The Recycler Issue 317

FEATURE
Business booming in Bucharest? continued
Economic Forum, centred around Global
Competitiveness, put Romania in the
bottom ten out of 128 countries surveyed
for their road infrastructure, and a better,
but still unimpressive, 79th out of 138 for
railways.
Efforts were made to modernise the
railways in recent years, with Toko’s
Victor Matache telling The Recycler that
between 2009 and 2012, “great progress
was made in infrastructure development
by allocating funds for investment, and
spending these funds. Developing road
infrastructure, promoting democratic
reforms in the judiciary, modernising
banking legislation, and supporting the
free initiative has allowed a sustainable
development of the private sector.”
“The banking system has been
strengthened, many production facilities
and technical support have been set up by
multinational companies and, last but
not least, the private sector with
Romanian capital has developed,”
Matache reflected. “It was a period of
sustainable economic growth.”
However, since that golden, albeit
short, epoch, the return to power of the
Social Democratic Party (PSD), the
successor to the former Communist Party,
has resulted in “a period of investment
stagnation and proliferation of
corruption,” in which “the economy has
stalled due to a lack of investment and
misappropriation of public funds,”
according to Matache.
This ongoing corruption is a much
more sinister problem for Romania than
its creaking train tracks, with The
Guardian claiming it has “long been
considered one of the most corrupt
nations in the EU.”
Two years ago, a government decree
that was set to decriminalise low-level
corruption provoked massive protests
across the country, until it was ultimately
cancelled in an emergency decision from
the national court of appeal. Before this,
tens of thousands had taken to the streets
in condemnation of the Romanian
government’s actions, which the
influential Orthodox Church had said
would allow corrupt politicians to escape
punishment. In an ironic summary of the
problem, the leader of the governing
party, Liviu Dragnea, has been barred
from becoming Prime Minister due to his
previous convictions for vote-rigging.
Such a flashpoint caused considerable
distrust in the government, with
President Klaus Iohannis saying at the
time that his faith was in the protestors,
not the ruling party, and calling for
“European values” to prevail.
Victor Matache blamed corruption in
the country on “the effects of the long
communist propaganda on the one hand,
and the poorly understood freedom on
the other hand,” offering a counterpoint
to the beneficial Communist legacy of the
country’s education system.
“The most serious form of corruption is
that of the political class, a phenomenon
that manifests itself with all its adverse
consequences,” Matache continued.
“Many politicians have made their
participation in the ‘political life of the
country’ a profession to enrich
themselves. Over the last thirty years, the
evolution of the economy has been
dictated by the interests of the political
class in power.”
2019 has brought a fresh set of
challenges to the country, in the form of
the increasingly-prevalent bank tax.
Such a levy was first seen in Europe after
its introduction in Hungary in 2010, and
the idea has since caught on in Poland,
Slovakia, and now, Romania.
Applied properly, a tax on the assets of
the banking sector could in some
scenarios be justified, but in the case of
that introduced by the ruling PSD, it has
been described by Euromoney as
“fundamentally inequitable and
misconceived,” “unjust,” and “shortsighted
to the point of stupidity.”
The tax is being introduced as a way of
controlling interest rates, which are kept
artificially high, according to the
country’s Finance Minister, Eugen
Teodorovici, who has nicknamed it “a tax
on greed.”
But Euromoney’s Lucy Fitzgeorge-
Parker attests that the inflation currently
witnessed in the country is in actuality
due to the PSD’s “increasingly freespending
ways,” warning that in the last
few years, the government’s “openhandedness”
with pension increases,
wage rises, and energy subsidies has put it
“in danger of breaching the EU’s 3
percent budget deficit cap this year.”
In 2018, the Financial Times also
linked Romania’s “record economic
growth” with a worrying rise in inflation,
as it reported that the central bank was
raising interest rates by 0.25 percent, to 2
percent, the first such rise in a decade.
While recognising that such a move was
an endorsement of “the strength of the
economic recovery in central and eastern
Europe,” the Financial Times also claimed
it reflected “fears of overheating” within
the Romanian economy. Central bank
governor Mugur Isarescu, however, said
at the time that although they were
expecting inflation to increase, it was due
to recede again by the end of the year.
“We increased the key rate because of
inflation and because we want to anchor
inflationary expectations from the start,”
Isarescu said. “If you fail to act in due
time, expectations don’t tend to be
anchored and we wanted to avoid that.”
It is this anchoring of expectations that
has perhaps proved the biggest stumbling
block for Romania, and the PSD, as it
makes its way from ‘sick man of Europe’
to a flourishing modern economy. There
remains a risk that, buoyed with the
success of recent years, the ruling party
will simultaneously take its foot off the
gas and its hand off the tiller, leading to a
series of reckless decisions – such as the
bank tax – which could reverse all the
positivity of the last ten years.
Fitzgeorge-Parker identifies this as a
natural endpoint of what she terms the
government’s “greed,” and warns that
the PSD “wants to have its populist cake,
eat it and make the banks pay for it –
whatever the cost to the economy.”
Toko’s Matache was pessimistic about
the country’s economic prospects going
forwards, stating that the economy “is
unstable, in decline and without
sustainable perspectives of revival.” He
further identified the increase in taxation,
business interest rates, the inflation rate
(“the highest in Europe”), and the “rapid”
deterioration of the national currency
exchange rate as “the most significant
signs of the economic downturn.”
“We are in fact in a very difficult and
unpredictable economic environment,”
said Matache. “It is a great challenge to
develop a sustainable business in
Romania today.”
It seems that although the boom of the
last decade has brought vastly increased
prosperity to the country, a plethora of
problems remain rooted. Until these
issues are remedied, the country looks set
to struggle to maintain the economic
advances of recent years; it is achieving
stability, as well as prosperity, that
remains the biggest challenge for the new,
modern Romania.
R
38 THE RECYCLER • ISSUE 317 • APRIL 2019