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romania

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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: 064 - (27/08/02)

Romanians are curiously nostalgic for Communism. This is not to say that they have found a new affection for Ceaucescu and his wife, (the poor man's Macbeth and Lady Macbeth). It simply means that they know their lot is now much worse than before their demise.

Economic distress
In the old days a network of social security at least provided something to fall back on in times of need. Everybody was in a job, indeed, obliged to be. Food and energy were cheap. And housing was basic but was at least maintained. 
Today, for most people life is much worse. The safety net is no longer there and houses are not properly repaired. The recent rains over Central Europe which have led to floods along the banks of the Vltava and the Danube has caused havoc with the dilapidated accommodation for many Romanians.
More food and goods are available all right - but at prices most cannot afford. The strain of the daily grind is telling on the population, workers are made redundant and crime and corruption are rife. At least in a police state like that of old, the crooks had a hard time of it. No wonder people hanker for the return of the bad old days. 


Communists victorious
In this predicament it is hardly surprising if the ex-communist, Ion Ilescu, won the presidential election two years ago. Both president and premier elected last year with a new government, are ex-apparatchiks of the communist regime, calling themselves democrats these days. Ilescu is a veteran of politics, who was president in the early 1990s, and now to the surprise of many, is once again. For then he did a poor job.
He promises to do better this time round. He may well be able to. His premier is doing a good job in the circumstances, Adrian Nastase. He has pushed ahead with an energetic round of reforms, proving a great champion of privatisation and industrial restructuring, to the applause of the West. 
The economy has picked up impressively. GDP growth, which was only 1.8% in 2000, became 5.3% in 2001 and is billed to be about 3.5% in 2002, a far from poor performance given the moribund state of Euroland, to which 70% of Romania's exports go. The government has regained international credibility with an IMF stand-by agreement worth more than US$500m.

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."
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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AVIATION

Romanian company to participate in British Nimrod plane manufacturing

The Romaero SA company, specialising in aeronautic constructions and repairs, might participate in manufacturing the British Nimrod plane of naval surveillance, made by the BAE Systems company, Francis Toba, Romaero managing director, told Rompres News Agency.
A contract was negotiated regarding this by the Romaero management and the BAE Systems Ltd on the occasion of the Farnborough international aviation fair that took place in Great Britain over 22-28 July 2002.
According to the quoted source, the Romanian manufacturer will produce a "small package of spare parts" for the 18 planes for the armed forces of Great Britain. BAE Systems won in December 1996 a contract amounting to £2bn for the updating of 21 Nimrod planes. The cooperation between Romaero and BAE Systems Ltd dates back in 1997 when the two companies signed a contract for the delivery of 130 sets of spare parts. 
The Romanian plant cooperates with other foreign plane manufacturers such as Bomabardier Aerospace, BAE Systems Ltd and Boeing. Romaero, a state-owned company, was set up in 1920. The company has 1,500 employees. In 2001 the company had contracts amounting to US$12m and a net profit of US$2m. The Romaero management estimates that its contracts will amount to US$12m in 2002.

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ENERGY

Oil company to sign pre-privatisation loan agreement with EBRD

Romania's Petrom National Oil Corporation will sign on 31st July a loan agreement worth US$150m with the European Bank for Reconstruction and Development (EBRD), Rompres News Agency has reported. 
The loan will be designed for the reorganisation of Petrom ahead of privatisation procedures to start in 2003. EBRD will provide 100m of the loan from its own funds, while 50m will come in the shape of a syndicated loan from a bank consortium that will include the Black Sea Trade and Development Bank. 
The reorganisation of Petrom for privatisation is expected to take 12-24 months to perform. EBRD President, Jean Lemierre, said in Bucharest in May that the current international context is more favourable to the privatisation of Petrom than it was three years ago, when the Romanian government failed to attract any investor to buy the company. 
EBRD is the most important foreign investor in Romania, with a project portfolio valued at over 2bn euro. Among the most important EBRD projects financed in Romania in 2001 were a loan agreement of US$113m for the privatisation of the Sidex steel-mill; a loan of US$60m for the rehabilitation of the belt road around Pitesti city, as well as a US$20m investment in the Tofan tire plant.

Rising domestic demand requires increased processing of crude oil

The rising demand for petroleum products and fuels in the Romanian market makes it necessary to increase the volume of crude oil processed in the country from around 10.7m tonnes per year in 2000 to 14m tonnes per year in 2005, which represents less than half of the level reached in 1989, according to the strategy for the development of the oil in industry in Romania, recently approved by the government, the Nine O'Clock daily informs, Rompres News Agency has reported. 
According to the strategy, the National Oil Company (SNP) Petrom will maintain a domestic production around 6m tonnes per year until 2005, to fall afterwards to 5.5m tonnes per year in 2010. In exchange, the production of crude obtained by Petrom from other countries will rise from 200,000 tonnes this year to 2m tonnes in 2010, when it is expected to account for one third of the domestic production. The government wants SNP Petrom's international reserves to reach 30-31m tonnes. The investments made in order to reach this goal total US$430m, and target the operations of Kazakstan, India, Qatar and Iran. The remaining quantity to be processed in 2005, 8m tonnes per year, will be imported. In order to strike a balance in terms of foreign currency in this sector, a large quantity of processed products will be exported. The biggest quantity of crude oil processed in Romania, 31m tonnes, was registered in 1989 Of that quantity, 21.8m tonnes were imported, while 9.17m tonnes came from domestic production. In the following years, both the domestic production and the imports declined significantly. 
In order to reach the optimum level in terms of processing, 14m tonnes of crude oil per year, the executive estimates that funds of US$1.57bn are necessary, which will be guaranteed from the personal sources of the economic agents and external loans without governmental guarantees.
Thus, 210 production wells will be drilled every year, an operation which requires US$280m, while the capital repairs at the existing wells will total US$150m. In connection with the processing sector, the programme stipulates investments of US$840m, to be guaranteed by economic operators from their own sources or from credits not guaranteed by the state. 
Upgrading the equipment and improving safety will require US$562m, while the cost of adjusting the quality of the products to the EU norms will be US$161m. The environmental protection projects total US$117m. The government estimates that increasing the operational capacity of the petrochemical industry will also expand the sources of raw materials for the plastics industry, reducing in this way the imports in that sector, which total US$320m. The strategy includes measures regarding the infrastructure, among which the construction until 2005 of a 320 km-long pipeline between Brasov and Cluj. The aforementioned will have a transport capacity of 600,000 tonnes of petroleum products per year and will cost US$74m. 
The pipeline connecting Ploiesti and Brasov will also be modernized, the necessary funds rising to US$32m. During 2002-2005, SNP Petrom will build some 90 gas stations every year, investing for that purpose US$90m. The modernization of gas stations and depots of the company also requires investments of US$75m. The Ministry of Industry and Resources will implement the provisions of the strategy, in cooperation with the professional and employers' association, the unions, and the firms operating in this sector, regardless of their form of ownership.

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EU ACCESSION

Romanian government approves EU pre-accession plan

The Romanian government approved on 25th July the Economic Pre-Accession Plan (EPP) containing the planned measures for fulfilling the economic accession criteria, Rompres News Agency has reported. 
The EPP, deemed a forerunner of the convergence and stability programmes of the member states, was for the first time mapped out in 2001 and it is to be updated annually until the accession date. The EPP annual updating is required both in order to highlight the way of achieving the commitments made under the previous EPP and the changes that took place in the economic policy due to the domestic and international developments, as well as for a range of conceptual and methodological developments that should secure the EPPs transparency and comparability. In line with the general requirements, the directions for the updating of the EPP were aimed at the presentation within each chapter of the way of achieving the commitments made in EPP-2001, a presentation of the fulfilment of the economic accession criteria set out in Copenhagen, the explained presentation of the differences of economic policies compared to the EPP-2001, the explicit establishment of priorities and of the time scale for the implementation of the commitments. 
As in the first version, the EPP-2002 is structured by the following main sections: a synthesis of the recent economic developments, the detailed macroeconomic framework, the programme and quantitative scenario in public finance and the programme of structural reforms. The EPP-2002 has two important modifications as regards the detailed structure, i.e. the introduction of new sub-chapters within the chapter "The macroeconomic framework of the economic policy" and a presentation of appendices under the standardized form required by the European Commission; also, the anti-inflationary policy is dealt with separately from the monetary policy.

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FINANCIAL NEWS

Industrial output up 4.5%, CPI down 0.7%

Romania's National Statistics Board (INS) has announced that the country's industrial production increased by 4.5 per cent in May, while the growing manufacturing sector offset dropped in other sectors, according to BBW. 
Manufacturing expanded 6.4 per cent month-on-month, while the extractive and power sectors recorded losses of 1.4 per cent and 9.1 per cent, respectively. Industrial production in the January-May period of 2002 grew 3 per cent. A 4.2 per cent jump in the manufacturing sector was instrumental in boosting the five-month figure. In other developments, consumer price inflation dropped 0.7 per cent to 1.2 per cent in June. Seasonal deceleration in food price hikes was the main reason behind the decline, INS said in its report.
Non-food prices expanded 0.8 per cent in June compared to a 1.4 per cent jump in the previous month. Annual inflation totalled 24 per cent in June compared to 24.5 per cent in May. Prices grew 9.3 per cent from the end of 2001. Services prices growth lagged to 1.3 per cent in June against 1.8 per net in May, INS said.

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FOREIGN INVESTMENT 

Premier inaugurates Romanian Agency for Foreign Investments

Prime Minister, Adrian Nastase, opened on 22nd July, the headquarters of the Romanian Agency for Foreign Investments (ARIS), an institution set up by Romania's government to establish direct connection with foreign investors willing to come to Romania, Rompres News Agency has reported. 
It is through this agency that foreign investors can get acquainted with the elements they need to start a business in Romania, the legal terms, the business opportunities or the facilities they get, without any go-between, Prime Minister Nastase said after visiting the ARIS headquarters. Another task for ARIS is to establish better relations among foreign investors and local investors, as it was noticed that most of the blockages related to obtaining required approvals were recorded in this area. Romanian companies will benefit from new export opportunities and better quality management through foreign investors, and the state will grant fewer guarantees, thus effecting a narrowing in the budget deficit and a fall in the inflation rate, Prime Minister Nastase said. 
ARIS will provide an opportunity for foreign investments, which stood at US$7.84bn at the end of 2001, to grow. The Romanian government has conveyed an important signal when deciding that staff costs should be reduced starting on 1st January 2003, a process to be continued later on, Prime Minister Nastase stressed. Carrying through the privatisation process is a priority of the economic reform, Nastase stressed. "Privatisation must be continued and completed as soon as possible to enable us to increase exports," Romania's premier explained. I think that combining all this, adding the elements related to a very good country rating, and the way in which Romania is seen in its relation with the European Union, the fact that we have concluded the negotiations with the IMF, the economic growth level, all these together could change the prevailing tendency towards making investments in Romania," Prime Minister Nastase concluded.

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FOREIGN LOANS

EU grants almost 1m euro to improve situation of Romanies in Romania

The European Union is to finance 29 new projects to improve the status of Romanies in Romania, which amount to 927,500 Euros, Jonathan Scheele, the chief of the EU Commission delegation to Romania, stated on 25th July, during a press conference, Mediafax News Agency has reported. 
Scheele emphasized that the improvement of the situation of Romanies in Romania is very important to fulfil the political criteria for the country to be admitted to the European Union, which pre-supposes the existence of a democratic state, in which the rights of ethnic minorities are observed. 
The EU will keep supporting the enforcement of the National Strategy to Improve the Situation of Romanies in Romania, and will grant financial support, provided the executive proves it has a greater absorption capacity of some more important funds. "The projects that won the bid for the Fund to Improve the Status of the Gypsies shows there is a great absorption capacity at the level of local communities and of civil society," stated Scheele. 
He hopes he will have the chance to visit the respective local communities, along with representatives of mass media, and to supervise the way in which the EU-financed projects are implemented, as well as their results. 
The envoy of the EU in Bucharest stated that some Romanian authorities' reactions are still contradictory to EU policies, and even to the Romanian government. He recalled the statements recently made by the prefect of Iasi County. "If it is true that the prefect of Iasi really made the statements recounted by the written media, he should be penalized by the Council to Fight Discrimination. However, this council has not even started to work," Scheele added. 
According to Scheele, the problems of the Romanies have deep roots in history, as this minority has been treated "rather badly, most of the time." "There are cases of discrimination in the whole of Europe, their status is nowhere fortunate," Scheele stated.
The delegation of the EU in Romania will organize in September, along with associations of Romanies, a show enclosing testimonies on the deportation of the Romanies in the Dnestr region [eastern Republic of Moldova], 60 years ago...

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INFORMATION TECHNOLOGY

Mirabilis media launches 2nd version of car web site

Mirabilis Media has introduced the second version of its car-related Web site, Masini.ro, according to BBW. The software developer's site focuses on providing information about new cars that are sold in Romania. This includes information on prices, standard and optional equipment, technical performance, and classifieds that may have up to three photos each. The site has more than 25,000 visits each month. 
Mirabilis officials were quoted as saying that the portal is the second leading auto site in the country. Launched three yeas ago, Mirabilis concentrates on software development, content diffusion on the Internet and other communications systems, BBW reported.

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