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1 Romania: Achieving Sustainable Growth and the Role of the Labor Market Jeffrey Franks European Department International Monetary Fund Bucharest January 26, 2011
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2 Where is Romanian Economy Today? Significant progress in stabilizing the economy: Improvement in the fiscal balance Stabilization of the exchange rate Easing of interest rates (lower risk premium on Romania) Stabilization of the banking system Improvement of external imbalances
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3 The Fiscal Balance
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4 The Exchange Rate and Risk Premium
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5 Interest Rates
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6 External Imbalances
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7 So stabilization has been fairly successful, but what about growth? Romania needs strong, sustainable growth to converge to the living standards of the EU.
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8 Before
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9 Now
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10 The Future
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11 How does a country grow sustainably? 1. Increase the amount of capital (machines and equipment) in the economy 2. Increase the number of workers (or hours of work) 3. Increase the productivity of the economy (the amount you can produce per worker or per machine)
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12 Becoming more productive Use labor more efficiently Increase capabilities of workers (training, education) Improve the quality of physical capital (e.g. get better machines) Use capital more efficiently (e.g. put the machines in companies where they are best used) Improve infrastructure Make the public sector work better private will also work better
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13 The New Program would aim to boost growth Measure to increase use of labor Measures to use labor more efficiently Measures to improve investment in capital Make key companies more efficient Measures to improve infrastructure Measures to make the public sector more efficient
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14 Labor Force participation-- low
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15 The employment challenge: young people
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16 The employment challenge: older workers
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17 The employment challenge: informal work
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18 The employment challenge: Low productivity agricultural work
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19 The productivity challenge: Gap between productivity and wages
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20 The Competitiveness challenge
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21 Addressing the Challenges How do we increase employment and labor force participation, especially in key groups? How do we improve labor productivity? How do we improve competitiveness?
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22 Thank you!
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