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ROMANIA


 

 

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Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 60,358 44,428 38,700 52
         
GNI per capita
 US $ 2,310 1,850 1,720 100
Ranking is given out of 208 nations - (data from the World Bank)

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%

  

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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