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2011 Index of Economic Freedom

2011 Index of Economic Freedom

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Source: http://www.heritage.org/Index/
Source: http://www.heritage.org/Index/

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Published by: jdfogg on Apr 08, 2011
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World Rank: 63

Regional Rank: 27

Romania’s economic freedom score is 64.7, making its
economy the 63rd freest in the 2011 Index. Its score is 0.5
point better than last year, reflecting improvements in five
of the 10 economic freedoms. Romania is ranked 27th out
of 43 countries in the Europe region, and its overall score is
higher than the world average.

Though Romania’s evolving economy has benefited sub-
stantially from its openness and flexibility over the past
decade, economic dynamism was slowed by the global
financial turmoil. The economy has suffered sharp economic
adjustments since late 2008. The budget deficit has been on
the rise, putting greater pressure on the government for fis-
cal restraint.

Previous structural reforms have included privatization in
the banking sector, a reduction in the public-sector wage
bill, and tax administration reform. However, deeper
reforms in areas such as public finance management and
the labor market are now required. Institutional challenges
that persist include widespread corruption and a rigid labor
market. The judiciary remains inefficient and vulnerable to
political interference.

Background: The Romanian government fell in October
2009 and was replaced by an unstable coalition composed
of the Democratic Liberal Party and the Hungarian Union of
Democrats in Romania. Traian Basescu won the presidency
in December 2009 for the second time. An austerity pack-
age announced by Basescu in May was strongly opposed by
trade unions and opposition parties, and strikes were threat-
ened. In February 2009, Romania announced its willingness
to host a U.S. ballistic missile defense interceptor site. Roma-
nia has been a fast-growing member of the European Union
and NATO, and the government has been implementing
economic reforms that are consistent with the Maastricht
criteria. Macroeconomic improvements have spurred the
growth of the middle class and helped to reduce poverty,
although GDP contracted in 2009.

Quick Facts

Population: 21.4 million
gdP (PPP): $255.2 billion
–7.1% growth in 2009
3.4% 5-year compound annual growth
$11,917 per capita
unemployment: 7.8%
Inflation (cPI): 5.6%
FdI Inflow: $6.3 billion

Economic Freedom Score

Country’s Score Over Time

Country Comparisons

Least Most
free free

50
25 75

0 100

64.7

1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011

30

40

50

60

70

0

20

40

60

80

100

64.7

Country

59.7

World
average

66.8

Regional
average

84.1

Free
economies

342

2011 Index of Economic Freedom

ROMANIA (continued)

THE TEN EcONOMIc FREEdOMs

Business Freedom

No. 63

Trade Freedom

No. 12

Fiscal Freedom

No. 33
Government Spending No. 118
Monetary Freedom

No. 97

Investment Freedom

No. 14

Financial Freedom

No. 70

Property Rights

No. 73
Freedom from Corruption No. 72
Labor Freedom

No. 90

cOuNTRy’s WORLd RANkINGs

BusINEss FREEdOM: 72

– 0.5

The process for business registration and operation has
been streamlined in recent years. However, the enforce-
ment of commercial regulations is not always consistent,
and efficient procedures and rules for bankruptcy have not
been fully implemented.

TRAdE FREEdOM: 87.6

+ 0.1

Romania’s trade policy is the same as that of other mem-
bers of the European Union. The common EU weighted
average tariff rate was 1.2 percent in 2009. However, the
EU has high or escalating tariffs for agricultural and man-
ufacturing products, and its MFN tariff code is complex.
Non-tariff barriers reflected in EU and Romanian policy
include agricultural and manufacturing subsidies, quotas,
import restrictions and bans for some goods and services,
market access restrictions in some services sectors, non-
transparent and restrictive regulations and standards,
and inconsistent regulatory and customs administration
among EU members. The enforcement of intellectual prop-
erty rights remains problematic. Ten points were deducted
from Romania’s trade freedom score to account for non-
tariff barriers.

FIscAL FREEdOM: 86.8

+ 1.0

Romania has relatively low flat tax rates. Both the income
tax rate and the corporate tax rate are 16 percent. Some
small businesses are taxed on turnover at 3 percent. Other
taxes include a value-added tax (VAT) and a real property
tax. In the most recent year, overall tax revenue as a per-
centage of GDP was 28.5 percent.

GOVERNMENT sPENdING: 57.6

– 2.2

In the most recent year, total government expenditures,
including consumption and transfer payments, rose
slightly to 37.6 percent of GDP. Privatization of large-scale
companies has been sluggish.

MONETARy FREEdOM: 74.4

+ 1.1

Inflation has been moderately high, averaging 6.1 percent
between 2007 and 2009. As a participant in the EU’s Com-
mon Agricultural Policy, the government subsidizes agri-
cultural production, distorting the prices of agricultural
products. It also influences prices through regulation, sub-
sidies, and state-owned enterprises and utilities. Ten points
were deducted from Romania’s monetary freedom score to
account for measures that distort domestic prices.

INVEsTMENT FREEdOM: 80

+ 5.0

Foreign and domestic investments receive equal treatment
under the law. Deterrents to investment include judicial
and legislative unpredictability, frequent changes in the
regulatory environment, and cumbersome and non-trans-
parent bureaucracy. Residents and non-residents may hold
foreign exchange accounts. Payments, capital transactions,
and transfers face some reporting requirements. EU citi-
zens may own land, subject to reciprocity in their home

countries; in general, foreign investors may not purchase
agricultural or forestry land.

FINANcIAL FREEdOM: 50

no change

Romania’s financial supervision and regulation are largely
consistent with international standards. Many state-owned
banks have been privatized, but the government still owns
the National Savings Bank and Eximbank. Banking is rela-
tively sound and stable, with a high degree of capitaliza-
tion. Foreign-owned banks account for close to 90 percent
of total assets. Regulations for the financial sector have
been modernized and improved in recent years. However,
the weak judicial system lacks the capacity to enforce laws
efficiently or impartially. Perceptions of implicit state guar-
antees for municipal bonds and poor market infrastructure
undermine the soundness of capital markets, which remain
underdeveloped. Despite the relatively stable and open
banking environment, Romania’s financial intermediation
rate remains one of the lowest in the region.

PROPERTy RIGHTs: 40

no change

Investors have expressed concern about unpredictable
changes in legislation and weak enforcement of contracts
and laws. The judicial system suffers from corruption, inef-
ficiency, and excessive workloads. The mortgage market
is now almost entirely private, although the state-owned
National Savings Bank also offers mortgage loans. Romania
is a signatory to international conventions concerning intel-
lectual property rights, but enforcement of legislation pro-
tecting patents, trademarks, and copyrights is very weak.

FREEdOM FROM cORRuPTION: 38

no change

Corruption is perceived as widespread. Romania ranks 71st
out of 180 countries in Transparency International’s Corrup-
tion Perceptions Index for 2009. Despite some improvements,
corruption remains a serious problem. The government’s
Anticorruption Strategy, which includes enforcement of laws
and procedures to combat money laundering and tax eva-
sion, has had some success. Accession to the EU also spurred
gains against corruption. Nevertheless, foreign investors
complain of corruption in the customs service, in municipal
zoning offices, and among local financial authorities.

LABOR FREEdOM: 60.8

+ 0.4

Romania’s labor regulations remain rigid, although several
amendments to improve the flexibility of the labor code
have been made. The non-salary cost of employing a work-
er is very high, and dismissing an employee is difficult.
Regulations on work hours are not flexible.

343

How Do We Measure Economic Freedom?

See page 447 for an explanation of the methodology
or visit the Index Web site at heritage.org/index.

2009 data unless otherwise noted.
Data compiled as of September 2010.

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