Business, Finance & Economics

Romania's growing pains

Not long ago, packs of wild dogs were the only residents of this run-down area. Now eight slank villas occupy this village and more are going up. This man borrowed about $125,000 to get some other housing projects up off the ground and his loans come due in two years. He says if he is not able to pay back the loans, he will lose everything. He expects to earn upwards of $600,000 selling the apartments and the land is already worth three times more than he paid for it. these are big sums in a country where the average salary is low, but to many that man's big gamble seems like a safe bet. This economist says these developments show that Romania is catching up with the rest of Europe, but the spending here is getting out of control, fueled by four years of money sent home by Romanians abroad, an increase in local wages, and a bank lending spree. He says Romanian officials, worried about a crash, are trying to get spending to slow down a bit. But many see no signs of a cooling off. They're doing a brisk business at one of Romania's two Starbucks, and the coffee is expensive. This banker says business is booming. And by Romanian standards, money is cheap; mortgages have dropped to 5 or 6% from near 20% just a few years ago. There's a whole class called grey workers that are missing out on the boom, though�because their businesses pay their income taxes and some companies underreport their wages and them slip their workers cash every month. In this economy companies won't loan money to people who on paper are making less of their actual salary. The cost of living is going up even faster in the country, which is why many think the economy needs to slow down.

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