Estonians had a young and smart finance minister who was allowed to do his
job, a damn good one I may add. In Romania, the finance minister, Ionut
Popescu, was recently changed after only 9 months as a result of political
games as allegedly he couldn't make a deal with the well-connected mafia
from the customs offices. In spite of overall good ministerial results.
The rotted system from the customs is one of the most corrupted places from
Romania, and apparently those guys created a mechanisms that is working very
well since they were able to get rid of Ionut Popescu. Btw, I heard that one
officer located on the lower levels of the custom offices would make an
average of $55k. Per day. Not bad, huh? Sounds a bit unrealistic to me,
probably the figure is somehwere lower in the 10-20k but still.....it's
quite high. Also, accordingly, the bribes to get in must be on similar high
levels.
Getting back to Estonia, here's
a good story on the flat tax enforced by the Estonians.
Comments
Do you have anything to say? Fill in the below
I wonder if they know Estonia already joined the European Union in 2004...
Thanks for this article, Dragoş. Estonia is a wonderful place - I've been there many times myself (including this summer on the Baltic Sea coast) and this Baltic Tiger is one of the best examples Romania should follow... though, of course, the context is quite different (Estonia is a small, transparent and remarkably free economy). Estonia's economic boom is quite astounding, I'm foreseeing that in a decade or so it will get quite close to Spanish GDP per capita.
Estonia is also fascinating culturally. It's unique culture has survived despite the Russian domination and is flourishing in recent years. It's really one of the most inspiring and energising countries out there. "õnnitlus" (good luck) to them!
By the way, Estonia was confused with Romania in the article :) ("Mr Laar is tipped as a European commissioner when his country joins the EU in 2007")
Siim Kallas is the current Estonian commissioner, and is one of the vice-presidents of the Commission.
The Index reports on Estonia and Romania are illuminating.
http://www.heritage.org/research/features/index/country.cfm?id=Estonia
http://www.heritage.org/research/features/index/country.cfm?id=Romania
Romania's problems include a corrupt judiciary and customs department, high income taxes, hyperinflation, slow progress toward privatization of government monopolies, and heavy commercial regulation.
It could be worse, though...
http://www.heritage.org/research/features/index/country.cfm?id=Belarus
Well, I think it's important to take the Heritage Index with a grain of salt, considering the context of that think tank. But the fact is that Estonia, which is ranked fourth, is actually a very free economy - indeed one of the freest in the European Union and much freer than most old and new states.
As to Romania, a lot of the problems identified in that report, or in general, have improved in recent times. The index criticises Romania for a high fiscal burden, but since the new flat tax of 16% I think that rating will improve considerably, resulting in a better score for the 2006 index.
Corruption in the judiciary remains a problem and one that will take a longer time to solve, even though progress continued to be made this year to a fairly good extent. Romania doesn't have "hyperinflation" even though it did get a poor rating for inflation. Remember, though, that inflation is perhaps the greatest macroeconomic problem of Romania in the context of high growth, low unemployment, etc. Inflation is one of those indicators that continues to be a stubborn problem. However, that is also going down, so in the short- to medium-term it will increase Romania's rating in the Heritage Index.
In terms of regulation, that's not really a field I'm qualified to talk about since I don't know the legislation that well, but state aid is indeed a problem. Despite this, privatisation is fairly fast - I mean, they're planning to privatise things like Poşta Română soon, so it's a sign of quite extensive liberalisation.
In any case, it's interesting that Romania's best results for the Heritage Index were in the 1996-2000 period (I mean, that's fairly obvious considering the fact that that was a right-wing government and not the PSD!) So, under the current government, I think the rating should improve to about 3.00 very soon, which will increase its rank.
But, as I said before, in a more general context it should be taken with a grain of salt. A more interesting report is the Human Development Index, in which Romania improved to 64th position and overtook many countries in its region (though it remains last in the EU-27).
The factors used to determine the Index score are explained here:
http://www.heritage.org/research/features/index/ChapterPDFs/chapter5.html
The US had a hyperinflation problem in the late 1970s, although it never came anywhere near 20%. Since inflation is caused by a superfluous money supply, shrinking the money supply is the only cure. But the cure comes with a sharp but temporary economic downturn. Milton Friedman offered this advice in his 1979 book <i>Free to Choose</i>. Federal Reserve chairman Paul Volcker soon put his prescription into practice. Friedman's predictions came true: we got a recession in the early '80s, followed by an economic boom.
At one time, several Latin American countries had inflation much worse than Romania's. How they got their money supplies under control would be worth looking into.
...is history in Romania, since 2003. Here you can take a quick look at the inflation figure evolution in Ro. It used to be a problem, now the macro challenges are a bit different.
If you're interested in a comprehensive economic image about Romania you may want to have a look on the reports listed at the bottom of this page.
The Heritage Index is pretty crap. Here's an old post from my blog discussing why (check out the comments thread too):
http://www.bookcase.com/~claudia/mt/archives/000170.html
Ionut Popescu was a journalist with zero financial experience. He shouldn't have been Finance Minister in the first place. Political appointments are inevitable in any system of government, but that post was just too important. I give Tariceanu credit for (eventually) figuring this out.
Doug M.