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ROMANIA

UPDATE January 2002

Romania is a sorely troubled country but it is important because it has a big population at 23 million. Its economy is barely two-thirds the size of itself in 1989, when it shed its ghastly communist dictator, Ceaucescu. It was a poor country then, the poorest in the Balkans, apart from Albania.
Yet it always had reasons to be proud. The population have long been highly westernised, with French as a second language that many know, or understand. Its own language is of Latin origin, so that the theory is generally accepted that Romanians are the offspring of Roman soldiers billeted there in the days when it was Dacia. Actually, there is next to nothing known about Romanian history between the third and the thirteenth centuries, when it could easily have been overrun by people of a very different stamp, who assumed the local Latinate language, as the Vikings who invaded Normandy did French. The advantage of this uncertain history is that both France and Italy feel themselves in the position of patron and sponsor.
The Romanians are hoping to make a worthwhile life for themselves today. Last year they elected a Social Democratic government into power, with the key figure of Adrian Nastase as premier. A former foreign minister and law professor, he is doing his utmost to bring his country into the modern world, being a patriot in the best sense. He is absolutely committed to the ideals of the West.
Nastase wants Romania to join NATO and the EU as soon as possible. Recent events make NATO membership an imminent possibility. The struggle against terrorism in Europe certainly requires Romanian co-operation.
The Romanians pose a conundrum for the Western Europeans. They are a sophisticated people with a lot to offer the wider world. But the legacy of the benighted form of communism they endured under Ceaucescu is still weighting the Romanians down. The per capita income even in the towns is a mere US$150. In the countryside people are subsisting on even less, albeit with a partially barter economy in operation. Romania is certainly the laggard in reforms among transition economies, apart from Serbia and the Serbian Republic in Bosnia of course.
The structure of power is still based on chains of patronage, cronyism and corruption. A new government at the end of its first year, is showing some signs of improvement. Adrian Nastase, heads a Social Democratic government and enjoys 60% popularity ratings. Inflation has been brought down, growth in 2001 is set for 5% and plans to sell off state firms are being advanced.
The events of 9:11 have raised Romania's profile as a possible route for dangerous contraband. There is talk of its inclusion in NATO, which is more likely than entry into the EU soon. But even here, the French foreign minister, Aubert Védrine, called in November for Romania's entry to the EU in the first wave of accession due in the mid-2000s. It is likely to be further away than that as he well knows. But with Nastase at the helm, the West is taking a new interest in Romania. There is hope at the end of the tunnel at last.

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AVIATION

GE Aircraft, Turbomecanica negotiate formation of JV

General Electric, the No.1 industrial group worldwide, is currently negotiating with Turbomecanica Bucharest, a Romanian aeronautics enterprise, to forge a partnership agreement, the Romanian daily 'Ziarul Financiar' quoted sources close to the deal as saying. Although the US company had planned initially to purchase the Romanian group, they opted to create a new venture instead because of judicial problems.
Turbomecanica's primary customer is General Electric, accounting for nearly half of the group's overall turnover. GE had hoped to obtain the Romanian group to help its aeronautics division, General Electric Aircraft, broaden its presence in the former communist state. Turboact, the employees association, is the current majority shareholder in Turbomecanica, holding 62.54 per cent. GE's purchase of Turbomecanica would have prompted the acquisition of the stake held by Turboact, Zirarul Financiar wrote.
But under the privatisation agreement, as workers must pay for the shares for some years, they are ineligible to sell. "Two solutions were proposed to solve the situation. According to one variant, General Electric was to help Turboact by granting a loan to the association, so that it can finish paying for the shares soon than planned. The employees were to return the money afterwards, after the shares were sold to the Americans," sources were quoted as saying.
Talks between GE and Turbomecanica are now reviewing the second option. That is, the launch of a joint venture. Under this plan, both companies would control 50 per cent of the share capital. Ziarul Financiar said Turbomechnica would inject a large part of its assets to the new company and GE would contribute with a capital inflow worth several million dollars.
This new venture could generate tens of millions of dollars each year for the two parties, according to the daily. Under the plan, the new venture would produce parts and subassemblies for aircraft engines. The whole amount produced would be shipped to GE Aircraft in the United States.
Trading on the Bucharest bourse, Turbomecanica's shares have risen steadily since October. The company's market capitalisation now stands at US$10.8m.

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CONSTRUCTION

Technopolis park development to kick-start July 2002

Development of technological park, Tehnopolis, will begin after July 2002 and should be opened one year later in Iai, according to reports, New Europe has reported.
Local officials, particularly the City Hall, County Council and four Iai-based universities, initiated the project. "The project has already been approved by the development and prognosis ministry and by the EU through the European Commission which agreed to grant funds worth some four million Euros," Ia'Ii County Council chairman, Lucian Flaier, was quoted as saying.

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CREDIT RATINGS

Fitch assigns ratings to BCR's short, long-term

Ratings agency, Fitch, has assigned short- and long-term B ratings to Romanian Commercial Bank (BCR) and an individual rating of D. The bank's support rating stayed at 2T, Fitch said in a statement. The group's ratings of the bank reflect how BCR's risk profile has developed thanks to the "clean up" of its balance sheet, better liquidity and productivity, New Europe has reported. 
"The future performance of the bank would depend primarily on its privatisation," Fitch was quoted as saying by local press. The bank's sell-off is scheduled for January-February 2002. Resort Minister, Ovidiu Musetescu, was quoted as saying that the Authority for Privatisation (APAPS) hopes to present a series of fiscal facilities for the companies slated for privatisation to enable investors to boost the process of privatisation. "We will establish a facility packet, on which we will agree with the specialised committees of the European Union and with the International Monetary Fund, in order to cancel several debts of the companies, besides the cancellation of the penalties and delay increases which we are currently doing in the PSAL I programme," Musetescu was quoted as saying.

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FINANCIAL NEWS

Romanian exports rise by one billion dollars in 2001

Romania recorded around 5 per cent economic growth in the first nine months of this year, while exports rose by US$1.1bn by the end of October compared to the same period of last year. Investments increased by 4.7 per cent in the first nine months of 2001 compared to the same period of 2000 Rompres web site has reported. 
As many as 1,080 companies of the 410,000 that have presented the accountancy balance for 2000 were selected in the eighth edition of National Top-Ranking Companies prepared by the Romanian Chamber of Commerce and Industry (CCIR) in cooperation with the economic ministries and employers' associations. The 1,080 companies have shown exceptional management capabilities and managed to record profit, CCIR said.

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FOREIGN LOANS

Cabinet oks new IMF stand-by agreement, vows to respect conditions

Romania will be allowed to borrow US$3.4bn in medium and long-term loans in the year 2001, from a current US$2.8bn approved initially, in accordance with a stand-by arrangement concluded with the International Monetary Fund [IMF] this autumn and sanctioned by the government in an emergency decree, Rompres News Agency has reported.
Indebtedness for 2002 allows government guarantees to the limit of US$100m for nonbudgetary companies. At the same time, loans repayable in one to three years will be limited to US$600m, US$20m at most for state companies. 
The government is planning to increase the auditing mechanism of the Finance Ministry and also to improve the reporting of drawings from foreign loans based on reports of the creditors, all in an attempt to avoid state companies asking for loans that exceeds the ceilings on expense in the budget law. One of Romania's pledges to the IMF is that no state companies will raise foreign loans directly by the end of 2001. 
The IMF Board of Directors approved on 31st October a stand-by arrangement between the IMF and the Romanian government worth 300m SDR [Special Drawing Rights](some US$383m), to be paid out in seven instalments up to March 2003. A first instalment of 52m SDR is readily available. 
The main macroeconomics objectives in the Romanian government's agreement with the IMF are a reduction in inflation to 22 per cent by the end of 2002, an economic growth of 5 per cent, a limitation to under 6 per cent of GDP of the deficit in the current accounts, as well as an increase in state reserves to a level that will allow imports over three months to be covered.

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