After the failed stabilisation plan of 1997, Romania went through a second deep transitional recession with the GDP declining by over 12 per cent during three consecutive years while inflation continued to be consistently higher than in comparable transition countries of Central and Eastern Europe. The privatisation process and economic restructuring also lagged. In 1999, the country had to weather a payment crisis and since then it has been looking for a new path to economic policies. In 2001, macroeconomic performance improved somewhat with 5.3 per cent GDP growth and inflation showing a declining trend, though with pressures on the external balance. Overall, looking back to a decade of transition in Romania, the impression is that precious time has been lost.

The early stages of the transformation process in Romania were described in the 1993 OECD Economic Assessment. The first transitional shock – a close to 30 per cent fall in GDP, one of the deepest amongst Central and Eastern European countries – was analysed and the gradualist policy adopted to manage the transition discussed. A more comprehensive approach to reforms was advocated in the Assessment, as macroeconomic stabilisation policy seemed doomed to fail without a better co-ordination with structural reforms. Indeed, during 1993-96 Romania experienced a volatile economic environment characterised by positive growth, but high inflation and growing macroeconomic imbalances.

The present formulation and implementation of macroeconomic policies in Romania was designed within the framework of the Government Programme for the period 2001-04 in line with the orientations of the Medium-term Economic Development Strategy worked out together with the European Commission in March 2000. Policy goals and specific measures were spelled out in the Pre-Accession Economic Programme for Romania presented to the European Commission in August 2001 and the Policy Memorandum agreed with the International Monetary Fund in the context of the recent Stand-by Agreement.

Slow restructuring has been a general feature of the large state-owned enterprise sector in Romania. Before 1997, privatisation in industry was mainly oriented to small and medium sized enterprises, which is reflected in the fact that, in spite of a massive wave of privatisation during 1995-96 (see Figure 15), 58 per cent of industrial production still took place in the public sector in 1997. This lack of decisive action on privatisation and restructuring of large companies actually worsened the problems of transition in Romania. Inefficient state-owned enterprises, kept afloat through large direct and indirect subsidies, weighed heavily on state funds. The lack of fiscal stability prevented macro-stabilisation, which, together with the misallocation of resources, significantly impeded sustainable economic growth.

The difficulties of reforming the large-scale enterprise sector in Romania have been described in Chapter 'Exit'. Much time was lost during the last decade. While it would be important to accelerate the transformation of the economy and conclude this process, the extent to which restructuring needs to be done in a relatively short period is rather daunting. Realistically, this problem will take several years and strong determination in carrying out the necessary reforms. For this reason, the development of a new private sector becomes especially important and needs to be seen as the main engine of restructuring and growth in the economy.