The Romanian Foreign Trade Bank was established in July 1968. Its princ.i.p.al functions are to facilitate exports and, through strict controls over exchange allocations, to encourage import subst.i.tution by domestic producers. In 1970 about 73 percent of the bank"s credits were devoted to exports, and only 21 percent were granted for imports. The remaining 6 percent of the credits were used to finance internal transport.
In July 1971 the Romanian Foreign Trade Bank and a group of eight French financial inst.i.tutions opened the Romanian-French Bank in Paris. This bank was organized as a private limited-liability company with a capital of 20 million French francs underwritten in equal parts by the Romanian Foreign Trade Bank and the French bankers. In the second half of 1971 the Romanian Foreign Trade Bank acquired affiliates in London and Rome.
The Bank for Agriculture and the Food Industry was created in May 1971 by expanding the functions and changing the name of the Agricultural Bank established three years earlier. This reorganization followed the consolidation of previously independent ministries into the Ministry of Agriculture, Food Industry, and Waters (referred to as the Ministry of Agriculture). The bank was capitalized at 500 million lei and was required to create a reserve out of profits equal to the amount of its capitalization. The bank"s function is to provide investment and operating credits for enterprises under the jurisdiction of the Ministry of Agriculture, including collective farms, and to finance the distribution of their products within the country.
A few summary data on credits extended by the Bank for Agriculture and the Food Industry to collective farms have been released to the country"s press in an obvious effort to publicize official concern for this important but neglected farm sector (see ch. 15). Information on other aspects of this bank"s operations have not been disclosed.
The Savings and Loan Bank, an inst.i.tution nationalized at an early stage of communist rule, had 1,560 branches and agencies in 1971, most of which were located in rural areas. The main function of the bank has been to mobilize the cash resources of the population for investment, through obligatory periodic transfers of deposited funds to the National Bank. In the 1966-70 period subsidiary functions of the bank gained in importance, including small-scale commercial bank transactions, personal loans, and tax collections. Receipts from personal savings deposits accounted for 70 percent of total cash receipts in 1970. Since the beginning of 1970 the bank has also made loans for private housing construction.
The schedule of payments to the National Bank has been sufficiently stringent to induce the Savings and Loan Bank to mount special educational programs for attracting savings, particularly in rural areas, and to seek ways of stimulating cash collections from its other activities. To this end the bank is giving special attention to finding more effective means for identifying cash reserves held by the population. One avenue the bank has been exploring is to gain greater knowledge of the timing of income receipts and of the uses to which incomes are put.
The volume of savings has been steadily mounting; it rose at an average annual rate of more than 20 percent in the 1966-70 period and was 2.5 times larger at the period"s end than at its beginning. In 1970, 13.6 percent of the population"s cash income was deposited in savings accounts, compared to 5.8 percent in 1960. More than 65 percent of the population"s cash a.s.sets in 1970 were on deposit in savings accounts, as against 56.6 percent five years earlier. Under the economic plan for the 1971-75 period, savings deposits of the Savings and Loan Bank are scheduled to increase by 87 percent--the equivalent of an annual 13.4 percent growth rate. An important reason for the growth of savings has been a general shortage of consumer goods.
Loans granted by the Savings and Loan Bank for private housing construction in 1970 amounted to 2.1 billion lei. In 1971 the bank planned to provide construction loans totaling 2.9 billion lei.
Information on other bank transactions has not been published.
Credit Policy
Interest rates do not reflect the scarcity of money or the element of risk. They are used by the government as one of the economic levers intended to motivate enterprises toward greater efficiency. In 1969 the average rate for short-term operating credits was 2.9 percent; actual rates ranged from less than 1 percent to a level far above the average.
New regulations issued about mid-1970 raised the interest rates, established greater uniformity among them, and introduced a differentiation among penalty rates based on the length of time that repayments remain in arrears or credits in excess of those planned are used. As a result of these measures, National Bank officials expected the average rate of interest to rise to 3.8 percent.
A uniform interest rate of 5 percent was established on all operating credits for inventory and production purposes in economic sectors other than agriculture. Preferential rates for artisans" collectives were abolished on the grounds that the collectives had received enough state support in the past to place them on an equal footing with state enterprises with regard to credit. A rate of 3 percent was continued on credits used in the distribution of goods. Interest rates of 4 percent and 2 percent, respectively, were established for state and collective farms.
The government attaches great importance to the penalty feature of the credit system, which allows it to discriminate between efficient enterprises that find themselves in temporary difficulties and enterprises that are poorly managed. Enterprises that require operating funds in excess of those prescribed by officially determined norms or are unable to repay credits on time must pay progressively higher interest rates. Excess and overdue credits carry an interest rate of up to 10 percent for the first three months and up to 12 percent for the next three months. Enterprises in the second stage are subject to a searching examination by a committee of experts and may be denied further credits. Information is lacking on the procedures followed in the case of enterprises that would be declared bankrupt in a Western economy.
According to a National Bank official, the new credit regulations were to be rigorously applied in order to combat a rising trend in the volume of overdue credits that became apparent in the first half of 1970. The credit and interest policies were to be applied in a manner that would protect the economy from the bad effects of mismanagement and that would place the onus only on poorly run enterprises. This task was said to demand a high level of competence from those called upon to resolve the difficult problems of the enterprises.
CURRENCY
The currency unit of the country is the leu (plural, lei), divided into 100 bani. It is nonconvertible and usable only within the country. The leu is officially defined to contain 148.112 milligrams of fine gold, so that 5.53 lei are equivalent to US$1. This basic rate of exchange became effective on December 23, 1971, in the wake of the agreement reached by the United States with other major Western trading nations to devalue the American dollar; before that date the rate was 6 lei per US$1. The basic rate is used in foreign trade accounting and is also applicable to nonresident accounts created by a transfer of foreign currencies into Romania.
A wide range of official noncommercial or tourist exchange rates is in effect for residents of other communist countries. These rates vary from about one-third to more than double the basic rate. Tourist rates for noncommunist country currencies embody a bonus of 189 percent over the basic rate, making 16 lei equivalent to US$1. In addition to the official exchange rates there are at least thirty-seven semiofficial rates resulting from seven multilateral trade and payments agreements with members of the Council for Mutual Economic a.s.sistance (COMECON) and thirty bilateral agreements with other communist and noncommunist states.
The state has a monopoly of foreign exchange. Control over currency and foreign exchange is vested in the National Bank and administered by the bank jointly with the Ministry of Finance and the Romanian Foreign Trade Bank. All foreign exchange realized by state agencies from exports and other foreign operations must be surrendered to the Romanian Foreign Trade Bank, which also controls all exchange expenditures abroad.
Transferability of funds by private individuals is strictly limited.
Only 15 to 30 percent of inheritances, royalties, pensions, and support payments derived from abroad may be used or retransferred; from 70 to 85 percent of the sums received must be surrendered at the tourist rate of exchange. Residents may send small amounts and get travel allocations to COMECON and some Western countries. Most currency transactions by individuals with residents in Western states are prohibited. Residents may not own foreign currencies or securities or have bank balances abroad without official permission, nor may they import or export Romanian banknotes. They are forbidden to own or trade in gold, to export jewelry and diamonds, and to engage in foreign merchandise trade.
Controls over financial transactions by state agencies in domestic currency and foreign exchange were tightened by a decree issued in September 1971. A companion decree also provided for much stricter border controls over foreign exchange, precious metals, and jewelry carried by individuals entering or leaving the country. Violations were more precisely defined, and penalties were substantially increased to discourage illegal traffic.
FOREIGN TRADE
Foreign trade is of crucial importance to the country"s industrial development because imports must be relied upon for a large part of the requirements for materials and equipment. Trade has been expanding at a rapid rate, and imports have been growing faster than exports. In a bid for economic and political independence from the Soviet Union, the country"s leadership succeeded in reorienting a substantial portion of its trade toward the industrial nations of Western Europe during the mid-1960s (see ch. 10). After 1967, however, the inability to generate enough exports salable in Western markets to balance imports forced the country to turn increasingly to the Soviet Union and other Eastern European countries for its import needs.
Foreign trade is a state monopoly. Trade policy is established by the PCR and the government, and its implementation is the responsibility of the Ministry of Foreign Trade. Authority to engage in foreign trade operations has been partially decentralized by a law enacted in March 1971, although initial steps in this direction were taken under administrative regulations in the beginning of 1970. The main purpose of the law has been to raise the efficiency of foreign trade and to help expand exports. These ends are to be attained through greater exposure of domestic producers to international compet.i.tion and by providing incentives for them to meet it. The law was also intended to create favorable conditions in the country for the establishment of industrial enterprises with foreign partic.i.p.ation.
Before the adoption of the trade reform law, only specialized foreign trade enterprises directly subordinated to the Ministry of Foreign Trade were empowered to carry on trade activities. Producing enterprises were completely divorced from foreign buyers. They delivered their export goods to the foreign trade enterprises at domestic prices, without knowing to whom or at what price the goods were sold abroad. Imports were also obtainable only through foreign trade enterprises at domestic prices, regardless of their acquisition cost. Foreign trade losses were covered out of the state budget, and enterprises a.s.sumed no risk whatever in foreign trade transactions. Producing enterprises had no interest in marketing their output abroad or in making their products compet.i.tive in world markets; neither were they interested in using domestic subst.i.tutes to avoid the need for imports.
Under the new law authority to engage in foreign trade has been granted to some of the industrial ministries, trusts, and enterprises. Others must continue to trade through foreign trade enterprises. The delegation of authority has not involved a transfer of basic decisionmaking powers, and the continuance of central control is therefore a.s.sured. All trade must be conducted in accordance with binding state plans and guidelines issued by the minister of foreign trade. Every transaction requires approval by the Ministry of Foreign Trade in the form of an import or export license. Central controls have also been retained over foreign exchange and over export and import prices. The main advantage of the new regulation lies in the opportunity it provides for producers to develop direct customer relations, thus enabling them to learn at first hand the preferences of buyers and the nature of the compet.i.tion they must face. It also encourages them to exercise initiative in seeking out potential customers.
Under the law production for export must be given priority. Failure by economic units to discharge their export obligations adversely affects their profits, even if they meet their total output target, because in these circ.u.mstances the production plan is considered underfulfilled by the value of the undelivered exports. This provision applies equally to suppliers and subcontractors of export manufacturers. A positive incentive to exceed export quotas has been provided in the form of export bonuses. Export manufacturers, however, have a greater interest than their suppliers in exceeding the export plan because they are ent.i.tled to keep for their own use a portion of the above-plan foreign exchange earnings, whereas their suppliers have no opportunity to do so.
This difference of interests has been interpreted by foreign observers as a weakness in the law, in that it may hamper manufacturers" efforts to maximize export production because the requisite supplies and components may not be forthcoming.
The decentralization of foreign trade activities necessarily entails an increased need for well-qualified specialists in foreign trade and international finance, both at home and abroad. The shortage of experts in these fields is to be alleviated through an intensive personnel training program.
Western economists believe the new law to be a step in the right direction in that it promotes an orientation of the economy toward exports. They hold the view, however, also shared by some Romanian economists, that, as long as the country"s currency remains nonconvertible and prices fail to reflect the relative scarcity of goods, it will not be possible properly to calculate the profitability of foreign trade nor to improve the structure of the trade on the basis of such a calculation.
In the 1960-70 period the annual trade turnover increased by 2.8 times to a volume of 22,8 billion lei. Exports rose at an average annual rate of 10 percent to 11.1 billion lei, and imports grew by 11.7 percent per year to 11.7 billion lei. From 1965 to 1970 the rise in trade was more rapid; the rates of growth were 11 percent for exports and 12.7 percent for imports.
Although trade relations were officially reported to have expanded from twenty-nine countries in 1960 to 110 countries in 1970, the bulk of the trade was carried on with members of COMECON and the industrial countries of Western Europe (see table 6). Only 15 percent of the trade in 1970 involved countries outside these areas. Between 1960 and 1967 trade with COMECON members increased by little more than half, whereas trade with Western so-called capitalist countries rose almost fourfold.
The difference was even more marked in the case of imports from the West, which increased ninefold, so that imports from this area in 1967 were larger than imports from COMECON. The trend was reversed after 1967, mainly because of increasing balance of payments difficulties with Western trade partners.
With a turnover of 5.5 billion lei in 1969, the Soviet Union has been by far the most important of Romania"s trading partners. Czechoslovakia and the German Democratic Republic (East Germany) were next in importance within COMECON, with a trade volume of 1.5 billion and 1.2 billion lei, respectively, in 1969. Among trading partners in Western Europe, West Germany occupied first place, with a trade volume of almost 1.8 billion lei, followed by Italy with a volume of 1.2 billion lei and France with 0.9 billion lei. The People"s Republic of China has been the main communist trading partner outside Europe, with an annual volume of about 0.5 billion lei in 1968 and 1969.
_Table 6._ _Foreign Trade of Romania, by Groups of Countries, 1960 and 1969_ (in millions of lei)[1]
---------------------------------------------------------------------------- 1960[2] 1969[2]
------------------------- ------------------------ Country Group Exports Imports Total Exports Imports Total ---------------------------------------------------------------------------- Western industrial states 918 913 1,831 2,980 4,432 7,412 COMECON[3] 2,821 2,636 5,458 5,042 4,819 9,862 Other communist states 318 206 524 781 506 1,286 Developing countries 245 131 376 996 686 1,682 ----- ----- ------ ----- ------ ------ Total 4,302 3,887 8,189 9,799 10,443 20,242 ---------------------------------------------------------------------------- 1: For value of leu, see Glossary.
2: Totals may not add because of rounding.
3: Council for Mutual Economic a.s.sistance.
Source: Adapted from U.S. Department of Commerce, Office of Technical Services, Joint Publications Research Service--JPRS Series (Washington), _Translations on Eastern Europe: Economic and Scientific Affairs_, "Foreign Trade Reform a.n.a.lyzed,"
_Vierteljahresshefte zur Wirtschaftsvorschung_, West Berlin, July-September 1971, (JPRS 54,691, Series No. 580, 1971).
Trade between Romania and the United States has been small because of legal restrictions in the United States against trade with communist countries. The trade volume doubled from about US$40 million in 1969 to US$80 million in 1970 but declined to about US$65 million in 1971.
About 80 percent of the trade in 1969 and 1970 was accounted for by Romanian imports; in 1971 the trade was more nearly balanced. Comparable Romanian statistics are available only for 1969. They show a lower volume of trade and a smaller trade deficit. No explanation of this discrepancy is available.
Measures to exempt Romania from the restrictions directed against trade with communist countries have been taken in the United States. In November 1971 exports to Romania were made eligible for Export-Import Bank financing. With support from the administration, legislation has been introduced in both houses of the Congress of the United States to accord Romania most-favored-nation treatment. Sources in the United States, however, believe that Romania will not be able to balance its trade with that country even in the event that the proposed legislation is enacted into law.
Imports have been overwhelmingly weighted in favor of capital goods.
Machinery and equipment, fuels, and raw and processed materials const.i.tuted about 90 percent of all imports in the 1960s. Manufactured consumer goods accounted for from 5 to 7 percent of imports. Raw and processed food products made up the small balance. Machinery and equipment, including plant installations, were the major single import category; the share of machinery and equipment in total imports rose from about 33 percent in 1960 to 49 percent in 1967 but declined to 44 percent in 1969 because of payments difficulties. Imported machinery and equipment covered about 30 percent of requirements in 1970.
Exports in the 1960s consisted mainly of raw and processed materials and foodstuffs, about equally divided between products of agricultural and industrial origin. As a result of progressive industrialization, the proportion of these products in total exports declined from about 78 percent in 1960 to 63 percent in 1969. During the same period the share of machinery and equipment rose from about 17 to 22 percent, and that of manufactured consumer goods increased from about 6 to 16 percent.
Official foreign trade policy is directed toward increasing the proportion of processed goods in total exports.
In the 1960-70 period the annual balance of trade was negative, with the exception of the years 1960 and 1965. The c.u.mulative trade deficit at the end of 1970 amounted to about 5.1 billion lei--the equivalent of about US$850 million. The overall deficit, however, obscured the severity of the foreign exchange problem facing the country. Trade with the communist and developing countries during the period produced an export surplus that offset, in part, the deficit with Western trading partners. This surplus, however, could not be used to reduce foreign indebtedness because it did not generate hard currency earnings. The c.u.mulative hard currency trade deficit with the West reached US$1.2 billion in 1969 and an estimated US$1.5 billion in 1970.
Information on the country"s balance of payments has been kept secret, so that it is impossible to know how the trade deficit has been financed. Hard currency receipts from tourism, which could be applied toward repayment of the debt, equaled only a fraction of the annual trade deficit. Western sources estimated Romania"s indebtedness to her Western industrial trading partners to have risen from about US$300 million in 1966 to US$800 million in 1968 and to have increased further by 1970.
CHAPTER 15
AGRICULTURE