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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: 065 - (26/09/02)

The Romanians are the laggards in every sort of reform in the Balkans. The Serbs, Macedonians and others to the south are pushing ahead, as are the Bulgarians. Romania had by far the worst regime under communism and that still tells.

Ex-communists back
The ex-communists held power in the mid-1990s, when they promised much and accomplished little, and were replaced by liberals to the right. But they are now right back at both presidential and governmental levels
President Ion Ilescu (now over 70) was a minister within the Ceausescu regime. Premier Adrian Nastase was a lesser functionary within it, like so many of this middle-aged generation.
These are positive recommendations for much of the population these days. The collapse of whole industries and the deterioration of infrastructure and the housing stock, the evisceration of the welfare state and the rise amid all the distress of a corrupt bureaucracy in league with crony capitalism has turned people against the existing order of things. Even the bad old days seemed better in retrospect.

Turn to reform
But the ex-communists will not find it possible to turn the clock back. They would have done it last time if they could have. This time they really are initiating reforms. The ex-communists who have returned to power in Hungary were radical reformers in their previous administration in the mid-1990s. Romanian ex-communists are now showing signs of becoming likewise, having no other options.
The US is still critical of the lack of any movement against corruption, pointing out the absence of a proper judiciary, to be above suspicion itself. The IMF is continuing to back the government, releasing a US$69m tranche recently, but is awaiting further proof of progress before extending two more tranches of US$109m.

FDI bonus
Romania was always likely to interest foreign investors at a certain point. It has an educated population. Communism, Romanian-style, had many failings; Ceaucescu, the dictator until his overthrow in December 1989, was a disaster. But the Enlightenment origins of Marxism placed an enormous emphasis on education. The view of Enlightenment luminary, Lessing, that history consists of "the education of the human race," was taken for granted. The Romanian intelligentsia and technocratic elite are beneficiaries of this tradition. Romanian computer buffs are among the best in the world and are much sought-after abroad.
It is not so surprising, therefore that foreign firms are coming into this large Balkan nation of 22 million people. More than US$1bn has been invested in each of the last three years; indeed more than US$1.2bn is expected in 2002, bucking a world-wide trend which has seen FDI fall by more than 50% over the last twelve months. 
The government is pursuing a new strategy of privatisation. Firms, which were considered unsaleable because of a chronic propensity to losses, are being sold for a symbolic US$1, with an agreement to write off state debts and a complete remit to replace existing management. Says privatisation minister, Ovidiu Musetescu, "these new conditions will allow more flexibility according to the specific needs of the companies," which is shorthand for saying that the new owners can downside large, inefficient work forces, where under state ownership it would be politically dangerous.
A sale, prior to this practice, was to LNM Holdings of the UK, which bought Sidex, the huge steel firm in the east of the country. The deal caused a scandal in the UK because of a political donation when Premier Blair was intervening on behalf of the UK-based company with Nastase. The company employs 28,000, but hundreds of thousands depend on its cheap subsidised steel.
The government has also privatised Banca Agricola, the leading agrarian bank and Alro, an aluminium producer. All these were under the old dispensation. But the new system of knock-down sales and write-offs should see an acceleration of the whole process of privatisation, but inevitably this will lead to substantial further unemployment, as former state-owned companies are rationalised

Worker resentment grows
There is the problem that ordinary workers are not seeing much in the way of benefit. Managers are well remunerated but not the workers on the shop floor. There have been cases where foreign firms have found their managers chased out of the factories by indignant workers.
In April, for instance, the US company F & P Holdings Inc. of Temple, Pennsylvania, faced just such a problem. Workers kept F& P's representatives out of the plant, despite its 92% stake.
"We didn't realise what strong-arm tactics would be used," says F & P's chairman, Frederick Giorgi. "If we'd had 20/20 foresight, we wouldn't have gone in."
The workers resent not just poor wages, but the new free market's downside of lay-offs, productions targets and profitability requirements. The FDI surge into Romania is consequently under threat. Setting up quite new concerns is another matter. But taking over old ones has its acute problems. 

Prospects ahead
2001 was a particularly good year, with 5.3% growth of GDP and a spate of privatisations. It needs to keep up the momentum in a period of problematic growth in Europe as a whole.
EU membership beckons down the road, that is in the second wave about 2007-2010. NATO membership is also on the cards. But widespread corruption threatens both projects. The US has warned that unless it is tackled, NATO membership will be denied.
According to one Western diplomat, progress is being made. "The Romanians are finally understanding that armies do not qualify for NATO membership, but countries do. There has been a definite change of attitude in the past year."

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AGRICULTURE

Romania can absorb SAPARD funds 


The Romanian State Secretary responsible for European integration at the Ministry of Agriculture, Food and Forests, Valeriu Steriu, announced his country would have the capacity to absorb €306m made available by the European Union via the SAPARD agency. This should be done by the year-end, he added. Although the financing pact was initialled for the period 2002-2003, the financing projects via the SAPARD will run for a seven-year period, according to Rompres News Agency, reported by seeurope.net.
The country will receive €153m each year. August 30th was to be the deadline for financing projects to be submitted, while the names of the recipients were to be disclosed around the middle of September.

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ENERGY

Hungarian MOL to start pumping gas in Cluj

The Romanian town of Cluj is now home to Hungarian oil and gas company MOL's newest gas station, according to Bluebull.
MOL's gas state network in Romania stands at 46. The company said it plans to operate 50 by the end of December. Although MOL transferred its Romanian operation to Cluj from Bucharest in 2001, the city's local council did not give the green light until now. 
MOL opened another two gas stations in August, one near Constanta and another in Sigishoara. Active in Romania since 1995, MOL has invested 86.6m Euros in the country since then. 

US4150m revamp project for Arpechim

The Arpechim refinery said it will revamp its facilities for US$150m to help develop installations which will boost the production and quality of Euro 3 fuel and environment protection, according to InvestRomania.
The project is in line with the whole restructuring programme of Arpechim which is being subsidised by the European Bank for Reconstruction and Development (EBRD) and the state oil group, SNP Petrom. "These investments are totally financed by the EBRD with US$150m, and Petrom finances from its own sources for the construction of a hydrogen producing factory," Arpechim's general manager, Mihai Georgescu, was quoted as saying.

Energy sector companies privatisation in the offing

Romanian Prime Minister, Adrian Nastase, was to participate in a meeting to analyse the privatisation and restructuring of enterprises from the energy sector, which are part of the Industry and Resources Ministry's portfolio, according to Mediafax News Agency.
The ministry said earlier that the main enterprises such as Distrigaz Sud and Distrigaz Nord, in the ministry's portfolio will be sold in the next two years. Mediafax said the government is eager to attract private capital in that sector, which is aimed at accelerating the activity and to render Romanian products competitive form the point of view of price and quality. 

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FOREIGN LOANS

IMF approves tranches release

The International Monetary Fund (IMF) gave the green light for the release of the second and third tranches established in the latest pact with Romania, according to Bluebull. The first tranche, worth US$69m, was issued at the signing of the pact, but the other two, US$109m in all, were delayed for payment about six months ago because the IMF said the agreement terms had not been met.
The Fund said it would distribute the money after seeing that Romania has posted favourable macroeconomic performances. The government succeeded in securing a higher state of economic growth, a recovery of the export and agriculture sectors, an inflation cut, shrinking budgetary and current account deficit, higher national reserves and better access to international markets, the IMF said.
According to the Fund, the Romanian economy is satisfactory and grants the government the chance to borrow funds on the international market at lower costs, Bluebull said. But the government must still work on cutting the wages of people employed with state-controlled enterprises, in addition to the losses registered by the industry, such as the energy sector, IMF's managing board Deputy Manager, Eduardo Aninat, was quoted as saying. 

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TELECOMMUNICATIONS

EBRD to grant MobiFon US$300m credit

MobiFon, the No.1 mobile phone group in Romania will secure a US$300m credit from the European Bank for Reconstruction and Development (EBRD), The Guardian newspaper wrote. According to the EBRD, the agreement will provide "a model for international lending to Romania and stimulate competition." 
This is the second EBRD loan to the former communist state. The first was a US$250m credit to Petrom, Romania's largest fuel company, in early August, as part of the group's pre-privatisation programme. Owned by British Vodafone and Canadian Telesystems, MobiFon will use the funds to restructure its current debts and to earmark some US$60m for its network expansion.
Dutch ABN Amro, Nordic Investment Bank and BankAustriaCreditanstalt are just some of the creditors participating in the loan deal. This loan is different from that which EBRD has given to MobiFon in the past. 

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