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ROMANIA

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REPUBLICAN REFERENCE

Area (sq.km)
237,500

Population
22,271,839 

Capital 
Bucharest 

Currency 
Leu

President 
Ion Iliescu

Private sector 
% of GDP 
40%

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Update No: 089 - (30/09/04)

Coming elections
On Nov 28th, Romanian voters will elect a president and renew their parliament. Prime Minister, Adrian Nastase, remains the top contender in Romania's presidential race, to replace Ion Ilescu, a septuagenarian deemed due to stand down. According to a poll by CURS released by Antena. 43 % of respondents would vote for Nastase, candidate for the Social Democratic Party (PDS).
Former prime minister, Theodor Stolojan, of the Justice and Truth (DA) coalition-which encompasses the National Liberal Party (PNL) and the Democratic Party (PD)-is in second place with 35 %, followed by Vadim Tudor of the Party of Great Romania (PRM) with 15%. His poor following is welcome news in Brussels, which is not keen on racist mavericks, such as he is.
Codrut Seres of the Humanist Party of Romania (PUR) and Lia Roberts, a former chairwoman for the Republican Party in the state of Nevada, each garner the support of three per cent of respondents. Roberts holds dual American-Romanian citizenship.

Romania at large
Romania is doing rather well in the difficult circumstances of a post-communist collapse. The Ceausescu regime was particularly awful. But the nation of 21.7 million is pulling together.
It has become a hive of inward FDI. Foreign investors are aware of its immense advantages. It has an economy growing at about 5% per year. Its eastern coast comprises a huge chunk of the western half of the Black Sea, the logical venue for Caspian Sea and other energy exports westwards. It is indeed a significant entrepot for oil which, conveyed in giant barges, make their way up the Danube into Central Europe and Germany beyond. It will probably become so in due course, once the Turkish alternative has become less fashionable.

Nastase in Washington 
President Bush thanked Romanian Prime Minister, Adrian Nastase, on July 21 for his "understanding that we need to work together to fight terror."
During a joint photo opportunity with Bush at the White House, Nastase said he had come "to confirm to the President our continuous support for fighting together terrorists in the world. And also our support for the vision of President Bush not only on general issues, but very specifically on a very complex process of changes in Iraq."
It is clear that the Romanian government hope that this forelock touching will advantage them with the US administration
Asked how to improve economic relations between Romania and the United States, Bush replied that investment decisions in the United States are made by private enterprises, not government. 

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AUTOMOBILES

7-months car sales surge 32%

The Romanian market for new cars grew 32.4% year-on-year over the first seven months of the year, reaching 77,105 sold units, said the Association of Automobile Manufacturers and Importers (APIA) recently. The domestic output advanced by 36.1% in the said interval, reaching 51,945 units, while imports gained over 33%, reaching 30,236 units. Exports, on the other hand, surged 133.2% to 9,395 units. Domestic car brands Dacia and Daewoo remained market leaders with 29,501 and 17,266 sold units, respectively. Renault maintained its leading position among imported brands with 5,707 sold units, New Europe reported.

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AVIATION

Romanian government grants €600m subsidy to national airline

The Competition Council approved the granting of public aid worth €600m to the Romanian national Tarom airline, Competition Council President, Mihai Berinde, said, daily Ziarul Financiar reported.
Total public grants-in-aid authorised or under authorisation now in Romania stand at €1.8bn, of which about €1bn go to the steel industry alone.
Tarom airline has had a difficult period for some time and has reported losses. Although feasibility studies were made, one of them by Lufthansa Consulting, the targets have not been hit in the past few years. The company made a loss of US$14.5m in 2003, when it posted a turnover of US$220m. The loss is expected to drop to US$6m this year. According to Tarom officials, the company can be profitable in 2005.

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BANKING

Volksbank Romania net profit climbs

Volksbank Romania posted recently a net profit of €1.53m in the first half of 2003, up 355% year-on-year, New Europe reported. 
Overall asset value gained 55% reaching €181m. In the said interval the bank granted loans totalling €141.7m, up 82.3% year-on-year, and deposits worth €60.4m, up 76.6%. The bank has some 34,000 customers and 14 branches across the country. Volksbank Romania concluded last year with a net profit of 24.3bn lei and overall assets worth 6trn lei. The bank is controlled by Osterreichische Volksbanken AG with 99.96% of the share capital.

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CREDIT RATING

Fitch changes Romania's outlook to positive

Fitch Ratings said recently it revised the outlook for Romania's long-term foreign currency rating of BB and long-term local currency rating of BB-plus to positive from stable, New Europe reported recently. The short-term rating is affirmed at B and the country ceiling rating at BB, the agency said in a statement.
The change in outlook reflects positive developments, as fiscal consolidation and progress on the privatisation programme continue, Fitch said. The rating agency noted that the completion in July of the big-ticket privatisation of state utility SNP Petrom builds on other energy sector privatisations that include electricity companies and the natural gas utilities (sale in process).
The sizeable proceeds from the SNP sale €669m initially, plus €800m or more in investment commitments will provide a valuable source of budget and current account financing in 2005, helping to stabilise the general government debt burden, Fitch said. The signing of a new two-year IMF standby agreement in July and the completion of the privatisation of state utility SNP Petrom increases confidence in Romania's economic reform programme ahead of the parliamentary and presidential elections scheduled for November 28th, 2004, Fitch said.
"The sale of SNP should also be received positively by the EU as part of Romania's commitment to the restructuring of the domestic energy sector," Fitch said. The rating agency added that SNP sale raises the likelihood of Romania receiving "functioning market economy (FME)" status from the EU when the 2004 progress report is published in October.
"FME is an important precondition necessary to finalise EU accession negotiations, although as Romania still has to close 6 outstanding accession criteria (chapters) FME status would not guarantee completion of the EU negotiation process," the agency said in its report.
Strong gross domestic product (GDP) growth forecast at 5.5% this year is bolstering budget revenues and driving down the fiscal deficit for 2004, said the rating agency. "The government has managed expenditure wisely for the year so far, and there is little evidence of fiscal loosening ahead of the November elections. A combination of the new IMF programme and the importance to the government of closing all outstanding EU negotiating chapters should ensure that fiscal slippage during the second half of the year is relatively well contained," Fitch noted.
Consequently, a general government deficit of 2.1% GDP for 2004 looks realistic following a supplemental budget in July, representing a major improvement on the 3% GDP initially targeted for this year, the agency added. "Receipts from the SNP Petrom sale will provide an important source of fiscal financing next year while relatively buoyant privatisation receipts this year should allow general government debt to fall modestly to 25.6% GDP by the end of 2004 from 27% at end-2003," it said.
Constraints on the rating include rapid credit growth that has contributed to the widening of the current account deficit in recent years and which is expected to reach 6.1% GDP in 2004, albeit largely unchanged on 5.9% GDP in 2003. The situation necessitates continued monitoring as rapid credit growth could create problems for the banking system and by overheating the economy could complicate efforts to bring inflation down to single digits as well as raising external financing needs, Fitch said.
"There are signs that the very rapid pace of credit growth to the private sector seen in 2003 (55% growth) is slowing down, while foreign direct investment flows should account for some 55-60% of current account financing in 2004, and increase to perhaps 70% in 2005. Romania will continue to rely on debt-creating external inflows, but with gross external debt at around 35% of GDP and expected to stabilise seems sustainable," Fitch analysts said.
The agency also said that despite large current account deficits, Romania continues to generate sizeable balance of payments surpluses, and foreign reserves should reach an all-time high of US$8.7bn or more (including gold) by the end of 2004. External liquidity is therefore strong, equivalent in 2004 to roughly 150% of short-term external debt plus medium term amortisation. This is expected to increase to around 160% in 2005, Fitch concluded.

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ECONOMY

Romanian economy rises 6.6% in first half

Romania's first-half gross domestic product increased 6.6% from a year earlier, the government said recently, as construction services and industrial activity all surged, New Europe reported.
It expanded 4.9% in both 2003 and 2002.
Construction gained 8.6%, services grew 6.5% and industrial output rose 5.9%.
Officials in the European Union candidate country have revised the economic growth target to 6.5% from 5.5% and cut the budget deficit target to 1.64% of GNP from 2.1%.
Romania's gross domestic product now totals 907.87 trillion lei, or US$26.8bn. Officials have said that the economy must grow at more than 6% a year to catch up with EU levels. But analysts have warned that Romania is at risk of overheating, even as Bucharest tries to reduce inflation to 9% this year from 14.1% in 2003.

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ENERGY

Ruhrgas and Gaz de France winners in gas tenders

Romania selected E.On-Ruhrgas and Gaz de France as winners in tenders for stakes in gas distribution companies Distrigaz Nord and Distrigaz Sud, the two Romanian gas distributions that account for 90% of gas deliveries in the country, Evenimentul zilei daily reported recently.
According to a press release of the ministry of economy, Germany's Ruhrgas had made a successful bid for a 30% stake in Distrigaz Nord, while Gaz de France would take a 30% stake in Distrigaz Sud. The French and German companies would take 30% stakes, which they would subsequently raise to 51% stakes via new share issues, according to the terms of the deals.
The deals should be finalised by October or November, officials have said. The two companies will negotiate during the following months the terms of taking over the gas distribution sector in Romania.
According to a press release of the ministry of economy, following the examination of the offers, the negotiating committees established that Ruhrgas and Gaz de France obtained the highest score. Sources inside the gas sector said that the bids offered for the pack of shares as well as the promises for future investments made the difference in establishing the final score, noted the paper.
Credit Suisse First Boston has been advising the government on the sell-offs. E.ON Ruhrgas of Germany, Enel SpA of Italy, Wintershall of Germany, Gaz de France and Gazprom of Russia submitted letters of interest in the privatisation of Distrigaz Sud, and E.ON Ruhrgas, Enel, Gaz de France and Gazprom also submitted letters of interest in the takeover of Distrigaz Sud.
All the companies having submitted the letters submitted non-binding preliminary bids as of March 15th, 2004. The end of this privatising process brought a big surprise along with the removal of the until then favourite Russian group Gazprom, from the competition regarding the purchase of the Distrigaz Sud company, analysts were quoted as saying.
Gazprom, the biggest natural gas supplier in Europe, made the lowest offer of all four foreign companies that bid for Distrigaz Sud, the newspaper Ziarul Financiar reported recently. Gazprom reportedly offered less than US$100m to acquire 30% of Distrigaz Sud, while Gaz de France offered up to US$150m, the Romanian newspaper reported, citing people familiar with the sale.
Romania is hoping to get at least US$120m for Distrigaz Sud and a minimum of US$75m for Distrigaz Nord, the paper reported. Local media estimated the value of Distrigaz Sud at about US$400m judging by its assets and that of Distrigaz Nord, which has 1.3m customers, at over US$250m. Romania needs to reform its energy sector as part of its bid to join the European Union in 2007 or 2008 along with Bulgaria and Croatia.

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FOREIGN ECONOMIC COOPERATION

Romania, Serbia-Montenegro presidents discuss cooperation

While on a visit to Belgrade, Romanian President, Ion Iliescu, held official talks with Svetozar Marovic, president of the Serbia and Montenegro Union, after which the two presidents gave a media briefing, Radio Romania Actualitati reported.
Stability, regional cooperation, and working jointly for EU membership - these were three of the issues discussed in Belgrade by Romanian President Ion Iliescu and Svetozar Marovic, president of the Serbia and Montenegro Union.
"One of Romania's and Serbia's strategic objectives is to reach out to Europe. I wish to thank President Iliescu for the support offered to us in this respect, and I hope we will have that support in the future as well. Romania's experience is very useful for us, as Romania is already a candidate, one that is to become an EU member in 2007," Marovic said. 
In turn, President Iliescu referred to the concrete steps discussed, including ways to counter the negative effects caused by the introduction of visas between the two countries, after Romania signs the Schengen accord.
"We wish to simplify the procedures and make the visa-granting system more flexible, introduce visas free of charge on both sides, increase the number of personnel working at our consular offices, and open a new Romanian consulate in Vrsac, but also to undertake joint demarches in Brussels to obtain technical and financial assistance from the European Union to modernize the border-crossing points," Iliescu said. 

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FOREIGN LOANS

Raiffeisen unit gets EBRD credit

European Bank for Reconstruction and Development (EBRD) recently granted to Raiffeisen Bank Romania a credit line, worth €10m, for financing small- and medium-sized enterprises (SMEs), the two banks said in a joint statement. Raiffeisen Bank will use the funds for granting credits up to €250,000 to Romanian SMEs. The reimbursement periods for these loans are up to 10 years. In another development Raiffeisen Bank Romania posted a €4.4m net profit at the end of the first half of 2005 almost equal to the profit made throughout 2003, the bank said, New Europe reported recently.

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