Books on Romania
% of GDP
Update No: 090 - (27/10/04)
Basescu Enters Romanian Presidential Race
The big event in Romania is the forthcoming presidential election in November.
Following the withdrawal of Theodor Stolojan from the presidential campaign, the
main opposition alliance has chosen the recently elected Bucharest Mayor and
Democratic Party (PD) leader, Traian Basescu, to run against Prime Minister
Adrian Nastase, the candidate of the ruling Social Democratic Party (PSD). The
stage is set for a dramatic showdown, as Basescu is a more formidable campaigner
than the man he replaced. National Liberal Party (PNL) chairman and alliance
co-chairman Theodor Stolojan.
Romania's main opposition alliance on 4th October officially confirmed that
Basescu would be its candidate in the November presidential campaign. The mayor
of Bucharest was nominated after the withdrawal of Stolojan from the race.
Stolojan, who was prime minister for a period during the early 1990s, cited ill
health as the reason for his withdrawal. "Unfortunately, my road to the
presidency ends here," Reuters quoted him as saying. "It was a tough
road which left deep marks … my health problems can be remedied now, but might
irremediably aggravate if I do not focus on them."
His decision stunned the PD and PNL, which together make up the Justice and
Truth Alliance, and threw the Romanian political scene into turmoil. Basescu
charged that Stolojan's medical condition had been worsened by
"blackmail" by the PSD. According to Basescu, PSD leaders planned to
launch a smear campaign, publicising treatment Stolojan received at a sanatorium
20 years ago, as well as his alleged involvement in a questionable business
Blasting what he described as "an outrageous system that destroys the
ruling party's political opponents," Basescu said the PSD aimed to use its
network of party-controlled newspapers and media to destroy Stolojan's
"Boys, you can't have me," he said, vowing that he would not be
intimidated by political dirty tricks.
Prime Minister Adrian Nastase -- who is also the ruling party's candidate for
president --firmly denied the accusations, saying that he had called Stolojan
following his announcement and that the two had talked for more than 15 minutes.
"Stolojan did not tell me anything about any sort of blackmail,"
Nastase said, accusing Basescu of exploiting the PNL leader's illness for
Analysts say the change of opposition candidates will make it harder for Nastase
and his party. During local elections in June, Basescu humiliated the PSD
candidate, Foreign Minister Mircea Geoana, in the mayoral race. Basescu's
aggressive, populist style is seen as more likely to fire up Romanian voters
than that of the reticent Stolojan, who was lagging by as many as eight points
behind Nastase in the polls.
According to Cornel Nistorescu of the daily Evenimentul Zilei, a
"spectacular relaunch" of the campaign has taken place, setting the
stage for a dramatic showdown.
Romania sees FDI of $2.5 billion in 2004
The Romanian economy grew 6.6 percent in the first half of 2004 over the same
period last year and is forecast by the government to grow by 5 percent or more
in each of the next four years.
The key to expecting long-term growth to be sustained lies in foreign direct
investment(FDI). Romania expects FDI to reach $2.5 billion in 2004, the Rompres
news agency reports.
Alexandru Popa, head of the Romanian Agency for Foreign Investments, was
reported as saying FDI in 2004 would improve on last year's $1.8 billion because
of reforms to the customs code, the taxation system and business registration
In August the central bank said increased foreign direct investment would
inevitably lead to a gradual appreciation of the Romanian currency, the leu. In
the January to May period, foreign direct investment inflows were up 38 percent
compared to the same period last year.
Foreign direct investments (FDI) attracted by Romania could reach US$2.5bn this
year, after amounting to a record US$1.1bn in the first half, up 60% compared to
the corresponding period of 2003, Alexandru Popa, head of the Romanian Agency
for Foreign Investments (ARIS), stated recently on the occasion of the
presentation in Bucharest of the World Investment Report by UNO.
Popa stated the estimate is based, apart from the good evolution in the first
half of the year, on the improvement of administrative procedures for company
registration, correlation of control and check operations, establishment of the
single registry, improvement of customs code and stabilisation of the taxation
system after the fiscal code came into force.
"The report reveals Romania's notable progress, and it is a highly positive
signal, particularly in the context of OECD entry negotiations," Popa said.
According to the report, in 2003 Romania ranked fourth in Central and Eastern
Europe, with a US$1.8bn FDI, whereas on the whole the region registered a steep
drop in FDI, to only US$21bn (32% down since the previous year), while an
important global decline was also reported.
In turn, Ruxandra Stan, executive manager of the Foreign Investment Council (FIC),
stated that although there are positive prospects for Romania, many problems are
still waiting to be solved.
"The FDI attracted by a country depends on three elements mainly: costs,
labour skills and infrastructure. While in costs and labour qualification we are
okay, there is a lot to be done as far as infrastructure is concerned,"
The FIC official emphasised that Romania also has problems related to data
security, copyright, excessive tax bureaucracy, labour code and economic control
"There is what we call 'control harassment' - chaotic and too frequent
controls. Furthermore, there is an overlapping of attributions of the economic
police, the financial guard and other check and control bodies. We asked the
ministry for public finances to draw up a code of conduct of control
institutions. The ministry is currently working on an ethics code in this
respect, yet what we want is a code of conduct, following the British model,
which clearly defines the attributions of the control institution and officials
while conducting checks," Stan added.
In her opinion, in order to attract FDI, Romania must stop betting on the
'facilities' card and look for innovative solutions, on better reasoning and
better enforced, such as industrial parks, which should be further developed.
Popa said that as the EU legislation is adopted, Romania will no longer be able
to grant 'passive' facilities, such as the ones for underprivileged zones.
S&P raises Romania's Termoelectrica ratings
Standard & Poor's Ratings Services said recently it had raised its senior
unsecured rating on the US$200m and US$120m notes issued on a fiduciary basis by
J P Morgan Bank Luxembourg S.A. for S.C, Termoelectrica S.A. to BB+ from BB, New
Europe reported recently.
J P Morgan issued the notes on a fiduciary basis to fund loans made by it to
Termoelectrica and 18 thermal power plants, added the rating agency. "The
rating on the notes is based on the unconditional and irrevocable guarantee by
the Republic of Romania of the due payment of principal and interest on the
loans to the fiduciary, with the fiduciary using the proceeds of principal and
interest payments from either the borrowers or guarantor to pay the notes'
coupons and redemption amounts," said Standard & Poor's credit analyst
Konrad Reuss. Termoelectrica is 100%-owned by the Republic of Romania (foreign
currency, BB+/Stable/B) and is not slated for full privatisation in the near
S&P raises Romania's ratings
Romania had its foreign credit rating raised by Standard & Poor's as the
government cuts the budget deficit to 1.64% of GDP this year, down from 2.5% in
2003, in preparation for joining the European Union in 2007.
S&P said recently that it lifted the ratings on Romania's US$4.9bn of
foreign-currency bonds one step from BB to BB+, one level below investment grade
and equal with Russia, Egypt and E1 Salvador, said Bloomberg citing a S&P
The country's long-term, local-currency ratings were raised to BBB-, the lowest
investment grade, added the news service. "The upgrade reflects the
country's significant progress in reforming its state-owned enterprise sector,
together with EU membership prospects," said Standard & Poor's credit
analyst Moritz Kraemer.
"Romania's recent progress in structural reforms should lead to lasting
improvements in public sector finances. Moreover, prospects for deepening
parastatal reform are encouraging." Improved macroeconomic stability and
microeconomic reform have increased the probability that Romania will become a
member of the EU by the official target date of 2007.
The ratings remain constrained, however, by institutional weaknesses, external
imbalances, and low levels of economic prosperity, although there would be a
gradual catch-up with investment-grade sovereigns if the government follows
through on the current reform agenda. "Romania's improved prospects for
becoming a member of the EU by 2007 are balanced with its external
vulnerabilities," said Kraemer.
"EU membership would make the economic modernisation process
A sustained commitment to fiscal consolidation and microeconomic reform by the
government that emerges from the November 2004 elections could lead to an
upgrade of the foreign currency ratings to investment grade in the medium term.
A delay to EU membership into 2008 would not in itself put any downward pressure
on the ratings on Romania. Nevertheless, further weakening of the current
account balance and the concomitant effects on external debt and liquidity could
lead to a lowering of Romania's credit rating, especially if net foreign direct
investment were to fall short of expectations, noted the rating agency.
Romania sold state assets such as oil company SNP Petrom SA and two of its eight
power distribution companies to satisfy EU budget demands. Inflation dropped to
12.4% in August from almost 15% a year ago.
Government elections in November are unlikely to stall EU entry talks, Bloomberg
quoted Simon Quijano-Evans, an analyst at Bank Austria Creditanstalt AG in
Vienna, as saying. "Any new government will clearly set itself the target
of completing talks" to join the EU, Quijano-Evans said in an e-mail on
August 17th, predicting an upgrade.
"The external financing picture now looks more benign." The extra
yield, or spread, investors demand to hold Romanian government bonds rather than
benchmark European government debt tumbled to as little as 1 percentage point
this year from 4.8 percentage points in 2002. Romania concluded talks with the
EU on 25 policy areas out of a total of 31 required from all candidates, and
wants to finish talks by the end of the year. The European Commission will
re-assess progress in October, added the news service.
Fitch changes BRD's and UCR's ratings outlooks
Fitch Ratings, the international ratings agency, said recently that it has
revised the rating Outlooks on BRD - Groupe Societe Generale (BRD) and UniCredit
Romania (UCR) to Positive from Stable, New Europe reported recently. At the same
time, BRD's and UCR's ratings are affirmed at Long-term BB, Short-term B and
UCR's Individual rating is affirmed at D. The new Outlook follows the recent
change in the Outlook on Romania's Long-term foreign currency BB rating to
Positive from Stable, noted the agency.
The Long-term, Short-term and Support ratings of BRD and UCR are derived from
the potential support from their foreign parents in case of need. BRD is 51%
-owned by Societe Generale, (rated Long-term AA-).
However, due to the potential transfer risk in Romania, which could constrain
the ability of these institutions to support their subsidiaries, BRD's and UCR's
Long-term ratings are constrained by Romania's country ceiling of BB, noted the
rating agency. BRD is Romania's second largest bank, accounting for 16% of total
banking assets, and has been majority-owned by Societe Generale since 1999.
UCR was a relatively small bank when UniCredito Italiano initially took a stake
in it in June 2002.
The bank has since undertaken a successful expansion strategy targeting both
corporate and retail clients. Recently, Fitch upgraded Romania's Banca
Comerciala Ion Tiriac S.A.'s (Banca Tiriac) Long-term rating to B+ from B. At
the same time, the bank's other ratings are affirmed at Short-term B, Individual
D and Support 5. The Outlook for the Long-term rating is Stable. The upgrade
reflects Banca Tiriac's high and improving profitability.
FOOD & DRINK
2004 wine production set to rise
This year's Romanian wine production is forecast to rise from last year,
reported just-food.com recently.
For 2004, the estimated total wine-grape production is 927,253 tons from 178,458
hectares of producing vineyards, according to the National Inter Professional
Viticultural Organisation (ONIV). The average grape yield is expected to be
5.196 kg/ha. Wine production this year will increase by 15% compared to last
year, up to 5.5m hectolitres, but due to the wet summer, the ripening of the
grapes will be delayed by between two and three weeks depending upon the region,
ONIV said. The total vineyard area in Romania is 240,000 hectares, ranking the
country ninth in the world. For the total area of vineyards, 188,700 hectares
represent the surface of vine plantations, the rest is either in preparation for
planting or must be reconverted, ONOV added.
WB grants 123m Euro loan to Romania
The World Bank (WB) will give Romania an 123.4m Euro (US$150m) loan to finance
the process of further reforming the legal system, the administration, the
energy sector and the public finance sector, Anand Seth, World Bank director for
Central and Southern Europe, New Europe reported.
Romanian Finance Minister, Nihai Tabasescu, and Seth recently signed documents
confirming the loan, which is a component of the Programmatic Adjustment Loan -
PAL 1 - designed to support structural reform. Witnessing the said document
signing, Premier Adrian Nastase, remarked that PAL 1 was the first of three
loans to be granted to Romania as reform support.
He said he believed that the successful completion of PSAL I and PSAL II, as
well as the ongoing implementation of PAL 1, constituted substantial support for
Romania's efforts to be acknowledged as a functioning market economy. Seth said
the povery rate had decreased in Romania, but was still higher than desirable
and that although structural reform had been commenced with determination, tough
measures were strill needed to complete the process. He added that the judiciary
was another sector that still required close attention.
Our analysts and
editorial staff have many years experience in analysing and reporting
events in these nations. This knowledge is available in the form of
geopolitical and/or economic country reports on any individual or grouping
of countries. Such reports may be bespoke to the specification of clients
or by access to one of our existing specialised reports.
For further information email: