Romania in the past was a poor country, but last year the government announced it had 521 billion leu (113$ billion dollars) revenue. Why is so much? What's the reason?
11.06.2025 13:26
There are several sides to the “Romanians are now richer” story:
So yes, in January 1st 1990 all Romanian were extremely poor. Probably church mice were richer on a per capita basis :-).
In between 1946 and 1990 very few Romanians managed to travel abroad (Iron Curtain etc.) and Romanians were basically unknown abroad (In Jack Lemmon’s movie Irma la Douce there is a Romanian character, very colorful, that is what Westerners believed Romanians were like because they met only a few very colorful refugees from right before and right after WW2). Then the Visa Curtain replaced the Iron Curtain, but it was less impenetrable, and a few countries chose to not enforce it very strictly or at all (Greece and Turkey in the Western part of Europe, and the former Warsaw pact partners and Serbia did it too, then later border traffic became harder). Then after 1998 Italy, Spain and Portugal began allowing Romanians in, then UK first became more open in 2004 if I remember correctly. By 2014 most countries in EU lifted all the restrictions. Romanians began to earn money abroad, this strengthened the foreign exchange market so in between 2004 and the financial crisis of 2008 the Romanian Leu actually appreciated by a quarter, and returned to the 2004 exchange rate only in 2009. By 2008 the price assets owned by Romanians were no longer undervalued, or at least not undervalued much, including agricultural land and homes. There was a drop after that but recovery followed soon.
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After 1990 Romanians were allowed to open companies and generally buy and sell and do whatever they wanted to make a living, and some chose to sell stuff abroad and brought in foreign currency which started a real live and quite free foreign exchange market in Romania. For the first time in decades there was a way to measure how much a Romanian Leu (the local currency) was worth when compared to other currencies. At first it did not go well because the Leu depreciated, and depreciated abruptly starting with about 1991 until about 2000, but when allowed to do whatever they thought best overall Romanians managed to produce more and more stuff that found a market abroad. In this time the government-owned industry was dropping like a rock because it was designed for the markets and the international demand in the 1960s and 1970s, but very soon (by 1995 if I remember correctly) the private companies started to compensate the fall in productivity in the government-owned companies and Romania returned to growth, and most of the returns of that growth ended in the hands of individuals not the pocket of the government, so Romanians began getting richer. Yes, trickle down economics worked too.
Individuals were limited in how much they could own: most did not own their homes, in the cities most homes have been confiscated (well, “nationalized” ;-) ) during the 1950s and in the small towns the amount of land one could own within the buildable area of the town was limited (after collectivization my maternal grandparents were left with 0.6 hectares, including a ravine and the land under the house, my paternal grandparents owned 0.34 hectares out of the 4.5 hectares they owned before collectivization, but in other areas people were allowed only 0.2 hectares or even less for a small garden behind the house). In larger more dense cities people usually lived in an appartment which was owned by the local government, and paid a small rent. Owning anything expensive (furniture, artwork, electronics) was regarded as suspicious so most people stayed away, and everybody saved like crazy mostly because once the necessities were covered there was nothing much worth buying anyway, and for important and rare stuff people traded what they made themselves, or grew themselves in their small gardens, or most importantly traded favors.
After WW2 Romania was very isolated and traded mostly with the members of the Warsaw pact or with very poor countries and because the need for foreign currencies was great when sold to foreign trade partners Romanian products were often sold cheaply or even at a loss, getting $ was more important than getting the best price. Because the Romanian currency was not convertible until during the 1990s there was not much trade in ROL (later changed into RON when a denomination happened). Because of this lack of trade and direct exchanges the assets in Romania were severely undervalued: a 20 square meters studio which now sells for 60000 EURO was sold for as little as 2000 USD during the early 1990s, so the owner of that studio might have appeared as being extremely poor, while now by owning the same asset he is only moderately poor ;-) .
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No, EU direct payments did not help much. EU helped by opening the borders for labor, services and to a lesser extent for goods (almost all the goods sold in the West are made in factories owned by subsidiaries of Western companies): the EU funds went mostly to the government which spent them on foreign companies, or to local subsidiary of companies from Western Europe. Some of it trickled down but not as much as you might imagine: for example a road building company does not hire tens of thousands of people like they did in the 1800s and the way some people still believe they do, they have very few employees but spend huge amounts of money on capital goods which they take home when their contract is over and we’re left with expensive roads we can barely afford to maintain … or with photovoltaic power plants which hardly produce any energy and we have to continue subsidizing to keep them working because letting them fail would not help much because the Romanian government guaranteed the loans with which the owners contributed their part to the built of said power plants: the latest fad in EU spending in Romania is photovoltaic power, that is why the trade deficit is still growing, and why electricity prices are growing despite the price of CH4 and oil and coal being a bit lower than a couple of years ago.
So Romanians are not much richer, but what they owned appreciated a lot in the last ~30 years, and they’re not much smarter or skilled, but because we are well integrated with the world markets we can sell services and even products directly to the end consumer in a richer country and get a lot more for our skills than when the Ministry of Foreign Trade was the only gateway to the world. I guess you might say Romanians are really much richer, but it does not feel that way if you look at the assets we can afford to buy. Consumer goods are more accessible, but land, homes or capital goods not really.
After WW2 the Romanian government restricted the access to and the ownership of expensive tools, land or buildings, all those that were worth confiscating were confiscated, and while a number of independent entrepreneurs existed what they could own was severely limited and they could not accumulate capital. Capital accumulation basically stopped in 1962 when almost all the land worth working was confiscated by the government and put under direct government management in the so called “cooperative farms”, though during the 1950s plots of land could still be bought and sold.
In 1990 and 1991 the government decided to sell the apartments to the tenants, returned the plots of land confiscated during collectivization (except for the forested land, very little of that was actually returned, legally it belongs to the owner but in practice most of the forests still under government control). Later pre-1950 urban buildings still extant were sometimes returned to their former owners if they could prove ownership, or sold to the tenants. People started to get slightly richer.
Q: “Romania in the past was a poor country, but last year the government announced it had 521 billion leu (113$ billion dollars) revenue. Why is so much? What's the reason?”
A2A, but anyway an interesting question. There are three sides to the “Romanians were very poor” story: