Mr. Francis to Mr. Hay.

No. 20, Roumanian series.]

Sir: During the last ten years all the young Balkan States have become involved in financial difficulties. Greece, Servia, and Bulgaria have been compelled to accept the principle of foreign control. Roumania alone has not yet bowed to the yoke. Each of these communities have initiated a costly scheme of public works which, for the present, furnishes no return commensurate with the outlay incurred. Each has established an elaborate educational system which has resulted in an increasing number of those who, disdaining manual labor, expect to be supported in the public service. The Government is thus compelled to maintain a host of unnecessary functionaries. * * * The enormous military expenditure is also one of the gravest causes of economic exhaustion; but in military matters the junior members of the European family are not always free agents. * * *

The inevitable result has been excessive borrowing abroad. The temptation to resort to the foreign money markets is all the greater owing to the high rate of interest at home. Except in Greece, private liberality has done little to aid in providing schools, hospitals, barracks, prisons, etc. The circulation of foreign capital creates a certain artificial prosperity liable to sudden interruption by a crisis in the European money market or by some serious catastrophe at home. A combination of these factors has led to the present critical situation in Roumania.

To judge by the figures of successive budgets the economic progress of Roumania has been almost phenomenal. Under the rule of King Charles that country has made gigantic strides. But it would be unsafe to take the budget figures as an accurate index of increasing prosperity without making allowance for the inflation produced by a succession of foreign loans. On the other hand, the extraordinary expenditures incurred within this period must be considered, as well as the heavy drain on the national resources resulting from an accumulation of external debt. Of the extraordinary expenditures the principal outlay has been on public works, railways and rolling stock, on harbors, docks and roads, on bridges, schools, and various public buildings. A large proportion may be regarded as ultimately productive, and therefore justifiable, but many of the constructions might have waited, and the practice of defraying ordinary working expenses from extraordinary revenue appears to be indefensible. The remainder of the debt has been devoted to military expenditure, or to cover budgetary deficits. For the military outlay there is something to show. [Page 906] The army compares favorably in the perfection of its equipment with any other of its size in Europe. An elaborate line of defenses extends from Fokchani to Galatz, and Bucharest has been made a great fortified center. These results, however, have been achieved by an extraordinary expenditure, exceeding 266,000,000 lei, or francs. For this immense outlay the best excuse is the precarious position of Roumania, the dangers from without, and her uncertain future. The amount required to meet various deficits is given as 159,000,000, but this far from represents the extent to which every kind of current expenditure was made good from the proceeds of special loans.

Meanwhile the charge for the service of the foreign debt continued to increase, and in 1900 it was nearly 40 per cent of the expenditure in a budget of 238,000,000. In a community with a variety of internal resources such a proportion might be regarded as serious, though not disquieting. But Roumania is purely an agricultural country, practically dependent on the harvest. Should this fail, she commands no other source of revenue. The balance of trade has been adverse; from 1877 to 1898 the value of imports exceeded that of exports by an annual average of 80,000,000. Roumanians of the upper classes travel much abroad and spend, it has been estimated, 20,000,000 lei (francs) annually in foreign countries. It must have been clear to responsible statesmen and observers that the outward show of prosperity was illusory, and that any serious check to agricultural production must be attended by a financial crisis. A policy of thrift is peculiarly imperative in the case of Roumania where climatic conditions and the configuration of the country expose the soil to recurrent droughts and floods. Warnings were frequent: In 1887 drought destroyed the maize crops, which led to peasant uprisings and some financial reforms; in 1894 another drought produced an acute crisis similar to the present, but Berlin financiers came to the rescue; in 1897 the lowland crops were destroyed by inundations and the grain stores at Galatz were swept away by flood. Then came the drought of 1899. Crops were ruined, pastures withered up, cattle died, and in a few months peasants were starving. As the bulk of the urban population derives its sustenance directly or indirectly from the grain trade, an acute commercial crisis followed. The banks did what was possible to mitigate the stress of the situation, but the banks became straitened because of a new factor—a crisis in the European money market. The Roumanian banks were subjected to pressure from without, and Roumanian merchants were called upon to make good their debts. Retail dealers could not sell their goods, and the result was enormous decrease of importation and loss to the Treasury under the head of indirect taxation. There was a corresponding decline in other branches of the revenue. The traditional foreign loan was no longer available except on terms compromising the future of the state.

Such was the origin of the serious crisis which afflicts Roumania. The situation, however, is not beyond remedy, though it would be a grave error to suppose the trouble is of a transitory character, and that a few good harvests will put everything to rights. Before stating measures which have been taken to cope with the serious situation in this country, it is well to mention that in certain respects Roumania compares favorably with other States of the Peninsula. The revenue, for instance, is satisfactorily collected, the huge arrears found in Servian and Grecian budgets being absent. Again, the adoption, in 1889, of the gold standard, was a wise measure.

[Page 907]

The budget of 1898–99 showed a surplus of 11,500,000 lei, but the state of the exchequer not being satisfactory, and the Government being unable to effect a foreign loan, it was obliged to issue treasury bonds at short terms amounting to 64,500,000 lei. Then came the failure of the harvest, and a resort to a fresh issue of treasury bonds. Negotiations resumed with Berlin proving unsuccessful, the situation became grave. The financial group with which negotiations had been conducted finally agreed to accept treasury bonds for 175,000,000 nominal, at a net price of 89£, the bonds bearing 5 per cent interest and redeemable on December 31, 1904. How this large amount of floating debt is to be disposed of in the allotted time is the problem of the present situation. Under the arrangement, the State may not contract any new foreign obligation until the bonds have been redeemed or consolidated, and even an internal loan is forbidden except in case of war.

A new situation had to be faced in 1900–1901 demanding retrenchment and increased taxation. The estimate for both expenditures and receipts was greatly in excess of all previous estimates, the Government being unwilling to take the receipts of an exceptionally unfortunate year as a basis for its figures. The enduring effects of such a crisis on the taxable capacity of the population appears to have been inadequately realized. A surplus of 7,000,000 was anticipated, but the budget closed with a deficit of 27,500,000 lei.

When in July, 1900, Mr. Carp became president of the council and minister of finance great hopes were founded on combinations he was expected to effect. Like his predecessors, he had faith in additional taxation and he aimed at developing sources of revenue hitherto untapped. A new method of assessing the tax on tzuica, a kind of liquor extracted from plums, was the cause of serious riots in the country. Aiming to reach the wealthier classes who escape their due share of the public burdens in Roumania, Mr. Carp imposed additional direct taxation of 5,500,000 lei, contributions being proportional to the incomes of taxpayers. Receipts were put down more than 18,000,000 below the estimates of the preceding year, the expenditures being placed at the same amount, 227,203,000 lei. This was a step in the right direction, but had it been applied would have resulted in a deficit. Mr. Carp and his friends were averse to economies on the ground that “economies are not compatible with the dignity of Roumania.” Moreover, an aggregate deficit of 43,000,000 had still to be provided for. To meet this they fell back on proposals to alienate state property, including the sale of the cigarette paper monopoly for thirteen years, the surrender of Government shares in the national bank, the” sale of state forests, and the lease to the American Standard Oil Company of petroleum-bearing undersoil. The first two have been carried out, the third is under consideration, but the fourth has been abandoned. A proposal for the sale of the merchant marine was discussed, but no action was taken. Liberal politicians attacked the “whole programme, which they denounced as the “liquidation of Roumania.”

At an extraordinary session of the national legislature, Mr. Carp introduced his budget. The great land proprietors, who form the core of the old conservative party, gave evidence of hostility which culminated in an attack on the ministry’s proposal to increase the tax on licenses for trades and professions. Mr. Carp appealed to the [Page 908] Chamber of Deputies for a vote of confidence. This being refused by a majority of one, he resigned and a brief interregnum followed until on February 27, 1901, the King recalled to power Mr. Sturdza, the present president of the council of ministers.

The veteran Liberal leader at once inaugurated a policy of retrenchment. The figures of Mr. Sturdza’s budget, which has been in application since April 13, 1901, are worthy of special attention, as they mark the beginning of a new system, on the success of which the financial future of Roumania depends. Conservatism in the preparation of estimates of revenue, and economy in expenditure are apparently the guiding principles of Mr. Sturdza’s administration.

The receipts are estimated at 218,500,000 lei, as compared with 245,750,000 previously anticipated, as follows:

Direct taxes 44,015,000
Indirect taxes 56,410,000
State monopolies 52,380,000
Ministry of domains 20,200,000
Ministry of public works 21,520,000
Ministry of interior 10,345,000
Minister of finance 3,334,000
Minister of war 1,253,000
Ministry of foreign affairs 202,000
Ministry of public instruction 600,000
Ministry of justice 431,000
Various 7,810,000
Total 218,500,000

In accordance with the policy of the Sturdza administration, new contributions to the extent of 5,500,000 are to be in the main derived from augmentation of direct taxes, as indicated:

Increase of the tax on real property 1,000,000
Increase of 10 per cent on direct taxes 3,185,000
Increase of 1 per cent on direct inheritances 600,000
Increase of 1 lei on the 2 per cent registration tax 715,000
Total 5,500,000

But the most noteworthy feature of Mr. Sturdza’s budget is the great series of economies enforced, aggregating over 25,500,000 lei, compared with last year’s estimates, and are the following:

Reducing number of employees in departments 8,796,112
Saving in materials 5,885,505
Reductions in salaries of state employees 6,838,883
Saving effected in railway department 5,065,610
Total 26,586,110

Expenditures have been fixed at the same amount in the aggregate as the estimated receipts, and all disbursements each month are kept within specified limits.

It is announced that the receipts for the last six months have con-considerably exceeded expenditures, and foreign interest coupons have been promptly met from ordinary revenue. Should the reign of economy continue, should the European money market be favorable, [Page 909] and should the harvests of the next few years prove of average productiveness, there is reason to hope that the loan of 175,000,000 lei in treasury bonds can be converted into a consolidated loan, on fairly favorable terms. Failing to accomplish this, the only assistance from abroad available will be in the form of possibly a guarantee loan with conceded revenues and foreign supervision. To avert this the greatest sacrifices would unquestionably be made. Few states possess a proportionally greater reserve of productive property than Roumania. It would be premature, however, to outline at the present time any scheme of liquidation that would assure a desired result.

Apart from the measures called for by the existing crisis in Roumania, much remains to be done in order to enable the country to stand the stress of similar misfortunes in the future. Not only must provision be made against the recurrence of bad seasons, but to save the agricultural interests from the disastrous effects of foreign competition. Roumania possesses few manufacturing industries. To promote these, capital must be attracted from abroad. More scientific methods of cultivation should be introduced for the improvement of agriculture, and horticulture should be no longer neglected. The Roumanian peasant is thriftless and unenterprising, and it will be difficult to induce him to abandon his conservative ways. The landowning class has certainly neglected its duties, many living abroad, with little thought for the toilers, at home. What could be done to stimulate new industries, to improve agriculture and to better the condition of the masses of the people may best be seen on the royal estates, which present a model of enlightened and beneficent administration. Should this example be followed a great development of the national resources of Roumania will be the result. I have, etc.,

Charles S. Francis.