background analysis of the romanian social and economic situation

IMPOVERISHMENT OF COMMUNITIES IN TIME OF CRISIS

DR. HEGEDŰS LAJOS

BACKGROUND ANALYSIS OF THE ROMANIAN SOCIAL AND ECONOMIC SITUATION

PESTLE ANALYSIS

This is a PESTLE type background analysis:

P – political (politikai)

E – economical (gazdasági – pénzügyi)

S – social (társadalmi)

T – technical (technológiai)

L - legal (jogi)

E – environmental (környezeti)

P – political (politikai)

P – the situation is all the time tensioned, uncertain,

changing, exposed to the never ending economic

crisis. There is lack of long term planning and lack

of political strategy to resolve the crisis, 2012 is an

electoral year, we are bounded to the IMF, almost

everything is unpredictable. Only this year until

May we had two fallen governments

E – economical (gazdasági – pénzügyi)

E – European Union : Average public debt 2008= 62,3% (GDP)

Average public debt 2011= over 80%

Indebtedness of states – according to Chancellor Merkel a decade is required to solve the

consequences of the crisis. In 2011 experts evaluated at 200 or 300 billion € the funds

needed to inject into the bank system, this year ECB injected already 1000 billion € into

the European bank system. The public debt of Romania is 33% of GDP, which is not much

in an European comparison, but even this debt burden is difficult to finance without new

credits, anyway the situation of the economy does not allow to finance from markets a

greater deficits than the current one(therefore we are bounded to IMF)

Both, the state indebtedness and the recapitalization of banks, will affect the existing and

the future tax payer

E – economic (gazdasági – pénzügyi)

E – Romania Perspectives in presumable costs in 2011 – 2012 :

Cutting down deficit from 4,4% to 2,5% (2,5 billion €)

The average loss of public, state owned companies is 1 billion €

The governmental debt (wages allowed by law in 2009, but unpaid until now) in the education system is 2

billion €

The strong oscillations of CDS are very costly to RNB (the policy is to maintain €/RON ratio at 4.3)

The German and French economy loose speed, so they can not drag the Romanian export ( the main

component of the Ro economic growth, 40 %)

The government must give back now to the population the wage and pension cuts effectuated in 2010

(political promises of the two former governments)

Main indicators of the last 4 years

Year GDP€

Publicdebt%

Extern.debt

€

Direct invest.

€

Remit.€

Cars1000

Illegal labour1000

Unemployment

%

Defic.%

Infl.%

2008 139 M 24 73 M 9,1 M 8,64 M 324 1.467 4,4 5,5 7,85

2009 118M 29,3 79 M 3,5 M 6,65 148 1.800 7,8 7,2 6,59

2010 122 M 30,8 91 M 2,5 M 6,56 119 2.257 6,87 6,6 6,09

2011 136 M 33 97 M 1,9 6 88 2.350 4,9 4,4 3,3

2012 134,5 100M 4,6 2,5 2-3

The data is from the INS, Tax Council, Ministry of Finance, Romanian National Academy and the Institution of Presidency, which ware collected by the ZF.RO online financial newspaper.

The data is slightly different, according to different institutions.

The price of the basic alimentary products grew 15%, the general consume fall 4% (2011)


The total wage/year of total employees is around 20 billion €, from this sum 5

billion €/year are payments by installments after the credits (from the 4,7 m

employees , 3.5 m took 25 billion credits in 2007/2008, which have a burden of

payment by installment 5 billion €/year).

As a result employees are burning their reserves and are lessening their

consumption, affecting the economic growth. The population becomes much

more impoverished.

Only 6-8% of the population is capable to save money every month, that means

around 1-1.5 million peoples.


The government’s tax collection rate is 31 %, in the other former

socialist countries this is 40 % and in the euro zone the average is 50

%

Black market 32,6 % (the same in France is 15 %, in Holland 13 %,

and in the USA 8%)

Romanian EU fund absorption (payments) 7% (Poland 70%)

The governmental, public debt had an interest payment burden of

3,5 billion RON in 2008, now this is 9,5 billion RON in 2011

Interest payment peaks : in 2013 4,5 billion €, in 2014 5 billion €


S – the society is ageing and the crisis is impoverishing it. On the age tree of 1950 there were only a few over 80 years and the group of

70-80 year old is also narrow, but in 2010 the group of over 80 is broad, and the

group of 70-80 is equal with the group of 60-70 in 1950.

The largest group in 1980 was of the 25 years old, in 2010 the largest group is of

the 34 years old.

In rural areas the percentage of aged people is greater, than in urban areas, and life

conditions are worst. In rural areas half of those older than 65 years have no

chance of having fair existential/life conditions (EU 2020 Program).

After the Eurostat the level of people exposed to the risk of poverty in Romania is

9 million, half of these being very poor.


A rural/urban percentage comparison of Romanian and EU population RO : 47,2 % of the population is living in rural areas, in environments without

urban quality, 28 % are working in agriculture, most of them are working for self sustainment (not entrepreneur), the agriculture provides 6-8% of the GDP.

The general activity rate is 58,8 % (2010).

EU : 30 % of the population is living in rural areas, in environment with urban quality, 4-5 % are working in agriculture, most of them are entrepreneurs, the agriculture provides 2 % of the GDP.

The general activity rate is 68 % (2010)

The almost 4,7 million employees of the country have 5,4 million labor contracts, there are 5,6 million retired pensioners in the country (misbalance).

The growth of urban area populations has stopped, the internal migration take direction in rural (its inverse than in 2007/2008).


According to Romanian Academy in the EU the Romanians are the poorest

Because 75 % of them have no cars,

55 % have no washing machine, some of them don’t have water by pipeline

43 % have no telephones,

12 % have no toilets in urban apartments, and 88 % have no toilets in rural apartments.

13 % is the covering by canalization of the rural areas

50% of the population has never used a PC

Our target after joining the EU was to introduce western urban life conditions and access to services

into villages via a better absorption of EU funds. These targets are more endangered due to the

austerity measures generated by the crisis.

Five million people are living under the poverty limit ( income under 60 € by family member and

by month). According to the EU 2020 Program and the country specific recommendations,

Romania has the target to lift out 580.000 peoples from poverty until 2020.


GFK – 50 % of the population can hardly pay their running costs and 24 % is over indebted.

IMF – the social budget will be cut from 2,86 % (2010) to 2,08 % (2013) (Ro/IMF agreement)

2,7 million Romanian citizens live in the Euro zone and are paying taxes there. They’ve left in Romania

80.000 children, who are living without their parents, alone or with relatives.(after unofficial data the

number of children in that situation can be even 250.000) – the number of infantile suicide grew in the

last years.

After the Romanian DALY index (Disability Adjusted Life Year) the economy can’t grow also because

of the great number of healthy and active years loosed due to sickness correlated with the malfunction of

health insurance and care systems (WHO), and its insufficient financing (performing a saving up to 0.4%

of GDP in 2011 in the health care budget – IMF agreement). With an average EU health care system

level the RO GDP would be greater with 7 billion EUR.


CMR –in the last 5 years 10.000 doctors emigrated or left the health system

INS – the national census in 2011 evidenced 19,5 million citizens living in Romania,

which means that 3 million individuals have disappeared in comparison with the results

of the 2002 census, and 52,8% of population lives in urban and 47,2% in rural areas.

There is evidence for a trend to move out from towns into villages, in a cheaper but

less developed area, with poor standards for living.

Police –every year, 120-130 people die in severe car accidents / 1 million inhabitants.

In western countries the same phenomenon causes 20-30 deaths / 1 million inhabitants.

One of the main causes is the alcohol abuse, the general consumption is 17 l pure

alcohol/ person and per year (number 1 in EU). Women tend to rival men in alcohol

consumption and consecutive pathology.


The youth, the women, the old, the unemployed, the rural inhabitants, the minorities have

fewer access to resources, lower consumer and saving capacity, therefore the internal

migration rose in the last years threefold (to 1 million in 2011), 60% of this migration

targets rural areas. Between 2007 and 2011 the number of legal weddings diminished from

190.000 to 105.000, and the nativity reduced under 200.000/year, the first time in the history

of modern Romania (195.000 in 2011)

The governmental austerity measures, the cuts in view of savings, the reforms are resulting

in a smaller service providing and life condition assuring capacity of the state, which

combined with poverty make more difficult the social and economic reinsertion.

The otherwise thin middle class is weakened by indebtedness, impoverishment and

emigration, (84% of the active part of the society wish to emigrate, and 56% for a long

period: 5 years or more)

Less Important

T – technical : 50 % of the general population has never used a PC, as a

consequence they can not be consumers on the market (in the EU the PC and

Internet users represents 78% of the population). The IT acknowledgement

and consumer profile of the young generation is at a western European level.

L - legal : permanent changing of the legislation for political reasons,

insufficient harmonization of laws which slow economic and social issues

E – environmental : one of the reasons of the last government’s

downfall was a gold exploitation concession with great environmental risks

Conclusions

At last, everyone agrees that :

• The crisis will go on for a long time

• The price of gold and raw materials ascends every day

• Globalization changed the power balance in the whole world, the financial markets

being the real new great power shaping even the political environment.

• The distribution of riches between very rich and the rest of the society is more

disproportionate than before the crisis

• The ratio between active and inactive groups of society became far from optimal

• The number of conflicts between individuals and groups can rise in time even more

Conclusions

The growing poverty, if not managed, will generate a culture of need/misery and

not wealth and modernity, and will incline the states and their political elites to

perform populist and manipulative policies, against which the weakening middle

class will not be able to resist. The social contract that gave balance in European

societies can overturn with a lot of undesirable and very costly effects.

Therefore, and because of the growing number of people definitely affected by the

crisis, our attentive/active/serving presence in the world will be more important

than is now, it will be essential.

Salus aegroti suprema lex.

background analysis of the romanian social and economic situation

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