Vol. XIV No.12
December 2009



Twenty Years Later...
Life is Better

Twenty years after the fall of communism, Romania is the seventh largest member of the European Union and an active participant in NATO; it provides its people with an array of consumer goods never dreamed of under communist rule; and an entire generation has grown up in freedom. While older Romanians have not forgotten just how awful life was when Nicolae and Elena Ceauşescu ran the country - the abject misery, the suffering, the oppression and the fear – most Romanians today are focused upon the unfulfilled expectation of a far better future.

The fall of communism in Europe was the final recognition that common ownership of property was not the highway to happiness. The Romanian people knew the true horror of communist rule better than most of their neighbors. Too many Romanians gave their lives in prison camps and on the ramparts erected in December 1989 to bring about its end. Unfortunately, the idealism of December 1989 turned into a distended materialism in which a few well-connected individuals have prospered obscenely while many others have seen their economic expectations eroded into anguish and misfortune. Disappointingly, democracy and the turn towards a market economy have not yet brought Romanians as much happiness as they had anticipated. The unbridled optimism of 1989 has been replaced by a resignation that prosperity, the substantial curtailment of official corruption and a truly democratic system will have to await the advent into power of a new generation of Romanians unspoiled by decades of communist abuse.

Nevertheless, the lives of average Romanians have markedly improved since the terrible days of Nicolae Ceauşescu. Romanians are totally free – they no longer live in fear; they have an unfettered future and a chance to work where they like, doing what they want and traveling where they wish. Democracy is established – elections are free and fair, and freedom of speech, religion and press are guaranteed. Oligarchs have too great an influence on policy and the political leadership, but nothing like in the former Soviet Union, and this will change in time as a new generation becomes more active politically.

Even for the average Romanian, economically, things are far better in Romania today than they were in 1989. Gone are the long lines in the cities for scraps of food. Peasants have returned to their land; a middle class has emerged; stock markets, private banking, land holdings, leaseholds, cellular telephones, computers and hundreds of thousands of small businesses have come into being; and, while struggling, people are not starving. There has been a dramatic rise in automobile ownership as well as real property ownership – although not a concomitant rise in the streets, highways and city parking structures needed to accommodate them. New homes, renovations to existing structures, and additions to present homes are common sights throughout Romania. Gone are the terrors of the Securitate once perceived as ever present in jobs, schools and even homes; vanished is the insanity of a centrally planned economy based upon the whims of a madman; damned is the destruction of villages and what remains of the old city centers; banished is the suffocation of creative thought and religion; and dissolved is the stupefying grayness that darkened an otherwise colorful land and people.

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Freedom From Want
While Romanians today enjoy most of the inalienable rights of freedom elucidated in President Franklin Roosevelt’s four freedoms, it is the freedom from want that remains somewhat elusive for many Romanians. Romania remains one of Europe’s poorest nations with an estimated 25% of its population living below the poverty line (2005). In 2009, after eight years of rapid economic growth and impressive gains in poverty reduction, the shockwave of the global economic and financial crisis exposed the growing imbalances and economic vulnerabilities in Romania’s economy that are primarily rooted in a large, unfinished agenda of public sector and governance reforms. There probably is no one in Romania who does not recognize that successive governments have failed to meet the promise to its people for a far better standard of living in the wake of communism. Older persons, artists, educators, middle-aged professionals, unskilled workers, and even some industrial workers are often encumbered by despairing plight. Pensioners have seen their life-savings wiped out and many teeter on the brink of real starvation. In the current economic recession, unemployment grows daily as foreign investment spurns the country. In addition, standards of health care have far to go to meet those of other EU nations; the life expectancy of a Romanian is 72.6 years of age, even less than that of an Albanian (76.6) and far less than the average for EU member states (78.7).

Once an economic powerhouse of Europe, Romania today is mired in perpetual problems, much of which were self imposed and almost all of which were avoidable. Nevertheless, following 1998, tens of billions of euros entered Romania through acquisitions and investments, which spurred industry and increased the demand for services. Billions of euros came from the privatizations in the automotive and energy sector, while in the banking sector just the sale of the Romanian Commercial Bank alone brought in 2.2 billion euros. The booming retail sector over the last few years produced an incredible 45 malls built from the ground up in major cities. Romania has reached a $200 billion GDP (in 1990 it was a mere $40 billion), but GDP per capita remains one of the lowest in Europe. Nevertheless, half a million people – more than 10% of all employees in the entire economy -- were earning more than €1,000 in gross salary per month in October 2008, a percentage twelve times higher than in 2004. Today, agriculture accounts for 29.7% of Romania’s workforce; industry has 23.2% and the service industries have 47.1% (2006).

But neither EU accession nor the entry of foreign investors have been able to completely modernize Romania: only 166 kilometers of highway have been built in twenty years, with just another 42 kilometers to be completed by year-end. Financial markets have not developed much compared with those in the rest of Central Europe, but they are still subject to the shock of foreign downturns. The Stock Exchange is nowhere near as liquid as it should be and red tape still hinders the business sector. The agricultural sector also remains underdeveloped, particularly because of the absence of a market that would encourage investments in this field.

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Breach of Promise
The legacy of Nicolae Ceauşescu still persists twenty years after his demise. None of the other major nations of the region had a tyrant quite as onerous and destructive as Nicolae Ceauşescu. But this does not excuse the bureaucratic incompetence, red tape and corruption that have burdened the Romanian people, reduced foreign investment and resulted with the most recent ranking of Transparency International placing Romania as the most corrupt nation in the European Union. Neither does it explain the intentional avoidance of sensitive issues, or the political fumbling of unmanageable coalitions of political parties. Moreover, instead of nourishing the business and investment community, Romania has over the years, regrettably, squeezed them financially, ignored or belittled their pleas for assistance, altered the rules of investment retroactively, and failed to adequately deal with corruption.

The nation’s innovative restitution plan with its promise of justice for the victims of communism has been dishonored by incomprehensible and disreputable delays arising from promises of patronage and other benefits afforded to political cronies and financial supporters of successive regimes. Even the transparent and fairly won bid process to find an international fund manager for Fondul Proprietatea that led to the approval of Franklin Templeton’s offer by the Fund’s shareholders has been thwarted by indolence and political wrangling – causing many international financial institutions to question the veracity of Romanian government commitments at this most crucial time in the nation’s economic recovery which requires a dramatic increase in foreign capital flows into the country.

In the late 1990’s, former Prime Minister, Victor Ciorbea, reportedly said that Romania is not run by the government, but is actually controlled by fifteen “families” who own most of the media and exercise undue influence among some leading politicians. Has that changed at all today? The influence of the oligarchs creates the seeds of corruption, numerous injustices and a huge economic cost to the efficiencies of true competition. Whether exaggerated or not, the pall cast upon Romania by the perception that corruption flourishes in the country is devastating. It leads ordinary Romanians to conclude that justice is for sale and engenders disrespect for all governmental institutions. As troubling, is the lack of a genuine belief in the sanctity of the law. Any country coming out of sixty years of totalitarian rule (starting with King Carol’s coup d'état in 1938) would be hard pressed to have a citizenry still believing in the rule of law, but successive governments have merely given it lip service while the corrupting power of money further erodes respect for the law by tainting the judicial system, the police, customs, and local and national government officials. While corruption is still a problem throughout the former communist countries of Eastern Europe, Romania is one of the few where senior political leaders can still count mostly on impunity.

The promise of a return to Romania’s pre-War economic greatness remains unfulfilled and distant. To achieve it, Romania’s leadership must improve the nation’s legal system with its slow form of unpredictable justice to something that investors and citizens can trust and rely upon. Despite improvements brought by EU membership, Romania’s profit constricting regulations and bureaucracy must be streamlined – just ask the countless businesses waiting endlessly for their corporations to be formed. Romania must find the means to build a proper social safety net for those of its citizens who have failed to secure the benefits of democracy and capital markets. Having a sizeable part of the population that sees itself as losers rather than winners can only sharpen the divide among them and lead to unpleasant political results.

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Responsibilities of Citizenship
Romania’s political class has been allowed to fumble so badly because the Romanian people are still primarily observers of, and not participants in, democracy and good government. They sit by the wayside muttering into their newspapers rather than actively participating in the work of democracy and good government. Only half bother to vote. It was the late Ambassador Silviu Brucan, who said in 1990 that it will take Romania twenty years to understand democracy. He was assailed for the comment then while now, twenty years later, many Romanians think he was overly optimistic. The said truth is that Ceauşescu did much more than demolish the nation’s institutions and infrastructure. Ceauşescu destroyed the mentality of an entire generation and ravaged civic virtue. The legacy of fifty years of fear, lies and deception have yet to be fully dissipated. Consequently, too few Romanians belong to civic organizations, support their local schools, participate in good government leagues, give of their time to charities, take part in neighborhood associations or, most particularly, partake in party politics. Because these activities are so rare or just do not yet exist in Romania, the checks and balances upon government of an involved citizenry are simply not present. But a partial sense of public spirit, trust, decency and compassion has most certainly replaced the moral corruption of communism. No more are Romanians faced with the moral dilemma of denouncing a colleague or risking their job or their child’s future attendance at a university. However, the mentality of fifty years of oppression has not yet allowed for the full formation of civic responsibility to develop in Romania. When it does, the power, wealth and corruption of Romania’s political elite will dissolve.

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Romania’s Future
Twenty years after the fall of communism, what has been achieved in Romania would have been just a pipe-dream in 1989. To be members of the European Union and NATO, to be free and to be generally optimistic about the future are no small achievements. Free markets, free prices, free exchange rates, free labor markets and the comprehensive privatization of state-owned companies have been a great success. And through there is despair, there is still the likelihood of a bright and vibrant future for Romania in the years ahead. This stems not from the size of its market or the wealth of its natural resources. The brightness of Romania’s future shines in the eyes of its youth – intelligent, cultured, committed to change, Western in their views, and determined to rebuild their nation as a modern European state.

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Editors Note: It is our policy not to mention our clients by name in The Romanian Digest™ or discuss their business unless it is a matter of public record and our clients approve. The information herein is correct to the best of our knowledge and belief at press time. Specific advice should be sought from us, however, before investment or other decisions are made.

Copyright 2009 Rubin Meyer Doru & Trandafir, societate civila de avocati. All rights reserved. No part of The Romanian Digest™ may be reproduced, reused or redistributed in any form without prior written permission from the publisher.

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