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Books on Romania
REPUBLICAN REFERENCE
Area (sq.km)
237,500
Population
22,355,551
Capital
Bucharest
Currency
Leu
President
Traian Basescu
Private sector
% of GDP
40%
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Update No: 094 - (24/02/05)
Basescu spells out his plans
Traian Basescu, who was elected president of Romania on December 13th, 2004,
said on February 6th that the key points of Romania's foreign policy are the
reforms needed for accession to the European Union (EU) and the regional affairs
around the Black Sea.
Terrorism and drug and human trafficking are the three critical problems in the
Black Sea region, which links the Middle East, the former Soviet Union and EU,
Basescu said in a TV interview.
The president also voiced concern over the situation in Moldova's Dniester area.
But he said that Romania does not support the idea of resolving the problem by
force. Authorities in the separatist Trans-Dniester region have reportedly been
making military deployment in the area on the east bank of the Dniester River
since mid-January 2005. Recently in Moscow, the leader of the TransDniester
region, Igor Smirnov, accused Romania of being "an aggressor" and
refused to rule out the possibility that conflicts with Moldova might break out.
No country in the world, including Russia, recognises this breakaway region. The
election of the new government in Ukraine may mean that it's days are numbered.
Basescu said in his inaugural address that, as a member of NATO and potential
member of EU, Romania has to shoulder responsibility together with Turkey and
Bulgaria, both NATO allies in the region.
A new Anglo-Saxon tilt to foreign policy
Bacescu has also indicated that he is in favour of a
'Bucharest-Washington-London' axis. He met with Tony Blair recently and they
agreed to step up relations between their two countries.
The choice of the two Anglophone powers as favoured interlocutors might seem
surprising to a country bent on joining the EU by 2007. The key to that lies in
negotiations with Paris and Berlin rather than London, let alone Washington.
Romania is strongly Francophile and Francophone too.
Chirac is not well liked in Bucharest however, after he gave an arrogant
dressing down to all candidate states for entry into the EU who failed to
support the Moscow - Berlin - Paris axis in its opposition to the war in Iraq
two years ago. He seemed to think that he had a right to decide their foreign
policy. It did not play well in Bucharest.
The success of the recent Iraqi elections and the riddance of a vile dictator,
shortly to go on trial, in Saddam Hussein remind the Romanians of the world's
indifference to their tribulations under another ghastly ruler in Ceaucescu. But
they enjoy their new freedom after the joyless years of Ceausescu, they
certainly want to join the Western world and welcome by and large the
determination of the Americans and British to spread the benefits of freedom and
democracy to other lands.
The Romanian slant on things
But there is probably another twist to the story. The US and the UK were showing
an arrogance of their own in waging a war against Iraq without a full
international mandate. This has been widely accused of being illegal. No matter
that international law has always been honoured more in the breach than the
observance - very much more!
The Anglo-Saxon position was poorly argued, but then it was primarily for their
domestic consumption.. Why instead of invoking two highly dubious propositions -
the complicity of Saddam with al-Qaeda and his possession of WMDs, denied by
Iraqi defectors themselves - was the question of genocide not raised? Saddam was
on the point of extinguishing the Marsh Arab way of life when the invasion took
place, which has now been saved. The Geneva Convention on Genocide of 1948
explicitly sanctions outside interference to 'pre-empt or punish genocide.'
Exactly what the Vietnamese did to stop the killing fields of Cambodia by
finishing off the Khmer Rouge and the Tanzanians did to the Ugandan regime of
Idi Amin, which was demented. When there is a mad dog in the vicinity you
exterminate them.
To prevent murder is the first duty of the citizen of a nation. It should now
become that of any citizen of the world. The convention about the
non-interference in the internal affairs of a sovereign nation, regardless of
the nature of the regime ruling over it, is obsolescent, a hang-over from the
Treaty of Westphalia of 1648, ensconcing the principle of the Treaty of Augsburg
of 1558 into international law that cujus regio, ejus religio (to each region
its own religion) - fine to end the Thirty Years War; but an anachronism today.
The Romanians have a long history of knowing that what is legal is not
necessarily legitimate, as under Ceausescu in their country, and that what is
legitimate is not yet necessarily legal in the higher sense of what should
advance the cause of humanity. Legality should follow legitimacy, the view of
revolutionaries in human affairs, not legitimacy legality.
And they had their revolution of late in that regard. When Caeusescu was
arraigned before a revolutionary tribunal of justice in December, 1989, he kept
insisting that he was the only legal and, therefore, rightful ruler of Romania
and rejected the court's jurisdiction. He was quite right. But he was of course
totally illegitimate and, therefore, in the profoundest historical sense,
illegal.
So was Saddam Hussein. When there is something profoundly wrong in the world, as
nobody denies was the case with the Saddam regime, perhaps the main thing is to
put it right. The Romanians have every reason to agree.
New government sworn in; and a new economy in the offing
Tadic has of course had other things on his mind than these matters of high
international politics. On December 29th he swore in a new government, headed by
premier Calin Turiceanu.
It immediately embarked on several bold initiatives. One of them could prove
decisive to its chances of economic success.
Effective of January 1st, it has implemented a flat rate tax of 10%, which
applies to both personal and corporate income. The flat tax has replaced five
personal tax brackets, ranging between 18% and 40% and a corporate tax rate of
25%.
Historic experience shows that there is no better way to revitalise enterprise
and an economy than to pitch taxes low and affordable in terms of people's
expectations. The budget revenues increase and the economy grows. It will be
interesting to see if that is the consequence in Romania.
Romania forecasts FDI will reach US$2.5bn in 2005
Another key factor, however, is foreign direct investments (FDI). FDI
attracted by Romania could reach US$2.5bn this year, after amounting to a record
US$1.1bn in the first half of last year, 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, the first
concrete results of which are expected in October," 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 - from US$679bn in 2002 to US$560bn in 2003.
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,"
Stan explained.
The FIC official emphasised that Romania also has problems related to data
security, copyright, excessive tax bureaucracy, labour code and economic control
operations.
"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.
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BANKING
Romania aims to complete bank sales
The Romanian government is planning to sell stakes in the country's remaining
state-owned commercial banks by 2006, as it prepares for European Union entry in
2007, Prime Minister, Calin Popescu Tariceanu, said, the Wall Street Journal
Europe reported recently.
Tariceanu, in an interview, said he expects major interest from foreign banks in
the country's largest commercial bank by assets, Banca Comerciala Romana, (BCR),
and savings bank, Casa de Economii si Consemnatiuni, (CEC).
It's obvious that one year ahead of EU accession, the interest of major banks in
the Romanian financial market will increase," Tariceanu said.
The sales effectively would place the Romanian banking sector under the control
of Western banks. Societe Generale of France owns the country's second largest
bank, Banka Romana Pentru Dezvoltare, and competes for market share with other
big names such as Austria's Raiffeisen Zentralbank Osterrech AG, which bought
out Banca Agricola and re-branded it as Raiffeisen Romania, and Dutch banks ABM
Amro Holding NV and ING Group NV, both of which have set up Romanian
subsidiaries.
After years of state control, growth in Romania's retail-banking sector steadily
is gaining momentum. Revenues from integrated banking services, including
leasing operations, mortgages and insurance - on top of basic banking services
such as personal bank accounts and credit cards - are expected to grow in line
with the economy which expanded by about 8% last year.
The government is weighing the sale of minority stakes in BCR and CEC through
initial public offerings on the Bucharest Stock Exchange ahead of the eventual
sale of majority control to a strategic investor, Deputy Prime Minister, Adriean
Videanu, said in a separate interview.
However, the government will discuss these plans with its privatisation advisers
and it still has to decide which bank would go up for sale first. Daiwa
Securities Group Inc is advising the government on the BCR sale, while J P
Morgan Chase & Co is the adviser on CEC's privatisation.
In BCR's case, the IPO also would need approval from the European Bank for
Reconstruction and Development and International Finance Corp, which jointly own
a 25% stake in BCR.
The EBRD and IFC bought their stake last year for US$222m (171mEuro) and agreed
to sell it back to the government when Romania finds a strategic investor
interested in buying a majority stake in BCR.
The state owns 37% of BCR, the bank's employees hold 8% and five investment
funds each own a 6% stake.
BCR has 300 branches and offices. Its assets under management total about 6bn
Euro, accounting for nearly one-third of Romania's banking sector.
CEC is Romania's wholly state-owned savings bank - the only bank in which
deposits are fully guaranteed by the state. After privatisation, CEC would lose
the state guarantee. It has a network of about 1,400 branches and offices, the
largest in Romania. At the end of July 2004, CEC assets totalled about 1.1bn
Euro.
Germany's HVB AG and Austria's Erste Bank AG both have expressed an interest in
buying BCR. Italian bank Unicredito Italiano SpA also is interested, a source
familiar with the situation said. Unicredito also might consider bidding for CEC,
but BCR remains its primary target, the source said.
Austria's Bank Austria Creditanstalt AG, Erste Bank, Raiffeisen Zentralbank
Osterreich and Rabobank Groep of the Netherlands are interested in CEC, Romanian
officials have said.
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CREDIT RATINGS
Stable outlook for largest bank in Romania
Standard & Poor's Ratings Services said recently it raised its long-term
counterparty credit rating on Romania-based Banca Comerciala Romana (BCR) to BB-
from B+, New Europe reported recently.
The outlook is stable. "The upgrade follows continued improvements in its
operating environment, and reflects the easing of the still higher-than-average
economic and industry risks in Romania, the country's sound annual economic
growth prospects for the medium term, and expected improving regulation and
supervision of the banking sector ahead of planned EU membership in 2007,"
said Standard & Poor's credit analyst Magar Kouyoumdjian in the report.
The upgrade also reflects the strengthening of corporate governance and the
bank's organisational and operational framework ahead of privatisation.
In addition, the upgrade reflects positive trends in profitability. The ratings
on BCR are const rained by the still high level of classified loans, which
remains inferior in regional comparisons. Non-performing loans (NPLs) (according
to IAS) reduced to 11.7% of gross loans at year-end 2003.
However, the loan portfolio is more diversified, and now has a lower share of
state-related lending. Other constraining factors are increasing competition in
the sector, particularly from foreign banks; pressurised margins; and
information risk. The ratings are supported by the bank's commanding position in
the Romanian financial market, and good capitalisation and liquidity, said the
agency.
BCR is the largest bank in Romania and boasts a 31% market share of banking
assets, 29% of customer loans, and 33% of customer deposits. BCR's leading
position is considered very important to the ongoing development of the Romanian
economy, according to S&P. "The stable outlook reflects Standard &
Poor's expectation that BCR will defend its leading position, and that its
profits and asset quality will benefit from the ongoing economic restructuring -
particularly the modernisation of the industrial base - and forecast strong
economic growth in Romania," Kouyoumdjian said.
It also reflects the expectation that the bank's improving financial profile
will be sustained, the report said.
Trend reversals in NPL ratios or borrower concentrations, or sharply declining
core capital ratios, would weigh on the rating. In the medium term, BCR's
privatisation, particularly when a strategic investor is found, should help
enhance modernisation and efficiency, and ratchet up competitiveness. Further
privatisation delays could also constrain the rating.
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ENERGY
Bucharest, Chisinau talk power
Romania has accepted Moldova's request to begin supplying electricity to this
republic, the new Romanian Prime Minister, Calin Popescu-Tariceanu, said,
Infotag News Service reported.
Currently, experts are discussing technical and financial possibilities of the
supply and they are expected to provide a positive reply to Chisinau, the
Moldovan Ministry of Energy said in a statement.
According to the Romanian mass media, this request of Moldova's will require
substantial financial efforts on Bucharest's behalf because Chisinau is asking
to cover the gap between Romania's release price and the lower realisation price
used on the Moldovan market.
The Romanian press pointed out that Bucharest used to supply electricity to
Moldova in previous years, but Chisinau has not paid for it in full till now.
Nonetheless, the Romanian side believes it would be expedient to resume power
supply.
Popescu-Tarisceanu said the previous electricity supply to Moldova cost Romania
over US$32m, "which debt would not be recognised by the current Moldovan
government." The present-time power shortage in Moldova has been due to a
sharp reduction of supply by the Moldavskaya Power Plant (near Tiraspol, the
Republic of Moldova's biggest energy object) to Union Fenosa (the Spanish
company majority owning 3 of Moldova's 5 electricity distribution enterprises).
Due to frictions between the 2 corporations, Moldavskaya has reduced supply by
50-75% and many localities in this republic are now suffering an acute power
shortage.
Moldova's electricity debt to Romania appeared in 2000 when a severe icing
disaster seriously damaged the republic's energy network, and Moldova had to
begin importing expensive Romanian electricity. In 2003 Moldova established
Energoexport company that was called to export electricity to foreign countries
in order to earn means for repaying the said debt owed to Romania. Energoexport
was abolished last year.
Electrocentrale to gain credit
Societe Generale will grant a 122m Euro loan to Electrocentrale Bucharest,
Romania's largest electrical and thermal power producer, for the construction of
an energy group at CET Vest, the French bank said recently, New Europe reported.
"The lending contract will be signed over the following weeks because
Electrocentrale will have to fulfil certain formalities first, also at the level
of the Competition Council, considering the guarantees offered by the finance
ministry for this financing. Societe Generale is also working on other large
financing projects. So far, our exposure in Romania has reached about 1.8bn
Euro," Patrick Gelin, president and CEO of BRD-Groupe Societe Generale
said. Sources close to the transaction state that the loan secured by the
finance ministry will be paid back within 15 years, with a 2.5 year grace
period. The company will use the money to build an energy group with a power of
about 182 MW at CET Vest Bucharest, a project that will be developed by the
Austrian group Va Tech. The total cost of the project will reach around 144m
Euro, with the rest of the funds to be obtained by Electrocnetrale Bucharest
from its own resources.
Romania to postpone sale of 2 gas distributors
Romania intends to complete the sale of its two state-owned natural gas
distributors in April at the latest, Romanian Economy Minister, Codrut Seres,
said at a news conference in Bucharest recently, New Europe reported.
Seres hoped that by postponing the sale from the initial February deadline, the
gas distributors will recover debts, which would increase their prices.
The former government approved last November sales of majority stakes in
Distrigaz Nord SA and Distrigaz Sud SA to E.On Ruhrgas AG and Gaz de France for
a combined 615m Euro (US$802m). "According to the sale contract, the final
price for the two companies depend on their performance with recovering
outstanding debts," Seres said, adding: "Debts that pile up during
winter could be recovered easier when the spring starts, so that a higher price
could result in more money to the state budget.
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FOOD & DRINK
European Drinks ups turnover
European Drinks, a Romanian-based food and beverage firm, announced recently
that its turnover for 2004 was up 25%, New Europe reported.
The value was not revealed, but the company noted that the result for 2003
amounted to 600m Euro (US$786.4m). The increase was mainly due to lower
production costs, technology and its power personnel, European Drinks said.
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INDUSTRY
2004 11-mo industrial output up 11%
Industrial output in Romania expanded 4.6% in the January-November 2004 period,
New Europe has reported.
For November alone, gross industrial output index increased 8.3% year-on-year,
the National Statistics Institute (NSI) said in a report. The growth pace of the
industrial output is still much lower than that of people's consumption (over 9%
for the January-September 2004 period), revealed by the trade growth pace, also
being under the GDP growth (+8.1% for the nine-month period), according to the
NSI report.
The processing industry output posted a rise of 5.6% for the first 11 months of
2004. According to the institute, this trend indicates that imports are still
the underlying factor for growth in the economy. The trade deficit is also key,
it added.
For November alone, the trade deficit amounted to 6.2bn Euro, up by 688m on the
full-year 2003 result.
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TRANSPORT
Bombardier wins metro contract
Canada's Bombardier Inc said it won a US$144m contract to supply 20 trains for
Romania's capital Bucharest subway, New Europe reported.
The contract calls for the design and manufacturing of the new cars. Under the
deal, the first metro trains will be delivered in 2006. Bombardier's previous
orders from the Bucharest metro company include a US$14m traffic control system
and a US$144m metro car and signalling system. Bombardier will manufacture the
new trains in its Swedish and German plants with the final assembly of the
six-car metro trains completed by Bombardier's local partner in Romania,
Electroputere Craiova.
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