoption of the stabilization program has focused, to a considerable degree, on the short-term balance of payments and external debt situation. As a result of this emphasis, the economy by 1985 has passed the "crisis" point, in that a trade surplus has been maintained fox four consecutive years and creditvorthiness has improved. Therefore, while external balance remains an important concern, the country is now in a position to devote the attention of economic policy more fully to the economy's fundamental needs for improvements in efficiency and external competitiveness. A. Balance of Payments and Trade Adjustment 1. Overview of trade policy and the adiustment process 1.02 The turnaround in the balance of payments between 1980-84 was mainly the result of cuts in imports, which in turn reflected adjustment of domestic expenditure. The authorities successfully reduced domestic absorption relative to GDP, initially by cutting investment more than consumption and later by restraining growth of consumption relative to investment. The resumption of investment in the latter phase of the stabilization period focused on the completion of projects, and thus expansion of capacities, in the fuels and ferrous metallurgy subsectors. Overall output continued to grow throughout the stabilization period, albeit at a much slower pace than in the past, because adjustment policy focused on a switch of expenditure into import substitution - especially in the energy sector. The economy was able to absorb the reduction of imports, which affected especially imports of crude oil, by reducing output in lower priority (i.e., non-import substituting) subsectors, and by switching to domestically produced raw materials (e.g. coal and metallurgical coke). The process of this adjustment in output and investment are described in Chapters II through IV. 1.03 Trade policy during the 1981-84 period was required to meet two objectives. First, given that the immediate constraint on the economy was the shortage of convertible currency (CC) for debt repayment, trade strategy needed to optimize the pattern of trade between the CC area (essentially the nonsocialist countries) and the nonconvertible currency (NCC) area (mainly the CMEA). Second, the requirements of longer-term adjustment had to be met to -2- ensure conditions for sustainable growth and external equilibrium, as well as a resolution of the immediate balance of payments crisis. 1.04 An optimizing trade strategy would aim to obtain essential imports from the socialist countries as much as possible, paid for in nonconvertible currency. Conversely, this strategy would involve imports for convertible currency to the extent that they could only be purchased on these terms, or when price or quality considerations clearly favored the convertible currency market. 1.05 As documented below, the Romanians did attempt to shift their pattern of trade in this fashion to a significant extent. The share of socialist countries in imports of non-oil raw materials as well as of capital goods increased. More than half of convertible currency imports have consisted of crude oil, which as been available to the Romanians (even from the USSR) only for convertible currency. The category of machinery and equipment imports from the convertible currency area has been greatly reduced. despite their frequently higher quality in relation to capital goods from other sources; this trend therefore indicates a change in the nature of technological development and technology transfer taking place. Traditional exports, such as steel, fertilizers, and refined oil products, have been directed predominantly to the convertible currency area; at the same time, however, convertible currency exports of commodities with better long-term prospects on this market (e.g., machinery and equipment, manufactured consumer goods) declined. 1.06 Trade policy during the stabilization period appears to have been aimed mainly at an overall reduction of import dependence. Despite the adoption of export promotion as an important official objective, the results have been very limited during this period. Although a significant convertible currency trade surplus has been achieved in the short term, it is the view of Bank staff that to ensure a more stable and lasting external equilibrium and promote the economy's structural adjustment needs, the pattern of trade needs to reflect stronger export performance and a more selective approach to import substitution. 2. Recent developments in the external account 1.07 Table I-I illustrates the impressive reversal in the current account after the adoption of the stabilization program un 1981. The total current account (in both convertible and nonconvertible zurrencies) shifted from a deficit of $2,420 million (4.3S of GDP)1 in 1980 to a surplus of $1,719 million in 1984 (also 4.32 of GDP). The overall resource balance (net exports of goods and non-factor services) moved from -$1,643 million to +$2,378 million for a net change of $4,021 million over the same four year period. 1.08 The difference between Romania's resource balance and the current account reflects only net interest payments, because the country has no record of transfer payments to/from foreigners. Net interest payments grew from $118 t' GDP in lei has been converted to US dollars using the annual average exchange rates given in Table 3.15 of the Statistical Appendix. As a result of devaluations of the leu, GDP in US dollars declined between 1980 and 1984. - 3 - Table I-L. THE ESMTJEE BALA1(NZ YAJ NDamO CllURRNTilI1 1976-1985 (Millions of US Dollars) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 b/ Overall Resatwee Bolarce 102 -172 -591 -1295 -1643 184 1891 1870 2378 1532 Net Interest Paments -118 -132 -168 -358 -777 -1017 -851 -710 -659 -619 Current Account -16 -304 -759 -1653 -2420 -833 1010 1160 1719 913 Convertible Owrency PAsuoce Balance 68 -128 -606 -1283 -1611 229 1572 1659 2242 1576 Net Interest Payments -129 -145 -173 -385 -788 -1047 -917 -737 -706 -674 Orrnsit Account -61 -273 -779 -1668 -2399 -818 655 922 1536 902 N2-Cmwert3ble Curew Resource Balance 34 -44 15 -12 -32 -45 319 211 136 44 Net erAest Payen.ts 11 13 5 27 11 30 66 27 47 55 Qarrent Account 45 -31 20 15 -21 -15 385 238 183 11 N et scpxt. of goods and nonfactor sev.ces. b/l Preliinary macaw. S!me: Statistical Appendix Tabls 3.1, 3.2, 3.3 1 3.4. million in 1976 to $1,017 million in 1981, in part as a result of the 2.5-fold increase in the external debt, and in part owing to a worldwide surge in interest rates. The sharp rise in interest rates was an important contributor to Romania's debt servicing problem in 1981, because virtually all of the country's non-official debt was contracted at floating interest rates tied to LIBOR. The reduction in net interest payments between 1981 and 1984, on the other hand, is due mostly to the rapid repayment of external debt, as w-3rld interest rates have remained at very high levels. 1.09 To get a better understanding of the adjustment process and Romania's ability to service its convertible currency debt, the CC and NCC balance of payments must be analyzed separately.-'' Comparing the overall balance of payments to that in convertible currency only, it is clear that the bulk of the external adjustment between 1981 and 1984 occurred vis-a-vis the CC area (including CC transactions with socialist countries). .L' The two currency accounts should also be analyzed separately because of statistical problems in the conversion of trade based in transferable rubles (TR) into dollars (see pars. 1.12). 1.10 The turna-eound in the CC resource balance occurred mainly from cuts in imports in 1981 and 1982, resulting in a cumulative drop of 41S from their peak in 1980 (Table I-2).I' The reduction to "strictly necessary" imports was achieved as a result of measures to increase import substitution and reduce the specific consumption of imported goods. Ic is worth noting that 1980 marked the end of a short-lived surge in imports which began about 1977. This rise had reflected in large part the economy's increased dependence on imported oil at higher prices, as well as a deliberate policy in the late 1970s to acquire technology from the Development Market Economies (DMEs). Regarding exports, despite a significant rise in 1981, their performance for the following two years was so weak that the level of exports in 1983 remained below that of 1980. In 1984, exports and imports expanded by 10.3 and 3.21, respectively, in response to a resumption of both domestic and external demand, resulting in a record trade surplus of US$2186 million. 1.11 The current account in non-convertible currencr, like that for convertible currency, shifted into a very large surplus in 1982-84, after years of a deficit position. The surplus on the NCC account reflected the granting of credits to trade partners, especially LDCs, for the purchase of Romanian exports in NCC. The mission did not obtain any information concerning the status of trade agreements between Romania and other CMEA members, or understandings regarding future credit availability. It is noteworthy that in 1984, imports from the nonconvertible area surged 10.71 while convertible imports rose only 3.2X, indicating that the resurgence of domestic demand was channelled towards the socialist countries to conserve convertible foreign exchange. The official balance of payments forecast indicates a return to a modest deficit in the NCC account in 1985. 3. Commodity composition and direction of merchandise trade 1.12 Analysis of Romania's merchandise trade developments is hampered by numerous shortcomings in the available statistics. No information was available to the mission on trade prices or volume changes (except for petroleum); data on the commodity composition and direction of merchandise trade are available only in terms of current (US dollar or lei) values. Data on the commodity composition of exports are broken down by socialist and nonsocialist countries, respectively, rather than by convertible and nonconvertible currencies.- In addition. information on the direction of trade is not broken down by commodity, nor diseggregated into convertible and nonconvertible components. Finally, a major difficulty lies in the conversion of nonconvertible trade flows which are denominated in transferable rubles I' All trade data in this section are given in current prices due to the lack of historical trade deflators. These two breakdowns do not precisely overlap. For example, in 1983, total exports to socialist countries, at US$5.7 billion, exceeded nonconvertible currency exports by the equivalent of over US$400 million. The implication is that exports in convertible currencies to socialist countries were at least US$400 million. In fact, they would be expected to have exceeded this amount since nonconvertible exports are also directed to nonsocialist countries. - 5 - Table 1-2: DEVELa1Y OF ltDHIADSE eauS AI DWORIS, 1975-1985 Ofillim Of UiS vODi1S) 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 L/ Trade Balance -1 47 -143 -606 -1216 -1661 103 1814 1869 2312 1453 bports 5341 613b 6859 8022 9303 11021. 12367 11559 11512 12646 12320 Inot -5312 -607 -7002 -628 -0519 -12685 -1226 -9745 -9613 -10334 -10867 Convrtible COnety Balsce -111 76 -83 -592 -1155 -153 204 1525 1688 2186 1503 Eapo 2839 3"03 3700 4040 5363 6503 716 6235 6246 6892 6270 lipts -2950 -3327 -3783 -4632 -6518 -037 -7012 -4710 -4558 -4706 -4767 macOuertible oirrecBIWAe 110 -29 -60 -14 -61 -127 -101 269 181 126 -50 Esports 2502 2731 3159 3982 3940 4521 5151 5324 5266 5754 6050 1I%- -2392 -2760 -3219 -3996 -4001 -4648 -5252 -035 -85 -5628 -6100 Plm t Sume of Ibtal Eiorts Caiertible aqots 53.2 55.5 53.9 5D.4 57.6 59.0 58.3 53.9 54.3 54.5 50.9 b*Wertible apot 46.8 44.5 46.1 49.6 42A 41.0 41.7 46.1 45.7 45.5 49.1 Pementae Sure of Total Is t! Convertible lirwts 55.2 54.7 54.0 53.7 62.0 63.4 57.2 48.3 47.3 45.5 43.9 N?kiustible rup)rts 44.8 45.3 46.0 46.3 38.0 36.6 42.8 51.7 52.7 54.5 55.1 Y Preliimny. Sozce: Statistical Appiix Tmbles 3.1 ad 3.2. 1665 - 6 - (TR) into US dollar equivalents. The cross-exchange rate between the US dollar and the TR for purposes of accounting is not consistent with the cross rates implied by actual transactions of Romania with the CC and NCC markets. Therefore, data on the trade in each of the two types of currencies are not entirely comparable. In view of the above statistical problems, only a tentative Analysis of the commodity composition and direction of trade is possible. 1.13 Direction of trade. The available data on trends in trade in convertible and nonconvertible currencies reflect an increasing share of import trade with the CMEA countries, in contrast to the DMEs since 1980-81. As Table I-3 shows, the CMEA share of Romanian imports rose sharply from 311 in 1980-81 to average 401 in 1983-84, essentially reversing the downward trend between 1977 and 1980. There has been a big jump in the share of imports from developing countries, from around 202 in the 1975-79 period to 32-35X of total imports in 1980-84. Reflecting these developments, the import share from DMEs has dropped precipitously from 30-402 in the 1970s to 17-212 after 1981. 1.14 In contrast, Table 1-3 shows that the export share of the developed market economies held steady until 1983, and increased significantly in 1984. The CMEA export share, however, fell from the high 301 to the low 30S range after 1981, while exports to LDCs rose sharply to 32-34X in 1981-82 from their 1975-80 share of 20-24X.8" 1.15 In sum, it appears that in the course of its external adjustment Romania has turned increasingly to the CMEA as a source of major imports but not as a purchaser for its exports, which would be consistent with a rational strategy for the direction of trade. LDCs have become relatively more important both as potential export markets and as suppliers of key imports, which reflects in part the significant use of barter arrangements. The extensive use of barter, or countertrade, requires careful evaluation, in order to avoid less than optimal trade choices. These shifts in the direction of trade also indicate the growing share of crude oil among imports from middle-eastern LDCs (which supply the majority of Romania's oil imports) and from socialist countries (specifically, the Soviet Union, which provides about 101). 1.16 Trends in composition of imports. The striking characteristic of Romania's imports has been the consistency of the commodity composition for the past ten years. Two categories of imports, namely (a) machinery and equipment and (b) fuels, minerals and metals have regularly accounted for " It should be noted that the use of broken cross-exchange rates appears to overestimate somewhat the share of TR-denominated trade relative to US dollar trade, at least for recent years (see Annex I for more details). Therefore, the calculated trade shares between the CMEA and nonsocialist markets, and the trend of these shares over time, must be interpreted with caution. However, since the same accounting practice is applied to both exports and imports, when changes in trade shares differ significantly between exports and imports these can be assumed to reflect actual differences in the direction of trade to the two major markets, not merely a statistical artifact. Tale 1-3: DDMCIZCN OF TMRE (percmts) 1975 1976 1977 1978 1979 1980 1961 1962 1983 1984 ExLrt ghi CEA 38 38 42 41 36 37 30 32 34 29 Ocher scialistcoamtries 08 08 07 09 09 08 06 07 06 06 I,e1oped wkaet _wmis 31 31 28 30 33 32 30 29 34 42 Dieelopingcmntries 23 23 24 21 22 23 34 32 26 23 Toprt gmt CHU 37 40 42 37 34 31 31 37 43 38 Othw aoialist cmutries 07 06 06 07 07 07 06 07 07 07 Dem lopdi recamu_ 41 35 35 36 34 30 30 21 17 20 DtsmlopiAg cmmtries 16 20 17 20 25 33 32 35 33 35 Swuae: Stetiscical Appmdix TIe, 3.7a, 3.7b. 3.8a, 3.8b. 73-781 of total imports, with the higher share appearing after 1981. The relative importance of fuels, minerals and metals has increased since the surge of oil prices in 1979 and the reduction of capital imports. The remaining commodity categories have retained their relative shares as imports were compressed. 1.17 Table 1-4 shows the relative importance of imports of machinery/ equipment and fuels/minerals/metals, respectively, from nonsocialist and socialist trade partners.1' It is interesting to note that the value of machinery and equipment from nonsocialist countries has dropped precipitously since 1979. In terms of shares, machinery/equipment imports from nonsocialist countries has fallen from approximately 401 of total machinery/equipment imports in the late 1970. to only 131 in 1984. Since the type and quality of machinery and equipment imported from the socialist countries are not always comparable to those available from the DMEs, the shift implies a difference in the level of technology transfer. 1.18 Table 1-4 also indicates that total imports of fuels/minerals/metals have been reduced by US$1.0 billion from 1980-84, as a result of both demand restraints as well as expanded production of those commodities. The remaining .L.- For impor.s, a breakdown of trade in 1976-84 is available for socialist vs nonsocialist partners (SA Tables 3.11-3.12) and in 1980-84 for convertible and nonconvertible currency payment as well (SA Tables 3.13-3.14). The two breakdowns differ primarily because some imports from CMEA partners are purchased in convertible currency (primarily crude oil and raw mate-ials from the Soviet Union). Tables 1-4a and b in the text portray the socialist-nonsocialist breakdown because of the longer time series available. There is no significant difference in the observed trends during the overlapping years 1980-84 as compared to the equivalent convertible-nonconvertible composition. - 8 - Table 1-4: DIRECTION OF MAJOR COMwODITY IMPORTS (Millions of US Dollars, f.o.b.) Imports from Imports from Socialist NonSocialist Year Total Countries Z Share Countries X Share Machinery and Equipment (Including Transport Equipment) 1976 1938 1297 66.9 641 33.1 1977 2580 1548 60.0 1032 40.0 1978 3206 1854 57.8 1352 42.2 1979 3501 2159 61.7 1342 38.3 1980 3159 2091 66.2 1068 33.8 1981 2937 2145 73.0 792 27.0 1982 2596 21/0 83.6 426 16.4 1983 2391 1983 82.9 408 17.1 1984 2552 2221 87.0 331 13.0 Fuels. Mineral Raw Materials, and Metals 1976 2492 933 27.4 1559 62.6 1977 2625 1098 41.8 1527 58.2 1978 3253 1084 33.3 2169 66.7 1979 4727 1342 28.4 3385 71.6 1980 6444 1688 26.2 4756 73.8 1981 6049 2205 36.5 3844 63.5 1982 4913 1871 38.1 3042 61.9 1983 5149 2228 43.3 2921 56.7 1984 5436 2432 44.7 3004 55.3 Source: Statistical Appendix Tables 3.11-3.12. imports in this category have been procured increasingly from the socialist countries. It is anticipated that Romania will rely more on the USSR in the future as a source of raw materials (particularly crude oil and natural gas), if better payment terms can be had than in the past. 1.19 The shift in trade strategy since 1980 has caused trade with the CC area to become heavily concentrated in fuels/minerals/metals (71.32), with only 7.2Z representing capital goods in 1984; the trade with the NCC zone is more balanced, with the respective commodities accounting for 37Z and 39.32 (SA Tables 3.13-3.14). 1.20 Thus, Romania has clearly sought to substitute an important share of imports from nonsocialist partners, in part by shifting to other socialist suppliers as well as by expanding domestic production. Complete import substitution of raw materials will not be possible, and is not intended. It is argued in Chapters III and IV of this Report that the limits of economically efficient import substitution may have already been reached for some commodities. Rather than continued reliance on import substitution, a more efficient strategy for external adjustment would combine (a) a shift in the structure of production away from energy-intensive activities and towards exportable commodities with a strong comparative advantage, and (b) an import policy which permits entry by a wider array of comnodities--thus exploiting the usual gains from international specialization-and uninterrupted access to imported technology. 1.21 Trends in composition of exports. Like its imports, Romania's exports have remained highly concentrated in the machinery/equipment and fuels/minerals/metals categories. As Table 1-5 indicates, the country's machinery/equipment exports (primarily tractors, rolled steel, aluminum semi- manufactures) to nonsocialist countries doubled in 1981. This change reflected the urgency of increasing foreign exchange earnings by boosting Romania's traditional exports; however, the amount and share of capital goods exports to the nonsocialist area has been falling since 1981, possibly reflecting the stagnation of investment and payment difficulties of developing countries, which are the principal customers for Romania's capital exports in non-socialist trade. 1.22 The level of Romania's exports of fuels/minerals/metals declined sharply in 1982, primarily because of the cutback in crude oil imports used for the reexport of refined products, which form the bulk of this category (Table I-5). These commodities have continued to be exported predominantly for convertible currency. Export growth resumed in 1983-84. Although in some years, Romania has received lower prices for its exports of refined oil than it paid for imports of crude, after 1981 the profitability of refinery exports (in world prices) has improved because of an increase in the share of higher-value products in total production and because of lower crude oil prices. As discussed later in this report, it is not apparent that a reduced dependence on oil product exports-as opposed to other potentially exportable products-is planned in the future. Yet, continued reliance on energy-intensive industrial sectors may well be contrary to the country's dynamic comparative advantage. The market for refined oil exports is also weakening, as production capacity in other countries has been expanding. 1.23 Exports of industrial (manufactured) consumer goods tTable I-5c), mainly clothing and furniture, have not expanded significantly since 1980. Since 1982, the majority share of consumer goods exports has shifted to the socialist countries. One explanation for this trend is that as Romania's oil imports from the socialist countries have risen, it has steppe4I up its exports of industrial consumer goods in order to make payment. It is also likely that recession in the OECD-area in 1981-82, tightening of protection:st measures, as well as the more exacting requirements of its consumers, accounted for the decline in sales to the nonsocialist countries. 1.24 Trends in market shares of exports. One important issue in the examination of Romania's export performance concerns the extent to which the country has managed to maintain its shares of major markets in competition with other exporting countries. A brief analysis of market share information from the UN Trade Data System is provided in Annex III. The data indicate that in the developed market economies (defined by OECD membership) and in the "world" (defined as all reporting countries), Romania's export shares rose to their peak in 1975-76 and then started to decline. In the market of developing countries, this decline began somewhat later (1978). - 10 - Table r-5: DIRECTION OF MAJOR COMMDITY EXPORTS (Millions of US Dollars, f.o.b.) Exports to Exports to Socialist NonSocialist Year Total Countries S Share Countries S Share Machinery and EquiPment (Including Transport Eauipment) 1976 1578 977 61.9 601 38.1 1977 1854 1207 65.1 647 34.9 1978 2291 1622 70.8 669 29.2 1979 2550 1854 72.7 696 27.3 1980 2784 1935 69.5 849 30.5 1981 3656 2034 55.6 1622 44.4 1982 3822 2306 60.3 1516 39.7 1983 3649 2387 65.4 1262 34.6 1984 4047 2986 73.8 1061 26.2 Fuels, Mineral Raw Materials, and Metals 1976 1476 540 36.6 936 63.4 1977 1432 518 36.2 914 63.8 1978 1804 604 33.5 1200 66.5 1979 2834 628 22.2 2206 77.8 1980 3318 531 16.0 2787 84.0 1981 3499 682 19.5 2817 80.5 1982 2785 717 25.7 2068 74.3 1983 3155 757 24.0 239.3 76.0 1984 3541 636 18.0 2905 82.0 Industrial Consumer Goods 1976 1006 445 44.2 561 55.8 1977 1149 548 47.7 601 52.3 1978 1403 668 47.6 735 52.4 1979 1583 688 43.5 895 56.5 1980 1816 790 43.5 1026 56.5 1981 1986 891 44.9 1095 55.1 1982 1935 1016 52.5 919 47.5 1983 1934 1098 56.8 836 43.2 1984 2023 1121 55.4 902 44.6 Source: Statistical Appendix Tables 3.9-3.10. - 11 - 1.25 Romania's share of exports to the OECD area has continued to decline over the 1979-83 period for almost every category of merchandise, thus indicating a further loss of competitiveness.' The deterioration in market position has been the most marked for food, non-fuel raw materials, miscellaneous manufactures (e.g. light industry prt4ucts), and basic manufactures (since 1981). This trend is of concern, since agriculture and manufacturing have received major investment in productive capacity over the past decade. The prospects, and the prerequisites, for improving competitiveness in these sectors merit careful study, and are discussed further in Chapters II and IV. 1.26 In the markets of developing countries, Romania's export shares are shown to have fluctuated sharply for most commodities since 1979, without indicating much of a trend. The volatility of Romania's export performance, particularly in LDCs, may suggest that efforts need to be made to establish a more secure foothold; this may require more study of local market conditions and improved institutional support for marketing and product servicing. 1.27 In sum, the very brief analysis undertaken for the present Report provides evidence that the country's export performance in the stabilization period cannot be attributed mainly to a weakening of external demand, since Romania lost market shares in the OECD area, and in the "world" since 1981. There appears to have been a reversal of this trend in 1984, but a decline in market penetration aga.n in 1985. More detailed analysis of such data would be advisable to permit the Romanian authorities to monitor the competitiveness of exports of particular product groups in specific markets. 4. Agricultural trade 1.28 Agricultural imports and exports have been declining at least since 1980-81 (Table I-6) and, for some commodities, since the mid-1970s..' There has been a major cut in imports of livestock feed since 1981 (which come exclusively from the nonsocialist zone) and a somewhat smaller reduction in imports of fish and fish products and citrus fruits. The drop in imports of feed has been an important contributor to the reduced (production and) export of meat and meat products, which fel' 'rom around 200 thousand tons in 1980-81 to 145 thousand tons in 1984. Exports of cereals, fresh vegetables, canned fruits and eggs also plummeted over the same period, although increases occurred in 1984 for most of these products, reflecting the exceptionally good harvest. ^' Data on market shares do not reveal anything about the efficiency or profitability of exports, only about actual performance in contrast to that of other countries. The reasons for the observed performance may indicate differences in relative costs of exporting, as well as factors mentioned in paras. 1.21-1.23. 2' The commodity composition of agricultural trade is shown in volume and value terms in Tables SA 6.5 and 6.6, respectively. - 12 - Table 1-6: DIRECTION OF TRADE IN MAJOR AGRICULTURAL PRODUCTS1" 1978-1984 (Millions of US Dollars) 1978 1979 1980 1981 1982 1983 1984 Main Agricultural Exports Socialist countries 343.4 337.8 398.3 866.2 678.7 548.6 364.6 Nonsocialist countries 639.4 610.5 755.7 615.0 495.1 207.3 230.9 Total 982.8 948.3 1154.0 1481.2 1173.8 755.9 595.5 Main Agricultural Imports Socialist countries 48.4 57.2 174.4 72.1 24.7 104.5 165.1 Nonsocialist countries 158.0 224.7 277.0 397.7 183.4 62.0 61.6 Total 206.4 281.9 451.4 469.8 208.1 166.5 226.7 A' The main agricultural products along with disaggregated data are listed in Statistical Appendix Tables 6.5-6.6. 1.29 Although Romania has a rich agricultural sector, it has not adequately exploited this traditional area of strength in responding to the foreign exchange shortage. Rather, agricultural inputs which could have been used to increase net foreign exchange earnings from livestock and crop production have not been imported in sufficient quantities (crop protection chemicals, fuel, as well as feed). (See Chapter III, Section B for more discussion of the costs of this approach.) Thus, trade policy has focused on achieving imnediate and assured earnings or savings of foreign exchange. 5. Services: Tourism 1.30 A noteworthy development on the service account of Romania's balance of payments is the deterioration in its net receipts from tourism. Tourist trade from both convertible and nonconvertible currency areas grew steadily from 1976 until 1980-81; since then, tourist receipts have fallen from US$251 million to $124 million in 1984. One factor that probably contributed to the decrease of tourist expenditures is the non-commercial exchange rate, which is relevant for foreign residents and tourists. As of mid-March 1986, the tourist rate was approximately 12.6 lei per dollar, considerably below the unified commercial exchange rate of approximately 17.5 leildollar. (See Chapter V for a discussion of exchange rate policy.) - 13 - 1.31 Bank staff view the Romanian tourist industry as a possible area where additional foreign exchange earnings could be generated efficiently. If the domestic austerity measures, especially regarding energy conservation, were moderated and the non-commercial exchange rate was devalued, additional tourism from Europe, the U.S., and Japan could be stimulated. Mexico's success in attracting "bargain-hunting" tourists during its period of external adjustment illustrates the potential of the tourist industry even in times of crisis. 6. Assessment of current trade strateRY 1.32 The foregoing discussion of recent trade patterns illustrates that an official concern with external crisis has guided recent choices among possible exports and imports. The strategy has focused on meeting short-term debt-servicing obligations with less attention being given to fostering rational long-term patterns of exports and imports. The aim has been to eliminate all "non-essential" imports, especially any which can be produced efficiently within Romania. Yet, comparisons of the costs of domestic production versus importation, to the extent they are carried out, are distorted by domestic pricing procedures which underestimate or ignore the cost of capital. Recent reductions in interest rates and the appreciation of the domestic currency exacerbate this problem (see Chapter V). Thus, in the energy sector, for example, production of fuels is being expanded aggressively, although with the gradual depletion of reserves, Romania's comparative advantage may lie in other sectors. The cutback in imports of capital goods has been explained by an increased emphasis on improving the efficiency with which existing capital is used-a strategy which, while valid, would not bring about major changes in the sectoral allocation of productive resources. Such adjustments are essential, however, to the country's development prospects in the long run. The reliance on import substitution also leaves the existing structure of production largely intact, in particular by permitting the continuance of energy-intensive industries. These issues are discussed further in Chapters III and IV. 1.33 In addition to cutting imports, Romania has responded to the debt servicing crisis by exporting so as to imediately generate convertible foreign exchange. A prime example is the increased exports of fertilizer, which have a high opportunity cost in terms of foregone agriculture production. Despite this effort, the data on market shares indicate a deterioration in the competitiveness of Romanian exports of most commodities in 1980-83, particularly in the DHE market. A strategy of external adjustment is therefore needed which would entail a more selective program of export development, based on an analysis of future comparative advantage at world prices. B. External Debt Management 1.34 Since the onset of its debt servicing crisis, Romania has reverted to the cautious external borrowing policy it pursued in the 1960. and early 1970s. In 1981, the authorities decided to stop foreign borrowing, even to ease the repayment of existing external debt. An exception is that drawings on the IMF standby credit, which was negotiated in 1981, continued throughout 1983. In mid-1985, this position has been relaxed because of the need for - 14 - liquidity to service debt, and interest has been expressed in resumed borrowing from the World Bank (and possibly from commercial banks in cofinancing arrangements) for development purposes. 1.35 The factors that led Romania into debt servicing difficulties by 1981 would not necessarily create the same problems again with a resumption of borrowing. The experiences of many debtor countries in the early 1980s (e.g. Korea, Turkey, India) suggest that with careful attention to the structure of loans (i.e., an appropriate balance among different sources of funds, and between floating versus fixed interest rate obligations), as well as to the uses of borrowed funds, external finance can assist economic growth without causing future disequilibrium in the external account. 1. Background to the debt crisis 1.36 Romania's debt strategy must be viewed in the context of its long-standing emphasis on political and economic independence and its recent experience with external borrowing. In the 1970s, Romania's access to world capital markets, first via official institutions and later via commercial credits. was greatly increased. Total external debt more than tripled from US$3.0 billion in 1975 to US$10.5 billion in 1981 (Table I-7). This flexible source of finance was viewed as the road to economic independence and, in particular, to less reliance on its traditional trade partners in the CMEA. Unfortunately, the ready availability of loans also reduced the pressure to pay for key imports of energy, raw materials, and capital goods by an aggressive expansion of exports. Dependence on short-term suppliers' credits and revolving credit lines from commercial banks increased after 1976, with the portion of short-term debt rising from 51 of the total in 1975 to 251 in 1979. At the same time, Romania began to tap aggressively the Eurocurrency markets, primarily for general "balance of payments" pu-poses. Since 1977, all Euroloans have been at floating interest rates and have had maturities varying from three to fourteen years. The fact that the bulk of Romania's external borrowing was relatively short-term and/or had interest rates tied to LIBOR made the country particularly vulnerable when nonsocialist creditors panicked in September 1981, in the wake of the political crisis in Poland. The abrupt withdrawal of credit necessitated a slashing of imports, with wrenching effects on the economy. 1.37 The experience of the early 1980s indicated that external borrowing had made the country vulnerable to volatile financial markets. External debt was perceived as being too expensive and too risky. Real interest rates had soared, and loans rescheduled in 1983 were costing 1.75 percent over LIBOR. Furthermore, a revolving supply of short-term funds depended on the collective willingness of nonsocialist creditors to maintain their levels of exposure as perceptions of international economic and political developments changed over time. 1.38 As the data in Table I-7 indicates, a massive liquidation of short-term credit has occurred since 1980, and only $327 million remained outstanding at the end of 1984. Most of the reduction, at least initially, reflected retrenchment by foreign banks and suppliers. Because short-term suppliers credits were not included in the Paris Club reschedulings, Romania negotiated agreements for delayed payments with the major suppliers. More - 15 - Table 1-7: EMU MBr QF:iDC, 1975-1965 (Hillias US dollA, end of period) 1975 1976 1977 1978 1979 1960 1981 1982 1983 196 1965 / Principal Otatudirs 3012 2943 3684 5170 7342 9810 10546 9969 9077 7437 6328 Convertible 2924 2813 3582 5074 7173 9557 10160 9766 8860 7196 5990 hdium ad lag-tem .. 2422 3016 3838 5085 7005 7691 7676 7320 586 4738 Srt-tem .. 115 238 903 1765 2124 643 771 49O 327 272 A s .w. - - - - - 1143 338 - - - oa .. 2537 3254 4741 6850 9129 94130 8835 7810 6153 5010 FWd Credit .. 276 328 333 323 428 680 931 1070 1015 98D IoCbmertible 88 130 102 96 169 253 386 203 197 239 338 ?bdimaui darg-tem 75 72 - 32 92 141 290 122 97 132 165 Sart-tenm 13 58 - 6. 77 12 96 81 100 107 173 (kai mat CZ) Tbtal Oat ndine -2.3 25.2 40.3 42.0 33.6 7.5 -5.5 -8.9 -18.1 -14.9 Tbtal Cbaertible -3.8 27.3 41.7 41.4 33.2 6.3 -3.9 -9.1 -18.9 -16.8 Ibdiam ad lag-tern .. 24.5 27.3 32.5 37.8 9.8 -0.2 -4.6 -20. -18.7 s -t-teu .. 107.0 279.4 95.5 20.3 -69.7 19.9 -36.4 -33.3 -16.8 ?brCbnwertible 47.7 -21.5 -5.9 76.0 49.7 52.6 -47.4 -3.0 21.3 41.4 Rato to Tout fwertible Nedjia and lomg-ezm 0.95 0.86 0.84 0.76 0.71 0.73 0.76 0.79 0.82 0.81 0.79 Siart-tmon 0.05 0.04 0.07 0.18 0.25 0.22 0.06 0.08 0.06 0.05 0.05 Arriers - - - - - - 0.11 0.03 - - - Ftund Cedit - 0.10 0.09 0.07 0.05 0.04 0.07 0.10 0.12 0.15 0.16 Ratio to GOP Tbtal debt 12.8 11.9 13.2 15.9 15.1 17.2 22.3 19.1 19.8 18.7 13.1 Cawertible debt 12.4 11.4 12.8 15.6 14.8 16.8 21.5 18.7 19.4 18.1 12A nmCtavertible debt OA 0.5 O 0.3 0.3 0.4 0.8 0.4 0.4 0.6 0.7 Net Totl Debt 2367 2269 3298 4641 6654 9321 9996 9382 8419 6600 5252 (Pri:ipl Ztrtlin ls CGm Fo.rei kAevs) y Official f0
Groupe de la Banque mondiale · Pre-2003 Economic or Sector Report
Romania - Economic memorandum : external stabilization and structural adjustment (Vol. 1 of 2) : Main report
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Pre-2003 Economic or Sector Report
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Roumanie
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