Realizing a Vision for a Prosperous Romania as Part of a Peaceful Europe

Johannes Linn is a former World Bank Vice President. He is currently a Nonresident Senior Fellow in the Global Economy and Development Program at the Brookings Institution, Distinguished Resident Scholar of the Emerging Markets Forum, and Senior Advisor at the Results for Development Institute.

Good morning, Your Excellencies, Mr. President, Mr. Prime Minister,

Distinguished Participants, Ladies and Gentlemen,

It is a great pleasure and an honor for me to be with you this morning, to celebrate the 25^th anniversary of the opening of the World Bank office in Romania.

The last time I visited Romania was some 15 years ago, in connection with a car trip that I undertook in my official capacity as Vice President of the World Bank for Europe and Central Asia. The trip started in Zagreb, Croatia. We crossed Serbia, traveled through Romania, and ended the journey in Bulgaria. This visit was a great opportunity for me to see much of your beautiful country, to learn about your nature, history and culture, to meet with Romanians of all walks of life, and to visit many of the development projects that the World Bank was able to support at that time.

Of course, a lot has changed in Romania, and indeed in Europe, since that visit. Even more has changed since the World Bank’s first country manager for Romania, Arntraud Hartmann, opened the doors of the Bank’s office in 1991.  And yet more has changed if we look back beyond 1990, before the breakup of the Soviet Union and the fall of communism in Central and Eastern Europe.

When I was a young boy growing up in Bavaria in the years after World War 2, Europe was divided, with everything to the East of the Iron Curtain a red mass on the big map that hung on the wall of my school room. The World was divided into East and West, with the threat of the Cold War and worse looming over us.

Later, as a student, I was able to go by car from Munich across what was then Yugoslavia into Greece, but the idea that I would take a car trip from Zagreb to Bucharest and then on to Sophia could not be even a dream. I imagine that at that time many Romanians of my age might have longed to cross the borders freely to visit Western Europe but could not believe that this might ever happen in their lifetime.

We all live in a very different Europe today. While the European “house” is by no means a perfect construct, and while many Europeans today complain about shortcomings in the “rooms” they occupy in that house and about what amenities Europe offers them, it is important for all of us to remember what Europe was like for centuries before the end of World War 2 and long into the second half of the 20^th century – a house divided, a house all too often at war with itself, a house that was destroyed as often as it was rebuilt. I remember the ruins of Munich after World War 2 and I remember the ruins of Sarajevo after the Bosnian civil war. Today I look in horror at the pictures of warfare in Eastern Ukraine, and beyond in the Middle East.

Ladies and Gentlemen, continuing to work toward and to preserve a peaceful and open Europe must remain a goal for all Europeans and for all Romanians, as we look towards the future.

But let me now turn to the journey that Romania has undertaken over the last 25 years. By most objective measures, Romania’s achievements over that quarter of a century have been outstanding.

o  In the early 1990s, electricity blackouts happened several times each day; heating and hot water was available only a few hours. Now, Romania is one of the biggest energy exporters in the region. It has also the largest wind energy farm in Europe – an important step towards energy independence and sustainable development.

o  Back then, factories were closing and parents were worried that their children would not have jobs or opportunities – now Romania’s young talent is attracting some of the biggest players in the information technology sector.

o  Communication with the rest of the world had been deliberately limited for decades: in 1992 Romania had only one television channel. Now Romania has one of the fastest and cheapest Internet connections in the world.

o  In the early 1990s, Romanians had to wait for days and weeks to acquire a visa to travel to the rest of Europe. Today, Romanians only need their ID cards to go to any other EU country.

o  During the last 25 years, millions of Romanians have escaped poverty. Life expectancy in the country grew by more than 10 years; child mortality fell by two-thirds.

And let’s not forget that since the year 2000 Romania’s economy has grown at more than 7 percent a year (in purchasing power terms) – faster than any other EU member state.

Of course, the years since the 2008 global financial crisis have been challenging. But in the wake of the crisis, the Romanian government acted decisively, implementing one of the largest post-crisis fiscal consolidation efforts in the EU. This helped to rapidly restore market confidence and reignite economic growth. In 2016, Romania is in a better macroeconomic position than many other EU member states, with a public debt-to-GDP ratio of only about 40 percent, a small current account deficit, and the highest GDP growth of all EU member states estimated for 2016.

A key driver of these dramatic changes for the better has been a strong national commitment by every Romanian Government and political party for Romania to join the European Union. With the support of the international community the country implemented the reforms required for accession and it became an EU member state in 2007.

We in the World Bank actively assisted Romania in this ambitious and ultimately successful process and, I am happy to note that today, the World Bank remains committed to support your country in reaching for even more ambitious goals. 

Ladies and Gentlemen, this brings me to Romania’s future. In contemplating that future it helps to start with a vision of where the country might want to be in 25 years. I know, 25 years sounds like a long time, but let me assure you, looking back now from my vantage point, the last 25 years have gone by very fast. And many investments made or not made today, show their results (or lack thereof) only over 10 or 15 years and more.

So let me imagine what an ambitious, but realistic vision of Romania’s future might look like. I could imagine that by 2040 Romanians would want to have achieved the status of a high income country, with a per capita income at least equal to the average of the EU; with exclusion and poverty a matter of the past and with widely shared economic prosperity and opportunity for all its citizens; with health indicators such as life expectancy and child mortality at least as good as that of Western Europe; with a transport infrastructure that allows easy access throughout the country and to the rest of Europe; with an education system that ranks among the top of the world; and with an efficient, fair and transparent government administration that is responsive to its citizens’ needs.

Of course, Romanians will want to develop their own vision of the country in 2040, but let us assume that the vision I just sketched out is close to what Romanians might aspire to. It would be an ambitious, but I think a reasonable vision for Romania, if we remember what some other countries have achieved in recent decades as, for example, South Korea.   

However, we have to realize that Romania today remains quite far removed from such a vision, despite the great progress that the country has made over the last 25 years.

o  Romania’s per capita income in 2015 was 57 percent of the EU average, placing the country among the poorest EU member states.

o  The incidence of poverty in Romania remains the highest in the EU. The Roma population, in particular, faces poverty, deprivation, and systemic challenges in accessing basic services.

o  Though Bucharest has already surpassed the average EU per capita income levels and (in terms of purchasing power parity) is richer than Rome, Madrid, Athens, Berlin and Lisbon, other parts of the country have been left behind. 

o  Romania has one of the fastest Internet speeds in the world and yet many rural areas are without Internet and some villages even remain without electricity, clean water, and proper sanitation. 

o  Romania has fallen well below the OECD average on the PISA score of educational achievement.

o  On many other world-wide comparative country performance indexes Romania consistently ranks only between 50^th and 60^th, or even less favorably, whether it is on the UNDP’s Human Development Index, the Economist Intelligence Unit’s “Where to be born” Index, the World Economic Forum’s Global Competitiveness Index, or the World Bank’s Worldwide Governance Indicators.

Ladies and Gentlemen, how might Romania go about moving from where it is today to where it could achieve an ambitious vision 25 years from now. It would be presumptuous for me as an outsider to prescribe what Romanians should do, but based on the experience of other countries in comparable situations, and based on what I have gleaned from the analysis of my World Bank colleagues, I can point to a menu of actions that might help Romania achieve such a vision. These actions fall into three broad categories:

First, Romania will want to continue to bridge the gaps to other EU members in key sectors, such as education, health and infrastructure.

o  Romania’s education system will have to deliver the skills the private sector needs. The quality of education will have to be improved especially from currently low levels in rural and marginalized communities. Dropout rates, which are currently among the highest in the EU, will have to be lowered significantly, particularly in more remote areas, and among the poor and the Roma.

o  Health outcomes will have to be raised to close the gaps with the EU in life expectancy, infant mortality, and the incidence of many communicable and chronic diseases. This will require reforms in the health system, such that informal payments are no longer the norm for accessing healthcare; that vulnerable Romanians are no longer excluded from receiving the healthcare they need; and that access to preventative services is raised significantly. This will require a reversal of the recent drop in health spending, which is now the lowest in the EU.

o  Romania will need to address the wide transport infrastructure gap relative to the rest of the EU so as to improve connectivity within the country and with the rest of Europe. Better prioritization can lead to more affordable and sustainable fiscal costs, significant grant funds from the EU could be better utilized, and the effectiveness of transport infrastructure and services could be raised to meet European quality standards, thus helping to improve Romania‘s competitiveness in the European market.

Second, to achieve its vision, Romania will want to develop a better, fairer and more predictable public sector that helps the private sector to thrive.  This would mean a focus on three priorities:

o  Priority number 1 is maintaining a prudent fiscal policy: Rather than the pro-cyclical fiscal policy it at times pursued in the past, Romania would consistently pursue a fiscal policy in support of economic stability and sustainable growth. Improved revenue collection, greater efficiency of public spending and sound policy decisions would underpin this effort and assure a high quality of public services.

o  Priority number 2 is strengthening the public administration: Romania would improve coordination among its currently fragmented public administration and thus enhance the efficiency of policy formulation and implementation. It would significantly strengthen and depoliticize its civil service. And it would privatize state-owned enterprises where appropriate and select professional boards and managers for those enterprises that remain in the public sector.  

o  Priority number 3 is combating corruption: The National Anti-Corruption Department has already pursued corrupt officials with considerable vigor. Still, perceptions of widespread corruption in the public sector persist. It would be important to ensure that the institutions fighting corruption are protected and given adequate budgets, while also advancing with the stolen asset recovery program.

Turning then to the third and last broad area of action for Romania to achieve its vision of a high-income country with widely shared prosperity, Romanians will need to close the divide that has opened up across their – your – society. A common vision made it possible for Romania to join the EU and become a NATO member.

As I already noted, all political parties, civil society, the private sector, academia, unions and others rallied behind this idea. This enabled Romania to take hard decisions and make the right choices. During the last decade this consensus has weakened and cooperation has dwindled. There is an aching divide among Romanians – between political parties, between regions, between urban and rural areas, and between old and young. This divide makes it difficult to implement coherent policies and to invest in Romania’s future.

Developing a new shared vision – perhaps broadly along the lines I sketched above – will be helpful now for Romania to close this widening divide. Such a vision needs to be inclusive of all Romanians and hence needs to be developed inclusively - through extensive consultations - and anchored in a national strategy.

Your Excellency, Mr. President, I understand that your office has initiated a process of developing a national strategy for Romania. This process brings stakeholders together to achieve a long-term goal or vision that transcends any one single party or politician. To me, as an outsider, it appears that this is exactly what Romania needs now. It will not be easy. It will require dedicated leadership, a willingness of many Romanians to work together and find common ground, and a lot of hard work. But I believe Romania’s vision can be achieved 

• with the right policies and investments for improving education, health and connectivity;
• with strong, well-functioning public sector institutions; and
• with a clear focus on Romania’s most important asset – its people.

As with your previous vision of joining the EU, I am sure your international partners, including the World Bank, will stand ready to support you in achieving the new vision for Romania as part of a peaceful and open Europe.

Thank you.

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Acknowledgements: The author is indebted to the staff of the World Bank’s Romania country team who provided essential inputs for the speech: Elisabetta Capannelli, Doerte Doemeland, Andrei Dospinescu, Catalin Pauna, Radu Tatucu and Dani Sandu.