Anti-corruption Day, December 9th: Insights into Romania

Anti-corruption Day, December 9th: Insights into Romania

One of the most active countries in terms of anti-corruption right now is Romania, following the recent events that led the Prime Minister to resign following accusations of corruption, money laundering and tax evasion.

At the initiative of the UN, anti-corruption day marks the moment when people gather worldwide to fight corruption. Due to the threat it represents for economies around the world, it is important to raise public awareness. According to UNODC, $2.6 trillion stolen each year as a result of corruption is hiding in plain sight.

It is a major challenge in countries in transition since corruption seriously hinders competitiveness and makes investment decisions more difficult. Corruption is expensive and deteriorates the welfare of a state and its citizens.

Legacy of Romania’s communist regime

Communism created special ‘politocracies’, as power was the main instrument of allocating social rewards. The rare alternations in power after 1989 in Romania continued to favour privileged groups, with PSD being the strongest post-communist party in the region.

Romania is still predominantly a society where people are treated according to how close they are to the group in power. Some groups are above the law, enjoying privileges, holding disproportionate control of all opportunities and therefore hindering free market relations and fair competition.

According to Reuters, “investigations in 2014 suggest graft may have cost the state and private companies around 1.02 billion euros ($1.1 billion). That’s enough to build 200 km (120 miles) of motorway in a country with some of the worst infrastructure in Europe”.

There is not only political corruption, which relates to the society’s highest sphere, but also petty corruption rooted in customs of daily life. Even though this type of corruption   might be less costly, it is still harmful. Indeed, from a country in which people had to exchange bribes for food, people continue to exchange bribes for most public services, such as in healthcare or administration.



The rule of law as a determinant of FDI

Is it common knowledge that corruption is harmful to economic development, mainly because it reduces the level of foreign investment.

In the Global Corruption Index 2013-14 of the World Economic Forum, corruption is mentioned as the second most problematic factor for doing business in Romania. According to 2014 EU Anti-Corruption Report, Romania has fully transposed the provisions of Framework Decision 2003/568/JHA (combatting corruption in the private sector) concerning the liability of legal persons and penalties applicable to legal persons. However, “further clarifications were needed as to how the Romanian legislation treats third-party advantages resulting from active bribery in the private sector”.

The work of the National Anti-Corruption Directorate (DNA) through years has reinforced an institutional framework but a legal one remains incomplete and insufficient.

The EU reports from the 2013 Eurobarometer Business survey on corruption that 81% of Romanian businesses said that favoritism and corruption hamper business competition in Romania (EU average: 73%). 65% of the respondents believed that corruption is a problem for their company doing business in Romania (EU average: 43%), while 64% considered that patronage and nepotism did so (EU average: 41%).

Octavian Vidu, an investment manager at the China-backed CEE Equity Partners, stopped discussions on two projects after being asked for kickbacks.

Despite progress in the institutional and legal frameworks, the policy for preventing corruption remains underdeveloped and inefficient. This inability to provide law and order in the most basic sense constitute the most profound barrier to growth in Romania.

But a crackdown on corruption could also have an unpredicted effect in regards to slower investments in the short-term. As Reuters observed, “Romania’s crackdown on corruption is having an unintended consequence: investment is slowing as many officials avoid approving projects lest they become the next target of the investigators”. This is why prevention is as important as criminalization to prevent officials encouraging bribery.

New government vowing to destroy the corrupt system

Systemic corruption has recently been exposed in the Colectiv Tragedy, which gives impetus to Romania’s anti-corruption drive.

Leftist Prime Minister Victor Ponta stepped down on Nov. 4, bowing to public anger over a nightclub fire which killed 56 people and prompted a popular campaign slogan ‘Corruption kills’. He is facing charges of forgery and money laundering.

Romania’s president Klaus Iohannis – who focused his campaign on anti-corruption and his desire to clean up Romanian politics – nominated Prime Minister Dacian Ciolos, former agriculture commissioner on the European Commission, to replace him.

After receiving the parliament’s backing, President Iohannis said in a post on his Facebook page: “This is a proof that parties understood that a government of technocrats represents now the best solution for Romania”.

Among this new cabinet of experts, new PM Ciolos picked Anca Paliu Dragu, an economist at the European Commission, to take over the finance ministry and Raluca Pruna, an anti-corruption expert who works at the European Commission in Brussels, as justice minister.

A cleaner society for a brighter economy

Eradicating corruption is a difficult task that requires patience and perseverance. While some progress was made on combating high-level corruption, both petty and political remain a systemic problem in Romania.

The prevention side remains rather weak both at central and at local levels. Criminalisation has increased but proved to unstable and easily reversible. It remains difficult, therefore, to do business in such an environment of systemic and endemic corruption.

However, some positive aspects are to be considered. Fitch Ratings forecasts a healthy economic outlook with 3.3% rise in real GDP this year. Even though control of corruption is still lower than expected, regulatory quality has improved to create a climate of trust with investors. If the new government – and the future ones – prove they have the political will and determination to fight this battle, Romania could win the war on corruption.

Julie is a political risks analyst with a regional expertise on Europe, and focus on international cooperation and regulatory environments. She holds an MSc in International Political Economy from the London School of Economics (LSE) along with a BSc in International Studies from the University of Montreal.

Categories: Europe, Politics

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Julie Sima

Julie is a political risks analyst with a regional expertise on Europe, and focus on regulatory environments. She holds an MSc in International Political Economy from the London School of Economics (LSE) along with a BSc in International Studies from the University of Montreal.