PROGRESS IF RUMANIAN FINANCIAL REFORM, 1951 - 1952

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80-00809A000700100420-2
• Release Decision: RIPPUB
• Original Classification: R
• Document Page Count: 7
• Document Creation Date: December 22, 2016
• Document Release Date: October 25, 2011
• Sequence Number: 420
• Publication Date: February 16, 1953
• Content Type: REPORT

Declassified in Part - Sanitized Copy Approved for Release 2011/10/25: CIA-RDP80-00809A000700100420-2
COUNTRY Rumania
SUBJECT Economic -Finance
HOW
PUBLISHED Monthly periodicals
WHERE
PUBLISHED Bucharest
DATE
PUBLISHED Mar 1951 - May 1952
LANGUAGE Rumanian
CLASSIFICATIONSSg ~rRRIRTTEyyTTtTc,TBBED~~''i~
CENTRAL INT~LLI(iENCE A(itP~G'YR
INFORMATION FROM
REPORT
CD N0.
DATE OF
DATE DIST. ~(p Feb 1953
N0. OF PAGES 7
SUPPLEMENT TO
REPORT N0.
THIS IS UNEVALUATED INFORMATION
PROGRESS OF RUMIRIAN FI21A,7CIAL Rl~FORM 1951 - 1952
~omment; Complninis against failures is financial discipline
appeared in numerous articles in the Rumanian press in 1y51, as well
ae in the officia mic periodical, Problems Economics,
1951 - 1952.
To overcome some of these difficulties, the Council of Ministers
decreed a currency reform on 28 January 1952. On 7 March 1952, e
second financial decree was issued to strengthen the new leu and to
reorganize the entire Rumanian financial structure. Thin second
decree vas patterned after a aimilsr decree of the Council of Ministers
of the IISSR of March 1931.
One of the reasons given for the promulgation of the second decree
was the inability of the state to apply "the economic lay oP the Rte"
(Aev Economic Policy), providing for a limited freedom of trade and
the free play of prices vithin rtertsin limits, and regulation of the
market by the state. The RPR (Rumanian People's Republic) has never
cfficial.ly declared the existence of a NEP in Rumania and therefore
this atatemeat in Lupta de Class, party theoretical organ, is of
special interest.
Rumhera in parentheeee rsfer to appeadel sourcea_]
Among the articles in Problems Economics criticizing the failure of fi-
nancial discipline was one in the September 151 issue by R. Lazar and Gh. Saon.
They dec]ared that in the electrical equipment indusiry investments were not
used for purposes for which they were intended. Credits granted for the pro-
.carement of production equipment were used instead to build unauti~.orized stock-
piles.(1) M. Maevschi, writing in the same issue, reported a speech in vhich
Vasile Luca, then Minister of Finance, spoke out against the misuse of funds.
Luca stated that money and credits granted for groductien, salaries, and other
nurposea were not corzlctly used.(2)
STATE
ARMY
NAW
AIR
STAT
Declassified in Part - Sanitized Copy Approved for Release 2011/10/25: CIA-RDP80-00809A000700100420-2
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/25: CIA-RDP80-00809A000700100420-2
In an earlier issue of Problems Eccnomice, R, Saveanu explained that Fi-
nancial reports from enterprises in the constructions and metallurgical industries
did not give a true picture of investments made Por current production purposes.
Requests for allocations of funds by enterprises and even directorates sometimes
shoved a lack oP understanding of the provisions and purposes of the investment
plan.(3) Maevachi had noted that the maintenance of Financial records, such as
the statue of the investment plea or the computation oP production costs, tended
to be erroneous in many enterPi'ises
(2)
.
Numerous other errors of the same nature
etructions, electricalrente-Erisesai aiscipline in mining, metallurgy, cen-
to indicate a certain degreepof confu~sionland~lack ofhcontrolonetheepartaofethe
Ministry of Finance.
Although numerous articles appeared in praise of the 28 January 1952 currency
reform, one oP particuler significance appeared in Lupta de Class, theoretical
organ of the Rtmanian Worker's Party, The currency~re'form, according to the
decree which promulgated it, was 1: tended to "establish order in the circulation
of currency, increase the production of consumers' goods, and provide for their
concentration iu the !lands of the state in sufficient quantities to meet the
needs of the population and to exercise the necessary amount of influence over
the free market prices. This will make it Possible, Sn the near future, to reduce
retail prices still 'urkher, to do away with the ration cerd system, and to
establish single retail prices, all of vhich means an increase in the real pay
of workers and the income o: the peasantry,"
According to Lupta de Clssa, the control oP consumers' goods by the state,
control of prices, and the increase in the real pay of the workers depecd on a
continuous increase in the productivity oP labor, on the reduction of production
costa, and on strict control of the wage fuad.(4)
The decree of ? !`march 1952 incorporated ouch measures into law, The decree
declared that "Party organizations m'asi implant ir. the worker the conviction that
any increase in his standard oP living depends first cn an increase in real pay,
in the purchasing power of the leu, and in the abundance of goods," To achieve
increased labor productivity, workers, technicians, and engineers were tailed
upon to achieve maximtffi utilization of working time, of machine capacity, and to
apply Stakhanovite methods. Enterprise managements were told what they could
decrease production c~ata by maintaining a proper ratio between an increase iv
labor productivity and an Sacreaae in average pay, Industry was called on to
increase the available supply of manufactured goods, otherwise the pvy increase
could not be translated into an increase in the standard of living:(5)
The tuo decrees called for austerity and economy on the basis that all non-
essential 'xpenditures and all was 4e lead to an increase in the total amount of
currency in circulation and' weaken the purchasing power of the leu. According
tc the decrees, economizing would increase socialist a?:ctuuulationa, inveetm~nte
for the construction of new fneto:ies, plans, cultural and health institutions,
and thus raise the standard oP living of the worker, ~ strict regimr of ecouomy
vas declared necessary for the succeRS of the c~L-rency reform, and strict ob-
servance of financial and plan discipline were deemed essential for the continued
progress of the national econompr?(4,5)
The decree cf 28 January 19y2 did not, Pind strontr enough support, especially
Sn the field of domestic trade and labor productivity, ae 1s shown by the *ollov-
ing editorial in Lupta da Claea?
'i Declassified in Part - Sanitized Copy Approved for Release 2011/10/25_CIA-RDP80-00809A0007001004202
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/25: CIA-RDP80-00809A000700100420-2
RESTRICTED
The chief support of the standard of living of the worker should be an ag-
gressive domestic trade policy vhich would assure proper supplying of the popu-
lation end strengthen the leu. An egg*essive domestic policy should not be
difficult, for 1951 was a good agricultural year, providing cities with an
adequate food supple, Also, larger quantities of manufactured goods are reaching
the peasant. Despite these favorable conditions numerous factors cut down the
effectiveness of domestic trade.
Qntil the second decree, there vas still a great deal of lazy thinking
vhich stood in the way of finding means to raise the standard of living oP the
working population. For example, direct delivery of farm products to citieF
could have been organized, Regivne and raion supply testers could have been
established. However, people~a councils did not devote sufficient attention to
socialist trade. There vas excessive centralization. For example, stores is
remote corners of the country were under the direct management of the Minister
of Domestic Trade.
Domestic trade vas further harmed by the fact that many former employees
of capitalist enterprises and many former tradesmen were still engaged in
socialist trade and in the cooperative movement. These men ha3 s certain amount
of training, experience, and lmovledge, but el=o a definite bourgeois viewpoint.
Such men required aid, re-education, and above all, supervision. Those engaged
in trade must be taught to combat the speculation that has been common. They
moat be shown how to fight atteapts by capitalist elements to acquire goods from
state stores for the purpose of selling them later at higher prices.
In addition, trade between town and village, a reaponaibility of the Ministry
of Domestic Trade, was unsatisfactory, Some unite of the cooperative movement
failed to realize that one of the chief duties of the cooperatives is to attract
the peasantry to socialism. These individual cooperatives permitted the volume
oP manufnctured goods sold through village cooperatives to grow far more rapidly
than the volume of agricultural products purchased by the cooperatlvea for distri-
bution in towns.
Laxity in the collect ion ,of taxes and coupuleory deliveries, as well ae
mistakes in the appllcati~n of prices for general and contractual Purchaeea in
trade between town and village, have become common. This situation has been
exploited by capitalist elements. They have accumulated large suns of money
and vast ouantities of gouda which enabled them to exert pressure on the markee
by speculation and raising prices. Aa a result, the needs of workers and Ltidustry
Yor agricu_'.tural proGuota hsvc been inadequately supplied. This has brought about
an imbalance between the price of manufactured gacda qnd agricultural prices.
for example, the price of agricultural cosmmodities on the free market has trebled
since 1g1F7. For certain products the Increase has been even higher. Consequently
the state has been unable to accumulate enough agricultural products to permit
lawt?f ctherliEPpr~Nev EconomicrpolicyJewhichtprhovi.deanforaallt~aitedpfreedom ofotrade
and the free play of prices within certain limits, and regulation of the market
by the state.
Tae financial policies of the state have also suffered _*rom the failure of
certain branches of industry to increase labor productivity ss planned. Enter-
prises have not devoted enough attention to the mobilization cP internal reserves.
They have not concentrated on the reduction of manufacturing costs nor on the
proper management of the wagE fund. For example, in 1950 the productivity of
labor in industry increased 8.?_ percent while the average wage increased 8,6 per-
cent.
All of these negative facture in the national economy have led to an abnormal
increase in the amount- of currency in circulation and have weakened the purchas-
ing power oY Che leu.(4)
Declassified in Part - Sanitized Copy Approved for Release 2011/10/25: CIA-RDP80-00809A000700100420-2
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/25: CIA-RDP80-00809A000700100420-2
To overcome the conditions that have caused difficulties in the enLlre
financial system of the RPR, the government end the party found it necessary
to issue a second financial decree cn 7 March, providing for the "consoli-
dation of the success of the currency reform." These measures were intended
to revise the operation of the entire financial system by reorganizing the
Ministry oP Finance and the State Bank. This wan made necessary by "grave
deviations in the banlciag system brought about by the former heads of the
Ministry of Finance and of the bank, as well as errors in domestic trade and
labor." These deviations constituted counterrevolutionary opportunist policies'
led by Vasile Luca end the elements which he directed, according tc A. Moiaescu,
president of the State Bank of the RFR. The substance of the article "Control
by the Leu" follows:
By a revision of the banking system closer financial control could be
exercised over all economic processes and thus plan fulfillments could be
assured. The banking system of Rumania under Luca failed to control the lea
and thus undermined the regime. Lure and his counter:-evolutionary group
systematically weakened industrialization and financial discipline Sn order
to limit the productivity of socialist enterprises, The reorganization was
intended to correct this.
First of all, the deviatlonist elements carried out a short-sighted credit
policy. In granting credits, they did not take into account the true financial
situation of the applicacts. They granted rredita too freely and thus con-
tributed to the creation of stockpiles Par larger than needed or provided by
plans. Thesr. stockpiles tied up large quantities of money and thus sloxed devn
the circulation of working funds, decreased profits, increased productior. costa,
and prevented fulfillment of the savings plan of enterprises. As a result,
accounts of individual enterprises were blocked.
The Credit and Investment Bank of the RPR used similar methods for the
determination of credits for both weak ar9 strong enterprises. The Credit
and Investmert Bank, e6 veil as the State Bank of the RPR, fai)ad to keep
daily progress records or exact Figures on the working fund. T'ne subv~raive
elements in control sought to sabotage the i:aduetrial plan of the entire
country by limiting investments for heavy indu=try and for mayor construction
pro~ecte ouch as the llanube-Black Sea Canal an3 the Scantela publishing house.
Snch harmful credit policies encouraged enterprises to make poor use of their
own xorking funds and tc negle:t the search fo: new internal reserves.
The former administration of the State Bank did n~i enforce terms of pay-
ment ?or credit extended. Ia decreasing credit, the bank failed to take into
account the requirements of planned sales, and thus contributed to the curtail-
ment of production, to the rePuction in the rate of L?urnover of working Panda,
to the creation of excess stocks, and to the blocking of accounts. By under-
mining financial discipline, the bank prevented payments by enterprises for
Commodit ie6 and services. By permitting the blocking of accounts, the Luca
faction :mused a cbsin of payment dePaul`a. For examp_e, the accoun~ of the
Special Conetructiun Enterprise of IIunedoara vas blocked. The enterprise
vas therefore unable to fulfill its obligations to the Industries-Sarmiei of
Campia-Turzii, Muncitorui of Cristiaa Rsaaritul of Stalin, and Progreaul of
Braila. Consequently, these enterprises, in turn, could not fulfill their
ova financial obligationo and suffered blocked acaornte.
A ain;ilar situation existed in state and cooperative commercial units.
The blocking oP basic sales accounts ir. the Ministry o? Light Industry brought
about the blocking oP accounts of productive enterprises of the Same sinistry.
The State P.ank did not concern itself with discovering the errcra which caused
this situation. nor with aiding o..e individual enterprises to remedy them, It
did not assist enterpriees.in the management of funds, nor di3 it adequately
supervise adherence to payment discipline or impose penalties where necessary.
Declassified in Part - Sanitized Copy Approved for Release 2011/10/25: CIA-RDP80-00809A000700100420-2
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/25: CIA-RDP80-00809A000700100420-2
It did not supervise the utilization of salary funds in cases when enterprises
paid salaries exceeding the rate prescribed by the decree of fulfilment of the
production plan. This caused excess circulation of money.
Grave errors were committed in the application of financial control. The
banking plan itself prescribed erroneous practices Por the increase of trade
between city and country and in the supply and distribution of goods. {then errors
occurred In this field, the bank did not step in and warn the government and other
economic unite responsible, nor did it take concret..- steps to remedy the situation.
:.11 of these problems were discovered and dealt with by the party and the
government through the purging of the Ministry of Finance, the State Bank of the
RPR, and oY the Credit and Investment Bank of counterrevrlutionary elemente.(5)
In this connection, an example of how the deviatianiat policy favored the
kulaka was given in an editorial in the FebrvarT - March issue of Lupta de Class.
The editorial stated;
Financial polic7ee of the government were hampered in agriculture by the
deviationist policy toward kaiaks. Oae of the main aspects oP the deviation was
an artificial reduction in the number of kaiak farms, On the basis of incomplete
data, the Central Committee of the Rumanian iiorkeza' party estimated that the
kvlak farms represented 5,5 percent of the total number oP peasant holdir~s. Ia
direct violation of decrees issued at the plenary session of 3 - 5 March 1949
when this estimate vas made, the number of kaiak farms was reduced to one third
of this estimate by arbitrary reclassification. This reduced state Sncome from
taxation, compulsory deliveries, and credits. This artificial reduction was harm-
ful is that it created independent small producers during a period when socialism
was being introduced is agriculture. At the same time, a subatantiai number of
peasant farms were unJust L?iably exempted from taxation. Peasant incomes were
rrrderaseeesed. Some state and cooperative units appeased capitalist elements in
villages in making purchases and~gzarting contracts. These unite permitted steady
increases in the price of agricultural producis. This favored the wealthier
peasante.(4)
In his article Moisescu pointed out how the loan policy oP the State Bank
also lnvore,~ the kulsk. Moisescu'e article continued ae Policva~
Thz 'bank vas responsible for granting loans to xorking peasants during s
period when they suffered from 2 successive years of drought. It vas 3etermined
that of approximately 3~,~ paaeants in debt, mire than 100,000 possessed
arable land of 5-20 hectareq. These persons, mostly kaiaks, Lenefited from the
bank's policy of not demanding repayment.
A remedy for this failure of Lhe banking system was proposed in the decree
of 7 March 1952. This second financial decree reorganized Financial control of
economic units. :'he financial and. banking system was called upon to study an3
benefit fr~a t..e .xample of the Gasbank of the DSSR. The decree establrehed
the rule that credit t ~~.ld only be granted after au analysis of the real needs
of enterprises and only ror measures xhich uauld assure plan fulfillment.
Stricter control of credit would prever:t excess stockpiling and thwa prevent
imnrobillzation of the working fund, which in the past cut production and the
circulation of goods and currency. i7hPn properly supervised, credit becomes
an instrument for the control and Pulfi~laent of production plans and far `he
circulation of goods. by constant supervision, the bank can immediately call
the attentirnr of an enterprise to nlsn deviations and can apply penalties if
necessary.
The system of financial control must be applied daily and systematically
as one of the principal means for the implementation of financial discipline.
Prompt discovery of deviations from financial discipline will make possible
Declassified in Part - Sanitized Copy Approved for Release 2011/10/25: CIA-RDP80-00809A000700100420-2
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/25: CIA-RDP80-00809A000700100420-2
the determination of concrete measures to overcome such things as delays in pay-
ments. Through this con~~rol the bank will be able to supervise all economic
activity and thus assure the general xelfare. Daily supervision will enable the
`-ink to build up state stockpiles necessary for the supply of industry and of
one working population. The bank will have to collaborate with enterprises to
increase the purchasing power of the ieu. It will have to introduce a plea for
daily deposits and payments on all levels of the national economy. By making
use of the experience of the USSR the bank will learn hox to make use of credit,
currency circulation, and control of the xage fund to strengthen the leu,
A decree of the Council of Ministers USSR of March 1931 is of especial value
in this regard. This decree, xhich is applicable to the situation in Rumania,
prescribed a modification of the credit system, the consolidation o.? credit ac-
tivities, and the introduction oP a system of planned economy in individual
economic units. By this means the USSR was able to strengthen the ruble and in-
crease its purchasing power. In individual enterprises this system means im-
mediate payment for goods and services received. The eat ire activity of an
enterprise is computed in currency. This permits a constant cheek on expenditures,
volume of production, lebor force, materials, srd savings.
When expenses rise above the planned level there is immediate evidence that
the enterprise is badly managed. By this system, enterprises can acre easily
fulfill their savings plans for there is a constant check on the budget and the
amortization fund. Financial control prevents delays in the turnover rate of
xorking capital and thus increases profit. By controlling the circulatir,i of
goods end by maintaining a balance between the circulation oP currency the State
Bask of the RPR can assure a continued increase in the purchasing power of the
leu.
The size of the financial operations of the Stale Bank, its dealings with
all types of organizations makes ?t necessary to organize a vide network of
branch banks, With the aid of these branch banks 1*, is possible to maintain
a closer check on the use of credit, The banl: and its subsidiaries will
constantly supervise the activltiee of all enterprises to assure that the loan
is used for the purrose intended. Loans and credits are granted for plan Ful-
fillment only. The bank must enforce repayment of credits on time, The repay-
ment of credit on time will free funds for the continued circulation of goods
and fer further plan fulfillment. Failure to repay credits on time has led to
the unbalancing of the state credit plan in the past. Thee is a sign of poor
planned economy and permits enterprises to waste r_sources and create e::ceas
expenses.
The State Bauk becomes the only center for clearing of nonmonetary trana-
actione in the entire national economy. This permits a str?ct check of each
operation as it is cleared,
Another important form of control utilized by the Gosbank of the USSR and
which must be intrxiuced in the RPR is control of currency circulation. In a
socialist? economy the stets utilizes l;he circulation of currency to control the
production and circulation of goods, The proper amotmt of currency to be circu-
lated is determined at the time the banking plan is issued and again when it is
fulfilled, By thin means impediments to the success of the state plan can oe
removed i.n time. Almost 80 percent of the cash placed in circulation by wage
payments is withdraxn by the sale of goods. Since both operations pass through
the State Bank this permits constant currency circulation control.
Closer control by the bank will eliminate errors common in the past,. In
planning production some ministries did not hake into account the real needs
of consumers. This sloxed up sales and distr;bution. Enterprises did not
take an active role in the planning of deposits and accumulations. Under the
nAx decree the i,ank must nob only maintain records, but must act to overcome
mistakes and failures.
Declassified in Part - Sanitized Copy Approved for Release 2011/10/25: CIA-RDP80-00809A000700100420-2
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/25: CIA-RDP80-00809A000700100420-2
Financial difficulties stem especially from failure to respect the principles
of planned economy; for example, nonfuL'illment of plena, unproductive expenses,'
excess stock, sad illegal credit. All these conditions were co?on under the Veaile
Luca financial regime. Control of currency, the analysis of unsatisfactory ac-
tivities of economic organizations, and the imposing of strict financial discipline
will overcome these diff icultiee.(5)
1. Problems Economise, "Toward Better Utilization of Basic
Resources in the Electrical Equipment Industry," by R. Lazar
and Gh. Saon, Sep 1951
2. Problems Economise, "The Profitability of Socialist Enterprises,"
by M. Maevschi, Sep 1951
3. Problems Economise, "The Investment Plan," by R. Saveanu, I~r 1951
k. Lupta de Class, "Let Us Consolidate the Achievements of the
Currency Reform," editorial, Feb/Pier 1952
5. Problems Economise, "Control by the Leu," by A. Afoisescu, May
1952
n Part - Sanitized Copy Approved for Release 2011/10/25: CIA-RDP80-00809A000700100420-2