Romania Takes Socialist Measures to Protect Population from Hyperinflation: Food Prices to Be Capped

As soon as the new Government was sworn in, the first socialist measures were about to be introduced. To do so in a capitalist economy founded on supply and demand would’ve been inconceivable days ago. Now, the Government prepared an Emergency Ordinance to cap food prices.

This is meant, as the Socialists argue, to protect the vulnerable population during hyperinflation. Romania has a skyrocketing inflation of two figures, which impacts purchasing power and internal consumption. The GDP is also seriously impacted, as internal demand is the more significant contributor to the country’s economy.

The Government’s Emergency Ordinance includes controversial measures, such as the commercial surcharge applied by the processor can be a maximum of 20%, compared to the production cost of the product, calculated according to the accounting regulations in force, in which direct and indirect expenses are included. As for the distributors, the commercial surcharge applied cumulatively on the entire distribution chain, regardless of the number of distributors on the chain, can be a maximum of 5% compared to the purchase price to which operating expenses are added.

The Ordinance will be applied to many products, including bread, dairy products, flour, meat, vegetables and fruit, and sugar or potatoes.

These measures, similar to the ones existing in communism, aim to reduce the final product cost. Specialists say that, on the contrary, there are plenty of ways to circumvent the legal provisions and to make a profit. Even so, the largest retailers and producers are unhappy with how the newly sworn-in Government in Romania approaches this issue.

In Romania, the Government is led by a socialist but is formed by the Socialist-Liberal coalition. Recently, after the PM rotation, the leader of the Socialist Democratic Party, Mr. Marcel Ciolacu, became the head of the Government. The Hungarian minority was ousted from power, which left only the two main parties to rule the country.

Such measures could give the people the impression that the Government cares about them. In reality, what this Ordinance will do is generate protests from the big retailers but also the producers. More than that, once the producers and retailers won’t find this activity profitable any longer, they could close producing units, lay off personnel, or even close their business altogether.

State intervention should be minimal in a capitalist economy founded on supply and demand. Otherwise, the economy cannot be named capitalist but centralized. And centralized economy hasn’t had much success in Romania. While this might help the people survive the difficult period we live in, in the long term, such a measure could hurt the whole economy.

This comes with another controversial measure as the new Government prepares to eliminate all subsidies and incentives for IT, Agriculture and Construction professionals. If we consider only IT, the measure could determine many professionals to open companies in countries with more lax taxation and operate from anywhere in the world. The real impact of all these ordinances will be visible in the long run.

A thing is sure, though: the new Government started implementing socialist measures, and it decided to make this as visible as possible.