Romania - Economic memorandum

Report No. 4667-RO Romania Economic Memorandum March 5, 1984 EMENA CP1 FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit:: Leu (Plural Lei) 1. Commercial Rate March 1, 1978 : Lei 18.00 = US$1.00 Lei 1.00 = US$0.06 January 1, 1981 : Lei 15.00 = US$1.00 Lei 1.00 = US$0.07 January 1, 1983 : Lei 16.5 = US$1.00 Lei 1.00 = US$0.06 July 1, 1983 - : Lei 17.5 = US$1.00 Lei 1.00 = US$0.06 2. Non-commercial Rate October 1, 1974 : Lei 12.00 = US$1.00 Lei 1.00 = US$0.08 February 15, 1981 : Lei 11.00 = US$1.00 Lei 1.00 = US$0.09 January 1, 1983 : Lei 12.5 = US$1.00 Lei 1.00 = US$0.08 July 1, 1983 : Lei 13.5 = US$1.00 Lei 1.00 = US$0.07 /1 Unified exchange rate for commodity trade introduced. FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY PREFACE This report is based on the findings of an economic mission which visited Romania in February/March 1983. The mission consisted of Messrs. Borje Tallroth (mission chief), Petros Aklilu (agriculture), David Caplin (industry), David Pearce (energy), Chandrashekar Pant (investment) and Gabriel Siri (modelling and foreign trade). Assistance to the mission's work in Washington was provided by Mr. Deepak Khanna on data and projections. Arlene Pastor was responsible for document production. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   ABSTRACT After three decades of rapid economic growth, Romania encountered balance of payments problems in late 1981, which necessitated reschedulings of its convertible debt obligations both in 1982 and 1983. In response to the problems, major cuts have been made in imports together with limitations of domestic demand and the introduction of structural reforms. Significant shifts in policy priorities have also been made. As a reflection of these measures, the current account in convertible currencies has improved significantly in recent years. This report gives an account of the factors which led to the financial problems and the measures the Government has taken in response to them together with an assessment of how these measures serve Romania's need for longer term adjustment.  I  ROMANIA COUNTRY ECONOMIC MEMORANDUM Table of Contents Page No. COUNTRY DATA i-ii SUMMARY, CONCLUSIONS AND RECOMMENDATIONS .... ............... iii-xiv I. EXTERNAL AND DOMESTIC DEVELOPMENTS. 1 A. The Origin of the Balance of Payments Problems 1 B. Measures Taken. 4 C. Mission's Views of Future Options 9 II. POLICY REFORMS FOR STRUCTURAL ADJUSTMENT 12 A. The Dimensions of Structural Adjustment 12 B. Application of the New Economic and Financial Measures .13 C. The Exchange Rate and Price Reform 17 D. Adjustments in Investment Strategy 23 E. Energy Policy .29 F. Adjustments in Agriculture .36 G. Aspects of Structural Adjustments in Industry .............. I ......... ....... 41 H. The Foreign Trade Regime .45 III. MISSION ILLUSTRATIVE SCENARIOS .50 A. Background .50 B. Key Variables Affecting Growth .50 C. Alternative Growth Scenarios .51 STATISTICAL ANNEX .., .......... ............. 59-98 Statistical Index Statistical Tables MAP  I  -1i - Page-I of 2 pages COUNY DATA, AREA POPU1ATlQ (1982) DaENSY (1982) 237.5 thouand sq km 22.5 million - 95 per square kmL POPUIArION CHARAEhRISICS (1981) NaUrrxT (1981) Cri4le Birth Rate (per 1,000) 18.0 Calorie intake as % of reqirmits 1-26.0 Cnrle Death Rate (per 1,000) 10.4 per Capita protein intale (grans/day) 95.0 EWJCTION (1981) iEAUfH (1981) Adult literay rate (Z) 98 Population per physician 680 Primary school enollnent (X) 101 Population per hospital bed 110 ( EtR CAPITA IN 1982: US$2630 L NATICNAL iNa IN 1982 *MUAL RATE OF G H (%, constant pri.ces) ust]n 1976-80 1976 1980 1981 1982 GNP 52,400 7.2 11.2 2.8 2.1 3.2 Gross Fxd Inves-tnr 15,230 8.5 8.5 3.1 -7.3 -3.1 moss National Savirgs 16,270 . .rrent Acccut Balance 1,040 . . . . 4Xport of Chods 11,559 . 5.3 14.7 8.5 na. n.a. Import of Goods 9,745 8.8 15.7 0.5 n.a. n.a. JUI, EWlPIDY1M AND PREXCllV IN 1982 Net Value Added Labor Forae NVAA&oxker us Un z Mln Aariculture 9,750 18.6 2.99 3,260 hIdstry 27,260 52.0 3.81 7,155 Construction 3,610 6.9 0.80 4,510 Others 11;780 22.5 3.45 Mn Total/Avera 52,400 100.0 11.05 4,740 GR FINKZ (xn bill of lei) 1976 1977 1978 1979 1980 1981 1982 Total RePme 254.5 282.0 300.8 339.3 298.0 280.3 277.6 current pewitureas 180.4 196.5 198.9 224.7 203.6 179.5 152.2 Orrent Surplus 74.1 85.5 101.9 114.6 94.4 100.8 125.4 InvesInent Expenditures 69.7 83.9 100.4 112.9 93.1 92.3 105.4 Overall Surplus 4.4 1.6 1.5 1.7 1.3 &5 2D.0 /1 lSe per capita QiP estimgte is at 1982 arket prices, calculated by using te same conersion techmique in the 1982 World Bmk Athe. All other conversim to dollars (inclued tbe estimate for total GiP) in thim table ae at the averge cowercial aie rate prevailirg durirg the period covered. Mhrch 5, 1984 3QNA CP1D 0158F  Page 2 of 2 pages BAtAC OF PANMITS (US$ million) 1976 1980 1981 1982 MHWQ=ISE EXglS, 1982 US9 MlD Z Exports of (bods, NFS 6,642 12,087 13,492 12,384 Capital os 3,822 33 biports of Goods, lM -6,540 -13,730 -13,308 -10,493 Omner Gaoda 1,935 17 Resource (kp 102 -1,643 184 1,891 Foodstuffs 866 8 Interest Paysents (net) -118 -777 -1,017 -851 Intemediate Goods 2,933 25 O.rrent Account -16 -2,420 -{3.3 1,040 Raw Materials 2,003 17 idustrial (1,752) (15) MILT 8orrng Agricultural (251) (2) Di shsts 742 2,805 2,160 3,230 11,559 100 A2Drtizatioc -502 -851 -1,_13 -2,189 lIet 240 1,954 1,027 1,041 MalCE 1)ALEST, Dec. 31, 1982 US0n MLT Iending, net -392 -181 -175 -281 Clnvertible ci