Centrul Diplomatic/Diplomatic Center

Centrul de Studii Politice si Diplomatie/ Center for Political Science and Diplomacy

ROMANIA IS HEADING TO NATIONAL BANKRUPTCY ? by Professor Anton Caragea

Romania is heading to national bankruptcy?

 GM sinking  creates Romanian banckruptcy

General Motors sinking is draging romanian economy to the bottom.

 

The implications of the world economic crisis are starting to cripple severely Romanian economy. From the last six month negative news is starting poring: decrease in stock exchange values of more than 60% percent, sharp reduction in industrial and agricultural production. The latest news is really black: a financial crisis will strike Romanian economy by the end of this year.

Budget in crisis.

At the beginning of the year the new government of Romania had registered a sad record: the first government in the last 10 years that was incapable of promoting a budget at the beginning of the year. For three month Romanian administration and economy was confronted with an unprecedented situation, to act with no budget and no resources. Only after 4 month, in April the Emil Boc government succeeded in passing throw Parliament his budget putting an end to the crisis.         

Finally when the budget was accepted a terrible news stroke the Romanian economy, 1 billion dollars deficit inscribed in the budget where to be covered by the General  Motors investment in Craiova Car Factory. In April was already clear that GM will not be able to pay his 1 billion debt to Romanian government.    So when Romania finally has a budget this is incorrect by 1 billion dollar, small change, no?

Financial storm is gathering.

The budget soon became unrealistically , already local administration announced that at the end of May they consume all the money allocated for this year  , with low  tax income because of the reduction in economic activity, almost 60% of the cities in Romania are in bankruptcy and are requesting state help.

On 1 June the National Found for Retirement Pension announced that is bankrupt because in 2008 they lost 800 million lei ( almost 250 million euro) and in 2009 almost 300 million from a total of 600 millions so they will not be able to pay retirement pension to the people in the social welfare system.

The rest of economic dates are somber: unemployment has rise to 10% percent (official figure) the unions are appreciating that correct figures are around 15% percent. The budget deficit is increasing sharply against all governmental efforts to reduce this deficit and already European Union Commission has announced the beginning of procedure against Romanian state for excessive deficit.

Real estate values collapse.

The real estate market has virtually sis to exist: transaction has decreased by 90% percent, the credit for real estate has frozen (just 10 people had received bank loans for real estate investment from the 2009 has begun). The prices slide had made huge fortune to disappear , at the present day  prices had descended from 3.000 euro for squared meter in 2007 to below 300 in may 2009 (30.000 a one room flat in center Bucharest, 40.000 two room flat and 200.000 euro for more the 6 room flat ).

This collapse had affected financial market and investment market and provoked a huge storm of bankruptcy, in the leasing field the number of firms had decreased by 50% percent and the new tax system had provoked a new wave of closing done small enterprises.

Bank system failure.

In January 2009 the Raiffeissen Bank General Manager announced that he will be forced to closed operation in Eastern Europe without Romanian support, Central Europe Bank makes a similar announcement why National Bank announced that he suspect that 10 major Bank`s will closed their operation in two years.  The state support, by the end of this year, to bank system must be over 10 billion dollars to avoid a collapse of the system.

IMF loans: saving the economy or burring Romania?                                

In mid April the government announced that has the solution to all problems: a loan with European Union and IMF (International Monetary Fund). 20 billion euro will reshape the economy and there will cover expenses throw the economic crisis. But the dream was short lived.

The loan was accompanied by very strict observation and rules from IMF that will take control of Romanian economy an experience that in 1996 ended in Romanian economy collapse and no Romanian was eager to repeat this experience.  But the image of 20 billion euro entering the Romanian economy put this fear to rest. Now after 2 month from the first 5 billion euro from IMF loan where injected in the economy the results are tragic.  2.5 billions has being wasted in keeping the national currency from loosing value and 2.5 billion in economic deficit balance. If the Romanian economy is wasting 5 billion euro in two months that is an alarm signal because the entire loan will not last by the end of the year. Many journalist had speculated that the rush in accepting the IMF condition where connected to corruption charges against member of the Boc cabinet , cabinet unanimously considered as the most corrupt in Romanian recent history .    

National Bankruptcy: a working hypothesis.

The grim picture is getting even darker: Romania had taken official loan of 20 billion euro but in the same time non-state firms had taken international private loan of more than 20 billion. So in two months 40 billion where wasted in keeping the appearances for an electoral year that Romania will survive the economic crisis. The state effort in pulling out of the crisis the real estate sector (by FIRST HOUSE PROGRAMM) and car sectors (CHANGE CAR PROGRAMM) had failed tragically offering no tangible results for Romanian economy.  Until now the Romanian budget had survived in the last 6 years on the important foreign investments attracted by the favorable Romanian economy climate. In 2008 more than 12 billion euro where invested in Romanian economy sustaining the budget. This year only 1 billion euro where invested in our economy a decreased by 90 % completely insufficient in balancing the budget.  In conclusion : a budget confronted with increase in spending and a sharply decrease in tax collection , a national debt of 60 billion euro and increasing by 20 billion and a private debt of more than 40 billion euro . This will result on an annual service of more than 5 billion euro impossible to be sustained by Romanian economy, so will see in the next year a new rush for credits with 10% interest.  Romania is entering the world crisis with a feeble financial system, a national debt of around 100 billion at the year end and a condensing internal market.

If this financial policy of the present government will continue national bankruptcy is not a hypothesis but certitude.

June 8, 2009 - Posted by | Ecology, Economy, Environment, Foreign policy, History, Informations, Mass media, News, Politics | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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