|
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: 104 - (01/01/06)
Staunch ally of the US
It is a curiosity to note that the Romanians are cleaving to the US as their
close ally despite the fact that this annoys the French and Germans, at least
those now in power. That may be the rub. Jacques Chirac will be gone by 2007 and
Angela Merkel is not a crony of his or Vladimir Putin, unlike former chancellor
Schroeder, for whom the Iraq War was anathema, but the Chechen War a struggle
against terrorism, which in one way it is, but not only that.
This became clear when Condi Rice came to town in early December. Her visit to
Europe had been overshadowed by criticism of the CIA's alleged use of
clandestine flights and bases in Europe to transport and imprison terror
suspects. But there was one welcome respite: When the Secretary of State touched
down in Bucharest, capital of Romania, to announce that the US would be opening
four new military bases in the country, she was greeted with open arms.
"The acceptance by the Romanian people of the American military presence is
the most precious thing to have happened in the relations between our two
states," the pugnacious Prime Minister, Traian Basescu, said during the
visit, before promising that Romania's tiny contingent in Iraq would stand by
the US as "long as it takes."
One newspaper called the base announcement the most positive development in
Romania since World War II. Another editorialised that that it was a
"gift" that Romanians had "awaited with more anxiety than the
arrival of Saint Nicholas."
The gushing reviews come after several years of negotiations in which the
Pentagon has sought to pare down its larger presence on bases in Western Europe
in exchange for smaller outposts, or a "lighter footprint" as one
Pentagon official said, in the new democracies of Eastern Europe. The new bases
have the virtue, in Washington's view, of being both more flexible and closer to
current hot spots in the Middle East and Central Asia. Romanians are also, for
the most part, happy to see more US boots on the ground, which would not be true
of US allies in Western Europe. With a watchful eye on Russia and Putin's
increasingly authoritarian regime, Romanians are both grateful to the US for its
support during the Cold War and anxious for the additional security that could
come with enhanced military ties.
Rice's stop in Romania, however, failed to dispel criticism from other quarters.
A separate Council of Europe investigation is looking into claims that the CIA
had bases in several eastern European countries.
Romania is one of the countries alleged to have had secret CIA detention
facilities on its territory. Romanian officials originally denied that any
secret bases had ever existed on their territory, but more recently, after the
former Prime Minister acknowledged that the Romanian government did not have
access to all parts of a base used by the US during the Iraq conflict, they have
agreed to launch a parliamentary inquiry. Since the country aspires to join the
European Union as early as 2007, and the existence of "dark bases"
housing "ghost prisoners" would contravene European human rights
standards, Romania may be forced to take a closer look at the activities of its
US ally on its soil-with more US bases now slated to open.
The new helmsman is esteemed
One year has passed since Traian Basescu was elected president of Romania. On
December 12, Basescu won the presidential runoff with 52.5 per cent of the
votes, defeating his rival, Social Democrat, Adrian Nastase.
He is doing well in the eyes of many people in Romania, making a better fist of
it than his predecessors. Several journalists and political analysts agreed to
give a short assessment of Basescu's activities, pointing out both his
accomplishments and failures.
According to journalist Robert Turcescu, Basescu is a president who deserves to
be praised first of all because he proved to be a truly dynamic political
figure. "Basescu managed to revive the political background. Basescu's
greatest merit is that he allowed the opposition's voice to be heard. And this
means democracy has started to function," Turcescu pointed out.
Another accomplishment of Basescu, from Turcescu's point of view, is that he
allowed every citizen to regain the right to "swear freely."
"When (Social Democratic Senator Ion) Iliescu was president, no one had the
right to have a different opinion. But with Basescu it is different. Not only is
he not afraid of controversies, but he also encourages freedom of
expression," said Turcescu.
Turcescu also said he appreciates Basescu for giving people hope. "Basescu
managed to convince Romanians that they will soon live a better life. People
trust him and his power to change the things that are not going well," said
Turcescu.
Turcescu's opinion is supported by many, according to an INSOMAR survey, which
reported recently that 61 per cent of Romanians are satisfied with the
president's activity, which is only one per cent lower that the figure reported
in November.
In addition, the survey pointed out that Basescu is the most credible political
figure. In addition, he remains Romanians' favourite candidate for the
presidential chair, with 53% of Romanians saying they would vote for him if
presidential elections were now to take place, according to the Opinion
Barometer (BOP) survey completed in November by the Open Society Foundation.
Turcescu also considers that although the opposition has often accused Basescu
of lacking diplomatic skills, the President has proved to be an intelligent
president in relation to the most powerful countries of the world. "Basescu
clearly wants Romania to be an equal partner to the US and the EU member states.
He doesn't want Romania to be a slave anymore. The way he handled the US
military bases and the Transnistria issues proves he wants Romania to play an
important role on the world map," added Turcescu.
Journalist Cornel Ivanciuc shares Turcescu's opinion over Basescu's attitude
towards the Black Sea region and the access agreement on the US military bases
in Romania. "I think Basescu should be praised for the fact that he is
trying to mediate the Black Sea region conflicts. I also think the signing of
the agreement with the US was a very smart move," said Ivanciuc.
Ivanciuc also pointed out that the recently created National Intelligence
Community (CNI) is another accomplishment of Basescu. "He has finally
managed to reform the intelligence services. He stood up for this reform,
although the Parliament was discontented with the idea of the CNI. It is a very
import step and we owe it to Basescu," added Ivanciuc.
Both journalists also mentioned the Iraq hostage episode, saying the president
had handled the crisis in a masterly way, thus saving the three Romanian
journalists who were kidnapped in Iraq in March, 2005.
On the other hand, both Turcescu and Ivanciuc criticized the president for
"his desire to control everything in this country." "He is a very
impulsive president and he has slammed the prime-minister and the government
many times, interfering with some issues which were not his concern," said
Turcescu. "He sometimes thinks he is a god who can solve everything by
himself. And this leads to another major failure: the quality of the people
surrounding him," added Ivanciuc.
Ivanciuc and Turcescu believe Basescu does not know how to select the people who
should help him perform his functions. "Two of his former aides, Elena
Udrea and Stana Anghelescu, proved to be a really bad idea," said Ivanciuc.
Both Udrea and Anghelescu resigned because of their husbands, who were accused
of corruption and several financial crimes. The two aides stirred huge scandals
around Basescu, determining several voices to criticize the president harshly.
Premier in charge of the home front; revenues from privatisation to be used
for infrastructure
Premier Calin Popescu-Tariceanu is the other big figure in Romanian politics. He
is also making a big impression one year on from his assumption of office. He
concentrates on domestic issues.
An important new policy was launched in December. All revenues generated from
privatisation will be collected within an Infrastructure Development Fund, said
the Public Finance Ministry (MFP) leadership, but carrying out the premier's
programme. "We agreed upon creation of an infrastructure development fund,
where all revenues resulted from privatisation are going to be collected. The
proceeds are to be used exclusively for the funding or co-funding of Romania's
infrastructure projects," he said.
The Executive's head underlined that the infrastructure projects are not focused
solely on road infrastructure, but on the health system and schools network, as
well. Finance Minister, Sebastian Vladescu, added that it is possible to use a
part of the money resulting from privatisation for establishing Pillar II of the
pension system.
****
For an assessment of the economic situation by an insider we turn to an
interview with Victor Kevehazi, KPMG's Senior Partner in Romania and Moldova,
conducted by Adrian Hamzescu of the Bucharest Daily News:-
"We need the government to listen"
Looking over the main changes in the business environment which occurred in
2005, Kevehazi says that, looking ahead to 2006, ensuring transparency is one of
the most important steps still to be taken by the government, as some investors
could be confused by changes in legislation.
Kevehazi considers that the introduction of the flat tax was a good start to
2005, although the government should have involved the business community in
careful debates on its effects, as well as those of other laws. Kevehazi
considers that Romania has all the ingredients to boost its economy but the
authorities should focus next year on improving cooperation with the business
environment and society in an effort to ensure that the economy will evolve and
will be properly developed at the time of EU accession.
The main challenge for 2006, as Kevehazi sees it, is that Romanian producers and
manufacturers will have to prepare for the European market, to compete, not only
in their own country but in others as well.
This year appears to be favourable for the Romania economy, with significant
economic growth and a single digit inflation rate for the first time in 15
years. In your opinion what were the most important events of the year?
I think when we go from one New Year to another, from one Christmas to another,
last year started with a governmental change. A new government, coming out with
a flat rate tax and changes to corporate tax and to personal tax, was the
kick-off of this year. I think we can see the dynamics of both the governmental
change, pros and cons, but also the tax changes that occurred and what they
bring to Romania.
Romania is coming closer and closer to EU accession, fighting corruption,
getting things on board, getting things transparent as much as possible and the
flat tax idea for both personal tax and the corporate sector is one of the
methods to make business and personal life more tax transparent. So that was a
very good starting point.
We have had some hiccups along the way, as instead of having a clear tax
strategy with a clear tax and fiscal environment we've had ideas coming into
play, ideas put on the table and some of them being implemented by law. This
leads to some confusion for investors, as what they thought they had on 1
January and they come to now on 31 December is something else. And it had
changed during the year. There are a lot of things we could learn from this. How
can we put more stability into an environment in a transparent way, in a
professional way so the investors will feel comfortable that this is an
environment they can trust, where they can do business, make a profit and pay
tax.
People come here to make money and to earn a profit, to do business that
generates business, that generates work and that's another salary, another
person is employed, one less person on unemployment benefit. That is good.
So we need to find out as much as possible about what measures can be put into
place to assure an investor that they have a stable, constant environment, which
is reliable, trustworthy, transparent, that the rule of law works, and that you
can go through a tender in the most natural fashion without any degree of
influence. These are the items businesspersons look for.
Would you say the frequent modifications brought to the Fiscal Code over this
year were the government's biggest mistakes?
I wouldn't call them mistakes. I would rather say there is a need to involve the
business community in such topics. The business community has its hands on the
table, and feet on the ground, performing and applying what the legislative
environment is about. We know the problems. What is being done to solve these
problems?
When you come out with a new idea of a law - that scares; unless you plan it
efficiently and you can demonstrate what the impact is, why it is needed, where
the funds are going, how much it is going to cost. Without having balanced
information, it is very difficult to assess whether the country needs it.
The government introduced this year, for example, a modification of how people
will pay taxes on real estate transactions. There is nothing wrong in
introducing capital gains tax on individuals. But it has to be planned
efficiently, and be well calculated: what will the costs of implementation be?
What is the cost compared to what the income will be? There is s need to look
into what the implications will be on inflation, and the monetary, fiscal
environment, and then sell it to the public because some people bought assets
one year ago, ten years ago, and they didn't know they would have to pay tax.
We are actually paying tax on the past. Not from when the law came out but on a
period when the law didn't exist. That is not necessarily fair, but it was never
sold to the public: From this day forward, you will pay for any incremental
profit! Yes, that is logical. But to impose taxes on a previous period is quite
a sensitive matter because it convinces people that the officials do not
represent the public.
Is it good to tax people on a past event? I think not! To tax people on a future
event? To tell them: if you do this, you will pay tax for it? Perfect! Whatever
tax is relevant to the environment, that is correct. To make it more difficult,
the government is introducing a modification to the way it is calculated, from
January, to a more simple method of calculation. Why didn't we think about it
before? Well, we did. We said it before. But we need to have the possibility to
debate this. We need the government to listen to the arguments of the business
community about the concepts of the law.
If you take the flat tax, the whole concept behind it is to simplify tax. You
make it simple for people to calculate it, you don't have confusion. The idea
behind the flat tax regime is to simplify. And we haven't seen the
simplification yet, but the opposite: it's becoming more difficult.
What we have recommended to the government numerous times is that when an idea
comes into play a public committee should be put together, involving people from
all backgrounds: business, bankers, government, academics. After a public
debate, that committee would make recommendations to the ministry: This is what
we the people think should be done for the good of the community. Then the
ministry can apply or introduce it into practice.
There are several business associations in Romania, such as the Economic and
Social Council, the Foreign Investors' Council, the Association of
Businesspersons in Romania; there are a lot of people lobbying for the business
environment. Where does the communication fail?
You can't expect a serious debate when a council gets the law on Thursday and
the debate is on Friday and the law is 100 pages, nor could you expect that the
council will debate a law that has already passed. So it has to be done in the
right way.
The councils are representative of various organizations, not technical
specialists who could understand a fiscal aspect or concept. They are the body
that should see a professional report and then come with professional
conclusions, not a hundred pages of a draft law that you have to be a lawyer
just to understand what is written there. And you have only 24 hours! You have
to have a careful debate. And that debate is lacking because the government does
not have time. Laws are passed in a rapid format, by emergency ordinance.
Would you say that in the forthcoming year the government should improve its
transparency and the way it develops laws, by switching its policy from drafting
the law to debating it first?
Yes, and to cut down as much as possible the barriers and the frictions that
exist between the authorities and the business community by allowing the
community more control over its own environment, by using its own people. For
example, to require companies to provide their tax returns after being audited
by their independent external auditors. This will allow the authorities to rely
better on the information presented by the companies.
What do you expect the economy's evolution over the next year to be?
I think that we have all the ingredients to have growth. We have the people, we
have the environment, we have the technology, we have the interest, we have the
money. We all have to work together. This is not for one side, or for one
person, or for the government. This is for everybody onboard to be on the same
page, to work together to get a better environment, a better economy. We have a
long way to go. If we want to catch-up to our neighbours, we need to work
constantly together in the same team to get the economy into positive growth on
a constant basis.
During a recent meeting of the Employers' Unions from Industry and Trade,
businesspersons pointed out that companies should get involved seriously in the
development of the economy through viable business plans. The position was also
assumed by the chief economist of the National Bank of Romania, Valentin Lazea,
who stated that Romania does not lack funds but feasible business plans. How
would you comment on that?
A pity that I wasn't invited to that event! I have numerous examples, both
internally and from KPMG of where we are progressing and investing in the growth
of the economy. Just this year we took on 80 university graduates, to train them
and educate them, so that they will be ready to provide professional services to
the market in the coming years. That is a large number, and I know that my
colleagues from other organizations have taken similar steps. That is a huge
investment in the economy: to take on young people and train them. No government
is paying for that training, nobody is supporting it, no EU funds are paying for
it. It is all private money, internal investments. So I wonder what the unions
are talking about! Maybe they have a different view of the companies they are
involved in.
Most of the businesses in Romania are concentrated around the large cities, such
as Bucharest, Iasi, and Timisoara, especially on the western side of the
country, close to the EU border, while other regions are underdeveloped. Why are
companies focused on these regions?
Well, companies are here to make money. I know very few companies that are not
here to make profit. If there is money to be made in a certain region, I am sure
someone will pick up the opportunity. The government's role is to support those
areas which require it to. In many countries that is done, either by means of
additional benefits for companies which invest there (underdeveloped regions),
to help them to set up their businesses, providing training. There are various
steps to encourage investors to locate in a specific area. However, I can also
say that in many countries the opposite is occurring. There is no governmental
support; that is life, there is no business there and people move on. The
government must decide: do they want to have a balanced environment of
businesses spread out all over the country in all towns or are they stepping
aside and letting business decide where to go in the most neutral fashion.
Romania's accession in the European structures will produce massive effects on
the economy - it should enhance competitiveness and present more opportunities.
Are Romanian companies prepared to cope with the shockwave? What should
companies do to succeed on the European market?
Unfortunately, not. The Romanian market will be flooded with products. Those
products could be at a lower price than the Romanian products. The quality of
the incoming products will be better. So the Romanian producers and
manufacturers need to compete, not only in their own country but in others as
well. Are they capable of selling outside Romania? Producing, transporting,
selling? Do they have the contacts, the people, the marketing, the warehouses,
the infrastructure set up, the labelling, the invoicing system, which is
completely different, the VAT (Value Added Tax) system, which is also going to
be completely different. Are they ready for that?
We have provided advice to numerous companies on how to modify the system to get
ready for the new VAT invoicing system. On January 1, 2007, if they are not
ready, they are in violation of the law. They cannot sell. You have to comply
with the EU legislation on how to sell to another EU company. It is difficult.
Czech, Hungarian, and Polish companies went through the same process and many
companies there were not ready and thus unable to do business. They also get
sued for not complying with the legislation, but that's another issue.
There are a lot of things that need to be done, without having investors
physically come to Romania.
****
For an outside view we turn to the following:-
Fitch affirms Romania at BBB
Fitch Ratings affirmed at the end of November that Romania's ratings at
Long-term foreign currency BBB- (BBB minus) and local currency BBB with the
Country Ceiling affirmed at BBB- (BBB minus) and the Short-term rating at F3
while the Outlook remains Stable.
"Romania's investment-grade rating remains well-supported, but the
authorities are facing a number of important challenges associated with the
country's success story," said Nick Eisinger, director in Fitch's
Sovereigns team. "The economy is displaying many of the classic signs of
overheating, in particular a sharp widening in the current account deficit
driven by rapid credit growth and a strong currency, and excess liquidity that
could complicate the authorities' inflation-targeting efforts."
"Public finances are still a bright spot to the extent that government
deficits remain low and debt continues to fall, but the authorities will need to
address the problem of low budget revenues - the lowest of all existing and
prospective EU members - as the expenditure restraint that has produced the
favourable budget outcomes of recent years does not look sustainable,"
added Eisinger.
Although the widening in the current account deficit is no cause for panic at
the moment, close monitoring is warranted. Foreign direct investment (FDI)
inflows are an important element of external financing this year, and should
rise further in 2006 as key privatisations are completed. However, debt inflows
are on the increase, especially in the banking system, and much of this is short
term. This makes the external accounts - and ultimately the exchange rate - more
vulnerable to changes in the global liquidity environment and gives the
authorities less room to commit policy errors. External financing needs have
risen over the past two years, driven largely by the growing current account
imbalance and rising short-term debt. In 2006, financing is projected to be
equivalent to some 14.2 per cent of GDP or nearly 22 per cent if the rollover of
short-term debt is included. The Stable Outlook assumes the authorities will
address the current monetary, fiscal and external challenges in a sustainable
manner. Fiscal prudence will remain an important rating consideration but
further reduction of debt alone might not be sufficient for a rating upgrade.
While there is probably room to expand fiscal policy without a serious
deterioration in public finances, this could exacerbate macroeconomic imbalances
via further widening of the current account deficit. Future ratings upgrades
will hinge on signs that the current account deficit is easing, combined with
more reassurance on the country's external financing sources (FDI and clearer
signs on EU accession) and concrete evidence of a successful inflation-targeting
regime, as well as a sustainable medium-term fiscal strategy.
Top
AUTOMOBILES
Trelleborg to construct new automotive products plant
The Swedish company Trelleborg AB said recently it will construct a new plant
for automotive antivibration products in Romania, which is expected to come
online at the end of 2006. The plant is expected to employ approximately 200 and
generate sales of at least 300 million Swedish crowns (US$37.2 million) by the
end of 2009 based on orders already booked, New Europe has reported.
"It will have the capacity to double this sales figure," Trelleborg
said. The size of the investment was not disclosed. In March last year
Trelleborg launched operations in China's expansive Shanghai region, Wuxi, to
meet increasing demand from Chinese industry. The Wuxi plant, which has
approximately 300 employees, also produces anti-vibration systems, as well as
other vehicle components.
Carmakers eye Romania factory
Renault, the French carmaker, and its Japanese partner, Nissan, have expressed
interest in buying a former Daewoo car factory in Romania from the government,
The Financial Times has reported.
Renault wants to use the plant, in Crajova, to expand production of its Dacia
Logan saloon, after the Romania-built car proved an unexpected success.
The two companies signed a joint letter of intent with the Romanian
privatisation agency, giving them access to more data on the factory.
The Romanian state has a controlling interest in a holding company that owns 49
per cent of the plant, and wants to buy the 51 per cent held by Daewoo Motor,
the bankrupt South Korean carmaker.
"This letter indicates that the alliance (of Renault and Nissan) is
interested in obtaining more information on the site in order to determine if it
will respond to the call for tenders," Renault said.
It is not clear which models Nissan would build at the plant, but the company is
trying to expand in eastern Europe, and Romania would provide it with a low-cost
manufacturing location.
Nissan has factories in Sunderland in north-east England and in Barcelona,
Spain.
The possible bid comes as Renault is considering how to increase output of the
Logan from its Dacia factory in Pitesti, Romania.
Dacia had already sold 110,000 Logans by the end of October, well ahead of the
100,000 planned.
The low-cost car was designed for emerging markets but has been surprisingly
successful in France, Germany and Spain, selling 7,429 in the first two months
it was on sale.
Renault needs to expand rapidly to meet its goal of selling 4m cars in 2010, up
from 2.5m last year. It is relying on Dacia to provide a large chunk of this
growth, with long-term goals of selling 700,000 up from the 500,000 originally
planned.
Daewoo invested US$800m to modernise the Romanian factory in 1994 as the South
Korean company was aggressively expanding worldwide.
The plant has continued to build several Daewoo models, including the Matiz,
under licence from GM Daewoo, the General Motors-controlled company which bought
most of Daewoo Motors' assets in 2002.
The plant has 3,600 staff and has survived the bankruptcy of its parent through
a network of Romanian dealers which makes it the country's second-biggest
selling brand.
But its licence to make Daewoo cars expires in January, making a sale urgent.
Top
BANKING
Raiffeisen Bank enters mutual funds market in 2006
Raiffeisen Bank Romania will enter the market of mutual funds in the first
quarter of 2006 and the company administrating the bank, SAI Raiffeisen Asset
Management, will launch four different products, according to investors'
preferences, said the company recently, New Europe reported.
"By means of Raiffeisen Asset Management (RAM), our target consists of
contributing as much as possible to the development of the market of investment
funds, and the arguments are based on the management expertise and the
advantages provided by joining a powerful financial group, also present in
Romania, which functions on the bank and capital market through a diversified
territorial network," stated RAM president, Mihail Ion. He added that RAM
would also benefit from the experience of Raiffeisen Capital Management (RCM),
the entity within the group in charge with administrating investments.
"RCM is one of the best players on the profile market in Austria, based on
a quota over 21 per cent and asset-management exceeding 27 billion Euro. Through
the establishment of a company for investments administration (SAI), Raiffeisen
group aims to provide the clients the possibility of diversifying the
alternatives to invest the financial resources, under the circumstances of a
significant cut of the yields at the banking deposits.
EBRD Grants Alpha Bank Romania loan of 72.2 mln lei
The European Bank for Reconstruction and Development will grant Alpha Bank the
first loan in lei for Romania, worth 72.2 million lei, equivalent to 20 million
Euro, for better access of small municipalities in Romania to financing sources,
said Alpha Bank executive president, Christos Giampanos, New Europe reported.
The credit is part of the Facility to finance municipalities, worth of 175
million Euro, agreed by EBRD and the EU, aimed to stimulate loans from
commercial banks for small and medium municipalities from EU candidate
countries. "The volume of loans for municipalities is rapidly growing in
Romania, but the local available financial resources are limited," said
director for banks' crediting with EBRD, Jean-Marc Peterschmitt.
Romania to put off CEC bank sale until BCR is sold
The deadline for filing binding bids in the sale of Romania's fourth-largest
bank, CEC, may be extended until a winner is decided in the battle for BCR bank,
New Europe reported, citing a government source and an analyst.
Romania plans to sell the two banks by early 2006 at the latest and the
privatisations are seen as the last chance for foreign banks to get a foot in
the fast-growing eastern European banking sector.
Austrian Erste Bank and Portugal's Millennium bcp are the two finalists in the
race for the sale of a 61.88 per cent stake in Romania's banking crown jewel BCR,
estimated to fetch around three billion Euro. Erste is also bidding for savings
bank CEC, in which the government is selling a stake of between 50 per cent plus
one share and 75 per cent, with analysts saying it could fetch up to US$650
million.
Lebanese bank bids US$89m for MISR Romanian Bank
Lebanon's Blom Bank is bidding approximately US$89 million for the remaining
stake in MISR Romanian Bank capital, representing 87.47 per cent of the shares
listed on Cairo and Alexandria stock exchanges, New Europe reported.
According to an announcement sent by Blom to these stock exchanges, the Lebanese
bank is bidding EGP 11.82 per share for the 43.736 million shares. Blom Bank
purchased, on October 4, 12.53 per cent of MISR Romanian Bank's shares from
Egypt's MISR Bank for the same price per share. The purchase agreement
stipulated that Blom must forward a bid for all the MISR shares. MISR Romanian
Bank was founded in 1977 as a joint Egyptian-Romanian company and has three
subsidiaries in Egypt and four in Romania.
Top
CREDIT RATINGS
Fitch affirms Romania at BBB
Fitch Ratings affirmed recently Romania's ratings at Long-term foreign currency
BBB- (BBB minus) and local currency BBB with the Country Ceiling affirmed at
BBB- (BBB minus) and the Short-term rating at F3 while the Outlook remains
Stable, New Europe reported.
"Romania's investment-grade rating remains well-supported, but the
authorities are facing a number of important challenges associated with the
country's success story," said Nick Eisinger, director in Fitch's
Sovereigns team. "The economy is displaying many of the classic signs of
overheating, in particular a sharp widening in the current account deficit
driven by rapid credit growth and a strong currency, and excess liquidity that
could complicate the authorities' inflation-targeting efforts."
"Public finances are still a bright spot to the extent that government
deficits remain low and debt continues to fall, but the authorities will need to
address the problem of low budget revenues - the lowest of all existing and
prospective EU members - as the expenditure restraint that has produced the
favourable budget outcomes of recent years does not look sustainable,"
added Eisinger.
Although the widening in the current account deficit is no cause for panic at
the moment, close monitoring is warranted. Foreign direct investment (FDI)
inflows are an important element of external financing this year, and should
rise further in 2006 as key privatisations are completed. However, debt inflows
are on the increase, especially in the banking system, and much of this is short
term. This makes the external accounts - and ultimately the exchange rate - more
vulnerable to changes in the global liquidity environment and gives the
authorities less room to commit policy errors. External financing needs have
risen over the past two years, driven largely by the growing current account
imbalance and rising short-term debt. In 2006, financing is projected to be
equivalent to some 14.2 per cent of GDP or nearly 22 per cent if the rollover of
short-term debt is included. The Stable Outlook assumes the authorities will
address the current monetary, fiscal and external challenges in a sustainable
manner. Fiscal prudence will remain an important rating consideration but
further reduction of debt alone might not be sufficient for a rating upgrade.
While there is probably room to expand fiscal policy without a serious
deterioration in public finances, this could exacerbate macroeconomic imbalances
via further widening of the current account deficit. Future ratings upgrades
will hinge on signs that the current account deficit is easing, combined with
more reassurance on the country's external financing sources (FDI and clearer
signs on EU accession) and concrete evidence of a successful inflation-targeting
regime, as well as a sustainable medium-term fiscal strategy.
Top
ENERGY
Petrom profits increase 520% in first 9 months
Petrom reported for the first nine months of the year net profits of 1.406
billion lei (389 million Euro), over six times higher than the value reported
for the corresponding period of 2004, for a 7.8 billion lei (2.17 billion Euro)
turnover (up 22 per cent since 2004). In the third quarter, Petrom made net
profits of 805 million lei (228 million Euro) and a 3.25 billion lei (923
million Euro) turnover, accounting for a 22 per cent increase as compared to the
corresponding period in 2004, New Europe reported.
Petrom will undertake three billion Euro of investments until 2010 in the
modernisation of its business in order to secure long-term profitability as well
as the company's growth. Further goals until 2010 are to stabilise the oil and
gas production volume at 210,000 boe per day, to raise the refinery utilisation
significantly to 95 per cent and to comply with EU product quality by the end of
2007. In addition, the company will set new standards in its retail business,
building up to 250 Petrom V filling stations until 2010. In the gas business,
Petrom will increase its gas marketing volume to over seven billion cubic metres
per year in Romania with a market share of more than 35 per cent. "Petrom
is on the road towards modernisation and more efficiency, which will secure a
stable future and a continued leading position in the oil and gas business in
South Eastern Europe. The implementation of modern management systems, alignment
to international standards and centralisation are at the core of the company's
operations, and represent the key priorities. Modernisation and well-targeted
investments have shown effect, as did favourable market conditions, however the
company needs further strengthening in order to further improve the market
position. We are still lacking behind in some key performance indicators.
However, we have set very ambitious targets for 2010 and we will capitalise on
our current success," said Petrom CEO, Gheorghe Constantinescu.
Top
FOREIGN INVESTMENT
Pirelli invests 7.1m Euro in tyre plant
Tyre producer Pirelli invested 7.1 million Euro this September in the share
capital of Pirelli Tyres Romania, in order to finance the construction of a new
tyre facility in Slatina, New Europe reported.
According to Pirelli officials, the reason for the capital increase is to
finance Pirelli's development in the area, in order to satisfy the growing
demand in East-European markets. Pirelli announced its intention to build a tyre
facility in Slatina, where 110 million Euro will be invested. The new production
facility, which will have 1,500 employees, will be commissioned in 2006. Ninety
per cent of the output will be exported, while the remaining is to be delivered
on the local market. Low labour costs in Romania have attracted other important
investment from international companies in the market for automobile components.
Thus, Germany's Continental group has invested 140 million Euro in a tyre
facility in Timisoara, and Michelin bought in 2001 two tyre facilities -
Victoria Floresti and Silvania Zalau - as well as other assets of Tofan group,
in a transaction estimated at almost US$80 million. Romania's automotive
component industry might grow three times higher in the coming years, from a
current 1.4 billion Euro.
Top
FOREIGN LOANS
World Bank grants Romania US$60m loan
The World Bank will grant Romania a US$60 million (51 million Euro) loan to
promote computer and internet use in rural areas, the bank said. The Knowledge
Economy project will promote wider access to the Internet and aims to increase
computer and Internet access outside cities. "Currently there is a
significant disparity in the availability of IT equipment and access to
knowledge between the urban and the rural areas," Communications and
Information Technology Minister, Zsolt Nagy, said, New Europe reported.
The project will set up about 200 local community centres with Internet access
in targeted disadvantaged communities that will operate as tools for education,
business and public communications. The centres will be based in schools and
public libraries, and will also provide services in the area of e-commerce or
innovation support for small and medium enterprises.
Top
MINERALS & METALS
ALRO Slatina in public offer for Alum Tulcea
Alro Slatina aluminium producer launched a public offer for the takeover of Alum
Tulcea Co., which was due to take place November 29th through to December 20th,
2005 with the share price being at 5.6 RON, New Europe reported.
"Our strategy provides for the integration of Alum Tulcea alumina producer
into the Alro Group," said the Vice-chairman of Alro's Administration
Board, Marian Nastase. Since the takeover of Alum's majority share package in
September 2005, Alro Slatina has implemented the investment plan designed for
the alumina producer with the upgrading of alumina loading and stocking
equipment. In addition, a dust collector system was installed, in line with a
technical solution supplied by Alro Slatina plant. Alro's technological
investments are set to reach a level of 25 million dollars this year, following
a three-year investment of 145 million earmarked for the plant's production
lines upgrading and for the environment's protection.
« Top
|
