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Update No: 057

The Romanians are benefiting from the current campaign against terrorism. The US and UK intelligence agencies are certain that Eastern Europe, notably Romania, has been a main conduit of terrorist information from Europe to further afield. 
The Romanians are keen to show new-found reformist credentials, aware that their country has been a laggard in this regard. Its economy has been well behind other Visegrad ones in embracing reform to date and its inflation rate has been far higher and GDP growth rate far lower as a result. Indeed GDP contracted for many years after emancipation from communism in 1989.
A chance for a new start came in November of last year when a fractious coalition of right-wing and centre-right parties, which had failed to do much except bicker internally for four years, fell from power, making way for the ex-communists of the Party for Social Democracy in Romania, led by Adrian Nastase, which had failed itself earlier in the 1990s. There is reason to hope that, as in Poland, the ex-communists may perform better the second time round in their post-communist guise.
A new president, Ion Iliescu, is also having a second chance, having been president in the early 1990s and being a hangover from the Ceaucescu years. But he is largely a figurehead; the real power resides with Nastase.
Nastase is proving cooperative with his Hungarian counterpart, Viktor Orbanm, in settling the dispute over Transylvania. Hungary does not want an exodus of workers from there to its own richer land by far. Nastase is also forging a new relationship with the IMF as a key means to acquire respectability in the West, a necessary forerunner of EU membership eventually. The IMF suspended an earlier agreement, but is now talking of an over US$500 million credit package. It is premised on projections of GDP growth of 4.1% this year and 4.5% next year. Inflation is expected to be 33.8% in 2001, and to fall to 26% in 2002. The current account balance is likely to remain over 5% of GDP. But this is manageable in an economy in transition, with IMF loans coming in. 
What the new government would like to see is foreign investment funding any external deficit. A privatisation programme is due to get under way in 2002. But the government wants to attract 'greenfield' site investment as its top priority, involving high- tech sectors that scarcely exist yet. `Greenfield investment' refers to setting up a new operation from scratch. IT and telecoms are prime areas for it.
A large sell-off of state assets is, nevertheless, being planned. The sale documents of Banca Agricola and Sidex are being finalised and energy and transport concerns will follow. But the present climate is not exactly conducive to foreign investor boldness; and the sales may yet be delayed.

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CONSTRUCTION

€60m boost to Romanian road sector restructuring

Construction of a bypass around the Romanian city of Pitesti, essential to completing an important pan-European roadway, has received the support of a €60m loan from the European Bank for Reconstruction and Development (EBRD), a recent press release stated. The EBRD is providing the sovereign-guaranteed loan to Romania's state-run company National Administration of Roads (NAR). The investment calls on NAR to strengthen its management along more commercial lines and also provides incentives for the Romanian Government to reform the road sector to facilitate future investment.
The Pitesti Bypass connects Pan European Corridor IV, running from Central Europe to the Black Sea Port of Constanta. The European Commission has highlighted it as an important trans-European road link.
Salvatore Candido, the EBRD's Director for Romania, said the investment should help ease pollution by reducing the amount of heavy traffic that crosses the centre of Pitesti, as well as stimulate the economy by removing a bottleneck in this important transport corridor. Romania has many roads that require a great deal of funding, Mr Candido said, and the sector could make better use and attract more resources if institutional reform in the road were carried out.
The EBRD project requires reforms from the Romanian Government in three areas: new tariffs that takes into account the opinions of road users themselves, as well as development of a strategy for public-private partnerships; increased commercialisation, including development of performance-based road maintenance contracts: and constitutional regulatory reforms, including publication and implementation of a sector policy.
The EBRD has invested over €240m in the Romanian road sector. That includes the Pitesti-to-Bucharest Motorway and the Pitesti-to-Bors national road. The Pitesti Bypass has been highlighted by the Stability Pact for Southeastern Europe as an important contribution to regional integration. EU-PHARE provided funds for project preparation, and for the associated technical cooperation. For any further information contact: Ben Atkins, Tel: +44 207 338 7236 or e-mail:atkinsb@ebrd.com.

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DEFENCE INDUSTRY

Romanian defence ministry places new orders with domestic firms

Romania's National Defence Ministry [MApN] has filed orders worth US$26m with the Ministry for Industries and Resources' (MIR) defence industry, the head of the MApN Arms and Ammunitions Department, Gheorghe Matache, stated on 15th January, Rompres News Agency has reported.
According to Matache, money for the orders came from MApN's own budget and foreign loans and the orders are expected to be delivered on in 2002. MApN ordered some thousands of projectiles from the Plopeni Mechanical plant, while Arsenal Resita will continue works on the second division of antiaircraft cannons. The first division was allotted to the ground forces of Romania last September for the shooting ground at Capu Midia. The Bucharest Mechanical plant will continue upgrading works on the TR-85 tank of Romanian design, the first 14 such tanks being expected out at the end of 2002. The mechanical plant at Dragomiresti will deliver on an order for 25-mm projectiles, while Electromecanica of Ploiesti will carry out integration works for equipping the MiG-21 military plane with missiles.
The Mangalia shipyard will go on with upgrading the Marasesti frigate and building a dragging system. The mechanic plant of Moreni will build 12 carriers on car frames. Modernisation works on the MLI-84 infantry fighting car and the Aeroplane making company of Craiova is planning to finalise four IAR-999 Hawk planes. MApN will buy 30 radio switches from Elprof Bucharest. Adding to these orders will be direct orders of each army category for repairing works and spare parts. MApN also filed orders with Carfil Brasov and Mija Brasov for ammunitions for a foreign buyer. The mechanical plant at Sadu was also chosen for making ammunition to be exported. According to MIR State Secretary Decebal Ilina, some 7,000 defence workers will have a job to do now that the MApN filed orders. 
The labour force in the Romanian defence industry is planned to be cut down to 18,500 workers.

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FOREIGN LOANS

EBRD and EU to support small businesses in Romania

The European Bank for Reconstruction and Development (EBRD) and the European Union (EU) have extended US$5m (5.6m Euros) to Banca Transilvania, a private Romanian bank to support small and medium-sized enterprises in the country.
The new credit line is the second to be extended to Banca Transilvania, the fourth to Romania, through the EU/EBRD SME Finance Facility, a joint programme that promotes finance for SMEs in the 10 eastern European countries which have applied for accession to the EU. The EU is also providing a substantial package of incentives for staff training and other institutional initiatives at Banca Transilvania, through an additional €0.8m.
Banca Transilvania received its first credit line of US$5m, from the EU/EBRD facility in December 1999. Since then the bank has made 152 loans to SMEs in Romania. Fifteen branches are now offering SME loans under the EBRD/EU line and nearly 40 staff have been trained through the EU-supported technical assistance programme. The typical loan size is 43.700 Euro.
The president of the EBRD, Jean Lemierre, said that SMEs in central Europe require support, and not only in financial terms. In order to thrive, smaller businesses need a supportive investment climate and local infrastructure. He said it is important to have a transparent and predictable tax system, reduce paperwork and administrative requirements and limit state interference.
The development of the micro and small and medium-sized companies in the accession countries is one of the most important goals of the European Union, said Jonathan Scheele, Head of the EC Delegation in Romania. They are proven engines for economic growth, accounting for more than 50% of employment in many countries, he said.
Iosif Pop. President of Banca Transilvania, said that demand for micro and small business finance has been growing rapidly in Romania and thanks to the support of the EBRD and the EU, Banca Transilvania is now in a strong position to offer entrepreneurs sound advice and reliable, long-term finance.
The EU/EBRD SME Facility was launched in April 1999 by the EBRD and the EC under its Phare Programme to encourage the growth and development of SMEs by facilitating their access to loans, leasing and equity fiancee from local financial intermediaries in the candidate countries.
The Phare Programme is the main channel for the EU's financial and technical co-operation with the candidate countries of central and eastern Europe. The Phare budget is about 1.5bn Euro a year, of which 240m Euro in Romania. 
For any further information contact: Ben Atkins at the EBRD, Tel: +44 207 338 7236, E-mail: atkinsb@ebrd.com

EBRD supports water and wastewater projects in Romania

A combined investment of €17.7m was made recently by the European Bank for Reconstruction and Development (EBRD) in two Romanian municipalities to improve water and wastewater treatment, a recent EBRD press release stated. A €13.2m loan to the water company in Iasi, bordering Moldova, will upgrade a facility treating local drinking water. In Arad, close to Hungary, a €4.5m loan will support the rehabilitation of a wastewater treatment plant. In both regions, the current poor quality or complete absence of treatment plants poses a potential threat to the health of the local population and the environment. In both cases, treatment will be brought to European Union Standards.
The EBRD loans form part of an environmental improvement programme co-financed with the EU's ISPA grant programme. ISPA provides non-repayable funding towards structural projects in pre-accession countries and has earmarked €52m for the two projects: €38.5m to Iasi and €13.5m to Arad.
The investments by the EBRD will be backed by financial guarantees for the two local authorities, the second time the Bank has provided direct finance to a local service utility in Romania without recourse to a sovereign guarantee. Last year under the same programme, the EBRD agreed a €20m investment with Constanta to upgrade wastewater systems on the Black Sea Coast.
Continued lending to local utilities without sovereign support is a further signal of our growing confidence in Romania's local business climate, said Thomas Maier, Director of the EBRD's Municipal and Environmental Infrastructure Team, at a signing ceremony in Bucharest recently. He noted that it further reinforces the benefits brought about from the reform of municipal finance in Romania and demonstrates that service utilities and local governments in Romania that have implemented tariff reform and commercialisation are now in a position to obtain capital directly. For further details contact: Ben Atkins, Tel: +44 207 338 736, or e-mail: atkinsb@ebrd.com.

Romania, WB to launch talks on PSAL II programme

The Public Finances ministry will initiate talks with the World Bank regarding the programme of structural adjustment PSAL II; Mediafax News Agency quoted Finance Minister, Mircea Geoana, as saying. "We hope to achieve these negotiations in the near future, and the agreement will be discussed by the World Bank Board soon after. The bank has approved the PSAL II programme with Romania, worth US$300m," Geoana told Mediafax.
If this programme is given the green light, Romania will carry out the most positive scenario to the financial aid programme and receive US$1bn in investments between 2002 and 2005. The PSAL II programme concerns the sell-off of 20 commercial companies: Agmus Iasi, Aversa Bucuresti, Comefin Costinesti, Energoreparatii Bucuresti, Energoutiliaj Bucuresti, Giurgiu Nav, Grantmetal Bucuresti, Hart Miercurea Ciuc, Helitube Bucuresti, Hiperion Stei, IAIFO Zalau, Premagro Oradea, Republica Bucuresti, Tubinox Bucuresti, UMUC Bucuresti, Unirea Cluj Napoca, URB Rulmenti Suceava, UTA Arad, UVCP Turnu Magurele and Verachim Giurgiu.

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TOURISM

Continental to invest US$12m in Romanian hotel

International hotel chain, Continental, has announced that it will inject some US$12m in the restructuring and renovation projects of the hotels owned by the company, according to the Romanian daily 'Ziarul Financiar.' The majority of funds will be earmarked for the construction of a new hotel in Constanpa, Continental general manager, Nicolae Fertig, was quoted as saying. Development of the new 105-room hotel will be finalised by March 2003 and its price tag will total US$8m.

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