Located in Southeastern Europe by some accounts and in Central Europe by others, Romania benefits from an enviable strategic position. The country also enjoys generous access to the Black Sea (Bartleby. com, 2000). These geographical coordinates have played and will continue to play a significant role in the context of a united Europe. Romania’s prosperous economy between the two World Wars took a progressively negative turn beginning in 1947, when the country fell under the Soviet Union’s sphere of influence.
Nineteen eighty-nine marked an unprecedented turning point in recent modern history – the Cold War came to an abrupt end. Romania freed itself from its dictator and from its communist regime (Bartleby. com, 2000). Since then, the country has been passing through a transition period, as it attempts to compete economically with its neighbors and the rest of Europe. In 1995 Romania gained associate membership status to the European Union (EU), which offered several economic advantages including reduced tariffs with other EU countries (Price Waterhouse Coopers, 2001).
Currently, 70% of Romania’s exports are directed towards EU countries and 60% of Romania’s imports come from EU countries (National Bank of Romania, 2003). Yet Romania’s inclusion in the EU is much more than a simple macroeconomic balance of payments issue. The economies of Spain, Portugal, and Greece, for example, were revived upon their inclusion in the EU.
Romania’s acceptance into the EU is expected to yield similar economic success.In 1989, however, these requirements proved challenging for the country, as its economy severely lagged that of its European partners as well as those of other former communist countries. But by 1999, significant progress had been achieved internally, as the country’s S;P rating was upgraded to a status rating of “positive outlook” (Price Waterhouse Coopers, 2001).
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The economic fortunes of Romania have been on an “upswing” since 2000, with rapid GDP growth and falling inflation rates.Concomitantly, the government has contributed to Romania’s economic recovery through its continued efforts to privatize state-owned industries, as well as restructure the legal system in favor of EU standards (European Parliament, 2004). Presently, Romania’s accession to the EU is beyond the negotiation phase. The country expects to become a full member in 2007, but until that point it has to follow the path set forth through previous agreements (EIU, 2003 and European Parliament, 2004).Throughout the past ten years, Romania has been engaged in numerous agreements with the International Monetary Fund (IMF) and with other EU organizations. Such agreements have shaped and will continue to shape economic policy in the foreseeable future. A key contract is represented by the Stand-By Agreement with the IMF, the main points of which are. A few essential points should be made in addressing planned expenditure.
Over the course of the past few years, consumption has remained relatively stable, at about 68% of GDP (Exhibit 15).The growth in imports has more than offset the increase in exports since the country still struggles to identify its advantages and to turnaround many of its unprofitable industries. Such a demand for restructuring and modernization of newly privatized firms has been correlated with foreign cash inflows resulting in increased investment. Still other reasons include a more reliable legal system and an overall improved investment environment. The capital inflows averaged $1. 6 billion per year and peaked at $1. 8 billion in 2003 (EIU, 2003).
The most important foreign investors are France, the U. S. , and Germany.
