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Romania: Looking for a breathing space

Romania will default on its foreign debt without assistance from the IMF and World Bank. This is unlikely to be forthcoming unless a politically induced log jam on economic restructuring and privatization is overcome. At last the government has recognized the crisis. Rebecca Bream reports.

It wasn't much of a happy Christmas in Bucharest. On December 23, when most ratings analysts had left for the holidays, FitchIBCA downgraded Romania's long-term foreign currency rating to B from BB minus. The agency noted the 5% fall in GDP in 1998, the current account deficit of 7% of GDP and the budget deficit (excluding privatization) at more than 5% of GDP. The report pulls no punches: "In the absence of both decisive action to tackle the twin fiscal and current account deficits and substantial financial assistance from the international community, Romania faces a serious currency and external financing crisis in 1999."

Like other countries in the region Romania has started to underperform and is failing to meet restructuring expectations. The recession is starting to bite and the political will to make difficult decisions about reform has disappeared. The European Bank for Reconstruction & Development's 1998 Transition Report, which charts the conversion of ex-communist countries to modern capitalist economies, says that there has been less progress in transition in the past 12 months than in any year since the Berlin Wall was pulled down.

Bitter disappointment

For those that witnessed its economic growth at the start of the 1990s, Romania is one of the bitterest disappointments.

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