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  ROMANIA

REPUBLICAN REFERENCE

Area (sq.km)
230,300

Population
22,364,022

Capital
Bucharest

Currency
Leu

President
Ion Iliescu

Private sector
% of GDP

40%

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Background:
Soviet occupation following World War II led to the formation of a communist "peoples republic" in 1947 and the abdication of the king. The decades-long rule of President Nicolae CEAUSESCU became increasingly draconian through the 1980s. He was overthrown and executed in late 1989. Former communists dominated the government until 1996 when they were swept from power. Much economic restructuring remains to be carried out before Romania can achieve its hope of joining the EU. 

Update No: 062 - (20/06/02)

Left wingers back

For once Romania is sending out good news. Eighteen months ago, it seemed to be in a grave plight in which each alternative course was bleak. The electorate was faced with the dire choice of right-wing demagogue Vadim Tudor, an anti-semite and racist about the other ethnic minorities, the Hungarians of Transylvania and the Gypsies, or the ex-communists, whose record in office in the 1990s had been poor.
The ex-communists, the Social Democrats, are in power for a second time. First time round in the early 1990s they did little. Being unprepared to pay the electoral costs of the pain involved in transition to a market economy, it was an exercise in populist-inspired 'masterly activity.' But so was the constantly bickering coalition of centrist and right wing parties that succeeded them that could not agree what to do, and so did little. There is just a possibility that they have learned their lesson and will forge ahead with reform, as is happening in Poland. 

Economy recovers
This time round the former communists are doing much better, having clinched a good victory. The president, Ion Ilescu, is leaving the running of affairs to Premier Adrian Nastase and his PSD government. Nastase has embarked on an energetic sale of state assets. 2001 was the turning point. GDP growth, which was only 1.8% in 2000, reached 5.3% last year and is estimated to come in at 3.5% in 2002. The rate of inflation, 30.3% in 2001, was the lowest for twelve years. Foreign direct investment has come in at just over a billion US dollars per annum in the 200-2002 period. 
Never has there been such a devastating event in Romanian history as the overthrow of the Ceaucescu tyranny. But it led to a decade of recession and retraction, making many of the population nostalgic for the tyrant and his grim consort, who at least created and supported a rudimentary welfare state.
The backwardness of the reform effort is shown by the fact that 66% of the country's industry is still owned by the state. Clearly, there is massive scope for improvement, with sales of energy and telecoms to the fore. This is now on the agenda.
The Romanians are in fact introducing some bold reform measures at last. One such is to sell off unprofitable state enterprises for a symbolic one Euro if the purchaser promises to bring investment.


Long-needing banking reforms
The banking sector is in a much-needed shake-up. Last year Raiffeisen Zentralbank, the Austrian group, led a consortium which bought Banca Agicola for US$52m. This year the authorities are preparing to sell off the biggest bank of all, Banca Commerciale Romana. Herbert Stepic, the deputy chief executive of Raiffeisen, says: "South-east Europe is important for us because that is where we are now seeing the fastest growth in banking." Romania is perhaps catching up with the Visegrad nations to the north here. 

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AUTOMOBILES

BMC drives into Romanian market, opens office

BMC has opened its first representative office in Romania with immediate plans to launch a sales campaign on the local market. The Turkish-based truck maker has estimated a sales figure of 50 units for this year, Sinan Kilic, BMC Romanian General Manager informed Business Weekly recently. He also said the company planned to invest more than US$400,000 in a show room, a service unit and promotion activities.

Aro to assemble Kia K 2,700 truck model 

Off-road carmaker Aro said it will begin assembly operations for the Kia K 2,700 truck model, as the company inked an agreement with the Korean car company Kia Motors. 
"Aro has negotiated a cooperation deal with the Korean side, which in its initial stage stipulates that Aro would perform assembly operations," Aro's general manager, Aurel Drodea, was quoted as saying by BBW. Dordea did not disclose any production estimates. "Production would be adapted to the market demand," he added. 
The second phase though might see Kia Motors decided to invest in producing the model in Romania, Dordea noted. Kia's general importer for Romania, APCI, sold some 30 K 2,700 units in 2001.

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BANKING

Foreign investors eyeing Libra Bank acquisition 

Romania's Libra Bank might be sold to a foreign investor by June 15th, as the bank's shareholders are now in talks with four groups about a possible deal. Two Italian companies, a British group and an Israeli company have expressed interest in obtaining the bank, whose price tag stands at about US$15m. "One of the Italian groups, currently running the final audit reports, has the biggest chance of closing the deal," BBW quote Libra Bank President, Dan Constantinescu, as saying.

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ENERGY

MOL division opens petrol station in Craiova 

The Romanian subsidiary of Hungary's oil and gas company, MOL, inaugurated its first petrol station in Craiova, bringing the company's overall petrol stations number to 43 in Romania, New Europe has reported.
The Craiova site is also the first one to distribute LPG gas for automotive use, according to BBW.
In related news, the MOL Group reported a huge increase in its production capacity. Profit grew four-fold in the first three months of this year to US$45.5m. The group's gas unit posted an 84 per cent drop in losses. Net sales revenues totalled some US$1.08bn.

12 foreign investors eager for Petrom consultancy tender 

Twelve investment banks and consortiums have expressed interest in becoming advisors for the Petrom stake sale. The investors have already submitted letters of intent to Romania's Industry and Resources Ministry. 
According to BBW, they are prepared to offer consultancy services for the energy group's privatisation process. ABN Amro Rothschild, Commertzbank AG, Credit Suisse First Boston, Fieldstone Private Capital Group, ING Barings Ltd., and JP Morgan are just some of the companies interested in the sale. According to the state's stand-by agreement with the International Monetary Fund (IMF), the winner of the tender should be chosen by the end of June. 

Romania to increase natural gas storage capacity to 4bn cubic metres 

Romania will increase its natural gas storage capacity from 1.5bn cubic metres to 4bn cubic meters, Romanian Prime Minister Adrian Nastase announced, pointing out that this will solve the problem of the natural gas supply during the winter time. The investment is extremely useful and important because it ensures the natural gas supply and the independence for heating, and a decrease in costs for the population, the prime minister explained, Rompres News Agency has reported.

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FOREIGN INVESTMENT

More FDI possible with transparent privatisation 

Drawing in more foreign investment depends mainly on Romania's moves to slash its budget deficit, cut inflation, make privatisation more transparent and fight corruption, US Treasury Secretary, Paul O'Neill said, quoted by Bloomberg. Doing so will help encourage more and more investors into this former communist state.
"Once you have those basic conditions, then money will come from all over the world to help with economic development, not because the government's doing it," O'Neill said. "There's a lot of capital in the world that's looking for a place where it can go."
In the last 12 years, since the collapse of the communist regime, Romania has drawn in about 33 per cent of the foreign direct investment (FDI) of Hungary, its bordering state. Until 2001, Romanian attracted US$7.8bn in FDI, against Hungary's US$20bn, Bloomberg wrote.
O'Neill was quoted as saying that Romania didn't have a great deal to look at when communism collapsed. So it wasn't surprising that investors did not want to spend a large amount of funds in the Romanian market.
But the US bearings maker, Timken, had a different viewpoint. The company purchased the Ploiesti-based, SC Rulmeti Grei SA plant, for US$37m nearly five years ago.
"There's a lot of capital in the world that's looking for a place where it can go," Timken spokesman, Mike Johnson, was quoted as saying.
"Some people said that's what we would find and it turned out to be true."
Timken discovered it had to develop quality controls at the plant to fall in line with clients' dements. Timken Romania's production manager, Andy Millerchip, said: "This factory was built for ideals not a market."
Meanwhile, O'Neill also said he would like to see Romania ease its dependence on aid from global creditors. "In an ideal world, the Romanians ought to be taking action that reduced the need for them to be taking loans from the International Monetary Fund," O'Neill told officials at a recent EBRD meeting. "If sovereign governments take the actions that I believe are within their power, they can be significantly less dependent on programmes with the IMF."

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FOREIGN LOANS 

Romania secures US$246,000 World Bank grant to reduce poverty

Romania has received a US$246,000 grant to subsidise the development of poverty evaluation and monitoring methods, and the modernisation of technical capacities of poverty fighting commissions arranged by Adrian Nastase, the prime minister of Romania, according to the Romanian daily, 'Nine O'Clock.'
Public Finance Minister, Mihai Tanasescu, inked a document with Andrew Vorkink, World Bank director for Romania, which points out the exclusive destination of the non-repayable loan - aid for low-income people and curbing poverty components in the former communist state.
According to Vorkink, the country is still struggling with economic problems. As a result, the government must implement a sound national social security system and bring in more investment, particularly to areas that have higher unemployment rates.
Shegman Zhang, deputy to the president of the World Bank, noted the government's successes in carrying out economic reform. "The World Bank leadership will tackle the PSAL II issue as fast as possible," Zhang was quoted as saying. "The World Bank will continue relations with Romania and is hoping for the fastest possible approval of the PSAL II programme once all details have been worked out," he added. Nastase attended the signing ceremony and explained that the programmes the World Bank and Romania are to sign by 2005 are worth US$1bn. These programmes will focus on social assistance, and curbing red tape and corruption in administration structures.

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SHIPPING

Romania, Slovenia sign sea transportation agreement 

Romanian Minister of Public Works, Transport and Housing, Miron Mitrea, and his Slovenian counterpart, Jakob Presecnik, on 27th May signed an agreement on sea transportation, Rompres News Agency has reported. 
The agreement represents a corner stone in economic development, Slovenia's minister said, stressing that it is an important fact not only for the transport but also for the whole economic cooperation between the two countries. 
The accord with the Republic of Slovenia was signed ahead of the 86th Session of the European Conference of Transport Ministers due in Bucharest, over 28-31 May 2002, in which ministers coordinating transport activity in most of Europe's states, as well as the US, Canada and Japan are expected to participate. 
The document ensures harmonisation of the bilateral legal framework for the conduct and development of relations between the two countries in the field of the sea transport, as well as better coordination of this activity and avoidance of any action that could hamper normal sea transportation activities.

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