Financial Crisis Leaves Romania Reeling

A bank and foreign currency exchange in Bucharest, where many consumers are struggling to repay loans they took out in euros and Swiss francs.
A bank and foreign currency exchange in Bucharest, where many consumers are struggling to repay loans they took out in euros and Swiss francs. (By Craig Whitlock -- The Washington Post)
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By Craig Whitlock
Washington Post Foreign Service
Wednesday, November 5, 2008

BUCHAREST, Romania -- In recent days, this once-booming country has been pounded by aftershocks from the global financial crisis. Speculators have attacked the local currency, the leu, betting that it would plunge in value. At one point last month, the stock market had dropped by 70 percent. By next year, some analysts predict, the jobless rate could double.

Like many of its East European neighbors, Romania is experiencing a sudden reversal of fortune. After years of record economic growth fueled by easy credit and heavy foreign investment, people here are bracing for a sharp slowdown that they hope does not turn into an outright crash.

Two of Romania's neighbors, Hungary and Ukraine, already have been forced to accept bailouts from the International Monetary Fund. Next-door Bulgaria, with a bulging current-account deficit, has troubles of its own. To the north, the Baltic states are also feeling a severe pinch, with consumers deeply in hock to stressed Scandinavian banks. The European Union, which many of the former Soviet satellite countries thought would bring them stability, hasn't offered much help.

"I'm afraid E.U. membership is not enough protection for Romania, Bulgaria and the Baltics," said Ilie Serbanescu, an economist and former government official. "The entire Romanian economy is in the hands of foreign companies. If the international situation is good, then it's no problem. But if the situation is not good, like now, we are in trouble."

Romanian officials have acknowledged some of their economic difficulties but said concerns about the country's stability are overblown. In an Oct. 22 speech, President Traian Basescu pinned the blame on "corrupt" outsiders.

"There were smart guys coming to Romania, who had studied at Harvard and Oxford, and they invented how to increase the value of one's shares without actually having money," he said.

Officials here have brushed aside talk of an IMF bailout, which would be a setback for a country that joined the E.U. just last year. They especially reject comparisons to Iceland, which has been hit so hard that bankrupt entrepreneurs are now looking for jobs as cod fishermen.

"I am sick and tired of comparing Romania to the Baltic states and Iceland. What do we have in common?" Mugur Isarescu, the governor of Romania's central bank, said in an interview. "This is the black part of globalization, the fact that you have all these ratings agencies and others putting together six or seven countries in the same boat."

At the same time, Isarescu and other officials said Romania has serious challenges to overcome.

The central bank has raised interest rates seven times in the past year. Last month, it was forced to intervene in the currency markets to prop up the leu, which traders were betting would collapse against the euro. "It was creating here a kind of panic," Isarescu said.

Romania plans to adopt the euro in 2014 but needs to meet a number of economic benchmarks before it can do so.

Romania's biggest problem is its current-account deficit: Far more money has been pouring into the country than going out. Much of the money comes from the estimated 2.5 million Romanians -- more than 10 percent of the population -- who work in countries such as Italy and Spain and send earnings back. But with those economies now suffering as well, many emigrants are expected to return home empty-handed.

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