Since some of you cannot read more than 3 paragraphs, here is the summary of the rest of this article:
Romanians starved and suffered (esp in the 1980’s) not because of bad luck or Communism but because the government decided to sell almost every scrap of food in order to pay off international bankers. And now the same thing is going on today.
For those of you who can read for more than five seconds:
Although I appreciate the hard times people went through during the Communist days, and the survivors of that era are certainly entitled to recount their experiences, there always seems to be one extremely important element missing from The Script, which is why Romanians were standing in line for milk at 5:00 in the morning.
Back in the mid 1970’s, an American man named Hedrick Smith wrote a book about life in Russia under the Soviet Union. I remember reading this as a kid as it explained the long lines for food, shoes and other scarce products. It was (and still is) probably the best book I’d ever read that described what life was like for an ordinary “person on the street” during the Communist era.
If you read Mr. Smith’s book and compared it to the stories Romanians tell about the Communist days, your first instinct would be to say that they’re roughly the same. Food was rationed, goods were scarce and there were lots of lines to wait in and the only way to get anything better was to know the “right” people. And that’s all true.
But there is one huge difference between Communist-era Russia and Communist-era Romania, and his name is Nicolae Ceausescu.
People were hungry and waiting in line for food rations in Soviet Russia largely because the economy was so horribly mismanaged and the leaders subscribed to ludicrous theories about food production, up to and including mass collectivization of farms.
Romania, on the other hand, produced a tremendous amount of food in the 1980’s (when the worst suffering happened) and could’ve easily fed the entire population many times over. What occurred was that Ceausescu and the Romanian government decided to pay off international bankers instead of feeding the people.
I naively assumed that this information was well-known and yet I had trouble finding it online so I guess it isn’t. Therefore a brief chronology is in order:
1965 – Ceausescu becomes the leader of Romania, inheriting the “maverick” position of playing off the West and the Soviet Union against one another, a policy initiated by Gheorghe Gheorghiu-Dej.
1972 – Ceausescu signs the papers so that Romania can “join” the IMF, World Bank and other similar institutions and start receiving massive loans from western bankers.
1983 – Romania is now approximately 13 billion dollars in debt to these bankers. Ceausescu (for a variety of reasons) decides to pay off this entire debt (mostly) by selling off Romania’s food.
1989 – In April, Romania makes the last payment and is now debt-free.
1997 – Now a “democracy”, the Romanian government receives another IMF loan (for a complete chronology of post-1989 IMF activity, see here).
2009 – Romania borrows about 13 billion euros from the IMF.
2011 – Romania is currently number one in the world in terms of most money borrowed from the IMF.
Starting to sound familiar?
As horrific as Ceausescu’s policies were of semi-starving his own people, I have to give him credit that at least he paid off these western bankers. I’m not convinced that the bankers deserved to be paid off, but paid off they were.
The current government of Romania has a much worse plan in mind, which is paying off the debt very slowly, ensuring that with interest payments (on the original loan) and by gutting domestic infrastructure that Romania will be paying back these loans for generations and generations.
The IMF (and its related institutions, including the EBRD) operate in a very “strange” way, strange in the sense that it’s very different than a bank loan that an ordinary person might obtain.
Once the Romanian government decides to borrow this money, the IMF steps in and starts dictating how the government can spend the money it just borrowed. If the IMF says “cut salaries by a quarter” then Romania has to do it. If the IMF says “raise the VAT to an insane 24%” then Romania has to do it. If the IMF says “import Chinese toothpicks and don’t invest in a domestic toothpick-making factory” then Romania has to do it.
And so on and so forth. There are literally thousands of websites documenting the evil that follows IMF (and related) loans to countries.
In the entire 70-year history of these institutions, there have been few if any “positive” results and lots of horror stories of economies and infrastructures completely gutted solely to service the short-term profit of these western bankers.
Make no mistake, whether in 1983 in a bread line or in 2011 with your teaching salary cut by a fourth, Romanians are not suffering due to divine wrath nor “bad luck” but solely to provide a profit for bankers who are not Romanian, have probably never been to Romania and certainly do not care one whit about the life of the ordinary Romanian.
And that is what is missing from the Script.
All Things Romania 
Nobody, really nobody notices huge bureaucracy in Romania?
Or is it that you do not want your preferred auntie to lose her job, as these people are more and more and more all the time?
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You seem to be misreading the airlcte. It asserts that the American economy was ALREADY in a dire state BEFORE the 2008 melt-down. The only reason it didn’t show was that the bubble in the real estate market had created paper wealth that people used to keep up their spending. The financial collapse of 2008 just revealed the truth about an already cored out economy. There was no claim in that airlcte that increases in manufacturing productivity caused the increase in unemployment shown in your graph. Productivity increases had already done their damage in the previous years, leaving a narrower base of income. The 2008 crisis was just an Emperor’s New Clothes moment, exposing existing flaws
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I agree that IMF is a very bad solution on the long term. The question is, what solution do we have?
The situation at the moment is something like this: let’s say I earn 500 euro/month. With this money I have to support my wife, which doesn’t earn any money and my two kids. My expenses exceed my wage – 700 Euro/month. Being the head of the family, sometimes I get carried away and give money to hookers, because I’m not very responsible. But I have this great idea to borrow some money from a bank to cover this deficit, so that my family won’t feel that much of a burden. Still, on the long term I have to cut down expenses, so that I’ll be able to give the money back to the bank.
This is Romania at the moment. Could we make it on our own without the IMF? Sure, but only if we cut down the spending starting now, and more than what IMF is asking for. That means that the wife should start working now. Also the kids will receive less for the moment. I think this is the best solution, but are we ready to do that?
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Basescule!? Tu esti?
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You are quite correct that that Stiglitz igrones the contrary evidence concerning productivity. He also igrones a number of other items, including1. Economic growth is both rise in income per capita and rise in output per capita. That means that 200 times (or more) increase in per capita income since the start of the industrial revolution is by definition similar productivity per capita increases.2. When advocating increased public expenditure he forgets (i) Japan tried it in the 1990s and failed. (ii) USA and many European countries had huge fiscal expansions in 2001 to 2007, and were running structural deficits as they entered recession. If deficit-financed investment is expansionary, then such deficits contributed to extending the boom. (iii) some of the countries have passed a fiscal tipping point. They have to cut expenditure to save the economies from total bankruptcy. The USA already has huge deficits and runs the risk of going the same way if reckless policies are pursued.
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We do know that the hunger was due to their insane desire to pay the debts. Most people I know think IMF never really helped thru their actions any country.
My opinion is that the people mostly does not want to accept certain things and they get caught on some things. For instance the Bechtel contract was a method to pay USA for NATO everybody needed to feel secure against Russia. It is a bit weird if we also consider people voted for the current president on a campaign aimed against the commies. Why? Because commies = russia and russia = bad guys that want our land or smtg. I am pretty sure romanians associate Russia only with brutal actions that are however true, but they do not do it rationally anymore.
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Haha, don’t you think every action in history entitles Romanians to associate Russians with pure evil?
Have you ever worked with Russians outside?
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They are called economic assassins and their pourpose is to get countries in dept and then strip them of their resources. It happened many times in modern history and makes you wonder if the “economic crisis” isn’t a deliberated act to create a pretext.
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;)
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So…what do we do to fix it?
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In the short term, nothing. There are examples from Russia (oddly enough), Argentina and Venezuela to look at, although I note even Chavez has been unable to break away due to clauses in Venezuela’s treasury bonds. I don’t trade in these markets so I have no idea what the specifics of Romania’s situation are.
Changes on that level take time and political will so the “short answer” here is simply to discuss this issue and make it more well known. Oddly enough, yesterday after writing this post, I rode in a taxi and the driver started in on the IMF of his own accord. I was quite shocked but we had a good conversation and I’m sure he went on to discuss it with all of his other passengers throughout the day as well.
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Communism = disregard the people, do whatever with their money.
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Sad but true.
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