The before and after of Romania’s crisis

The election of Prime Minister Emil Boc’s cabinet in December 2008 meant an adjustment of expectations, albeit optimistically upwards. The increase in gross domestic product (GDP) should have been 2.5 percent rather than the six percent estimated by the former government, and salary-related promises were still standing, while the National Bank of Romania (BNR) was accusing rating agencies of doing Romania wrong.

A four percent economic decline, included in the budget when the stand-by arrangement in the amount of $17.1 billion with the International Monetary Fund (IMF) was signed, was the worst-case scenario. But this turned out to be an optimistic scenario, as data indicated a 6.2 percent drop in GDP in the first quarter and an 8.8 percent decline in Q2. Calculated in euro, Romania’s GDP in 2009 will be 25 percent lower than initial estimates, namely €118.5 billion, instead of €161 bln. In terms of economic growth, Minister of Finance Gheorghe Pogea forecast a 2.5 percent increase in GDP for the whole of 2009 back in January. Unfortunately, according to a statement by Senate Chairman Mircea Geoană in June 2009, “Romania is living through its third recession in the past 20 years. This is the deepest of the three recessions.”

The situation was quite optimistic in September 2008, when then Prime Minister Tăriceanu said that “by 2014, Romania could become the seventh or eighth economic power in Europe, provided current economic trends are maintained.” But the economic crisis hit the United States. And even though former Minister of Finance Varujan Vosganian said in September 2008 that “the financial and real estate crisis in the United States, Spain, and the United Kingdom will not affect Romania,” reality proved him wrong. Although a loan from the IMF was out of the question at the beginning of this year, this went on to become a short-term solution for the authorities. “The last thing Romania will do is borrow money from the IMF. Romania’s economy cannot fit the fund’s matrix. I am convinced that we have other solutions than the IMF,” said President Traian Băsescu in January 2009, but on 25 March Romania was officially requesting the IMF’s support, and on 4 May the IMF’s Executive Board approved this request.

In February, spirits were still high, as BNR Chief Economist, Valentin Lazea, said that Romania “will have economic growth. If Romania does not grow, this means that nobody will grow in Europe.”
In August 2008, Vosganian also said that “the budget deficit will not exceed three percent of GDP, and the 2008 budget deficit was 5.2 percent of GDP. Moreover, Pogea, indicated in December 2008 that “the budget deficit target for 2009 is 1.7 percent with a certain relativity,” while in August 2009, the new deficit target set by the IMF is -7.3 percent.