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Government Turns Tough on Economy

October 13, 1990

BUCHAREST, Romania (AP) _ The government has suddenly switched to painful and politically risky capitalist reform, raising fears of winters as cold and dark as those imposed by executed Communist dictator Nicolae Ceausescu.

It cut energy subsidies and credits to the country’s chronically inefficient government-owned industries and said the same treatment was in store for private consumers.

On Friday it said the country’s second-largest automaker will be allowed to go bankrupt if it can’t pay its debts.

Officials also have put Romanians on notice that state-controlled prices will go up, and that the country can afford no more across-the-board wage increases. Economics Minister Eugen Dijmarescu warned that could cause civil unrest.

″The country has lived for 40 years in an equal system of wages,″ he told reporters. ″These are crazy people because they don’t know anything else. ... We have to teach them that wages, like profits, are not assured, and they must strive to earn them.″

The National Salvation Front, which dominated the interim government after the December revolution that toppled and executed Ceausescu, was at first mostly concerned with winning May elections.

It took the politically popular steps of shortening the workweek and raising salaries, stopping food exports and lifting Ceausescu’s heat and energy rationing. It handily won the vote.

The grim results of the government’s largesse were presented to Parliament Oct. 10 by Prime Minister Petre Roman and Anton Vatasescu, the minister of commerce and industry.

Productivity has fallen about 20 percent compared to last year. The decline has been felt especially in energy production, which has become even more crucial since the Persian Gulf crisis began in August.

Exports are down and imports are up. The trade imbalance has grown to a projected annual $3.6 billion.

Declining production and higher wages has led to a near-total depletion of the meager stocks in Romanian stores.

Maintenance of the centrally controlled, heavily subsidized pricing system has bred massive corruption. Many stores sell off most goods to speculators at prices above the official ones. Speculators resell the goods for even more, often for hard currency only.

This has driven the black market rate of 100 leu to the dollar, five times the official rate.

The government’s solution, Roman announced, was ″inevitably liberalization of prices,″ which officials said was to be enacted within one month.

But the elimination of subsidies and price controls will have the unpopular effect of shifting high black market prices into state stores.

Along with the devaluation of the leu, which officials say is imminent, this is almost certain to generate more demands for higher wages and possibly strikes, further damaging production.

Roman warned Parliament that ″we cannot permit further pay raises.″

The government has attempted to head off public discontent by assuring private consumers they will have enough heat and light this winter. But many might not be able to meet the higher cost.

To shift energy from industry, which consumes more than 80 percent of it, the government cut industrial energy subsidies and imposed special taxes on energy use by industry. This more than quadrupled the cost to industry of some forms of energy.

The government said Friday that the huge automotive joint venture Oltcit would be allowed to go bankrupt if it cannot make good on debts of more than a billion dollars.

Oltcit, a Romanian-French joint venture, would be the first company to be allowed to bankrupt, signaling the government’s tough new stand as it makes initial steps toward a market economy.

The manufacturer produced tens of thousands of cars that were replicas of an early 1980s model Citroen. It is Romania’s second-largest car manufacturer after the Dacia company, which produces replicas of a 1970s model Renault.

The government also is looking to foreign investment to rescue Romanian industry by injecting know-how and money into its antiquated infrastructure in exchange for what Dijmarescu called ″a capable and cheap work force.″

Foreign investment has been stifled by Romania’s poor international image, the result of political and ethnic unrest since the revolution.

In March, six people were killed in rioting between ethnic Romanians and Transylvanians. In June, another six were killed when police suppressed a 53- day anti-government protest, and pro-government miners terrorized the capital for several days.

The government now hopes the negative effects on foreign investment will be reversed by Romania’s support for the West in the gulf crisis and new laws encouraging privatization and foreign ownership of local firms.

Diplomatic and economic sources say there has been a dramatic increase in the number of foreign companies sending delegations to investigate business opportunities in Romania.

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