Romania 2016

Total score

67.12 change: 3.69

Quick facts

Population:
  • 19.871 million
Unemployement rate:
  • 6.8 %
GDP:
  • 166.745 billion EMU
GDP growth rate:
  • 3.8 %
GDP per capita:
  • 8 390 EMU

Score and comments

Political Freedom
Free and Fair Elections

A very turbulent electoral year in Romania was marked by two no-confidence votes against government and the PM Victor Ponta, by his resignation in November 2015 and by a formation of a first technocratic parliament. Independent Prime Minister Dacian Ciolos, former EU commissioner for agriculture,  was nominated by the President and had a large support in the Parliament, although some MPs often protested that technocratic government drastically reduced importance of Parliament and the institution of “political responsibility”.According to president Johannis, this government gives parties the necessary time to reform and clean themselves from corruption. Romania has a tradition of by and large free and fair elections, however certain irregularities arise during each and every

electoral process. Political parties are free to organize, operate and compete with each other in fairly manner. In 2015, a new electoral law was enacted, including reduced number of seats in the bicameral parliament, reintroduction of the proportional representation system which was abolished in 2008, and introduction of a threshold for coalitions of two or more parties, at 8% and 10% respectively. Serious discussion was going on about government aspirations to curtail voting by 15% estimated Romanian citizens living abroad. New law allows them to cast the vote by mail. However this registration system is so difficult that only 10.000 out of 3 Million Romanians living abroad registered to vote in parliamentary elections 2016.

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Absence of Unconstitutional Veto Players

For a long period of time, corruption and strong relationship between influential businessmen, media owners and politicians were pervasive in Romania, interfering into democratic processes to protect their individual interests. However, this situation is fading in recent years. A better level of government independence in decision making is ensured. Problem of corruption does exist in the country and it is very important topic for Romanian citizens. Government has made some efforts and its National Anticorruption Directorate launched numerous investigations against high ranking officials for corruptive practices. Case which attracted most public attention were charges against Prime Minister Ponta in July, who was accused for money laundering, tax frauds and conflict of interest prior to

his time in office .

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Freedom of Press

Unlike in neighboring Bulgaria, situation regarding freedom of the media is slightly improving in Romania. Its Freedom Barometer “Press Freedom” score increased from the 5,80 as of 2015. However, there is a lot more to be done in this field, because media landscape is far from ideal. Political influence on media reporting and media ties to businessmen that control the sector remain the biggest obstacles to freedom of the press. Situations in which government officials verbally insulted and humiliated journalists that had been critical of them were not rare. A proposed law for sanctioning social defamatory behavior on various bases is still under discussion in Romania. Many media outlets and institutions opposed this law, stating that it could do more harm than good. That included

politicians as a protected social group, thus endangering freedom to be critical of political parties. Financing mechanisms of the Romanian media outlets are marked by corruption and non-transparency. Ruling parties often try to put public media under political control. The last attempt was a proposal of the Social Democratic Party to eliminate the mandatory fees for public radio and TV and finance them directly through the state budget. 

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Rule of Law
Independence of the Judiciary

Romania`s judiciary became more independent since the country became a full member of the EU in 2007. But, as Freedom House reiterates in its Freedom of the World 2016 report, “courts and law enforcement authorities continue to suffer from chronic problems including corruption, political influence, staffing shortages, and inefficient resource allocation”. Many officials stay in their positions or receive special pensions despite criminal convictions. That problem started to be resolved after 2014. Constitutional Court decisions still reflect partisan approach. The lustration and trials for pre-1989 state-sponsored crimes have started only recently, during 2014-2015. Conditions in prisons are poor, even though there is less crowding than a few years ago. There is still insufficient

legal protection against torture or other ill treatment in custody. Access to justice by some vulnerable groups, such as Romany, is hindered.

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Corruption

Prior to 2007, widespread corruption was often used to oppose Romania`s EU accession. Since the entry, plenty of domestic and EU effort was put into the anti-corruption struggle. The situation has been improving, albeit slower than expected. Romania has left the very bottom among EU members and, with Greece, shared the rank 58 on the world-wide list Corruption Perception Index 2015, ahead of Italy and Bulgaria. Following a fire accident in a night club in Bucharest, in October 2015, which killed 64 people, a nation-wide safety-enhancing campaign under the motto "Corruption kills" was launched. Nearly all places of public accommodation were double-checked. Numerous premises - even football stadiums – were closed. Soon it was clear that corruption was at the root of fake safety licenses

or of the disregard for safety procedures. A number of Mayors, local councilors or civil servants were arrested or investigated. Finally, in November, the Government led by Victor Ponta fell. However, the initially amazing mobilization of entire society against corruption and negligence did not endure. In June 2016, at the local elections, many of those under investigation on corruption charges were elected into the new local councils. For example the mayor of Baia Mare was elected while being in detention for bribery charges with over 70% of the votes.

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Protection of Human Rights

Romania is worse in the field of human rights than the neighboring Bulgaria. While ordinary street police forces are ever better trained in professional treatment of citizens, ill treatment in custody or jail is still present, with few opportunities to reach compensation. The worst reformed among security forces are secret services, which occasionally break laws, infiltrate and misuse other state institutions and avoid full democratic civil control. The issue of secret detention centers during the “war or terror” is still unresolved. Human trafficking is a huge problem. Homophobia and Romany-phobia also are. However, ethnic minorities experience also positive discrimination by state aid programs to preserve their values and culture. Romany have free access and scholarships to high

level education. The state provides schools in mother tongue for Hungarians, Ukrainians, Germans and Romany. Romany often face discrimination or exclusion. Together with several other Central European countries, Romania refused quotas for the relocation of refugees and asylum seekers within the EU. On the bright side of its human rights` record, freedom of assembly, association or expression is fairly well respected, in contrast with the memories of the brutal treatment of dissidents until 1989.

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Economic Freedom
Security of Property Rights

Property rights in Romania are relatively secure. However, problems arising from judiciary system deficiencies are undermining the situation. Out-of-the-court influences on judiciary are present, resulting in low level of judicial independence, and corruptive practices within the legal system are observable. Enforcement of property rights through judical processcan be lengthy, costly and difficult. Furthermore, there are information that local courts often lack expertease in many important areas. Not all restitution claims have been fully addressed, increasing uncertainty of property rights.Some restitution cases are now subject for investigation of high level fraud and corruption. Due to all of these problems, mediation is slowly becoming more popular in the country. It is expected for

the new civil procedure code to improve current court procedures. Transfer of some enforcement responsibilities from courts to bailiffs is expected to make contract enforcement easier. Non-EU Foreign nationals face restrictions in the right of agricultural land ownership, but they can either lease it or obtain ownership via setting up a domestic company in Romania. Property rights can be ill-defined, as in the case of real estate property land ownership and the right to use the land, which are divided, resulting in uncertain or unclear property rights. Furthermore, a significant proportion of agricultural land is not covered by land titles. Registering property is also a process that includes many procedures and is unnecessarily long.

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Size of Government: Expenditures, Taxes, and Enterprises

Size of government in Romania is modest, compared to other European countries, with total public expenditures reaching 34% in 2015. A strong fiscal austerity program under the auspices of the IMF is under revision, with the implementation of a fiscal stimulus with tax custa and increased spending via public sector wage bill and other current spending. The rising government deficit (expected to rise from 1,5% to 2,9% of GDP in 2016) will leave public debt on a rising slope, although at moderate level of 39,3% of GDP in 2015. Economic growth rates are robust, but fiscal policy is procyclical. State owned enterprises remain one of the weak points of the Romanian economy: they are numerous and hold a notable role within the economy, especially within the infrastructure sector. SOE corporate

governance is weak, with low performance and profitability, relying on different government transfers and subsidies for needed investments, or in some cases, even day to day operations. This situation is one of the reasons behind under investment in public infrastrcture. After several successful rounds of SOE privatization in previous years, further privatization plans of big SOEs in energy sector have been delayed, due to restructuring and insolvency proceedings. There were substantial revisions of different tax rates, in order to provide more space for private consumption: excise duties and helathcare contributions were decreased with the new Fiscal Code from 2016, as well as the standard VAT rate from 24% to 20%. On the other hand, unexpected additional taxes on natural gas and electricity, that were istituted in 2013 and expected to expire unitll the end of 2015, were prolonged untill the end of 2016. Personal and corporate income tax in Romania remain flat, set at 16%. In 2016 the tax for dividends was lowered from 16% to 5%. Labour tax wedge in Romania is high, approximately 42% which is much higher than in OECD countries as a whole.

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Regulation of Credit, Labour, and Business

Business regulation in Romania is mostly favourable to business activities. However, many aspects of legislation are complicated and burdensome to entrepreneurial activities, and sometimes their implemenetation is partial, favouring certain market participants. Starting a new business is easy and inexpensive, with very low fees and minimum capital. However, obtaining a construction permit and getting eletricity are very lengthy processes with many procedures, and with high fees. Furthermore, compliance with tax procedures is unneccessarily burdensome, incurring costs partially due to the high number of annual payments. Corruption and open favouritism by public officials are still present, although there has recently been improvements in fight against corruption. Labour market regulations

are mostly flexible. Firing regulations can impose difficulties through retraining, reassignement or reemplyment obligations of the employer towards the redundancy workers, but with low severence payments. The minimum wage ratio to avegra wage in Romania is much higher than in many neighbouring countries. The steep rise in the national minimum wage of approximately 20% in this year is very high, and may not be in line with productivity growth, hindering further employment. On the other hand employees are paid officially with the minimum wage but earn more due to the tax evasion of the employers.

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Freedom to Trade Internationally

Freedom to trade internationally is mostly respected in Romania. Since it became one of the EU member countries in 2007, Romania has been implementing the EU common trade policy. Therefore, tariff are low, with applied mean tariff rate standing at 5.30%. While industrial good are moslty tariff free, agricultural products in imports usually face higher tariffs. However, real regulatory trade barriers lie in the field of necessary product standardization and certifications, which burdens trade by incurring higher import costs. Low quality of public transport infrastructure, most notably highways and high speed railroads, serve as another impediment to free trade, resulting in high transportation costs which limit trade volume. However, this situation is important also in other areas of

business environment, and is often cited as one of burdens on doing business in the country. Further private involvement in the railroad freight system via privatization of public freight companies would boost current performance, but in order to attract investors those companies need to be restructured. Increased efficiency in EU funds absorption could also alleviate some problems, especially now when the European Commission has been commeding Romania for its improvements in fight aggainst corruption. Romania is mosty oriented to the EU common market and its main trade partners are Germany and Italy, followed by other EU countries, with Turkey being the only EU outsider on the list of important trade partners. Danube transport coridor and the Black Sea serve as an important trade hub in the region, connecting east and west.

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