Books on Romania
% of GDP
Update No: 102 - (27/10/05)
Bucharest-Ljubljana axis in favour of continued EU
Romania and Slovenia are forging a new axis to support further EU enlargement
and the need to give countries of the Western Balkans the prospects of joining
the Union, Romanian Foreign Minister Mihai-Razvan Ungureanu and his Slovenian
host and counterpart Dimitrij Rupel told the press on 28th September.
Speaking after Ungureanu's first official visit to Slovenia, the ministers
praised bilateral ties as excellent. Nevertheless, they would like to see
cooperation further strengthen within the EU. Ungureanu and Rupel agreed that
the launch of EU accession negotiation with Turkey at the beginning of October
would be a step forward, as it would give a political meaning to the enlargement
process. They also agreed Croatia must be included in that process as well.
Asked what Romania expects from the 25th October European Commission annual
report, Ungureanu said he believes the report will be an objective evaluation of
Romania's progress. He does not expect any political recommendations, but hopes
his country will be motivated to continue. According to the Romanian minister,
the biggest progress has been made in the field of justice reform and stopping
illegal migration, one of the Romania's most pressing issues.
Romania also hopes it will be able to eradicate corruption by reforming the
justice system, and financial and economic markets, pointing out the January
implementation of flat tax rate. However, he added, there are no connections
between corruption and organised crime in Romania, which if true, would be
remarkable for Romania when next door Bulgaria suffers from exactly that, and
nearly every previously communist state suffers from this problem.
Ungureanu said Romania is interested in finding a compromise regarding the
Transnistria Republic. Rupel pointed out this has been a pressing and
complicated issue, for which the OSCE must find a balanced solution.
Nevertheless, he fears this solution will not be found so soon which recognises
the regrettable fact that Moscow sustains this breakaway entity, whose
reputation for illicit arms deals, drug smuggling, and other criminal activities
Ungureanu was later on also received by President Janez Drnovsek, who he briefed
on Romania's interest in economic cooperation and joint expansion to other
markets, such as Central Asia, Ukraine and Moldavia. Although Drnovsek sees
these areas as interesting for investors, he said the two countries will be able
to cooperate better when Romania joins the EU. Moreover, the president accepted
Ungureanu's invitation to visit Romania.
Big European banks seek next frontier in Romania
Several of Europe's biggest banks are expected to make some of the richest
offers ever for an Eastern European bank in an effort to secure one of the last
great financial prizes in the region: Romania's largest bank. The bank, which is
known as BCR, is one of the last takeover opportunities for investors seeking to
enter Romania, which is set to join the European Union in 2007 or 2008. The bank
has assets totalling 7.3 billion Euro (US$8.8 billion), or about 26% of the
assets held by the country's banking system.
A majority stake in BCR is commanding such a lofty price -- estimated at least
at 2.5 billion Euro, or US$3 billion -- that some quarters are worrying the
banks will overpay when bids are due. Austria's Erste Bank Group is considered a
favourite though high bids are expected from others such as Deutsche Bank AG and
the National Bank of Greece SA, people familiar with the situation said.
The privatisation agency said the seven bidders seeking control of the bank are:
Germany's Deutsche Bank AG, Erste Bank AG of Austria, Belgium's Dexia SA, Banco
Commercial Portugues SA, National Bank of Greece SA, Italy's Banca Intesa SpA,
and France's BNP Paribas SA. The privatisation agency hasn't set a deadline for
selecting the finalists.
To be able to sell a majority stake in BCR, the Romanian government, which owns
36.88% of BCR, will work with the European Bank for Reconstruction and
Development and the International Finance Corp., which own a joint 25% stake in
BCR, plus two shares. The two lenders bought the stake from the government in
2003 for US$222 million, and agreed to sell it back if the government found a
strategic investor for BCR.
The government previously has said the winning bid would be determined 90% by
price; the next consideration would be the bidder's business plan.
Only a few years ago, such eagerness to buy into Romania's banking system would
have been regarded as miraculous.
The bidding for BCR represents the tail end of a foreign gold rush for banks in
Central and Eastern Europe since the fall of the Berlin Wall more than 15 years
ago. While a Romanian bank may appear an unlikely prize, in fact, to the Western
European banks, it offers a stake into a country starved for credit and other
bank products. The winner of the auction will claim control of a quarter of
Romania's banking market and a chance to boost profits by selling credit cards,
mortgages and loans in a country of 22 million.
The sale will be an old-fashioned, high-stakes gamble, as the banks and advisers
must come up with a price that won't be so high as to annoy their shareholders
but will be high enough to be accepted by Romania's government. The two highest
bidders will then be expected to offer a final bid, with a decision expected by
Banks globally are scouring for every foothold they can obtain in emerging
markets. During the past five years, big European banks, facing slow economic
growth in their home markets of 1% to 2%, have raced deeper into Eastern Europe,
eager for a region growing at twice or more the annual rate of some Western
European countries. Romania is expected to grow at more than 5%. After Romania,
very little will be left until opportunities open in Ukraine, several investment
"Romania is the largest country in the region and one of the last to
privatise its banks, resulting in scarcity value," said Paul Mylonas, chief
economist and chief of strategy for the National Bank of Greece. The bank
confirmed it is one of the bidders.
Still, the auction could drive the price to as high as 3 billion Euro or higher,
some analysts say. That price equates to about 3 to 3.7 times BCR's book value,
or assets minus liabilities. That valuation is at least twice what some bank
stakes have sold for in recent years.
Investors appear to have weighed in with their displeasure on the prospect of an
expensive bid by Erste Bank. Erste's stock is down 13% since Erste's top
executive showed enthusiasm for BCR on Sept. 16th.
In a report on KBC's bid, which pointed out that 90% of deciding the winner will
be price, Credit Suisse First Boston said, "it means that aggressive
bidding may make the price unacceptably high."
The bidding banks are being advised by investment banks including Morgan
Stanley, Lehman Brothers, Credit Suisse First Boston, Deutsche and J.P. Morgan
Chase. Erste, Dexia and the National Bank of Greece confirmed they are bidding.
The others were either unavailable for or declined to comment.
There is an excellent article on the subject of Bucharest building a higher
wall of red tape to stem illegal migration. It is by Razvan Amariei, who is
Tol's correspondent in Bucharest.
New rules meant to cut down on illegal migration are also complicating the lives
of Romanian tourists and businesspeople.
The rules were so strict that Bucharest was almost immediately forced to lighten
them after complaints from ordinary citizens and the Hungarian government, but
only on travel outside the wealthy core of the European Union.
Under the previous system in operation since 2002, Romanians did not need a visa
to visit the Schengen countries for up to 90 days provided they had sufficient
funds to support themselves during the trip. They also, at least in theory, had
to show a return ticket, proof of insurance if travelling by car, travel
insurance, and an official invitation or tourist voucher, or a specified sum of
The measures were demanded by the countries of the Schengen space - the 13
"old" EU member states of continental Europe, joined by Norway and
Iceland, where most interior border checks have been abolished - to cut down on
illegal migration and crime.
Show me the money
For those visiting the EU or other Western countries, the minimum amount
required was 500 euros, plus 100 euros per day.
As newspaper columnist Adrian Papahagi, wrote, "you needed 3,000 euros to
stay on your own for a month in Western Europe: a year's average income for a
Romanian and a monthly salary few Westerners are making."
Even so, most Romanians would bring the money instead of vouchers or an
invitation even if they had those documents. "It was easier this way.
Booking a hotel through a local agency was many times more expensive than
finding a room on the spot. And a strict schedule could ruin your holiday,"
explains Dan Petre, a 28-year-old journalist who said he always takes his
"Every summer I go to my sister's in Italy. But why ask her to officially
invite me and make her spend a lot of money on paperwork when I could just show
some cash on the border?" says Aurora Tarcea, 47, from Craiova.
There was one major flaw with the system though: most people didn't have that
kind of money.
Some would borrow it for the trip and return it later. Others lied about the
length of their trip. An officer who patrols the border with Hungary, Vlad S.
recalls, "This trick worked better for those leaving by car, but people
travelling by train, bus, or plane used it too: they would buy a return ticket
for a trip of five days and simply change it upon arrival.
"Or they wouldn't," he adds, "if they were planning to stay
abroad for good."
Official sources cite estimates of as many as two million Romanian citizens
currently living abroad, most in Italy, Spain, France, Germany, Hungary, the
United Kingdom, and Ireland. Even if many have now legal status, most began as
Since the beginning of this year, 6,000 Romanians have been found guilty in
Western European courts, most for violating immigration rules.
Statistics like these are the main reason why Romanian travellers' carefree
days are now over. Under the new rules, it is no longer possible to just produce
a wad of cash at the border.
The health and auto insurance requirements still apply, and travellers still
have to show a return ticket. The good news is that the monetary minimum has
been cut sharply to 30 euros per day for the EU and other rich country
destinations and 20 Euro per day for other countries Romanians don't need visas
The down side for all Romanian travellers in the first days under the new
system, whether holidaymakers or business people, was that they had to have a
pile of other documents to show where they were headed and for how long.
The authorities seem happy about the new rules. The deputy chief of the Romanian
Border Police, Vasile Motoc, said the rules are "an attempt to discipline
the Romanians," and Interior Minister Vasile Blaga told the media,
"the project is 99.99 percent accepted by civil society."
But others are less sure. Tom Gallagher, an academic specializing in Romania,
commented, according to the news portal Hotnews.ro, "If Romania was a
breeding ground for armed terrorists and extremist politicians, some of the
restrictions would have been understandable. Romania is, at present, one of the
most peaceful countries in Europe."
Many ordinary travellers complained that the regulations became an
insurmountable obstacle from day one. In the first four days of the new system,
more than 10 percent of Romanians who wanted to cross the border were sent back
by border police.
"I was going shopping in Szeged, but our border police in Nadlac asked for
an invitation. Maybe I will find a store in Hungary to invite me to shop
there!" an infuriated man from Arad county told Realitatea TV after he was
turned back by Romanian border guards.
At first, Romanians making brief trips by air to Western capitals were asked to
show proof of accommodation even if they had a return ticket for the same day.
"It's absurd, but it happened. I had to talk with the chief of the
checkpoint to let me go through," a Bucharest man who said he was
travelling on business told TOL.
The Hungarian authorities, concerned that the new rules would hamper the
mobility of the 1.5 million-member Hungarian community in Romania, soon asked
Bucharest to look into the situation. Romanian television showed clips of
Hungarian Interior Minister Monika Lamperth complaining that "the new
restrictions limit the travel possibilities for ethnic Hungarians in Romania and
for all Romanian citizens."
Bucharest took notice and modified the new system on only its fourth day of
operation. As of 4 October, documents such as invitations, hotel reservations,
business certificates and so on are no longer needed for countries outside the
Yet this is little solace for the more than half of Romanian travellers who make
the Schengen zone their final destination, as statistics for 2004 show. That is,
for those who wish to abide by the new rules. Others may take advantage of the
fairly relaxed border checks to travel first to one of the new EU members and
from there enter the inner core of Schengen countries.
"I was worried I wouldn't be able to return to work in Spain without an
invitation. But I will say at the checkpoint that I'm going to Budapest and then
I'll take the train to Vienna and further west," one young man from
Bistrita-Nasaud county said. The man, who understandably did not wish his name
to be used, said he spends most of the year working without papers in the
And the onerous paperwork demands on business travellers to the Schengen zone,
even those on the list of Romania's 300 richest people, have not been lightened.
They must have a certificate issued by the local branch of the National Trade
Register to prove they are real entrepreneurs. They also need an invitation from
a company or institution in the destination country, tickets for trade fairs and
similar events, or other documents that demonstrate the existence of business or
Mihai Ionescu, secretary general of the National Association of Romanian
Importers and Exporters, said, "It's worse than it was before visas were
eliminated. At least then we could get a visa for one year. Now, the regulations
are unclear and we don't know for how long the certificate issued by the Trade
Register is valid."
EU Labour market: closed for business
The new travel rules may be causing frustration and annoyance for many, but
all will change in 14 months' time when Romania enters the EU (or in 26 months
if the EU applies a safeguard clause in the accession treaty and postpones
Romania's entry by a year).
Or will it? From that day on, Romanians will be free to travel throughout the
Union with only minimal identity documents. But in all likelihood they won't be
able to work without a permit in many countries for at least two years and up to
as many as seven years. Such limitations are in effect in most of the EU for
workers from the eight former communist countries that joined the Union in 2004.
"Only in seven years' time will we be completely sure our citizens will be
free to work anywhere within the EU's borders," a senior official dealing
with the Romanian diaspora was quoted as saying in the daily Jurnalul National.
It seems that even becoming a member of the world's biggest and most prosperous
economic zone won't bring an end to a condition commonly diagnosed in this
country, "the humiliation of being a Romanian."
The result is all too easy to predict: freedom to travel combined with harsh
restrictions on holding a legitimate job will simply swell the ranks of
Romanians working in the grey and black markets.
New fighter jets for 2006
Romania will buy new fighter planes next year to replace its ageing fleet of
Soviet-era MiG-21s as the NATO member upgrades its armed forces, Defence
Minister, Teodor Atanasiu, said recently, New Europe reported.
Romania needed at least 24 new planes, to be bought or leased through tender, or
by participating in Lockheed Martin's F-35 Joint Strike Fighter (JSF), a US air
force project, "We have a very clear vision because in 2008 or 2009 this
aircraft should be part of our forces," he said.
Fitch affirms ratings for Banca Comerciala
Fitch Ratings, the international rating agency, said recently it has
affirmed the Romania-based Banca Comerciala Romana's (BCR) ratings at long-term
BB+, short-term B, support 3 and individual C/D. The outlook on the long-term
rating is stable.
BCR's long-term, short-term and support ratings reflect the potential support it
can expect to receive from the Romanian state in case of need, reflecting its
large domestic franchise, the group said. The individual rating reflects BCR's
strong domestic franchise, continued, albeit pressured, profitability and sound
capitalisation. It also represents the restructuring BCR has gone through in
association with its shareholders EBRD and IFC, which has improved the risk
management framework, it added. However, it also takes into account the
difficult operating environment and increased credit risk from a fast-growing
loan portfolio. "BCR is by far the largest bank in Romania and this
franchise positions it well to benefit from the expected growth in the banking
system," said Tim Beck of Fitch's Financial Institutions group. The
Romanian state is planning to sell a majority stake of BCR to a foreign
strategic investor. The successful bidder should be identified by November 2005
and the transaction is scheduled for completion by first quarter of 2006.
Depending on the successful bidder, and the propensity indicated to provide
support to BCR, this may lead to positive rating action for BCR's long-term,
short-term and support ratings. BCR accounts for approximately 30 per cent of
all assets in the banking system. In June 2004, EBRD and IFC each purchased 12.5
per cent plus 1 share of the bank from the state.
Fitch affirms Bancpost's ratings
Fitch Ratings said recently it affirmed Romania-based Bancpost's (BP) ratings at
long-term BBB- (BBBminus), short-term F3, support 2 and individual D. The
outlook on the long-term rating is stable. The long-term, short-term and support
ratings reflect the strong potential support BP can expect to receive from its
majority shareholder EFG Eurobank Ergasias (Eurobank," rated A-(A minus)
/positive outlook) of Greece and are constrained by the country ceiling BBB-
(BBB minus) for Romania, New Europe reported.
The individual rating reflects potential asset quality problems from rapid loan
growth and low capitalisation. These are balanced by improving profitability and
the substantial restructuring it has undergone as a result of the increasing
involvement of its parent in its activities. "BP has been undergoing major
restructuring following the acquisition by Eurobank, including the
implementation of a centralised IT system, network rationalisation and upgrading
of risk management procedures," said Gulcin Orgun of Fitch's Financial
While this has imposed additional short-term costs on BP, Fitch views this
positively, and the bank should be better placed to grow lending and further
improve its profitability.
However, margins will be under pressure in the medium-term through both lower
nominal interest rates and intensifying competition. BP was established in 1991.
Eurobank acquired a stake in it in 2000 and it currently holds approximately 63
per cent stake at the bank. Eurobank plans to exercise its call options on the
combined 7 per cent interest held by the European Bank for Reconstruction and
Development (EBRD) and International Finance Corporation (IFC) by end-2006. BP
offers banking products to corporates, small- and medium-sized enterprises and
retail clients through its 161 branches and offices throughout Romania and the
network of the Romanian Post Office. At the end of 2004, BP stood for 4.75 per
cent of system's assets.
E.ON acquires Electrica Moldova for 100m Euro
Romania's government said recently it had completed the sale of a majority stake
in electricity-distribution company Electrica Moldova SA to Germany's E.ON
Energie AG for a contract worth 100m Euro (US$120m). E.ON agreed to pay 31.4m
Euro for a 24.6 per cent stake in Electrica Moldova. The company will invest
another 68.6m Euro to increase its stake to 51 per cent, New Europe reported.
"We will do our very best to improve our distribution position, maybe by
adding Muntenia Sud or Muntenia Nord or maybe the Transylvania
distributors," said Walter Hohlefelder, an E.ON board member. According to
him, more acquisitions are subject to approval by Romania's Competition Council.
Czech energy giant CEZ in February agreed to buy 51 per cent of Electrica
Oltenia SA, the biggest of the four power distributors, for 151m Euro. Italy's
Enel SpA bought majority stakes in Electrica Banat and Electrica Dobrogea. E.ON
is also among 10 companies that filed on September 15 expressions of interest
for a majority 67.5 per cent stake in Electrica Muntenia Sud, Romania's most
profitable power distributor.
FOOD & DRINK
Smithfield Foods to enter Romania
US Smithfield Foods that has recently bought the former Comtim pork products
maker, plans to invest US$850m in Romania and turn the country into a food
exporter in the next five years, President Traian Basescu said recently, cited
by TV reports.
The US company will set up and finance about 200 hog farms in Romania. The
farms' owners pledged to supply pork to Smithfield Foods in exchange, after
getting the finance and putting the business on its feet. Basescu's visit to San
Francisco aimed at presenting the big US companies, mainly those of California,
which the investment opportunities existing in Romania. Californian companies
have 75 per cent of Romanian's foreign trade with the United States.