**USAID/Romania**

**Democracy and Governance**

**Assessment of Romania**

####  

*Submitted to:\
*![](media/image1.png){width="0.3638888888888889in" height="0.5in"}

USAID/Romania

*Submitted by*:

![](media/image2.png){width="0.7486111111111111in"
height="0.37430555555555556in"}

ARD, Inc.

159 Bank Street, Suite 300

Burlington, Vermont 05401

> telephone: (802) 658-3890\
> fax: (802) 658-4247\
> e-mail: ard@ardinc.com

Work Conducted under Core TO (Task Order No. 1)\
Under USAID Contract No. AEP-I-00-99-00041-00

General Democracy and Governance Analytical Support and\
Implementation Services Indefinite Quantity Contract\
\
CTO for the basic contract:

Joshua Kaufman\
Center for Democracy and Governance, G/DG

Bureau for Global Programs, Field Support, and Research

U.S. Agency for International Development

Washington, DC 20523-3100

**\
**24 September, 2001

# Acknowledgements

This DG Assessment of Romania resulted from collaboration between the
Global Bureau's Center for Democracy and Governance and USAID/Bucharest.
The report was produced by ARD, Inc. The assessment team consisted of
Dr. Rhys Payne (ARD), Professor Guilain Denoeux (MSI), and Sebastian
Lazaroiu (National School for Political and Administrative Studies,
Bucharest). The assessment methodology was developed by the Strategies
and Field Support Team of the Center for Democracy and Governance.

The assessment team would like to acknowledge the many key contributions
made by the personnel of USAID/Bucharest. They were of great assistance
to the analysts in making available their in-depth understanding of the
political development of Romania and in helping to provide access to a
wide range of perspectives on the current situation. The interactive
process between Mission personnel and the analysts was exceptionally
constructive and raised the overall quality and value of the assessment.
In particular, the assessment team would like to thank the following
persons in USAID/Bucharest: Ruxandra Datcu, Emod Farkas, Gabriel
Gheorghe, Jim Gordon, Tonya Himelfarb, Eleanor Kennelly, Fred
Kirschstein, Jane Nandy, Victor Radulescu, Denny Robertson, and Randy
Tift. In addition, the assessment team would like to thank Jerry Hyman
and Joshua Kaufman of the Center for Democracy and Governance for their
technical guidance and comments.

The views expressed in the following assessment are those of the authors
and do not necessarily reflect the opinions or policies of the U.S.
Government.

# Table of Contents

Acronyms and Abbreviations [i](#acronyms-and-abbreviations)

Executive Summary [ii](#executive-summary)

1.0 Introduction and Background [1](#introduction-and-background)

1.1 Background [2](#background)

1.1.1 A Legacy of Authoritarianism [2](#a-legacy-of-authoritarianism)

1.1.2 The Democratic Opening [3](#the-democratic-opening)

1.1.3 The Second Missed Opportunity [4](#the-second-missed-opportunity)

1.1.4 Romania's Political Conundrum [6](#romanias-political-conundrum)

2.0 The DG Problem [9](#the-dg-problem)

2.1 Consensus [9](#consensus)

2.2 Inclusion [10](#inclusion)

2.3 Competition [14](#competition)

2.4 Rule of Law [16](#rule-of-law)

2.5 Good Governance [18](#good-governance)

2.6 Distilling the DG Problem [23](#distilling-the-dg-problem)

3.0 Political Actors [25](#political-actors)

3.1 Contextual Pressures for Change
[25](#contextual-pressures-for-change)

3.2 Key Actors and their Interests [26](#key-actors-and-their-interests)

3.2.1 Political Parties [26](#political-parties)

3.2.2 Political Leaders [27](#political-leaders)

3.2.3 Civil Society Organizations [28](#civil-society-organizations)

3.2.4 Business Associations [28](#business-associations)

3.2.5 Research and Academic Groups [29](#research-and-academic-groups)

3.2.6 Media [29](#media)

3.2.7 Unions [30](#unions)

3.2.8 Church Groups [31](#church-groups)

3.2.9 Ethnic Minorities [32](#ethnic-minorities)

3.2.10 International Donors [33](#international-donors)

3.3 Filtering in Context, Actors, and Interests
[33](#filtering-in-context-actors-and-interests)

4.0 Key Institutional Arenas [34](#key-institutional-arenas)

4.1 Constitutional Sphere [34](#constitutional-sphere)

4.2 Legal and Judicial Sphere [34](#legal-and-judicial-sphere)

4.3 Governance Arenas [35](#governance-arenas)

4.4 Local Government [35](#local-government)

4.5 Filtering in Institutional Considerations
[36](#filtering-in-institutional-considerations)

5.0 Strategic and Programmatic Recommendations
[37](#strategic-and-programmatic-recommendations)

5.1 Towards a Managed Transition [37](#towards-a-managed-transition)

5.2 Strategic Considerations for the Mission's DG portfolio
[38](#strategic-considerations-for-the-missions-dg-portfolio)

5.3 Results, Impacts, and Programmatic Tactics
[40](#results-impacts-and-programmatic-tactics)

5.3.1 Local Governance [41](#local-governance)

5.3.2 Transparency, Accountability, and Oversight
[42](#transparency-accountability-and-oversight)

5.3.3 Rule of Law [43](#rule-of-law-1)

5.3.4 Civil Society Development [43](#civil-society-development)

5.3.5 Ethnic Minorities [44](#ethnic-minorities-1)

Appendix A. Interviews [45](#appendix-a.-interviews)

# ACRONYMS and Abbreviations

CDR Democratic Convention

COA Court of Accounts

CSO Civil Society Organization

DG Democracy and Governance

EC European Commission

EHSB Ethnic Hungarian Status Bill

EIU Economist Intelligence Unit

EU European Union

FOIA Freedom of Information Act

FSN National Salvation Front

GDP Gross Domestic Product

GoR Government of Romania

IMF International Monetary Fund

MP Member of Parliament

NATO North Atlantic Treaty Organization

NDI National Democratic Institute

NGO Nongovernmental Organization

PAC Civil Alliance Party

PCR Romanian Communist Party

PD Democratic Party

PDSR Party of Social Democracy in Romania

PNL National Liberal Party

PNTCD National Peasant Christian Democratic Party

PRM Greater Romania Party

PSD Social Democratic Party

PSDR Romanian Social Democratic Party

RMA Romanian Magistrates Association

SDF Social Development Fund

SO Strategic Objective

UDMR Hungarian Democratic Union in Romania

UNDP United Nations Development Program

USAID United States Agency for International Development

USD Social Democratic Union

# EXECUTIVE SUMMARY

This DG assessment of Romania begins by identifying the problems and
challenges that impede the ongoing transition towards democracy. The
political trends and dynamics of the system of governance are examined.
A review of the key actors and their interests help understand potential
coalitions for and against further reform. Institutional arenas are
evaluated to ascertain where the most promising areas of intervention
might be found. Some strategic recommendations and programmatic
guidelines are advanced that provide an analytical foundation for the
Mission's elaboration of a DG strategy.

The eleven and a half years since the revolution have provided a good
opportunity to assess the functioning of the political system under
several different governments. It is by now apparent that several
strengths and shortcomings of the system have been consistent over time,
which provide some indication of the unfinished nature of the transition
from authoritarianism to democratic governance. On the positive side,
the elections and the peaceful transfer of power are quite remarkable
given the continued dominance of an informal network of the political
elite that successfully adapted to the new conditions after the
revolution. Another remarkably positive step towards democratic
governance is the consolidation of freedom of speech and association.
Thirdly, another positive sign in terms of the prospects for a
democratic transition is that the leadership and top echelons of the
PDSR show an increasing sophistication in terms of the political and
economic reforms that need to take place for sustainable development to
take root.

The last eleven years have also brought some shortcomings of the new
political system into sharp relief. The system of governance suffers
from severe institutional weaknesses, especially in the parliament and
the judiciary. A lack of consensus over how to proceed with reforms has
plagued every government and paralyzed urgently needed changes. A
general lack of accountability has led to an ingrained corruption that
has virtually become a hallmark of post-revolutionary Romania. The
legitimacy of the political system itself is gradually being questioned
as citizens lose faith in the developmental potential of the new regime.

The dilemma in Romania is how to promote further and more fundamental
changes when the interests of many with influence tend to mitigate
against further transition towards democratic governance. In brief, the
basic political conundrum in Romania is that the nature of the national
political system creates a series of incentives that favor the use of
state prerogatives by the elite for short-term personal gain at the
expense of longer-term public good. The generalized lack of
accountability that pervades the system means that control over
government has been used as a means for economic advancement. At the
heart of this problematic system is an electoral system that generates
political party structures that are impervious to democratic practices
except for periodic elections. Thus parties engage in an inter-elite
rivalry for control over the state. This has led to a situation where
the concept of public good has tended to be subordinated to partisan and
more personalistic interests. The judiciary, for example, has been
subordinated to the executive and hence to partisan interests, strongly
contributing to the institutionalization of corruption. The result of
all this is a growing alienation of the population from the political
system and weak political capacity to carry out the difficult structural
reforms that need to be made.

The transition to a democratic market economy has thus been hindered by
the rules of the political game and party practices that are
inappropriate for guiding the country through the difficult economic and
political changes needed to achieve sustainable development. The
political logic of the contemporary Romanian system of governance is
relatively insulated from the strong developmental pressures building
from below, and responds largely to which of the parties is best able at
a given time to distribute resources to its adherents, much like the
classic vision of a political machine. The PDSR has proved to be by far
the most capable of the parties to deliver goods to its followers, but
by the same token it is difficult to protect the interests of the core
group of party constituents while also following through with structural
changes that mitigate against some of them.

Donors thus have a key role to play at this critical juncture in
Romania's history. Post-communist Romania has made some promising
preliminary strides in regards to elections and the peaceful transfer of
power, as well as individual and associative liberties. But the
remaining steps with regard above all to issues of accountability and
representation will require even greater political courage and
determination. This is a critical time for donors to weigh in with
encouragement and incentives to focus on the fundamental and systemic
obstacles that need to be overcome in both political and economic
domains. Constraints to good governance impinge not only on the
transition to democracy but also represent critical obstacles to
sustainable economic growth. Donors need through their actions and
priorities to support the regime in moving beyond talk to action in
tackling what are very difficult issues.

Romania currently has the potential to move further towards democratic
governance through a managed transition towards democracy. Ironically,
the PSD (formerly PDSR), which was once seen by many as a lingering
reminder of the past, is the best placed political actor to move the
country out of the impasse in which it became mired during the coalition
government. The self-destruction of the coalition government when it
could not overcome the structural constraints to liberalizing reform led
to the return to power of a stronger, effective, and more sophisticated
PSD. For the first time in its modern history, the Romanian ruling party
has a position of consolidated strength that should allow them greater
freedom and ability to pursue reforms that are fundamental to economic
growth but go against the vested interests of influential groups and
persons. The PSD has eclipsed the fragmented parties across the rest of
the political spectrum and now has the field open to systematically
implement the reforms that all agree are needed to move the country
forward into a market economy and greater integration with Europe.

Whether or not Romania moves forward on the path towards a managed
transition will primarily be up to the Romanians, especially the PSD
government. There is little donors can do to impel the needed reform
without the political will and vision of the governing party leaders.
USAID is especially constrained by the limits of its DG resources, which
are insufficient to make the fundamental difference between a trend
towards democratic governance versus corrupt authoritarianism.

The most appropriate role for USAID given its limited resources and the
depth of the challenges that exist in the DG area is to support reform
initiatives that have materialized, most notably in the area of local
governance, while carefully targeting national-level assistance on key
themes as triggered by domestic initiatives themselves. In particular,
greater progress in achieving greater transparency, accountability, and
oversight is essential to both economic growth and good governance.
Without progress in these related areas, Romania's governance systems
will remain prone to corruption, will frustrate private sector growth,
and will continue to decline in legitimacy.

A two-pronged set of recommendations follows from this DG assessment.
First, the Mission should continue to build on the decentralization
initiatives that the Romanians have undertaken in recent years. While
the decentralization process remains incomplete, the experiment is
underway, and some dynamic reaction is manifesting itself at the local
level. Achieving results by working to expand the political space at the
local level that has been opened by the reforms is a low risk approach
that has the potential to help build the confidence that is needed for
the government to further decentralize control over financial resources.
Second, a higher risk set of priorities should be clearly established in
order to draw attention to certain key deficiencies of the national
system of governance, most notably in the areas of transparency,
accountability, and oversight An additional advantage of focusing the
Mission's DG resources around a result of greater transparency,
accountability, and oversight, is that these are all attributes of a
system of governance that also contribute to economic growth. DG thus
provides not only an ample opportunity as an independent SO, but also
offers considerable promise for crosscutting activities and synergies.

Modest expectations should condition the Mission's DG strategy. It is
the nature of a managed transition that change is likely to be
incremental and gradual. USAID is not going to be responsible for any
breakthrough to democracy, but can instead coax and nurture positive
steps by those who have the power to determine the future of governance
in the country. A results package can be realistic and meaningful at the
same time if it builds on existing opportunities while favoring linchpin
progress that is not in itself revolutionary.

# 1.0 Introduction and background

*Awake, Ye, Romanian, from your lethargic sleep*

*Into which your barbarous tyrants have sunken you so deeply*

-Verse from the Romanian National Anthem[^1]

This verse was first performed in 1848, but its resonance in
postcommunist Romania was such that it was adopted as the national
anthem in 1990. The song's theme professes that the Romanian people have
been dragged down by tyranny, creating a wide gap between the rulers and
ruled, and that as a result of poor governance the citizens have become
lethargic and nonparticipatory. At that time, Nicolae Ceausescu was the
recently departed "barbarous tyrant." The 1989 revolution was heralded
by Romania's leaders as a new beginning.

Eleven years later, a common explanation for Romania's stalled
transition to democratic governance is that the citizens of that country
remain in a lethargy induced by the former communist rule, apparently
not having heard the clarion call of the new national anthem. Many
Romanians are disappointed that the bright hopes raised by the
revolution of 1989 and then again by the elections of 1996 ended with
more questions about the benefits of a market-based democracy than with
any economic or material benefits associated with such changes. One
argument advanced by those seeking to explain the difficulties in moving
further towards participatory democracy is that the Romanian people lack
the appropriate political culture, and continue to look to the state
rather than themselves to guide them through the hard choices that lie
ahead. If only the Romanians would wake up from their "lethargy",
democracy would have a better chance of taking root.

The other explanation frequently advanced to explain Romania's lack of a
more fundamental transition towards democratic governance has a more
ominous tone. Namely, that the revolution was hijacked by an elite
formerly part of, or closely connected to, the prior dictatorship. This
pessimistic interpretation posits a seizure of state control by
individuals and groups that have no interest in a broader public good
and whom have derailed Romania's transition and development. From this
perspective, the "tyrants" remain a key factor in Romanian political
life.

The findings of this democracy and governance (DG) assessment in Romania
suggest that neither of these simplistic explanations holds much
currency. Romanian citizens speak openly, freely, and often about their
political system and direction of change. Their so-called lethargy is
best attributed to political structures that inhibit popular influence
on public decision-making, thereby discouraging greater participation.
The new ruling elite of Romania does not have some hidden dark side, but
is largely composed of individuals who rationally consider the
incentives and constraints that they confront and behave accordingly.
The central finding of this DG assessment is that certain structural
constraints continue to place limits on the transition to a market-based
democracy, and that it is politically difficult for any government or
ruling party to promote the fundamental reforms that are needed to move
forward more decisively. Many of the same problems that plagued the
coalition government of Emil Constantinescu continue to bedevil the
government of the reconstituted Party of Social Democracy in Romania
(PDSR). The situation is far from hopeless, but the DG challenges are
not simply a lack of technical capacity or exposure to western models.
Rather, the central DG challenge in Romania is how to consummate the
1989 revolution through risky reforms while maintaining political order.

## 1.1 Background

### 1.1.1 A Legacy of Authoritarianism

Romania's modern history did not provide a favorable legacy for an easy
transition to democratic governance. The state historically was subject
to a high degree of foreign influence. The country's roots reflect the
influence of international affairs as much as a deep national
consciousness. The unification of the Ottoman principalities of Moldavia
and Wallachia in 1859 constituted the core of the modern Romanian state,
but did not at that time include the Romanian populations in the
Hungarian-ruled Transylvania, the Russian-controlled Bessarabia, or the
Bulgarian Dobrudja. It was not until the end of the First World War that
Romania acquired these other territories as part of the settlement
imposed by the victorious allies. These territorial gains were largely
reversed in 1940 by the Soviets and by the Germans awarding Transylvania
back to the Hungarians. Romania's borders changed yet again after the
war in 1947, when Transylvania again became an integral part of its
territory, although Bessarabia and northern Bukovina were allocated by
the Soviets to Moldova and Ukraine. Southern Dobrudja remained part of
Bulgaria.

Foreign imposition was a further factor in Romania's political history
when the Soviets backed the Romanian Communist Party's (PCR) seizure of
power in 1945. The state began to adopt the essential features of the
Stalinist centralized system and consolidated its political dominance
through heavy-handed tactics. The monarchy was abolished in 1947 and
King Mihai I expelled from the country. The other political parties were
also virtually stamped out and numerous opposition leaders either
arrested or driven into exile. The National Peasant Party and the
National Liberal Party were dissolved and the practice of state terror
was instituted to ensure a compliant citizenry. The Communist Party's
Politburo made key state decisions that were adopted by the Council of
Ministers. The separation of the executive and the judiciary was
renounced and the government created the Department of State Security
(*Departamentul Securitatii Statului*), popularly known as the
Securitate, or secret police. The country's banks and much of its
industrial, mining, transportation, and insurance industries were
nationalized. Agricultural collectivization was imposed in order to feed
an increasingly urban population and to generate capital for forced
industrial development. Intellectual freedom was stifled and the
Romanian Orthodox Church brought under the control of the government.

The attempts to consolidate power within the party succeeded in stifling
democratic aspirations among the population at large, but an internal
struggle within the communist party led to a purge of Stalinists by
Gheorghiu-Dej. Gheorghiu-Dej began to distance Romania from the Soviet
Union and managed to get Khrushchev to agree to remove Soviet troops
from Romanian soil in 1958. The state began to embrace a more
nationalist Romanian ideology and began a campaign of Romanianization,
which resulted in the rolling back of some concessions granted to the
Hungarian minority in favor of some systematic discrimination.

Gheorghiu-Dej died in 1965 and was succeeded by Nicolae Ceausescu, a
former shoemaker's apprentice who had risen through the ranks of the
communist party after joining at the age of fourteen. Ceausescu set
about consolidating power and eliminating rivals. During the 1970s, he
concentrated power and blended party and state structures to better suit
the requisites of a cultish dictatorship with Ceausescu at the apex of a
pyramid of power. By 1989, the Securitate numbered tens of thousands of
full-time staff and informants. Collective leadership through the
Politburo of the party was annihilated as part of Ceausescu's obsession
with his own omnipotence. The PCR degenerated into a nepotistic clan,
with key posts held by Ceausescu and members or close associates of his
family.

### 1.1.2 The Democratic Opening

Ceausescu's megalomania eventually led to a cruel disregard for the
welfare of the people. The command economy sputtered and eventually
failed as a decline in oil output was followed by a devastating
earthquake, drought, and high world interest rates. Romania fell into a
balance of payments crisis and in 1981 was forced to request a
rescheduling of its hard currency debts. In order to pay off foreign
obligations, Ceausescu squeezed the people, imposing terrible hardships
on the average citizens. Severe shortages of foodstuffs were
complemented by the rationing of energy that was enforced through
control squads. The "golden age of Ceausescu" lost all meaning to the
Romanian people who had seen a gradual relaxation of Soviet style
communism in other countries of the Comecon in sharp contradistinction
to Romania's regressive dictatorship.

Organized opposition remained limited, largely because of the dreaded
and ever present Securitate. But Romania was not immune to the currents
of change that were sweeping the rest of Eastern Europe and finally
large-scale public demonstrations against the state resulted in the
ouster and summary execution of Ceausescu and his reviled wife, Elena.
But the abrupt and sudden nature of the Romanian revolution meant that a
momentary vacuum of power was filled overnight by the decisive action of
a section of the former party elite that had fallen out of favor with
the dictator. Led by Ion Iliescu, a National Salvation Front (FSN) was
formed and declared themselves in charge of the country. Many political
analysts point to this adroit move by former party apparatchiks as a
hijacking of the revolution and responsible for its transformation into
a palace coup.

The FSN leaders quickly sought to distance themselves from the old
regime by reversing a number of Ceausescu's most unpopular policies.
Romania's legendary political repression was relaxed, allowing for the
prolific growth of a number of new political parties, associations,
trade unions, and independent media outlets. Elections were held in 1990
and a new constitution was promulgated in 1991, as a new era of Romanian
democracy was inaugurated. The FSN used its control over the state and
its reformist rhetoric to win a decisive mandate, although the promises
of rapid reform were soon tempered by miners' agitation against market
reforms proposed under the short-lived premiership of Petre Roman. The
FSN split, with Roman leaving to form the Democratic Party (PD), whose
primary agenda was more rapid market reform. The dominant faction after
the split was eventually renamed the Party of Social Democracy in
Romania, and went on to win the 1992 elections, with Iliescu winning the
presidential mandate and his party forming a minority government.

The period of 1992 to 1996 was characterized by a slow pace of economic
reform. It was a fairly politically stable period, with hopes still high
after the revolution. But corruption soon became endemic and especially
pronounced in regards to the banking system and state-owned enterprises.
There was little decentralization and almost no local autonomy during
this period. An independent media began to emerge, but the opposition
remained fragmented until around 1996.

The nature of Romania's revolution and its aftermath conditioned the
transition from authoritarianism to the parliamentary republic that
emerged with the constitution of 1991. The leitmotif of the new regime
rapidly became incremental and cautious change, where vested interests
were protected, and the political elite managed to transform itself to
adapt to new conditions. Former communist party personnel remained in
control of the pace of change, and the emerging private sector was soon
dominated by an informal network that included previous top Securitate
officers. The lack of democratic foundations prior to 1989 meant that
the transformation of the revolution into a palace coup took place
without the state ever fully losing control of the situation.

The former communist state and Ceausescu's dictatorship had left the
citizenry with a distrust of the state, and the slow pace of reform over
the first years frustrated many of the hopes for a more rapid move
towards market democracy. But the elections of 1996 and the coming to
power of the Democratic Convention (CDR) provided a new ray of hope for
those who wanted more fundamental change.

### 1.1.3 The Second Missed Opportunity

The slow pace of reform between 1992 to 1996 was compounded by high
inflationary pressures, a reinstatement of price and currency controls,
and finally a devaluation of the lei. The population was frustrated by
the slow pace of reform and disappointed with the perceived high
incidence of corruption in government and public administration. In
1996, an electoral coalition was formed by the principal center-right
parties, most notably the National Peasant Christian Democratic Party
(PNTCD), the National Liberal Party (PNL), the Civic Alliance Party
(PAC), and a few less important parties. CDR was the main political
force in the coalition that ruled the country between 1996 and 2000,
together with the Social Democratic Union (USD), and the Hungarian
Democratic Union in Romania (UDMR). This coalition was recognized in
1996 as the principal parliamentary opposition to the PDSR. In the
elections of November 1996, the coalition won 30 percent of the
legislative vote, while the CDR candidate, Emil Constantinescu, won a
second round run-off against Mr. Iliescu by taking 54 percent of the
vote. A coalition government was formed, led by Victor Ciorbea.
Tremendous expectations and great enthusiasm on the part of the
population accompanied the first democratic transfer of power.

Great expectations were also raised among western observers as a result
of this election, since there had been a tendency to question the
authenticity of the democratic revolution of 1989 given the continued
dominance of former communist party cadre in the 1992-1996 government.
The election of the new government was seen as the belated triumph of
the forces for market democracy by many, and this impression at first
seemed to be confirmed by the introduction of market-oriented economic
reforms and the liberalization of the controls on foreign exchange.
Remaining price controls were also reduced. Yet a disturbing trend began
to be noticed in that the coalition government soon ran into constraints
in tackling the difficult privatization and restructuring of parastatal
industries. After high layoffs in the first two years (especially in
mining areas), the government began to fall into disarray, especially
after several corruption scandals further damaged the government's
reputation.

Part of the problem with the coalition government was the difficulty in
establishing consensus. The various parties and personalities within the
coalition became known for their squabbling and inability to move
forward decisively on important issues. This perceived inefficiency was
compounded when the standard of living for many began to plummet in
1997, with real wages falling by 22.8 percent, largely due to the
reduction of price supports and subsidies without a concomitant increase
in wages. Radu Vasile replaced Mr. Ciorbea as Prime Minister in 1998.
Vasile tried his hand at speeding up some structural economic reforms
and began to make some limited headway. But the broader economic crisis
deepened as the country's recession, which began in 1997, continued. In
December 1999, the merry-go-round of coalition prime ministers
continued, with Vasile replaced by Mugur Isarescu, the former head of
the central bank.

The economic recession continued in 1999. By 2000, the gross domestic
product (GDP) had shrunk to just 79 percent of what it was prior to the
revolution of 1989. Although some of the high paid professions saw some
improvement in their level of earnings vis-à-vis inflation, most
Romanians saw themselves falling further behind as prices escalated as a
result of the removal of subsidies on meats, vegetables, energy, and
services such as urban transport and water. Close to half of the
population was estimated to be living in poverty at the end of the
century.

In the face of these worsening material conditions, the coalition
government proved incapable of living up to its promises and rhetoric of
accelerated reform. Privatization was resisted by the unions and by the
bureaucracy, and the failure to privatize the state banks had the
subsequent effect of damaging the functioning of the financial system.
Several pyramid schemes and financial scandals further undermined
confidence. Both the European Commission (EC) and the International
Monetary Fund (IMF) began to publicly criticize the pace of reform in
Romania, which was lagging behind the majority of other Central and East
European countries. On the positive side, a decentralization initiative
was launched which laid the groundwork for greater political dynamism at
the local level.

The parliamentary and presidential elections of November 2000 may in
part be interpreted as a negative vote on the performance of the prior
government. The CDR and its coalition partners were soundly defeated by
the PDSR, which returned to power by winning the largest number of seats
in parliament and by forming a single-party minority government. The CDR
did not even manage to retain its representation in parliament. The
biggest surprise of the 2000 elections was the strong performance of the
ultra-nationalist Greater Romania Party (PRM), which won 20 percent of
the popular vote and became the second largest party in both houses of
parliament.

Those promoting reform in Romania were thus disappointed by the
inability of the coalition government to deliver on their plans to
accelerate the pace of change. With the return of the PDSR to power, it
seemed at first as if Romania was to become mired in its past. The
population has become increasingly disenchanted with the lack of
economic growth since the revolution, and many are questioning the
benefits that the tentative moves towards market democracy have brought
them.

But in the months since being elected, the leadership of the PDSR has
shown a high level of sophistication and has expressed a willingness to
pursue the changes necessary to achieve membership in both the North
Atlantic Treaty Organization (NATO) and the EU. Romania's leaders
continue to make promising statements, but the nature of the political
system itself mitigates against rapid reform, both in regards to
governance and the economy.

### 1.1.4 Romania's Political Conundrum

The eleven and a half years since the revolution have provided a good
opportunity to assess the functioning of the political system under
several different governments. It is by now apparent that several
strengths and shortcomings of the system have been consistent over time,
which provide some indication of the unfinished nature of the transition
from authoritarianism to democratic governance. On the positive side,
the elections and the peaceful transfer of power are quite remarkable
given the continued dominance of an informal network of the political
elite that successfully adapted to the new conditions after the
revolution. Another remarkably positive step towards democratic
governance is the consolidation of freedom of speech and association.
Given the high degree of repression prior to 1989, this suggests that
younger generations will be exposed to a whole new set of ideas and the
generational shift of power that is gradually beginning to occur is
likely to be quite significant. Thirdly, another positive sign in terms
of the prospects for a democratic transition is that the leadership and
top echelons of the PDSR show an increasing sophistication in terms of
the political and economic reforms that need to take place for
sustainable development to take root. Many of the sources for this
assessment felt that good intentions and political will existed in the
high ranks of the government. What was not so sure is how far the
willingness to reform extends down into the bureaucracy and whether the
good intentions are matched by the political capital or capacity to
actually carry out reforms that would be contrary to some vested
interests.

The last eleven years have also brought some shortcomings of the new
political system into sharp relief. The system of governance suffers
from severe institutional weaknesses, especially in the parliament and
the judiciary. A lack of consensus over how to proceed with reforms has
plagued every government and paralyzed urgently needed changes. A
general lack of accountability has led to an ingrained corruption that
has virtually become a hallmark of post-revolutionary Romania. The
legitimacy of the political system itself is gradually being questioned
as citizens lose faith in the developmental potential of the new regime.
In a recent poll, 52 percent of Romanians believe that things are going
in the wrong direction. Regarding governmental institutions, a
staggering 82 percent categorically agreed that "laws are neither
applied, nor complied with." Three quarters of those polled think that
the political parties are not trustworthy.[^2] These are disturbing
figures that suggest that the practice of free and fair elections that
is being established is in itself insufficient to lay the foundations
for democratic governance.

These snapshot images of the positive and negative characteristics of
democratic governance in Romania, however, do not capture the essential
dynamics that are the central challenge facing development in that
country. The dilemma in Romania is how to promote further and more
fundamental changes when the interests of many with influence tend to
mitigate against further transition towards democratic governance. In
brief, the basic political conundrum in Romania is that the nature of
the national political system creates a series of incentives that favor
the use of state prerogatives by the elite for short-term personal gain
at the expense of longer-term public good. The generalized lack of
accountability that pervades the system means that control over
government has been used as a means for economic advancement. At the
heart of this problematic system is an electoral system that generates
political party structures that are impervious to democratic practices
except for periodic elections. Thus parties engage in an inter-elite
rivalry for control over the state. This has led to a situation where
the concept of public good has tended to be subordinated to partisan and
more personalistic interests. The judiciary, for example, has been
subordinated to the executive and hence to partisan interests, strongly
contributing to the institutionalization of corruption. The result of
all this is a growing alienation of the population from the political
system and weak political capacity to carry out the difficult structural
reforms that need to be made.

A generalized and systemic lack of accountability has allowed for this
situation to persist. A negative vote every four years is about the only
means by which the broader population can exert control over the
political elite. The absence of effective oversight measures means that
politicians and often even bureaucrats may act with relative immunity.
There is a free press, but it currently only plays a small role because
of an interpenetration between business and political interests. The
potential role of trade unions has also been constrained largely because
after 1990 most of the unions allied themselves with the parties and
have been coopted by the logic of party politics as a result. One
exception is Cartel Alfa, a major labor confederation (approximately one
million members) that has never allied itself with a political party.
The core political elite is relatively small and homogeneous, based to a
certain extent around leaders from the 1989 revolution and bureaucrats
who transformed themselves to the new system. Former members of the
nomenclatura who had links to international trade under the old regime
but were able to adapt are prominent among the new elite, as are some
newcomers to business and politics.

The transition to a democratic market economy has thus been hindered by
the rules of the political game and party practices that are
inappropriate for guiding the country through the difficult economic and
political changes needed to achieve sustainable development. The
political logic of the contemporary Romanian system of governance is
thus relatively insulated from the strong developmental pressures
building from below, and responds largely to which of the parties is
best able at a given time to distribute resources to its adherents, much
like the classic vision of a political machine. The PDSR has proved to
be by far the most capable of the parties to deliver goods to its
followers, but by the same token it is difficult to protect the
interests of the core group of party constituents while also following
through with structural changes that mitigate against some of them.

The core of the problem is that the state is accountable primarily to
relatively undemocratic political party structures, rather than to
oversight bodies. To break out of the stalemate that is likely to
persist until the next national elections in four years would require
rare political leadership. To satisfy party constituents, the ruling
party is pushed towards giving priority to maintaining existing networks
of influence and control. To engage in more fundamental yet critically
needed reform would jeopardize the perquisites of those who benefit from
the current state of affairs. Although internal pressures for change are
mounting as a result of persistent economic hardships and frustration
with the material benefits of democratic governance, there are few
channels for these populist pressures to bear influence.

Accession to NATO, and more importantly, the European Union (EU),
currently is the main impetus for reform since domestic political
structures have insulated the regime from internal pressures for change.
Romania opened negotiations for EU membership in March 2000. But given
the distance that is needed to go before accession is feasible, informed
observers are already ruling out Romania's ability to become a member of
the EU on the current schedule, if at all. The EC has made it clear that
Romania lags well behind other East European countries in meeting
membership criteria, and must substantially accelerate economic and
political reforms before it can even be seriously considered for
accession. The prestigious Economist Intelligence Unit (EIU) recently
reported that, "There is little realistic possibility that Romania will
be admitted to the EU in 2007, as the government officially hopes."[^3]

It is difficult to ascribe too optimistic or too pessimistic an
interpretation to the leadership of the PSD.[^4] While the leaders of
the party and government attest to their political will to accelerate
reforms, the question remains as to whether that will extend far enough
down in the party apparatus to push the reforms through in the face of
vested interests that benefit from the current state of affairs. In
addition, splits within the ruling party also make it difficult to take
the bold steps that are needed to meet the deadlines for the EU
accession.

Donors thus have a key role to play at this critical juncture in
Romania's history. Post-communist Romania has made some promising
preliminary strides in regards to elections and the peaceful transfer of
power, as well as individual and associative liberties. But remaining
steps with regard above all to issues of accountability and
representation will require even greater political courage and
determination. As the following analysis will demonstrate, this is a
critical time for donors to weigh in with encouragement and incentives
to focus on the fundamental and systemic obstacles that need to be
overcome in both political and economic domains. Constraints to good
governance impinge not only on the transition to democracy but also
represent critical obstacles to sustainable economic growth. Donors need
through their actions and priorities to support the regime in moving
beyond talk to action in tackling what are very difficult issues.

Given the depth and systemic nature of the obstacles to further
transition towards democratic governance, the Mission needs to adopt
targeted and modest expectations. At the same time, it needs to develop
a strategy that builds squarely upon the need for some progress in
fundamental areas in addition to continuing to work in areas that have a
more reliable payoff. This report will thus recommend that the Mission
continue to invest in areas where results are likely to be achieved at
the local level, but to also complement these "safe" investments with
interventions at national levels to promote more far-reaching reform
regarding the more systemic obstacles.

The following section seeks to elaborate an analysis of the key
challenges to democratic governance by focusing on five analytical
variables -- consensus, inclusion, competition, governance, and rule of
law.

# 2.0 The DG Problem

## 2.1 Consensus

Consensus regarding the fundamental rules of the political game appears
relatively high in Romania. That is, while many point out that Romania's
political system would benefit from systemic reform, the vast majority
is willing to work within the system to effect such change. The
political elite and the parties all tend to accept the basic
constitutional provisions, as amply demonstrated by the peaceful
transfer of power which has now happened after the last two electoral
cycles, in 1996 and again in 2000. Similarly, the popular political
culture is such that citizens also tend to accept the basic elements of
the political system as a given. While sophisticated analysts point to
the behavior of the political parties as being conditioned by the
electoral system, most citizens tend to blame individuals in positions
of power for the deficiencies in governance rather than the rules of the
game.

However, the apparent consensus over the post-revolutionary
constitutional provisions and political practices is starting to wear a
bit thin, as cynicism is becoming more widespread regarding the material
benefits of democratic governance. The surprise performance by the PRM
in the last elections may be interpreted as a popular questioning of
business as usual in Romanian politics, a form of a protest vote against
the weak performance of the preceding coalition government. The PRM
received a striking 19 percent of the vote in parliamentary elections,
with young voters voting for that party at a remarkable rate of 30
percent. While at first glance, this may appear as support for the
existing political framework, the votes for the PRM are somewhat
different because they are seen as advocating a much more authoritarian
regime than currently exists. Part of the appeal of the PRM was its
staunch emphasis on law and order as well as its anti-Hungarian and
anti-Semitic platform. In short, the PRM may be located outside of the
mainstream political spectrum, and so a vote for them may in fact
represent a fracturing of consensus over the rules of the game.

Another indication that the rules of Romania's political game are not
yet fully consolidated is that many sophisticated analysts and members
of the political class are increasingly drawing attention to some of the
elements of the constitution that have enabled dysfunctional political
tendencies. Areas of concern include the electoral system, a judicial
system that is subject to heavy partisan influence, the heavy use of
emergency ordinances to enact legislation, and a bipolar executive with
the respective authorities of the president and prime minister not as
clear in practice as in the constitution. In addition, there are gray
areas in which consensus over how to proceed has not even yet been
established, with some laws existing on the books, but not applied in
practice. For instance, it is unclear how ministers might actually be
disciplined by parliament. Another example of the divergence between
formal rules and practice is that although campaigning is prohibited 48
hours before an election, this tends to happen anyway with no
repercussions.

It would be a mistake to collapse consensus over the rules of the game
with the legitimacy of the political system. A honeymoon period
naturally followed the overthrow of Ceausescu's unpopular dictatorship
and the establishment of a new democratic republic. In comparison to the
*ancien regime*, the new constitution along with free and fair
presidential and parliamentary elections were a breath of fresh air. But
the structural problems that pervade Romania's political system
contribute to a growing disillusionment with the elite and a perception
that the country's rulers tend to be endemically corrupt. A scant 14
percent of Romanians now feel that they have any influence over public
policy at the national level, with only 18 percent feeling they can have
an impact on local politics. Consensus over the rules of the game is
starting to suffer as a result of poor regime performance, opening the
door to more radical challenges, such as the PRM.

The legitimacy of the state will no doubt increasingly come under
question if the state cannot deliver better guarantees about the
standard of living and economic welfare for its citizens. These
guarantees could well take the form of an enabling environment for a
vibrant market economy rather than the public subsidies of old. The
problem with the current deadlock is that the political system itself is
standing in the way of the economic growth and conditions that are
needed to propel the country forward. Disillusionment and what now may
appear as apathy suggests a soft consensus that could evaporate in the
absence of improved economic opportunities and material prospects for
the bulk of Romania's citizens.

In sum, the consensus over the rules of the game that characterized the
extended honeymoon after the overthrow of Ceausescu is increasingly
coming under question as a result of high perceptions of corruption,
popular feelings of alienation from the political system, and bitter
appraisals of the poor performance of the past government. The Romanian
political class still has a chance to refine the rules of the game to
try to recapture the state's dwindling legitimacy, but as with accession
to the EU, time is starting to run out. The need for systemic reform is
pressing.

Another somewhat taboo subject regarding consensus has to do with the
inclusion of Transylvania as part of greater Romania. Transylvania,
which historically has a stronger economy than the rest of Romania and
produces a disproportionately high share of the GDP, is characterized by
cultural and ethnic differences from the rest of Romania, and has
distinct historical legacies from having been part of the Austrian
Empire. But this is not an issue that is very pertinent at the present,
unless it becomes more so as a result of the Hungarian question, dealt
with in more detail in the following section.

## 2.2 Inclusion

Consideration of inclusion in Romania may be focused along three
principal dimensions: participation, ethnic minorities, and gender
issues.

There are indications that overall participation is in decline as a
result of the disillusionment with the political parties and the general
failure of civic advocacy nongovernmental organizations (NGOs) to be
genuinely representative of citizen concerns. Local participation tends
to be somewhat higher than national participation, which reflects the
spark of dynamism that has emerged at the local level. The basic problem
is that there are no genuine vehicles for representation or for
accountability at the national level. The political parties are ingrown
creatures who answer primarily to their own hierarchies, and a lack of
accountability means that most public institutions and bureaucrats are
relatively impervious to public scrutiny or meaningful involvement in
public affairs by citizens. Local politics is seen to have a more direct
impact on daily life, and mayors are elected directly rather than
through the parties, so it is not surprising that there is more activism
at that level. But even at the local level, there is a legacy of
nonparticipation that is difficult to overcome. Decentralization is a
relatively new phenomenon, and the prefects and municipal councils still
help to reinforce the feeling that decision-making tends to reflect top
down rather than bottom up influences.

Young people in Romania tend to be more eager to participate and to
change things. But many of those who are politically engaged tend to
vote for the right and to lean towards the authoritarian appeal of Vadim
Tudor and the PRM. Part of the frustration may be traced to the
heavy-handed suppression of student demonstrations in 1990 after which
many students sought refuge overseas. Further frustration occurred after
the heightened expectations of 1996, which has led to something of a
"betrayed lovers syndrome," since the young had previously heavily
backed the CDR.

There is a huge gap between cities and the countryside, and
participation tends to be higher in urban rather than rural areas. Rural
economies still tend to be heavily agricultural, while the urban
economic environment offers many more opportunities in the financial and
services areas. But the PSD still has a strong rural base, and these
linkages tend to somewhat offset an under-representation of the rural
areas even despite the lower rates of participation in the countryside.

One of the indicators of the weak culture and practices of participation
has been the poor performance of the civic advocacy NGOs. With the
notable exception of Pro Democracy, the leading Romanian civil society
organization (CSO), they have by and large been unable to establish
roots within the broader population, largely remaining creations of
foreign donors and viewed with considerable suspicion by the people.
Business associations and other special interest groups tend to be
better received because they have a more natural constituency that is
more likely to perceive the potential benefits of collective action.

The situation regarding ethnic minorities is currently only of concern
with respect to two of the country's 19 ethnic minorities, the Rroma
(gypsies) and the Hungarians. The Rroma continue to be viewed and to a
certain extent treated as a shiftless underclass, leading to a less than
ideal integration into the political and economic systems. Indeed, at
the local level, authorities tend not even to view the Rroma as part of
the community, but as itinerant travelers. Many Rroma do not have legal
identification and have a subculture that has adapted to exclusion. The
percentage of Rroma children attending public schools is actually in
decline. Efforts to improve their integration and greater participation
into the political system have been stymied by a lack of unified or
strong representatives from the Rroma community. A multiplicity of
shallow channels thus undermines effective integration, in contrast to
the Hungarians, whose superior organizational skills has led to among
the most effective representation in the Romanian political system.
There are many would-be Rroma representatives, but few with widespread
credibility. This has made it very difficult to address their plight.
The poor integration of the Rroma into the political system has prompted
fears within the EU that accession by Romania might lead to an influx of
Rroma to the richer Western European centers, where the problems of
assimilation would be transferred to their systems.

For the moment, the Hungarian population tends to be coexisting very
well with the rest of the Romanians. Despite some discrimination in the
past, the Hungarians have done a remarkable job organizing themselves
politically as well as economically. However, this vertical social
cleavage remains a potential flashpoint for foreign influence, as shown
by the strong Romanian reaction to recent nationalist legislation passed
by neighboring Hungary (see text box on this subject).

The Government of Romania (GoR) gets high marks for its efforts to
develop a comprehensive policy for ethnic minorities. The state has
developed mechanisms to institutionalize sensitivity to diversity and
provides for adequate political representation. Each of Romania's 19
minorities has the right to send representatives to parliament, with a
quota of seven percent of the parliamentary seats reserved for this. In
each of Romania's 41 counties, there is a person in charge of Rroma
affairs who is actually a member of the Rroma community themselves, and
each prefect has an adviser on the Rroma situation. The education system
is very accommodating to minorities. For instance, if there is a group
of five minority schoolchildren, they are entitled to a class in their
own language. This compares to the minimum number of ten Romanian
students needed to qualify for a class.

To help coordinate and monitor the government's ethnic minority programs
and policies, the government has established a Council on Ethnic
Minorities, which operates as a consultative body of the executive,
subordinated to the Ministry of Public Information. This Council
functions as a regular liaison with legally established ethnic minority
organizations. The leaders of this government unit are quite dynamic and
dedicated, showing both the commitment of the GoR to preserving and
promoting ethnic diversity in Romania and the importance given to
keeping a finger on the pulse of potentially divisive issues. The
programs funded by this unit include educational activities, training,
and cultural events. They have also elaborated an anti-discrimination
policy in Romania and have developed a government strategy for improving
the condition of the Rroma.

The Rroma population benefits from the same governmental entitlements as
the other minorities, but have been given even more attention than the
others, since they have tended to be more impervious to the types of
support offered. The problem with the Rroma is compounded since they
have such a poor public image, which contributes to informal
discrimination and sometimes rough treatment by officers of the law
seeking to prevent crime and maintain order. The EU has made the
improvement of the Rroma situation one of their priorities, however, and
is well positioned to take a lead role in any donor assistance program
targeting the Rroma.

Gender issues also remain germane in Romania. National politics tend to
be dominated by males and women don't have the same access to resources.
Although the Council of Ministers contains a handful of women, this is
not matched by their representation in the parliament at large and even
less in ranking positions in local government. Most of this
disenfranchisement is done at the informal level, and so is not very
susceptible to assistance efforts to ameliorate the situation. Women
tend to be more involved in public affairs at the community levels, but
even here cultural patterns of exclusion tend to predominate if
decisions affect the public domain.

In general, the assessment team did not identify human rights as a
critical issue of governance. While some concern within the EU persists
regarding the Rroma human rights, and it is true that more could be done
to promote gender equality, the team was very impressed with the overall
improvement of human rights in the post-Ceausescu era.

## 2.3 Competition

At first glance, it would appear that Romania's national elections
indicate a vibrant degree of political competition. The two instances of
peaceful transition give an impression of a healthy democracy. But in
fact, this electoral competition has been deceiving and does not capture
the weak representational characteristics of the party system. The party
structures have served as a filter through which the national political
process operates, estranging it from effective and open citizen
participation.

The deficiencies in the democratic functions played by the parties are
the result of the laws governing parties. There is a reliance on party
lists, which make party moguls the big players in determining who has a
chance to be elected. Most decisions as to who is on the list are made
behind closed doors, with parties structured in a hierarchical rather
than internally democratic fashion. This, of course, encourages
clientelistic relationships and the makeup of party lists is said to be
heavily influenced by financial contributions to either the party or to
party officials. Such systems tend to invite corruption, with who gets
elected in large part dependent on the will of those that make up the
lists.

The parties are thus the unrepresentative and unaccountable gatekeepers
of the national political game. The result is that a relatively enclosed
political elite has developed that compete among themselves for the
levers of power. But they are essentially playing a game that excludes
broader and more meaningful participation. Citizens have little means to
influence the internal decision-making of the parties, leaving the field
open to cronyism and encouraging shadowy campaign financing, which has
become a pronounced feature of the contemporary political scene since it
is one of the few ways to gain influence.

The gradual moves towards a market economy has further reduced
competition in that those with political power and influence under the
old Ceausescu regime were in many cases able to convert their prior
positions of power to dominance in the new market economy. The informal
networks of collusion that characterize the leading heights of the
Romanian economy are the basis for an interpenetration of politics and
business by the elite.

An example of the effects of the interpenetration of business and
politics may be seen with regard to the private media. In an ideal
democracy, a free media contributes to a healthy competition by
facilitating the flow of information, providing for both a more informed
public and a higher degree of accountability on the part of those in
power. In Romania, on the other hand, there is a marked collusion
between business, media, and political interests that inhibits media
from fulfilling its democratic role. While there is a profusion of
independent news outlets with differing perspectives, the dependence of
barely solvent operations upon commercial support means that a high
degree of self-censorship is practiced. Circulation figures are
relatively low for the number of outlets, and a financial dependence by
the media on a small number of monetary sources has had a muzzling
effect, especially on investigative reporting. In short, the state
control over the media that existed under the old regime has been
replaced by a media that while independent from government control is
subject to influence exercised through the marketplace. The private
sector in many democracies naturally has a strong influence on the
media, but the small size of the Romanian market means that it has been
dominated by a relatively restricted elite that also tends to control
the political sphere.

While the freedom of expression and association contribute to
competition, citizens have not availed themselves effectively in this
regard. The weaknesses of advocacy NGOs have had a particularly damaging
effect on competition since they failed to provide an effective
alternative to the political parties. Advocacy NGOs were often created
in response to the opportunity of donor funding, and remained more
responsive to donors and their priorities than to domestic
constituencies. The state structures so dominated by the closed party
hierarchies proved relatively impervious to the advocacy efforts of the
NGOs, so they had a hard time convincing the public that they were
really an effective means of participating in or influencing public
decision-making. Some of the public has developed a cynicism about the
advocacy NGOs, seeing them as vehicles for tapping into donor funding
rather than as expressions of altruism. The advocacy NGOs are currently
in a slump in Romania as the flow of funding has stemmed as a result of
the relative ineffectiveness of the NGOs. There are, of course, some
rare exceptions, such as Pro Democracy, which has managed to both
establish roots in local communities and develop a broad credibility,
the latter in large part due to their work at election monitoring.

Business and professional associations as well as community service
organizations tend to have fared better than the advocacy NGOs in terms
of public credibility. That is because they have a more natural
constituency and their promotion of self-interest is more transparent
than the pseudo-participatory rhetoric engaged in by many of the
so-called champions of democracy. Once again, though, the problem lies
with the supply side of the government/civil society equation, with few
channels available for associations to effectively influence legislation
or public policy. Community grassroots organizations are beginning to
develop a more positive reputation as their actions are reaping
dividends in terms of improved services at the local level. The World
Bank's Social Development Fund (SDF) is premised upon the potential of
such organizations, and provides a good target of opportunity for
leveraging USAID assistance. USAID cooperated with World Bank
consultants in the design of the program and the establishment of the
implementing organization. Between 1998 and 1999, the Mission also
provided institution-building assistance to the new organization
(developed start-up implementation plan and public relations strategy,
designed the management information system) as well as community
development assistance (developed Community Facilitation Handbook and
trained community facilitators, assisted communities to organize
themselves and develop project proposals for SDF funding).

Competition or the balance between branches of government suffers from
both a constitutional predisposition towards a strong executive and an
unchecked party control over state structures. The judiciary is not
independent, and is at times overly subject to partisan influence. The
legislature is both ineffective in regards to exercising oversight over
the executive and is rendered relatively unresponsive to public inputs
as a result of the heavy hand of the party structures.

Distinctions between levels of government is improving as a result of
the incremental decentralization that has been occurring. Most notable
about the dynamism at the local level is the growing competition between
the directly elected mayors and the other local and regional government
structures, notably the municipal councils and the prefects. The
municipal councils are elected according to party lists, and so they
often reflect the dominance of national party agendas and squabbles. The
prefects are the agents of the Ministry of Public Administration, and so
they are accountable to the central administration, again controlled by
the party or coalition in power. One of the impacts of decentralization
has been that the discretionary powers of mayors has increased, which
has led to a higher degree of conflict with municipal councils and
prefects in the cases where the mayors are not of the ruling party. This
increasing political competition is seen, for example, in the high
profile roles played by the feisty mayor of Cluj and the charismatic
mayor of Bucharest.

## 2.4 Rule of Law

Romania's DG problems are most striking and perhaps most severe in the
rule of law area. The EIU has forecast that the judiciary will prove to
be the Achilles' heel of Romania's aspirations to EU membership. The EC
has raised serious questions about the political neutrality of the
judiciary, low levels of training and qualifications, and a lack of
familiarity with EU law. The EC has concluded that Romania is currently
incapable of enforcing the *acquis communitaire* (body of EU law) in
certain key areas, including border control, drugs, corruption, and the
fight against organized crime.

The Romanian judiciary is not independent of the executive, although
there are some halting attempts to amend this. The biggest proponents of
change are the western donors, with the carrot being the appeal of
accession to the EU. The courts are administratively overseen by the
Ministry of Justice, who therefore has the ability to affect the lives
and welfare of the judges. Within the GoR, little political will is
evident for a more independent judiciary. There is no effective
coalition for reform. Judges tend to be interested in reforms that would
increase their autonomy, but they have little power to promote such
change. As long as the judiciary remains seen as incompetent and
corrupt, there is little prospect that the executive will embrace reform
agendas that would increase the discretion of that branch of government.

The permeable nature of the judiciary to political interference has led
to what is sometimes termed "telephone justice." The Romanian judiciary
is considered to be especially susceptible to informal influence, with
phone calls from political cronies often said to determine or influence
the outcome of cases. Judges are not well paid and some are corrupt.
Bribes are often paid to middle men, such as lawyers, rather than
directly to judges. The peddlers of influence tend to know which judges
are susceptible to corruption and won't blow the whistle when attempts
are made to sway the outcome of cases by extra-legal means. Particularly
corrosive to the impartial functioning of the judicial system has been
suspected collusion between prosecutors, police, and judges.

The judiciary and police are essentially extensions of the national
executive and are further linked through informal personalistic networks
of influence. Upper echelons of the police tend to have been former
servants of the communist regime. When many former Securitate and police
were forced to retire in 1990, it was common for them to do three years
of military police school, which has an equivalency of three years in
university. They were then able to graduate in law that way and a number
went straight into the justice system, especially as prosecutors. A
small elite linked through personal relationships thus characterizes
relationships between these key actors in the rule of law area.

The systemic problems faced by the judiciary are compounded by
operational problems. These include slow procedures and poor court
administration skills. The system is vulnerable to organized crime
schemes. Well-conceived and multi-layered crime operations have proven
difficult for the GoR to control. In addition to the susceptibility of
the judiciary to influence, the length of prosecution is also a problem,
with prosecutions taking an average of four years. Once sentence is
passed, it can then be appealed again, further drawing out the process.
The police and prosecutors are not known for their efficiency in working
together to put together good cases.

Moreover, the judiciary has become a centerpiece of the "black" economy,
favoring corruption rather than providing independent and impartial
mechanisms of mediation or oversight. In Romania's new market economy,
justice has the reputation of being up for sale to the highest bidder.
This has had deleterious effects both on economic growth and on regime
legitimacy.

The need for fundamental reform in the rule of law area is pressing and
of great importance. But the challenges are also monumental and not
easily tackled without significant resources. The political will for
sweeping reform of the judicial sector is not in evidence, as is the
case with most oversight mechanisms. It is thus risky to contemplate
donor investment in this subsector without some clear signals regarding
the GoR's commitment to the independence and integrity of the judiciary.
There has not yet been a much needed systematic assessment of this
sector by donors to date, although the World Bank is in the midst of
carrying out a study of the judiciary.

The Romanian Magistrates Associations (RMA) is relatively weak, but they
have recently brought some of the deficiencies of the judiciary to
light. In June 2001, they held a press conference where they accused the
judiciary of being politically and financially dependent upon other
state authorities. They complained that the Ministry of Justice has been
extending its control over the judiciary, and stated that "All of us,
with no exception, believe that politicians have increased their
pressures on the judiciary after 2000, and they are doing so more
often."[^5] The magistrates believe that "the political influence is out
in the open as far as the prosecutors are concerned, because the
prosecutors are directly subordinated to the justice minister, who is a
politician (which is against the law)."[^6] The magistrates would like
to see the law changed so that prosecutors are independent and the
Attorney General appointed by parliamentary vote. The Attorney General
is currently appointed by the President. The magistrates also severely
criticized the Superior Magistrates Council (their control body) as
being subordinate to the justice ministry.

Regarding personal security, no systematic abuse of freedoms still
exist. During the latter part of Constantinescu's presidency, the police
were in fact seen as weak because of violent clashes between the police
and miners. This contributed to an impression of a decline of authority,
but this has been reversed since the elections of 2000 and there are now
noticeably more police officers seen on the street.

## 2.5 Good Governance

Romania's system of governance is characterized by several flaws that
impede sustainable development. In brief, the systemic problems
described above have combined to lead to a marked lack of accountability
that in turn discourages private investment. There appears to be weak
political will to tackle the fundamental shortcomings of the system
because those in positions to make decisions also tend to benefit from
unchecked partisan control over the state. The lack of accountability
encourages an impunity which in turn allows corruption in public
institutions to flourish.

The prevalence of corruption is the most visible symptom of Romania's
governance problems. Bribes relating to public administration are now
commonplace. What at one time started with token gifts such as a pack of
coffee has now become routinized into envelopes of money. Construction
permits, for example, often require the greasing of palms. Corruption is
particularly high in regards to medical services, education, and the
judicial system. The corruption has spanned more than one party or
coalition in power and has more to do with low transparency and a high
degree of discretion in public life as well as the stark lack of
accountability that pervades the system.

Two elements have exacerbated and perpetuated the gap between party
practices and good governance. The first is the electoral system, where
those elected owe their allegiance and accountability to the party
leadership, rather than to their constituents. As described above in the
section on competition, the party leadership decides who is to be on the
party lists submitted to the electorate and these decisions are made in
a very hierarchical process that is not transparent. The second factor
undermining democratic practice is the strong and shady influence of
campaign financing, which is widely viewed by knowledgeable sources to
be a mainstay of both political corruption and of money laundering. Yet
another shortcoming of the parties is that despite their centrality to
the political process they don't have clear agendas or platforms to
facilitate choice by the electorate. Rather, they are dominated by
personalities and interests. The distinctions between parties have
become even more blurred by the migration of politicians from one party
to the other, such as the recent influx of liberals into the social
democrat camp.

The rivalries between the parties has led to them becoming more like
political machines, with the winners at the ballot box seeking to use
state resources to reward their followers. While in a healthy democracy
a certain amount of such practices naturally occurs, in Romania the
strong lack of oversight and accountability means such practices are
taken more to extremes. Parliament, which in an ideal situation, would
be able to provide some check on a ruling party in control of the
executive, has not come close to playing this role of checks and
balances. In fact, a heavy use of emergency ordinances to pass
legislation has further marginalized the role of parliament. The
previous government used emergency decrees hundreds of times while the
current government has already invoked this constitutional clause over
100 times in less than one year in office.

The weakness of the role of parliament hurts other oversight mechanisms
as well. One promising development in countering the absence of
accountability and oversight was the creation of an ombudsman's office
as per the new constitution of 1991. The actual creation of the office
was delayed until March 1997, a sign of the weak political will
regarding accountability and oversight that has spanned several
governments. According to the 1997 law (Law No. 35/1997), the
ombudsman's office deals with the rights of individuals, not groups, and
their purview excludes parliament, the president and the Council of
Ministers, although each minister is subject to examination. Oversight
of the judiciary is also excluded from the mandate of the ombudsman. The
limited purview of the ombudsman under the 1997 law appears to be
different than envisaged under the constitution, where the role of the
ombudsman (referred to as the Advocate of the People in the
constitution) is implied to be in regard to all public authorities.[^7]

The citizens have responded to the creation of the ombudsman office by
utilizing this mechanism with significantly increasing frequency. In
1997, only 1,000 complaints were registered. This rose to 3,000 in 1998,
4,500 in 1999, and 6,000 last year. The most common cases brought before
the ombudsman have to do with the restitution of property, with about a
third of the complaints dealing with this issue. Another important area
of recurring complaint is the justice system which is seen as both too
expensive and corrupt.

But the effectiveness of the ombudsman's office in providing oversight
and accountability has been constrained by two factors. First, the 1997
law strongly limited the areas of competency of the ombudsmen, and the
types of complaints brought by citizens to this office are very
frequently out of its jurisdiction. Secondly, the powers of the
ombudsman are linked to actions by the notoriously weak parliament. At
the end of each year, the ombudsman gives a report to parliament, but
public authorities are not bound in any way by the recommendations of
the ombudsman. If the public authority in question does not react
satisfactorily, the ombudsman then usually goes to a higher authority.
For example, if a mayor who is the subject of a complaint does not
provide satisfaction, the ombudsman will go first to the prefect, then
to the minister of public administration, then to parliament. In
practice, however, the key power of the ombudsman is moral authority.

While the powers of the ombudsman may be limited, the increasing use of
this office by the citizens illustrates their thirst for mechanisms of
redress against perceived government excesses or wrongdoings.
Unfortunately, the potential and development of this institution is
reliant upon a sluggish and recalcitrant parliament, which again
displays the generalized lack of political will for effective oversight
and accountability. Not only did it take six years for the ombudsman's
office to be created after it was mandated in the constitution, but the
parliament has thus far failed to name a replacement for the first
ombudsman, Paul Mitroi, whose mandate expired on June 18, 2001 and who
is not submitting his candidacy for a new term. In fact, parliament did
not even review the ombudsman's report on the year 2000 before the term
of Mitroi expired.

Demand for governmental accountability and oversight is particularly
strong from the private sector. Some financial oversight units exist,
such as the National Council for Competition (supported by USAID), which
is subordinated to the parliament, and the Office of Competition, which
is part of the Ministry of Finance. But the overall environment and will
for improved accountability actually seems to be in decline as witnessed
by the developments regarding the Court of Accounts (COA), covered in
the accompanying text box.

The governance situation is not quite so bleak at the local level. This
is not so much because of a high capacity of government institutions but
because the situation does not appear as stalemated as at the national
level. While the decentralization process remains incomplete without
greater local control over financial resources, there is a spark of
dynamism indicating that a tentative transition towards democratic
governance is evident. There are two aspects of the current situation
that lead to this positive evaluation. First, the mayors tend to be more
responsive to constituents since they are directly elected and citizens
are more likely to get involved in public issues as a means of
self-help. The mayors tend to be less influenced than their national
counterparts by the party machinery. This is especially apparent in
their often troubled relationships with the municipal councils, which
are elected by party lists and therefore more subject to the hierarchic
dictates of the party. Citizen participation in local decision-making
therefore offers more promise than similar efforts at the national
level. Already there are good examples of progress in Brasov,
Alexandria, Ramnicu Valcea, Baia Mare, etc., where citizens now
participate in local budget hearings. The mayor of Mangalia is also
known for facilitating excellent participation by its inhabitants, and
Mangalia is known as one of the best administered cities in Romania.

Secondly, the passage of decentralizing legislation in recent years has
succeeded in passing increasing responsibilities to local government.
While this positive trend has not yet been complemented by a full
transfer of fiscal authority, it has permitted a gradual development of
confidence in the benefits of empowered local administration as an
alternative to the more unresponsive centralized administration of yore.
The increasing responsibilities of local government provide incentives
for greater citizen participation.

Since the parties have so much impact on public administration, an
analysis of governance would be incomplete without considering the
dynamics of the ruling party, in this case the PSD. The PSD is
increasingly utilizing its abilities to concentrate power in its hands.
It has developed very professionalized capabilities that work like a
political machine that is encouraged by the electoral structures,
utilizing the bureaucracy effectively to consolidate its hold on power.
Politicians of different hues are responding to the consolidation of the
PSD's dominance by defecting from their own parties and going over to
the PSD to try to compete for influence within that party structure.

The PDSR (predecessor to the PSD) successfully repackaged itself after
its loss of power in the 1996 elections. Those controlling the party
tend to have formerly been in the communist party prior to the
revolution. The party tends to have a mentality of top-down control in
how they manage power, although there are several important clans within
the party, which are organized by regions: Moldavia, Oltenia, and
Transylvania. The PDSR, now the PSD, has a reputation for trying to
control as much as possible within their jurisdiction. The party is said
to influence the judiciary, the local administration, and other local
authorities by threatening people with blackmail, extortion, and so
forth. Despite these accusations of illicit influence, the fact is that
the main reason other parties have not effectively provided a
counterweight to the PSD is that they lack grassroots while the PSD is a
more effective political machine. Without any real ideological anchors
or distinct platforms, parties rely on the provision of jobs or the
distribution of other public resources and the PSD is simply far and
away the best at this. The PSD's support remains particularly strong
among older voters and rural workers, who still see the party as a
surrogate for a state that will take care of their essential needs.
Similarly, the party depends on the support of the unions and so is
reluctant to impose policies that will endanger the interests of
organized labor.

Governance in Romania is thus heavily influenced by the political logic
of a sophisticated party machine. The public administration naturally
runs more according to central partisan dictates than criteria of
efficiency, transparency, and accountability. This can have a distorting
effect on how public agencies perform and on how they are perceived. At
the local level, the tensions between the prefects and the mayors attest
to some of these problems. Likewise, the reluctance to transfer more
control over revenues to the local level reflects a desire to be able to
allocate resources according to partisan criteria.

The political logic that undermines good governance in Romania manifests
itself with considerable clarity with regard to privatization. Despite
the fact that the GoR is under international pressure to privatize more
rapidly, the PSD is constrained from doing so in part by an internal
desire to avoid alienating the unions. In addition, the privatization
process has been distorted as a result of the opportunities it presents
for lining the pockets of those with power and influence, another
essential attribute of a political machine like the PSD. It should be no
surprise that the government is not united in its professed commitment
to reform and lacks the political will to move decisively on privatizing
state enterprises. While privatization was slowed by the disarray and
lack of capacity in the previous coalition government, the current
government faces a disincentive caused by its responsibilities to its
own constituencies, notably the unions. The PDSR orchestrated a social
accord between employers and unions, which has brought a certain degree
of social peace in a country that is prone to serious labor unrest.
Moreover, the state enterprises that remain to be privatized will be
more unsettling to the unions and therefore more politically difficult
than the privatization accomplished to date. While the government is
pressured towards privatization by the heavy financial weight of
supporting bloated and inefficient state enterprises, the political
logic of the party system goes in another direction. Hence, Prime
Minister Adrian Nastase recently insisted on the need to balance the
financial need for privatization with the responsibilities for
maintaining a "social balance."[^8]

In sum, Romania faces serious DG problems in the area of governance that
result not only from a lack of technical capacity or lack of good faith
on the part of its leaders, but also from a political logic that
emanates from key political structures, most notably the party system.
In order to remain in power, the dominant party operates as a political
machine, dispensing favors and resources in order to maintain the
allegiance of a relatively small and insulated political elite, as well
as other core constituencies, such as the unions. What allows for the
perpetuation of such a system is the almost complete lack of well
functioning mechanisms for accountability and oversight, except for the
legislative and presidential elections every four years. The result of
this system is a democratic transition that has stalled in its tracks,
unable to move forward without some bold and courageous actions by
leaders of parties that may not be well received by rank and file.

Convincingly capturing the direction of political change in Romania is
something that has eluded analysts since the 1989 revolution. What
appeared as a bottom up and rapid jump towards democracy quickly became
seen as a top down resurrection of control by the elite. Initially,
there was a modicum of liberalization thrown in to preserve stability
and remedy the systemic faults that were the hallmark of both the
Ceausescu dictatorship and the centralizing communist structures over
which it was overlaid. With the 1996 elections, it appeared as though
the pessimists had been wrong in thinking that the revolution was
hijacked, and the country was moving forward towards democratic
transition after all. A peaceful transfer of power had occurred, and the
new center right coalition appeared to have a reformist bent. But once
again, things were not so simple, and corruption, intragovernmental
squabbling, and backsliding on reform promises soon tarnished the image
of the coalition government. With the 2000 elections returning to power
a repackaged and stronger PDSR, there is a tendency to see a reversal of
the tentative transition towards democracy. Yet the PDSR is itself
consistently speaking about the need for reform and has publicly
committed itself to the path towards a mature market economy,
decentralized local government, and more solid foundations for
democratic governance. At the same time, the dominant party must also
respond to its own internal dynamics, which do not necessarily favor the
type of change that would propel Romania's transition forward.

The return of the PDSR to power has one key advantage in terms of the
prospect for carrying through with reforms. Namely, the consolidation of
its own political dominance and power gives it the ability to take more
risks and challenge the status quo with much needed reforms. Whether it
does so or not will depend on the will of the leadership and their
ability to bring the rest of the administration along with it. While
political will is an intangible element that is resistant to easy
measurement or judgement, there are certain litmus tests that can help
donors assess the degree to which the reformist rhetoric of the new PDSR
is more than talk. Above all, the governance and rule of law problems in
Romania are manifested by, and in large part due to, the deficiencies in
mechanisms of accountability and oversight. If the government is serious
both about promoting democratic governance and a market economy, it
needs to make some improvements in these domains. There are several
issues currently on the table in Romania that would reflect serious
intent on the part of the government. These include the Freedom of
Information Act (FOIA), party campaign financing, and a genuine dialogue
over constitutional reform. If the government moves to make progress on
these fronts, it would be very promising for breaking the stalemate that
has up to now bogged down Romania's transition toward democracy.

## 2.6 Distilling the DG Problem

The greatest DG problems in Romania are in the rule of law and
governance areas. However, to overcome these problems, the competition
problems in regards to the rules and incentives that condition political
party behavior are also germane. The depth and scale of the obstacles
that need to be overcome are such that they are not feasibly capable of
being overcome through USAID resources alone, but require complementary
efforts by other donors as well as a political will on the part of the
country's leaders that has yet to be proven or consolidated.

The character of the regime is still very much in the making. Certain
key foundations of democracy have been put in place, such as the freedom
of speech and association. However, the bleak economic performance of
Romania is jeopardizing the credibility of the democratic transition. In
order for the transition to be completed and consolidated, the regime
will need to take more bold steps in overcoming persistent constraints
to private investment. The current trends in Romania reflect an emerging
dominance of the PDSR over the multi-party system. While on the one
hand, this suggests that the party will seek to use its control over
government to consolidate its power, on the other hand the leaders of
this party may have more freedom of maneuver to put in place the
fundamental reforms that need to be undertaken.

# 3.0 Political Actors

Now that the basic political dynamics and key DG problems have been
identified, this section will examine the key political actors to
further get a sense as to which types of donor interventions will be
feasible and well received. This brief analysis of the nature,
resources, and interests of the actors will provide a better sense not
just of the players in Romanian politics, but of the constituents and
possible opponents to further democratic transition.

## 3.1 Contextual Pressures for Change

Political actors generally respond to their context, and in Romania
there are certain pressures for change which are seen as the primary
motivating factors behind the push for reform. As seen in the preceding
section, the internal dynamics of the party-dominated status quo would
tend to lead to a situation where the elite and other vested interests
resist serious reform. But there are both external and internal
incentives to reform that could propel a forward-looking leadership to
seek to overcome the inertia that has gripped the Romanian political
system over the last few years.

As mentioned earlier, the most commonly cited incentive for change is
the appeal of accession to the EU, and secondarily to NATO. But the
reason accession to the EU is so important is primarily due to the
economic opportunities that membership is likely to provide. Romanians
have always been particularly sensitive to their international
reputation and standing, but the principal attraction to accession is
that it is seen as offering some relief from the dismal economic
situation and performance of the past few years.

The current situation in Romania is untenable in that the status quo is
highly unlikely to produce the growth needed to resolve the country's
difficult economic situation. The GDP has fallen in each year from 1997
to 1999, recovering only slightly in 2000. GDP in fact declined by a
substantial 14.1 percent between 1997 and 1999. Gross fixed investment
fell between 1997 and 2000 by 20 percent. The development of a modern
economy, with a strong service sector and competitive industries, has
been painfully slow. Most Romanians now consider that they were better
off under communism than under the parliamentary republic installed
since 1991. The prospects for rapid domestic economic growth remain
muted, as the unreliable rule of law situation actively discourages
private investment as does unclear business practices and procedures.
The foreign debt has risen sharply in the 1990s and there was almost a
crisis in 1999 when Romania had to draw down its foreign exchange
reserves to service its obligations. The small size of the middle class
is an obstacle to economic growth and investment, as well as to
democracy.

Internal pressures for change are thus quite real and likely to mount as
the population becomes increasingly uncertain of their future security,
since the tentative steps towards market reform have not been
accompanied by material benefits, but quite the contrary. Moreover, it
is unclear what direction these growing pressures are likely to take,
and it is not sure that they will favor the transition towards
democracy. The surprising surge in popularity of the PRM indicates that
a growing minority of Romanians might actually favor a return to greater
authoritarianism.

A further factor favoring change is often thought to be a generational
shift in power that will come with time. Such a perspective is based on
a hope that the undemocratic and nonparticipatory political culture
which had its roots in the communist past will fade with a new
generation whose political consciousness postdates the 1989 revolution.
It is certainly true that a lack of elite circulation has hampered the
pace of change in Romania despite the revolution, with personalistic
informal networks leading to the preservation of old ways. But hoping
that a change in generations will be enough to overcome the structural
incentives that have led to the current impasses may well involve some
wishful thinking. It is equally likely that the means of recruitment and
advancement in political parties will help to perpetuate structures
despite new blood.

## 3.2 Key Actors and their Interests

### 3.2.1 Political Parties

Contemporary Romanian electoral law ensures proportional representation
and voting according to party lists. This system renders MPs more
accountable to the party leaders than to their own constituencies. The
UDMR was the only party to have an internal election before the general
election. For MPs to advance and gain influence, they need to be
disciplined soldiers of their own parties. This is one of the reasons
that Romanians have such low trust in the parliament and the political
parties. The system also encourages a selection of candidates who are
able to purchase a high enough spot on the list to be eligible for
election. As a result of the top-down hierarchical mechanisms of party
control, the parties rarely have clear doctrines and people are often
confused about what they stand for.

Changing the current electoral law to a mixed system (single vote/lists)
might increase the accountability of MPs to their constituents. Many of
the parties after the 2000 elections agreed to consider changing the
law. However, some fear that the dominant PSD will seek to structure
things to their advantage, such as by gerrymandering which new voting
districts should be established for the single vote slates.

Party campaign financing has become a critical issue in Romanian
politics. There is a striking lack of transparency in this regard and a
lack of clear legislation to regulate the financing of political
parties. What laws do exist are often violated with impunity. Much of
the financing is said to come from businesses (some international) and
from money laundering. Public funds are also often tapped for campaign
budgets. Monies from the private sector tend to be a *quid pro quo* for
hidden favors granted to companies by the government. A Pro Democracy
report estimates that the PDSR campaign spent \$4 M, but only declared
\$1 M, and this is a pattern repeated with the other parties.

One of the principal sources of campaign financing is thought to come
from the redistribution of state assets through crony privatization. The
bright side of this diversion of public funds to party treasuries is
that it might increase the political will to privatize and help overcome
the resistance of those with entrenched positions in state enterprises
that are concerned with the maintenance of their privileges. On the
other hand, the lack of transparency regarding privatization to date has
encouraged malpractices, corruption, and an unjust redistribution of
social benefits. Many of the state-owned enterprises have been
undersold, and the profits used for private gain by those with political
influence.

The electoral framework, internal structures, and financing of the
political parties thus weaken their interest in reform and turns them
into instruments for intra-elite cooperation and competition. The
center-right coalition collapsed in disgrace after its poor showing in
government, and there is currently little prospect for its
resuscitation. This has left the field open to the PDSR, which under its
new banner of the PSD has emerged as by far and away the dominant actor
among the political parties. The PSD has 45 percent of the seats in
parliament, with the PRM coming in a distant second with 25 percent. The
PD, riding on the popularity of the dynamic mayor of Bucharest, comes
next but even further back, with only nine percent. In fact, the extent
of the PSD's dominance in party politics is in part the result of a
popular rejection of the multipartyism that led to the political
immobilism of 1996-2000. The PSD is far from a monolithic entity,
containing pragmatists, reformists, and opportunists, with the
pragmatists currently thought to be in the strongest position.

As a political machine, the PSD distinguishes itself from the others not
only for its national dominance, but also for its ability to establish
roots in local politics. Over 65 percent of the mayors are adherents of
that party. The PSD has a very strong Minister of Public Administration,
who is close to the president, reflecting the priority which that party
gives to local affairs. The prefects are also linked into the party
structures since they are the watchdogs of the central government and
controlled by the Ministry of Public Administration.

The constituency of the PSD is primarily composed of adults of fifty
years or older and rural residents, especially in Moldavia and Muntenia.
That part of the population is disproportionately affected by poverty
and dependent on assistance from the state. These constituents tend to
resist reforms as they are concerned about a degradation of their living
standards due to a transition towards a market economy and a reduction
in the beneficence of the state. What many Romanians in this category
are really looking for in their government is stability -- stable
prices, state guaranteed wages, and state guaranteed jobs.

### 3.2.2 Political Leaders

With the parties lacking widespread credibility, individual leaders take
on more importance. Polls suggest that there are only three political
leaders with a high level of trust in contemporary Romania. These are
Traian Basescu, the President of the PD, Adrian Nastase, the Prime
Minister and President of the PSD, and Ion Iliescu, the PSD President of
the country. However, as the popularity of politicians rises, they tend
to be the targets of cooptation by business interests, such as was the
case with Melescanu. Already Basescu has been courted by competing
interests seeking to ride the coattails of his popularity.

In the past years, it has been hoped that a new generation of political
leaders would help to professionalize parties and politics in Romania.
Many training programs were put in place and numerous young political
leaders have benefited from overseas experiences. But hopes are dimming
that this training of young potential leaders will be able to surmount
the rigid tendencies of the political system, with recruitment and
promotion within parties still based on conformity to existing
practices. One telling example was the PNTCD from 1996 to 2000. Before
the 1996 elections, many young members of that party reached important
positions in a party that was otherwise dominated by a gerontocracy.
However, the young comers soon got the reputation of being essentially
clones of those who promoted them. In any case, the PNTCD lost
parliamentary representation as well as credibility, and a subsequent
major transformation of the party occurred as both the young and old
leaders were swept aside in unusually free internal elections. The
lesson here was that it is not enough just to pin hopes on a new
generation, but more important to reform structures and rules that
condition behavior.

### 3.2.3 Civil Society Organizations

Although there are now some social service delivery NGOs, there is not
much of a tradition in associative life, as might be expected in a
postcommunist state. The profusion of NGOs that took place after 1990
featured a great number that were concentrated in advocacy work,
sometimes termed as CSOs. The principal problem with Romanian CSOs is
that they lack any natural constituency. Most were begun as top-down
organizations, primarily "rent-seeking" groups responding to
international funds and lacking much sustainability. These groups tend
to be in the hands of a few individuals who see themselves as an
enlightened vanguard with the mission of leading others on the road to
democracy. Most of these organizations exist in the urban areas and in
the western part of the country. These organizations tend to be marked
by low internal transparency and accountability. Their credibility among
the population suffers because they do not deliver tangible benefits,
and it is likely that people would be more receptive to groups that did
help provide services in the wake of a retrenching state rather than
what are perceived as opportunists trying to cash in on donor naiveté.

Donors not only helped to create this group of actors but were
inadvertently instrumental in perpetuating their weaknesses. The
creation of CSOs was not a natural phenomenon, nor was it based on any
community needs. After the elections of 1996 transferred the mantle of
"democratizers" to the CDR and its coalition partners, many CSO leaders
left for other pursuits, leading to a decapitation and
deprofessionalization of many CSOs. A tendency towards fraud and
corruption, with double billing and dubious accounting further
undermined the reputation of these groups.

The notable exception to the disappointing development of Romanian CSOs
is Pro Democracy. This group has in fact distinguished itself in the
region as an example of what a CSO should be. It evolved from a focus on
education programs to a more elaborate strategy based around monitoring
political parties (especially campaign financing) and advocating changes
in legislation. Although its first president came from the Brasov
chapter, the organization is headquartered in Bucharest with multiple
branches all over the country. Pro Democracy is currently refocusing
part of its energies on the local level, taking advantage of the
decentralization initiatives to promote greater citizen participation in
local decision-making. National Democratic Institute (NDI) played a key
role in facilitating the development of this organization.

### 3.2.4 Business Associations

These are the most active and efficient manifestations of associative
life in Romania. This is largely because they have established
themselves from the bottom up, having a natural constituency that is
highly aware of their interests and that is willing to provide
sufficient resources for sustainability. Under the present regulatory
regime, most small and medium enterprises face great difficulties in
prospering. But they are increasingly developing an effective lobby for
changing regulations in their favor or at least developing a stable and
predictable environment for conducting business. CSOs would do well to
form coalitions with business associations in promoting reform, but thus
far it appears that interaction between these two groups of actors has
been sporadic and characterized by uneven success. This is in part due
to the distorting effect that a donor overemphasis on political advocacy
has had, neglecting the importance of lobbying for self-interest for the
sake of supposed political altruism.

### 3.2.5 Research and Academic Groups

Another domain of associative life that affects politics is in the area
of think tanks. There are several academic and research groups that
gather and analyze information about various elements of the Romanian
political system. The experts that make up these groups have been
trained both in Romania and abroad. These groups, such as the Romanian
Academic Society, sometimes provide input and information more accurate
than official sources, such as the National Institute for Statistics.
However, these groups tend to be fragmented and in some disarray, being
dominated by a disparate group of individuals who tend not to
collaborate closely. The individuals belonging to the various groups
have increasing access to decision makers and they thus are in a
position to influence policies and promote reforms on various topics.
While the objectivity of such analyses depends upon the perspectives,
aspirations, and interests of the various leaders, the existence of this
subsector of Romanian associations does provide an alternative source of
information for public decision-making.

### 3.2.6 Media

The Romanian media is largely independent of formal government control,
and there is a large number of national and local private outlets. About
1,600 new publications have been launched since 1989. However, despite
the independence of the media, freedom of expression has sometimes been
muted by charges brought against journalists of slander and causing
offense to the authorities. For example, one cartoonist was sentenced to
a \$400 fine for depicting a mayor as a pig. Papers are also sometimes
sued for publishing letters from readers. The press is also constrained
by dwindling circulation and rising input costs.

Only the public television chains (TVR1 and TVR2) are in the hands of
the public authorities, although as of last year efforts have been made
to make them nonpartisan. But since most major private television
stations use only the cable system to broadcast their coverage, it is
really only the public stations which reach the entire nation. For
example, in many rural areas, there is no cable service, although the
public television can almost always be received with an antenna. Local
private television stations are usually branches of a national station.

Despite its relative freedom from government interference, there exists
a strong collusion between political and business interests in the
Romanian media. To speak of the independence of the media, therefore, is
to only refer to formal government control, and not the informal
domination of the media by the wealthy and powerful. This collusion
begins with the owners, who tend to serve as instruments of political
forces or business groups. Indeed, it is widely claimed that it is not
uncommon for those with sufficient money to start up a media outlet to
do so as a means to fight against enemies or to obtain privileges from
politicians. Unfortunately, it is not uncommon for blackmail and
extortion to be among the tactics used in the modern media business,
where stories are threatened to be printed unless favors are granted.
For example, bargaining over advertising is sometimes performed with
compromising files and information on the table.

Truly independent journalists are not easy to find, since most are hired
as mercenaries to serve the particularistic interests of the owners. The
professionalism of Romanian journalists also leaves a lot to be desired.
Many do not have a background in journalism, and it is sometimes said
that there are as many engineers in media as in the industrial sector.
One reason for this lack of relevant background is that higher education
in communist Romania concentrated on technical areas, which is why today
one finds engineers in almost all fields of activity -- from public
administration to media to CSOs. There is no clear code of ethics for
journalists, although a professional solidarity is indeed growing, as
journalists seek to counteract the pressures brought by editors and
owners.

The case of Media Pro is illustrative of the difficulties faced by
private media. Media Pro is a huge media corporation in Romania. It
developed very rapidly after 1995, with very impressive growth in its
audience and circulation levels. It is often said that Pro TV made a
significant contribution to the first democratic transfer of power in
1996. However, after 1996, it became clear that Media Pro had
accumulated large debts to the state, largely because they did not pay
adequate taxes for its large numbers of employees. Apparently a "tax
exemption" had been granted to Media Pro in exchange for favorable
attitudes in the news towards the former government and also for
contributions to the electoral campaign. Now Media Pro has fallen upon
hard times as a result of a new political party (PDSR) coming into power
while the debts are still there. It is thought that the various news
outlets owned by Media Pro must accommodate the new power simply to
survive.

### 3.2.7 Unions

Under the communist era, Romanian trade unions were an extension of the
state and organized under a single federation, the General Trade Union
Federation of Romania. After the 1989 revolution, there was a growth of
new independent unions, as well as some state-dominated unions that
continued to exist. But what has tended to replace the old state control
of unions has been close and sometimes informal relationships with
political parties, which has in turn undermined the independence and
integrity of the unions. The blurring of the lines between national
party politics and labor issues has actually led to the transformation
of labor leaders into prominent national politicians, as was the case
with a former prime minister (1997-1998), Victor Ciorbea, and the
current Minister of Transportation and Vice President of the PDSR, Miron
Mitrea, who had originally been hailed as the first truly independent
union leader in Romania.

The representative nature and political independence of many of the
current unions is thus highly questionable. The power of the unions and
their leaders depends in part on their capacity to disrupt the economy,
such as by paralyzing transportation or interrupting energy supplies. In
the mining sector, unions tend to be more powerful because miners are
spatially concentrated and have a history of collective mobilization.
Unions in health and education are for these reasons less powerful than
their counterparts in the mining, electrical, or railroad industries,
which explains why the complaints of these former unions have been
relatively ignored by the government over the last decade. The miners'
union in Valea Jiului was significantly weakened after the arrest and
prosecution of Miron Cozma (their unchallenged leader) in 1999, but
other industrial unions remain powerful. An example of unions flexing
their muscles may recently be seen in the case of Resita. This company
had been privatized and bought by an American company, but after three
months of street protests by union members the government decided to
repudiate the privatization contract. It is in fact fairly common for
unions to ally with the management of state-owned enterprises to
frustrate and obstruct efforts at privatization. This management/labor
collusion is one factor that makes state enterprises relatively
unattractive for foreign investors, especially in view of the provision
that new private owners must retain the current labor force of the
respective company for five years after privatization.

As mentioned above, the confederation Cartel Alfa has distinguished
itself by not allying with political parties. It is now quietly
collaborating with a coalition effort to reform election law together
with Pro Democracy. Cartel Alfa thus represents a potential asset to be
mobilized in support of the Mission portfolio.

The growing partnership between unions and the government may have some
unintended consequences. Just prior to the 2000 elections, the PDSR
coopted some union leaders within the party and offered them eligible
slots on the electoral lists. It was hoped that this would prevent or at
least reduce labor unrest during the first years of the new government.
But union leaders do not have the same control over their members as
they once did, and there is concern that spontaneous social turmoil
could result due to the appearance that the union leadership had formed
a pact with the government without obtaining sufficient benefits for
members.

### 3.2.8 Church Groups

There are three major churches in Romania: Orthodox, Catholic, and
Greek-Catholic. There are also important protestant communities,
especially in regions with large Hungarian populations. The Catholic and
Greek-Catholic are primarily concentrated in Transylvania. The
relationship between the Orthodox and Greek-Catholic churches has been
strongly marked by a dispute over the disposition of former church
property. This dispute has at times spilled over to open conflict
between respective followers of the two religions, especially in
northwestern Transylvania, where there are communities of mixed creeds.
In addition to the three major religions, there are some other
Neo-Protestant religions with little tradition but an increasing number
of proselytes, who benefit from western financial support. The poor
(even the Rroma) tend to be attracted to the Neo-Protestants who appear
to have more resources to offer. This has been of concern to many of the
Orthodox priests who have become increasingly vocal in their opposition
to the newcomers. There is thus a latent tension between these two
groups with some potential for conflict between the followers.

In general, the church is the institution with the highest credibility
and trust among Romanians. However, individual priests do not benefit
from the same degree of trust. It is often the case that Orthodox
priests claim high prices for their services, or at least this is the
perception of many laypersons. There is also some widespread suspicion
that not all priests subscribe to the rules they preach. This tendency
to look askance at individuals associated with the church despite the
high trust accorded the institution may in part be explained as a
remnant of the totalitarian political culture that characterized the
communist era.

The Orthodox Church has thus far not played a major political role in
Romania, despite their latent potential to do so. In fact, one could say
that the Orthodox church has a history of trying to accommodate
themselves to the powers that be that dates back to 1945 and even
before. There were Orthodox priests collaborating with the extreme right
movement known as the Legion Party during the 1930s, which made them
easily compromised after the communists came into power after 1945.
There was no significant opposition or protests by the heads of the
Orthodox church to the atheistic education promoted by Ceausescu, nor
even to the demolition of churches in Bucharest during the 1980s.
Compared to the Catholic Church, there is little tradition on the part
of the Orthodox in providing social services to the community, which has
hindered the involvement of the church in public affairs through
collaboration with NGOs. However, considerable potential exists for a
constructive partnership built on the credibility of the church and the
social activism of some community groups, should social needs generate
such innovation.

### 3.2.9 Ethnic Minorities

The situation regarding ethnic minorities has already been dealt with in
some detail in the above section on inclusion (Section 2.2). The two
principal minorities in terms of significant political actors are the
Hungarians and the Rroma. The ways they are represented are quite
different. The Hungarians are well organized in pursuing their
collective interests and have proved quite adept at gaining
representation in parliament and even in the government, either being
directly involved in the coalition in power between 1996-2000 or as
tacit supporters of the current PDSR minority government. They have
strong representation in Bucharest and benefit from articulate lobbies
in both the USA and the EU. As a result of their extraordinary
organizational and advocacy skills, they have been granted significant
concessions and rights by the Romanian state in recent years, such as in
the domains of language and education. One of their major advantages has
been their territorial concentration, in contrast to the Rroma.

The Rroma suffer from being dispersed throughout the country with little
cohesion amongst their own ethnic group. The Rroma as a group has never
been able to assimilate into Romanian society effectively, nor even to
communicate as a single actor. Their lack of integration and occupation
of the bottom strata of Romanian society is an embarrassment to the
country that has gained prominence as a result of EU concerns that
accession might trigger a mass emigration to western Europe. As a result
of intensive donor interest, large sums of money have been poured into
NGOs which presumably represent the Rroma. In fact, most of these
organizations are artificial and lack roots in the disparate Rroma
peoples of Romania. Entrepreneurial gypsies have rushed to claim
representation of the Rroma for pecuniary reasons, but none has yet
proved capable of mobilizing or reaching any more than a scattered
handful of the dispersed community. In fact the governmental
inter-ethnic department within the Ministry of Public Information is
better placed to address the key issues of access to education and
health for this dispossessed minority, and they appear to have the
political will to do so. In light of the heavy international attention
given to this issue, care must be taken not to go overboard and
exacerbate tensions with the majority by providing affirmative
action-like programs that provide undue entitlements to the many Rroma
who have actually succeeded in obtaining decent living standards through
legal business practices. As with the other minorities, enforcement of
civil rights guarantees must be ensured for the Rroma, but more effort
should be made to target those citizens most in need of special
assistance. The aforementioned governmental unit that was recently
established is well placed to play just such a role.

### 3.2.10 International Donors

This section on political actors in Romania would be incomplete without
mention of international donors. In addition to USAID, these actors
include the World Bank, the EU, the Open Society Foundation (Soros
Foundation) and United Nations Development Program (UNDP). The foreign
donors have an unusually high capacity to influence governance because
of Romanian sensitivity to international opinion and pressures. The PDSR
is especially sensitive to their international image after having felt
slighted during their reign in power between 1992-1996.

However, there is room for improved coordination within the DG sector
among the donors in Romania. This represents an opportunity for better
identification of concerns common to the donor community and to pool
resources and influences to overcome obstacles that all may have
identified as standing in the way to further development. The simple
feat of increasing donor dialogue on key issues, such as the lack of
accountability in public institutions, could have an impact equivalent
to several million dollars worth of assistance by individual parties.
USAID has considerably more experience than the other donors combined in
the DG area, and is therefore well placed to take a position of
leadership in sharpening and coordinating the donor efforts to encourage
improvement in Romania's governance.

## 3.3 Filtering in Context, Actors, and Interests

This section on context, actors, and interests confirms the trends
identified in the preceding section. The political immobilism associated
with flawed mulipartyism has potentially given way to the emergence of a
dominant actor, in the PSD. However, the PSD itself has been internally
reliant on problematic patterns of governance that will not be easy for
its leaders to overcome despite acute contextual pressures for change.
The reformists within the PSD thus need support in weaning its own
adherents away from rent-seeking practices that impede prospects for
economic growth. International donors have considerable influence and so
DG assistance assumes an important catalytic function in encouraging the
government to take the bold steps needed to move Romania's transition
forward.

# 4.0 Key Institutional Arenas

The above analysis has focused on identifying the nature of the
political dynamics in modern Romania, the principal DG problems to be
overcome in facilitating the transition to democracy, and on considering
the various political actors that might be either proponents or
opponents to reform. Left to be evaluated are the public arenas in which
politics is played out. This section seeks to identify the key
institutional arenas and in what ways they are susceptible to reform.

## 4.1 Constitutional Sphere

Constitutions set forward the basic rules by which the political system
is played out. In the case of Romania, the constitution is relatively
recent, having only been promulgated in 1991. Before this, the communist
dictatorship of Ceausescu had in place a fundamentally different set of
rules so the changes enshrined in the 1991 constitution were quite
radical in terms of what had existed before.

But in the ensuing years since 1991, it has become clear that there are
several areas of the constitution, which need modification in order to
improve democratic governance. These areas include the heavy use of
emergency decrees to legislate, a bipolar executive, two parliamentary
chambers with duplicative functions, an electoral law that distorts and
inhibits representation and accountability, and a judiciary that is
overly sensitive to political influences. Most of these issues have
already been described in the above text. Regarding the bipolar
executive, the situation is that the president is perceived as one of
the most, if not the most, important political figure. Yet the Romanian
president's authority is in fact much more limited than commonly
perceived, and there is not much they can do without party blessing. For
instance, the president cannot dismiss the Prime Minister or any
minister for that matter. Once elected, the president can make
suggestions and exercise moral authority, but most of his decisions are
not binding on parliament, which is dominated by the political party
hierarchies. The Prime Minister does thus not necessarily answer to the
president, which can lead to confusion and problems if there is conflict
between two strong personalities.

Revision of the constitution has been high on the agenda of interparty
dialogue, due to the shortcomings of the current system, which have
become quite apparent after several governments in power. The PSD has
recently called for the resumption of discussions over constitutional
reform, and this could be a window of opportunity for improving several
aspects of governance (see recommendations, below).

## 4.2 Legal and Judicial Sphere

The legal system was instrumentalized into a tool of Soviet-style
domination and repression in the late 1940s and early 1950s. To this
day, it has not yet recovered from the distortion this caused regarding
both the principle of separation of powers and the efficient
administration of justice. In addition to systemic flaws that
characterize this arena, there are problems with low judicial salaries,
inadequate courtrooms, equipment and materials, and high level political
interference in judicial decisions. These problems have all been
discussed elsewhere in this report.

The judiciary and legal system are in dire need of considerable reform
and the DG transition will continue to be severely obstructed until the
government manifests considerable political will in moving such reform
forward. Donor encouragement of major reform of this subsector will be
influential in helping to convince the GoR of the importance of
improvement in this sector. The World Bank is carrying out a study to
lay the groundwork for some significant intervention in this sector, and
the recommendations of this assessment include a comprehensive judicial
assessment to help lay the foundations for effective assistance to this
troubled sphere of governance.

## 4.3 Governance Arenas

The parliament has been singled out as ineffective and subject to the
will of the political parties through an electoral system that distorts
representation and hinders accountability. The Senate has 140 seats and
the Chamber of Deputies has 345 MPs. Both chambers are directly elected
from 42 multimember districts, which include 41 counties and the
municipality of Bucharest. Election to parliament is by proportional
representation from party lists. The two houses basically duplicate
themselves without clear reconciliation measures to bridge the work
between the two branches. This leads to a heavy use of emergency decrees
out of expediency.

There is basically a dysfunctional relationship between the executive
and the legislature. Once a party gains power, they can essentially
select who they want to staff the public administration, so the
allegiance is to the parties, rather than to a professionalized civil
service. The executive's use of emergency decrees has become routine,
and so there are currently hundreds of ordinances that have not been
reviewed by parliament. It is likely that some will be rejected,
although many will be rubber-stamped. For parliament to become more
functional and effective, the best hope for progress is in
constitutional reform rather than technical assistance.

The public administration is characterized by a high turnover as a
result of electoral changes in government. Civil service reform is
needed to improve the professionalism and accountability of the
bureaucracy. In the meantime, the high degree of discretion afforded
bureaucrats has helped facilitate the flourishing of corruption. A
recent World Bank study has criticized the high levels of corruption in
Romanian public life and has called for significant reform in the system
of administration. The study pointed to the predominance of cronyism and
the importance of bribery in obtaining routine services such as
healthcare.

## 4.4 Local Government

The Mission has invested heavily in local government over past years,
and so has gained a comparative advantage in understanding this dynamic
subsector and the constraints that remain to be overcome. While there
has been a gradual devolution of authority to the local level over the
last decade, the transfer of fiscal authorities has not kept pace with
the transfer of responsibilities. About 50 percent of revenues still
come from the national level, and the exact amount is often conditioned
by political considerations. There is thus considerable uncertainty
regarding local government budgets from one year to another. For
example, the town of Giurgiu with its liberal (PNL) mayor saw the
percentage of its budget that was obtained from the central
administration drop by 75 percent after the change of government from
the CDR coalition to the PDSR. This has made it difficult to develop
capacity at the local level.

In addition to fiscal and budgetary uncertainties, local government is
at times hampered by conflictual relationships between the mayors and
local councils. The mayors have no assurance of council majorities, as
the councils are elected by party lists whereas the mayors are elected
directly. To further compound the problem the large size of municipal
councils (31 members) makes it difficult to achieve consensus. The
result is a certain tendency towards immobilism in local politics
despite the gradual devolution of responsibilities to the local level.
However, the political diversity occasioned by the disparate
affiliations of mayors and council members may represent a chance to
promote and develop pluralistic representation.

## 4.5 Filtering in Institutional Considerations

Regarding the prioritization of potential targets for assistance, it is
clear that the more systematic problems at the national level (such as
in the rule of law area) will be more difficult to overcome than local
level problems of governance. The local level offers not only less
entrenched vested interests to overcome, but also shows more dynamism.
Overcoming the national-level DG problems in rule of law and governance
is beyond the scope of Mission resources. However, the Mission could
identify linchpin targets of reform and assistance at the national level
that will help enable more far-reaching reform. Such linchpin targets
include transparency, oversight, and accountability.

# 5.0 Strategic and Programmatic Recommendations

## 5.1 Towards a Managed Transition

Romania currently has the potential to move further towards democratic
governance through a managed transition. Ironically, the PSD (formerly
PDSR), which was once seen by many as a lingering reminder of the past,
is the best placed political actor to move the country out of the
impasse in which it became mired during the coalition government. The
self-destruction of the coalition government when it could not overcome
the structural constraints to liberalizing reform led to the return to
power of a stronger, effective, and more sophisticated PSD. For the
first time in its modern history, the Romanian ruling party has a
position of consolidated strength that should allow them greater freedom
and ability to pursue reforms that are fundamental to economic growth
but go against the vested interests of influential groups and persons.
The PSD has eclipsed the fragmented parties across the rest of the
political spectrum and now has the field open to systematically
implement the reforms that all agree are needed to move the country
forward into a market economy and greater integration with Europe.

However, while the current dominance of the PSD gives the government
greater freedom of maneuver, it is not at all clear that they will
actually take the bold steps needed to move Romania's transition towards
democratic governance forward. As with the other parties, there is a
strong interpenetration between the PSD and an informal network of
influential behind-the-scenes movers who currently control the heights
of the business sector. Likewise, the profits that are to be made from a
distorted privatization process that will use the state assets as
payoffs to influential groups will not be easily foregone. In general,
the corruption that is such a part of the system in Romania will help
generate internal resistance to greater transparency in government since
that would eliminate supplementary income sources for many whose regular
salaries are beneath what they would like them to be.

But the transition towards democratic governance is propelled by need
and not just good will by enlightened leaders. Without significantly
greater transparency, accountability, and oversight in government, both
foreign and domestic private investment will continue to flounder and
economic growth will be limited. Without economic growth, domestic
pressures will continue to build at the same time that state finances
are bled by continued subsidies on inefficient state enterprises. The
current stalemate regarding economic and political reform is
unsustainable, and the PSD is the best placed actor to lead the charge
to change, should it be able to overcome the internal influences that
mitigate against such reform. The PSD government has consolidated its
hold over public life very effectively, and so is in a position to
manage the transition towards democratic governance in a way that could
very well preserve political stability during a period of fundamental
change. The big question remains, though, whether the PSD leadership
will be able to move such change forward in the face of opposition from
both within the party and powerful vested interests that will not
benefit from the reforms.

USAID and the other donors could play a key role in helping to catalyze
the fundamental and systemic reforms that are needed to facilitate
economic growth. Romania is very sensitive to international opinion and
pressures, and some encouragement and reward for taking positive steps
could have a significant impact upon political will, especially if the
donors are coordinated in their identification of the key problems to be
overcome. The donor community would do well to encourage positive
governmental actions while at the same time continuing to draw attention
to potentially dysfunctional patterns of governance.

## 5.2 Strategic Considerations for the Mission's DG portfolio

Whether or not Romania moves forward on the path towards a managed
transition will primarily be up to the Romanians, especially the PSD
government. There is little donors can do to impel the needed reform
without the political will and vision of the governing party leaders.
USAID is especially constrained by the limits of its DG resources, which
are insufficient to make the fundamental difference between a trend
towards democratic governance versus corrupt authoritarianism. The EU
not only has more resources to nudge Romania's leaders in the right
direction, but they also offer the potent attraction of accession to the
union. But the EU itself appears unwilling to systematically press the
Romanian authorities to address the key issues that need fundamental
reform, such as in the rule of law area. Rather, the EU has set
standards and conditions for accession that are unlikely to be met, but
they do not seem too interested in using their assistance to instigate
any change on the Romanian part in a proactive fashion.

The most appropriate role for USAID given its limited resources and the
depth of the challenges that exist in the DG area is to support reform
initiatives that have materialized, most notably in the area of local
governance, while carefully targeting national-level assistance on key
themes as triggered by domestic initiatives themselves. In particular,
greater progress in achieving greater transparency, accountability, and
oversight is essential to both economic growth and good governance.
Without progress in these related areas, Romania's governance systems
will remain prone to corruption, will frustrate private sector growth,
and will continue to decline in legitimacy. There are several areas in
which the Romanian political class is considering various reforms that
would contribute to better performance in these key governance
characteristics. Should the government move forward with reforms, USAID
could provide timely assistance in helping to consolidate and deepen the
positive moves. Should the PSD regime frustrate and block greater
transparency, accountability, and oversight, the Mission should exercise
great caution in devoting resources to support a public administration
and system of governance that could easily give in to the structural
tendencies towards greater authoritarianism and corruption. The onus is
on the PSD government to make a tangible commitment towards a managed
transition that must necessarily entail greater checks on the arbitrary
exercise of power and authority if it is to become sustainable.

A two pronged set of recommendations follows from this DG assessment.
First, the Mission should continue to build on the decentralization
initiatives that the Romanians have undertaken in recent years. While
the decentralization process remains incomplete, the experiment is
underway, and some dynamic reaction is manifesting itself at the local
level. Achieving results by working to expand the political space at the
local level that has been opened by the reforms is a low risk approach
that has the potential to help build the confidence that is needed for
the government to further decentralize control over financial resources.

Second, a higher risk set of priorities should be clearly established in
order to draw attention to certain key deficiencies of the national
system of governance, most notably in the areas of transparency,
accountability, and oversight. Since this second track of activities is
higher risk as it depends upon bold reforms despite the inhibiting
effects of existing political structures, the assistance could be in
part triggered by and tied to concrete steps taken by the regime and
political parties.

The interventions at the local level would build on an existing window
of opportunity, and would therefore more reliably yield measurable
results. But the local level activities should not be expected to lead
to or even significantly contribute to an overcoming of the fundamental
DG challenges at the national level. It is for that reason that the
Mission should remain engaged at the national level although the
prospects for progress are less certain. Without progress in addressing
the key deficiencies of the system at the national level, Romania's
transition to democratic governance is likely to slip backward or fail.
Even with limited investment, the Mission can have an impact by helping
to catalyze reforms that are being considered but have not yet been
effected.

The Mission should avoid spreading itself too thin in its promotion of
good governance. There is so much to be done and so much room for
improvement that the bulk of reform will have to be tackled by Romanians
themselves. USAID should focus its limited assistance on linchpin areas
at this stage, and then down the line consider augmenting resources
should the GoR succeed in breaking the grip of the structural causes of
the stalemate that caused the coalition government to fail and which
threaten further reform in both the economic and political spheres. The
rule of law subsector, for instance, is a tricky area for assistance due
to the monumental nature of the challenge. To date, small efforts by
USAID have helped leverage much more comprehensive efforts by the EU,
and further donor pooling of resources may be needed in this area.
Enormous amounts of assistance could be swallowed up in the halls of the
vast parliament building without generating the constitutional reform
that is needed to make the political parties more representative and
accountable to the electorate. To be sure, these are all areas that need
attention in Romania, but the Mission needs to target its limited
resources carefully. There is a danger that providing assistance to
institutions that are fundamentally flawed to begin with could serve to
enable dysfunctional behavior, or to send a message that reform can be
postponed or possibly avoided through technical innovation rather than
systemic reform.

An additional advantage of focusing the Mission's DG resources around a
result of greater transparency, accountability, and oversight, is that
these are all attributes of a system of governance that also contribute
to economic growth. It makes a lot of sense to develop synergies between
those two SOs in the Mission. For example, the economic growth SO team's
work with business associations directly relates to some of the
associative work mentioned before and the DG team could also incorporate
business associations in their work to help improve their advocacy
capacities. Likewise, the efforts to streamline regulations and
bureaucracy for foreign investments could also be linked to DG efforts
to promote transparency and accountability, and therefore regularity and
predictability in public affairs.

DG thus provides not only ample opportunities as an independent SO, but
also offers considerable promise for crosscutting activities and
synergies. As the Mission works to define a role and niche in the rule
of law area that is complementary to other more ambitious donor
initiatives, it would do well to focus its scarce resources on areas of
commercial law. Private investment will continue to be deterred by a
lack of predictability, transparency, and regularity in the application
and laws that govern commercial and financial interactions. A more
accessible, rapid, and reliable system of commercial arbitration also is
an important target of opportunity that could be linked to other DG work
at the local level. The Mission's work at the local level could also
provide key synergies with the promotion of small and medium
enterprises. For example, the Mission's work to support the improved use
of national investment funds could well be directed towards small
economic growth ventures at the local level. Similarly, the Mission's
work to improve the welfare of children may also dovetail with the DG
focus on local governance. The litmus test of a legitimate system of
governance is improved public services at the local level, and the area
of child welfare provides a logical entry point to explore synergies
between the Humanitarian Assistance and DG SOs.

Modest expectations should condition the Mission's DG strategy. It is
the nature of a managed transition that change is likely to be
incremental and gradual. USAID is not going to be responsible for any
breakthrough to democracy, but can instead coax and nurture positive
steps by those who have the power to determine the future of governance
in the country. There is no credible critical mass on the demand side of
the political equation that can be mobilized to insist on dramatic
strides towards democratization. The parties are part of the problem and
the advocacy NGOs have with few exceptions been distorted by donor
over-enthusiasm during the 1990s. The results package can be realistic
and meaningful at the same time if it builds on existing opportunities
while favoring linchpin progress that is not in itself revolutionary.

Donor coordination has been an underutilized instrument for encouraging
the managed transition. Greater donor dialogue on the key obstacles to
democratization and good governance would itself be likely to have a
positive impact. Many of the assessment sources stated categorically
that it appears that international pressures have actually decreased as
a result of frustration and disappointment with the failure of the
coalition government. The GoR's sensitivity to its international
standing cannot be overstated, and donor coordination in at least
commonly identifying the key DG challenges could have a markedly
positive effect. The World Bank in particular appears to have the vision
and resources to be a good partner for USAID's coordination efforts. The
World Bank has recently called for a more transparent system of party
funding, a stronger and more independent judiciary, the creation of a
meritocratic and better rewarded civil service, and greater freedom of
information. All of these areas of intervention could provide a good
basis for consultation and coordination between the Mission and the
Bank.

## 5.3 Results, Impacts, and Programmatic Tactics

The strategy suggested by the above analysis places priority on two
tracks. The first is increased transparency, accountability, and
oversight at both the national and local levels. Achieving this broad
result will be done by a number of targeted interventions with specific
different impacts whose selection in large part depends upon windows of
opportunity that come open in response to the GoR's political will to
effect reform. For example, constitutional reforms may lead to greater
accountability through an improved electoral process. Transparency might
be increased by legislation conceived and initiated regarding party
campaign financing. An impact of assistance to think tanks and advocacy
organizations around the theme of campaign financing would be to
increase civil society demands for transparency. A more capable
ombudsman's office would be an impact that would contribute to improved
oversight mechanisms.

The second strategic priority identified by the assessment would be more
effective, accountable, and responsive local governance. The result of
more effective local governance could be achieved through technical
assistance and training to municipal administration. More responsive
local governance could be achieved through increasing citizen
participation in local decision-making over public affairs. Local
governance would also be more efficient and responsive were it to gain
more autonomy and powers as a result of policy changes at the national
level. Work with municipal associations and federations would help
increase likelihood that enabling legislation would be passed to improve
the environment for local governance. Local government will also be made
more accountable by rendering its budgetary process and expenditures
more transparent.

### 5.3.1 Local Governance

Local governance provides the greatest evidence of dynamism and widening
political space in the current Romanian political system. The Mission
has already made substantial investments in this area and so has
foundations upon which to build combined with an in-depth knowledge and
understanding of this subsector. The decentralization initiatives that
were begun in the late 1990s provide a window of opportunity that has
already opened and which has sparked greater citizen interest and
involvement at the local level. Retaining Mission involvement in this
important area would help preserve the gradually expanding political
space at the local level while encouraging the GoR to continue to
promulgate new and more far-reaching legislation that would increase the
financial resources under the control of local authorities.

While targeting more important strategic problems at the national level
might achieve more of a breakthrough in terms of the transition to
democratic governance, there is much less likelihood that these higher
level problems will actually be overcome as a result of DG assistance by
foreign donors. Rather, the Mission can help to facilitate progress on
those higher level problems should the PSD government decide to make a
genuine effort to tackle them themselves. Working in the area of local
governance, on the other hand, is much more likely to yield concrete and
measurable impact from donor assistance that is still important to
democratization, even if in itself this will not overcome the key
national-level DG problems.

Several constraints to local governance need to be overcome in order to
promote development. There is a lack of citizen engagement. The
so-called slate system for electing local councils contributes to
citizen apathy. The size of local councils is too large. Mayors are not
accustomed to delegating much authority, impeding more efficient
delivery of public services. Unfunded mandates remain a significant
problem. In spite of all the decentralization initiatives, the central
government through the ruling party machinery controls a lot of local
actions.

Working on both the demand and supply sides of the local governance
equation has promise. Citizens are starting to get more engaged in
municipal affairs, and there are some examples of participation in
citizen review of municipal budgets, as in Brasov. Strengthening this
type of involvement both promotes greater citizen participation and
transparency and accountability, and opens the door to popular pressures
for greater oversight. Local government does not have a great deal of
capacity or experience in dealing with the new responsibilities that
have resulted from decentralization, and capacity building in the areas
of strategic planning, revenue generation and collection, and
expenditure decisions continue to remain valuable objectives.

Developing the associations of local government actors can help
strengthen the voice of local authorities at the national level. The
Ministry of Public Administration has also expressed enthusiasm for such
representation and has taken steps to institutionalize it. However, some
caution needs to be taken as some mayors are voicing concerns that such
associations could risk becoming coopted and become instrumentalized
into tools for greater central control over increasingly autonomous
local actors. How this evolves will in part depend on the leadership of
the associations and federations of local authorities. Despite this
caveat, building upon these associations and federations represents a
promising avenue for helping to promote further decentralizing policy
reforms by the national government, since the increased contact and
means of interaction should help to build confidence.

A focus on local governance also offers the opportunity to leverage a
significant amount of other donor resources, most notably through the
World Bank's multimillion dollar Social Development Fund (SDF) and its
Rural Development Project. Both of these substantial interventions
target among other things the interaction between community groups and
local authorities in prioritizing and providing improved services. One
of the stated objectives of the SDF is "increasing the capacity of local
authorities to respond to demands and to use participatory approaches".
The Mission's local governance activities would do well to use the SDF
as a "carrot" to generate high levels of interest and involvement in
citizen/local government interactive processes. World Bank
representatives indicated to the DG assessment team that they would
welcome complementary activities on the part of USAID, and this could
help serve as a building block for greater donor coordination.

### 5.3.2 Transparency, Accountability, and Oversight

One of the principal findings of this DG assessment is that priority
should be placed on redressing the systemic lack of transparency,
accountability, and oversight. Progress in these areas would begin to
get at the most fundamental DG problems facing Romania, including
corruption. This would also signal some promising trends that had the
potential for significant improvements in the enabling environment for
economic growth. Without greater transparency, accountability, and
oversight, further progress in other areas would be unlikely to
significantly advance the democratic transition. Progress on
transparency, accountability and oversight is essential to Romania's
managed transition.

There are multiple areas of intervention that the Mission could pursue
to advance these objectives, depending on windows of opportunity. For
example, the FOIA that is currently under legislative review could
provide an important opportunity should it be passed in a meaningful
form, which currently appears likely. The draft law was passed in the
Chamber of Representatives in March 2001 and is currently before the
Senate. If properly enforced and utilized, it could be a great tool for
both transparency and for accountability. The media could gain an
important new means of access to critical information, as could some of
the think tanks. The Mission would do well to seek out means to exploit
this window of opportunity should it became passed as is expected.

Another possible area of intervention along the key themes of
transparency, accountability, and oversight would be work with the
ombudsman's office. While the statutory powers of this office have been
limited by its subordination to parliament, it showed tremendous promise
in its early years through providing a point of access to citizens for
the redress of their grievances. The ombudsman's office could also
benefit from the FOIA in resolving or at least throwing light on
potential government abuses. Greater Mission involvement with this
office would help to not only build its capacities, but accord it
greater legitimacy that would encourage the government and parliament to
continue to take its development seriously.

Party finance reform is another promising item on the national political
agenda these days that would be worthy of Mission support were it to
lead to concrete actions on the part of the government or parliament.
Likewise, the Romanian political community is increasingly considering
and debating the need for constitutional reform in certain key areas.
The PD, for example, is proposing some changes that would include a
single-vote system for the Senate while retaining party lists for the
Chamber. Also, differing functions for the two chambers of parliament
need to be better elaborated, as does more clearly distinct roles for
the President and Prime Minister. The Mission could enlarge the forum
for debate and dialogue over constitutional issues by working with
partners outside of the current party structures such as Pro Democracy,
the Romanian Academic Society, and Centras, not to mention individuals
such as Dudu Ionescu, the former Christian Democratic minister whose
current distance from the political fray allows for an informed but more
balanced perspective than politicians in the midst of the fray.

### 5.3.3 Rule of Law

The rule of law area is a tricky one, since the systemic challenges to
be overcome are of such magnitude that serious reform of this sector is
well beyond the scope of Mission resources. Moreover, the danger exists
that technical support and training in this sector might have the
unintentional consequence of providing an endorsement of current
structures and enabling the better functioning of a flawed system. It is
therefore recommended that the Mission commission an in-depth judicial
assessment in order to better identify and evaluate paths for overcoming
the monumental challenges in this subsector. This assessment should
contain an emphasis on what is needed to improve the state of commercial
law in Romania, to better foster synergies between Mission SOs.
Conducting a judicial assessment would also have the advantage of
providing a further basis for donor dialogue on this issue, since the
World Bank has also begun work on an assessment of the legal and
judicial system as a basis for further assistance to the Ministry of
Justice.

### 5.3.4 Civil Society Development

Working with associations to help strengthen oversight functions and to
press for accountability provides a way to focus assistance to CSOs.
Past efforts to increase the demand side by creating a vibrant civil
society to press for democratization writ large have not succeeded. A
more focused effort as recommended here would reduce overall exposure to
disappointing results in civil society development while still providing
the opportunity to work with a handful of credible organizations to
promote reforms in targeted areas, such as the constitutional dialogue
and the push for accountability.

Work with business and professional organizations also has promise in
that these organizations have more credibility to begin with, and can
help to make the government more responsive to citizen input. These
types of associations have considerable potential in advocacy regarding
governance reforms that would help overcome obstacles to economic
growth.

### 5.3.5 Ethnic Minorities

Mission resources are insufficient to have a measurable impact on the
Hungarian and Rroma minority issues. However, these sources of vertical
social cleavage carry the potential for some conflict in the future. The
GoR has taken a positive lead in addressing these areas through the
creation of the new interethnic department within the Ministry of Public
Information. This new department has approached USAID to seek some
discrete and modest assistance in organizational development that would
be well worth the Mission's while. Not only would the Mission be able to
fill a gap in coordinating between the GoR and donors in interethnic
issues, but would be able to help develop the capacity of the government
to better combat discrimination and promote diversity. The EU is already
embarking on an ambitious program to help Rroma organizations deliver
better services to their constituencies, and Mission support to the new
GoR unit would provide a good complement to the EU efforts.

# Appendix a. Interviews

AURELIU, Dumitrescu: Director General: Ministry of Public Administration

AVADANI, Ioana: Executive Director, Center for Independent Journalism

BABES, Alexa: Program Director, Foundation for Pluralism

BABOI-STROE, Adrian: Executive Director, Romanian Association for
Transparency

BARBU-PARVU, Simion: Project Manager, ACDI VOCA Romanian Agribusiness
Development Project

BLAKE, Steven: Political/Economic Counselor, Embassy or the United
States of America

BONACQUIST, Harold: Liason, American Bar Association, Romania

BOTEA, Simona: Task Manager, Delegation of the European Commission in
Romania

BRANZEA, Mihail: Program Coordinator, AIDR (Ecumenical Association of
Churches in Romania)

BROWN, Christopher: Country Director, ACDI VOCA Romanian Agribusiness
Development Project

CALOTA, Emil: Mayor of Ploesti

CIOMAG, Dorin: Director, Ministry of Public Administration

CORDITA, Cornel: Dean, Department of International Relations and
European Integration, National School of Political Studies and Public
Administration

DATCU, Ruxandra: Project Management Specialist, USAID/Bucharest

DINCU, Vasile: Minister of Public Information

DUNBAR, David: Chief of Party, Research Triangle Institute

FARKAS, Emod: USAID/Bucharest

FLORESCU, Mircea: President, Chamber of Commerce, Brasov

GANT, Ovidiu: Undersecretary of State, Department for Interethnic
Relations of the Ministry of Public Information

GARRAMONE, Gregory: Economics Officer, Embassy of the United States of
America

GEORGESCU, Ion: Legal Advisor, American Bar Association, Romania

GHEORGHE, Gabriel: Project Management Specialist, USAID/Bucharest

GHISE, Ioan: Mayor of Brasov

GONTEANU, Corina: Coordinator, Donor's Forum

GORDON, James: Senior Public Administration Advisor, USAID/Bucharest

HARASIM, Anca: Executive Director, American Chamber of Commerce in
Romania

HIMELFARB, Tonya: USAID/Bucharest

HORATIU, Iancu: Coordinator, Pro Democracy Association, Brasov

IONESCU, Constantin Dudu: President, Euro-Atlantic Dialog Initiative

IONESCU, Razvan, Member of Parliament

IONITA, Sorin: Director, Romanian Academic Society

ISPAS, Silviu: Executive Director, Biroul Roman de Audit al Tirajelor

JOHNSON, Susan: Deputy Chief of Mission, Embassy of the United States of
America

KENNELLY, Eleanor: USAID/Bucharest

KIRSCHSTEIN, Fred: Director, Private Enterprise Office, USAID/Bucharest

LAZESCU, Alexandru: President, Monitorul Media Group

LEWIS, Charles: Resident Legal Advisor, Embassy of the United States of
America

MARIN, Viorel: First Vice President, General Confederation of Industrial
Employers of Romania

MINDRUTA, Lucian: Director, Ziarul Financiar

MOLDOVAN, Mircea; Deputy Ombudsman

MUNSHI, Kiki: Public Affairs Officer, Embassy of the United States of
America

NEGULESCU, Raluca: Program Coordinator, CENTRAS

O'CONNELL, Shannon: Program Director, National Democratic Institute

OANCEA, Ovidiu: Executive Director, Princess Margarita of Romania
Foundation

PALOS, Luisa: International Relations Manager, Chamber of Commerce,
Brasov

PAMBUCCIAN, Varujan: Member of Parliament

PARVULESCU, Cristian: President, Pro Democracy Association

PATENTASU, Petre: Mayor of the Commune of Fratesti (District of Giurgiu)

PAUNA, Catalin: Economist, World Bank Office in Romania

PETRESCU, Dan: Public Affairs Coordinator, World Bank

PETRESCU, Gabriel: Executive Director, Open Society Foundation of
Romania

PETRESCU, Pompiliu: General Secretary, Chamber of Commerce, Brasov

POSTELNICU, Romeo Paul: Secretary of State, Ministry of Public
Administration

PRECUPETU, Rodica: Expert, Department for Interethnic Relations of the
Ministry of Public Information

PRECUPETU, Rodicu: Expert, Ministry of Public Information

PROFIROIU, Marius: General Director, Department for European
Integration, Ministry of Public Administration

RADULESCU, Victor: Project Management Specialist, USAID/Bucharest

ROBERTSON, Denny: Mission Director to Romania, USAID

RUSANU, Dan Radu: Member of Parliament

SERBAN, Daniel: Citizen Participation Specialist, Research Triangle
Institute

SORESCU, Adrian: Executive Director, Pro Democracy Association

ST. JOHN, Ronald: Resident Program Officer in Romania, IRI

STAFFORD, Edward: Political Officer, Embassy of the United States of
America

STEFANESCU, Teodora: Association Building Program Manager, Research
Triangle Institute

SUCIU, Oana-Valentina: Communications Director, Romanian Academic
Society

TAPALAGA, Mioara: Assistant Resident Program Officer, IRI

TIFT, J. Randall: Senior Democracy Advisor, USAID/Bucharest

TOMA, Constantin: Deputy Mayor, Giurgiu

VAMESU, Ancuta: Executive Director, Foundation for Civil Society
Development

VASILACHE, Ana: President, Partners for Local Development Foundation

VISAN, Mihai: Executive Director, Romanian Meat Association

VLADU, Cristina: Romanian Social Development Fund

ZAKARIAS, Carol: Municipal Council Member, Brasov

[^1]: Written by Andrei Muresanu, score by Anton Pann.

[^2]: Public Opinion Barometer, the Foundation for an Open Society, June
    2001.

[^3]: Economist Intelligence Unit, [Romania Country
    Profile]{.underline}, March 6, 2001.

[^4]: The Social Democratic Party (PSD) is the new name for the PDSR
    after it merged with the smaller Romanian Social Democratic Party
    (PSDR) in June 2001.

[^5]: Quoted in Dana Fagarasanu, "Magistrates Protest over Political
    Interference", [Nine O'Clock]{.underline}, Wednesday, June 20, 2001,
    page 4.

[^6]: Ibid.

[^7]: Chapter IV, Article 56 of the 1991 Constitution.

[^8]: "Privatization must not be a purpose in itself: PM Adrian Nastase
    in Cluj Napoca," [Nine O'Clock Business and Finance]{.underline},
    Wednesday, June 20, 2001, page 1.