NOTE The political crisis in Romania during the pandemic – Let’s See Todays News Updates

On November 25, 2021, Romania ended one of its most controversial and unnecessarily long political crises. Following the September 2021 internal elections, the National Liberal Party (PNL) almost destroyed its alliance with the Romanian Rescue Union (USR) and the Hungarian Minority Party (UDMR), two smaller parties. The new leader of the PNL has been widely criticized in the past (while studying in the United States), but more accurately, his current macroeconomic and social policies, and finally the split of the PNL. The economic and social system has almost collapsed. Large groups of Romanians (including vulnerable retirees or children) who have never faced such a problem in a market economy have not been offered any employment or social security measures, and inflation is rising sharply.
In addition, the current wave of the epidemic (known as the fourth wave since its onset in March 2020) has exacerbated the political crisis. It has had a significant impact on the educational process at all levels and has had negative consequences for society. The Romanian authorities made a big mistake by announcing the defeat of the plague in the summer of 2021! That should not have been the case. On the other hand, the church has had (and remains somehow) an uncertain trend over the last two years of the COVID-19 plague. Given the public’s trust in the church, the Romanian Orthodox Church was forced to clarify its position on vaccination (which has since improved), but only in the fall of 2021. The fourth wave of the plague, in the midst of a political crisis. It was too late and the damage had already been done.
Inflation was one of Romania’s first major economic problems during the political crisis and epidemic. Of course, Romania does not have as much inflation as it did in the early 1990s (the consumer price index was 296% in 1996 (at the end of the period)). However, the National Bank of Romania (BNR) has signaled that current inflation is out of control since August 2021. The rise in domestic prices is determined by many underlying economic factors, including, first of all, the large budget deficits recorded in the last two years. In fairness, it should be noted that these budget deficits have been recorded in epidemic conditions that have not been recorded in the recent history of national and global health. Other European Union (EU) member states have also reported similar losses.
According to data released by BNR, the annual inflation rate rose to 5.25% in August 2021 and 6.29% in September 2021, well above the initial target of 2.5% (+/- 1%). The National Institute of Statistics (INS) recently estimated 7.94% as of October 2021. This is due to rising international gas prices and rising domestic gas and diesel prices. cream. The full-year forecast is even better given the growing demand for energy products in the coming winter and the slowdown in economic activity in the current epidemic.
Another direct consequence of the plague was a sharp increase in the country’s trade and current account deficits, which in turn led to an increase in foreign debt. In fact, during the political crisis, and in the last two years of leading the coalition of right-wing parties in general, they have been “hiding” their internal problems with large foreign loans. It is not stable in the medium to long term. It goes beyond explaining the cases of the former Yugoslavia (a war in the 1990s and then the dissolution of the state) and the recent use of foreign funding to cover public expenditures, including pensions. For Romania, this key indicator of macroeconomic equilibrium reached 133.6 billion euros at the end of September 2021 (at current prices and the November lei-euro rate, which is projected to exceed 55% of GDP). . So in just two years, the external debt has increased by 27.6 billion euros!
Table 1: Romania – Foreign debt for the last two years, billion euros

Over the past two years, interest rate fluctuations have also lagged behind inflation, the average wage has not accurately reflected the decline in the international market, and growth has also been slow. This has negatively affected population savings. Basically, those who had savings became extremely and / or relatively impoverished. This is due to the fact that the annual inflation rate is much higher than the lei and foreign currency deposit rates of commercial banks. Despite their relative declining purchasing power, total deposits reached 472.8 billion lei at the end of September 2021, up 440 billion ron at the end of last year, an increase of + 14% compared to September 2020.
In this context, raising the monetary policy rate from 1.25% to 1.50% per annum from October 6, 2021 to 1.50% to 1.75% from November 10, 2021 was the right step. aims to reduce consumption and curb inflation. However, it should be made clear that inflation cannot be curbed by monetary instruments alone. Fiscal measures are necessary. The political crisis in the country over the past two to three months has not helped. The previous government, which resigned in October 2021, interfered in the allocation of state budget funds and the European Union’s assets by political criteria, leading to real financial chaos. The future is not good, and the winter of 2021-2022 will be a difficult season for many Romanians. A recent social survey estimates that four out of 10 Romanians live below the poverty line.

Another key aspect is the use of labor in the last few years. Many Romanian companies are clean and simply destroyed or sold as scrap metal. An example of this is shown in Figure 1. During the 32 years of transition, including the current plague and political crisis, it is safe to say that Romanian society has lost some of its national fiber. Some major mistakes in the political sphere. Ordinary people are worried in their daily lives. Politeness and courtesy are now second only to the lack of material independence faced by large groups of the population.

Romania – Today the famous pump company Aversa, Bucharest
These mistakes in macroeconomic policy and in the political and social spheres have led to large-scale immigration of Romanians, especially young people. The country’s resident population fell from more than 23 million at the end of 1989 to 19.1 million as of January 1, 2021 (published by INS), and the next-generation trend is less favorable. This major social imbalance has made it impossible for the government to meet its pension obligations for more than 5 million retirees. In fact, in 2021, pensions were not increased, social contracts were violated, and the impact of such a situation was not fully realized. Corrective action is needed, such as the National Rehabilitation and Adaptation Plan (NPRR), approved by the EU by the end of September 2021.
A medium- and long-term coherence strategy is a basic requirement of the current political situation. The new government, which has been in office since November 25, 2021, is headed by a former Romanian army general. The Ciuca government has the support of the “big” coalition of the Social Democratic Party (PSD), the PNL and the UDMR, but there is a long list of urgent issues to be addressed. Investment, equivalent to 7% of GDP announced in 2022, is currently insufficient. Like any political coalition, the political circus is over, at least for the last three months. If the plague is eradicated this time, the results will be greater than anyone could have imagined, but only time will tell.

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