Books on Romania
% of GDP
Update No: 107 - (28/04/06)
Romania celebrated Easter, especially the ex-pats
It is an extraordinary thing that Romania fell into the grip of communism for so
long, an atheistic creed. The Romanians are a devout people, devoted to their
religious ways, which they never ceased to practice under communism.
Easter was a terrific event for them, both for the locals and the now extensive
returned ex-patriots from afar, the anti-diaspora, as one might call them.
Keeping the traditions they brought from their native countries and embracing
the local customs, expats living in Romania prepared in mid-April to celebrate
Easter twice, both with Western Christianity and Eastern Orthodoxy.
The fall of a titan on March 15th
Another great occasion in the calendar saw the demise of (for Romania) a titanic
political career. Romania's ex-prime minister Adrian Nastase resigned as speaker
of Parliament's lower house and as a leader of the opposition Social Democrats (PSD)
on the Ides of March, the very day Julius Caesar was assassinated over two
thousand years ago in 57BC.
Things are done more decorously these days, not with daggers in the precincts of
the Roman Senate, but by parliamentary votes. He fell after a no-confidence vote
by party members. Members of Nastase's PSD party met and voted 37 to 16 against
him after he was charged with graft as part of a corruption campaign by
Romania's centre-right government, which is aimed at making the country fit to
join the European Union next year. "I accepted what I felt was a
recommendation from my colleagues," Nastase said.
Adrian Nastase had everything and is about to lose it all. He was foreign
minister, prime minister, Chamber speaker, party president and came close to
becoming the president of Romania.
Political Instability mounts
Divisions between the two senior partners in the ruling coalition in
Romania, and between the president and the prime minister, are increasingly
apparent, not least over economic policy. There is a risk that the alliance
between the two main government parties will break down in 2006, leading to
political instability and possibly to an early election. An election in 2006-07
is likely to result in the return of a centrist coalition, given the disarray in
the main opposition party, according to an analysis of the Economist
Intelligence Unit (EIU).
The opposition Social Democratic Party (SDP) is in electoral decline after
several of its most prominent leaders were implicated in corruption scandals.
The SDP's reputation has been so badly damaged that it is unlikely to recover
before the next elections-in fact, it is likely to split.
The next government is again likely to be a coalition of the centre-right and
EU entry delay is a possibility
Romania is aiming to join the EU in January 2007. However, there is a risk
that this will be postponed until 2008.
Membership could be delayed if Romania is deemed by the European Commission to
have made insufficient progress in meeting EU standards in key areas. A final
recommendation will be made by the European Commission in May 2006. The
country's membership must also be ratified by all 25 member states.
Economic policy will focus on disinflation, restructuring the energy sector,
fiscal consolidation and containing the external deficits.
With the suspension of the precautionary stand-by arrangement with the IMF,
reforms will be driven in the short term by the need to meet EU membership
criteria. The removal of the accession anchor may lead to policy slippages
thereafter, as has been the case in the east European states that joined the EU
A tightening of fiscal, wage and monetary policies in 2006 will limit the
recovery from the 2005 slowdown, but stronger real GDP growth is expected in
2007. There will be a renewed slowdown in 2008-10, when growth will be held back
by efforts to bring down inflation.
Following a current-account deficit estimated at 9.1% of GDP in 2005, the
Economist Intelligence Unit expects the deficit to fall gradually as a
percentage of GDP in 2006-10, to jus over 8% of GDP by the end of the forecast
These deficits should be easily financed, assuming average net inflows of
foreign direct investment (FDI) of about US$5.5bn per year in 2006-10.
Significant progress on structural reform is expected in the medium term.
Romania's overall score in EIU business environment rankings rises to 6.48 (out
of 10) for 2006-10, reflecting a gradual reduction of foreign trade and exchange
controls, and improvements in policy towards private enterprise and competition.
The scores for taxation and financing are expected to improve significantly.
Romania rises to 48th place, out of 82 countries, in the global rankings. Its
regional ranking is 11th out of 16 countries.
Serbia supports Romania-Italy oil pipeline
An important development is imminent in the economy. Deputy Serbian Premier
Miroljub Labus has said the government supports private-public investment in a
Romania-to-Italy oil pipeline passing through Serbia.
The pipeline would carry 40 million tons of oil a year from the oil-rich Caspian
Sea area through Romania's Black Sea port of Constanta via Serbia's Pancevo oil
processing complex at Belgrade, Croatia's Omisalj on the northern Adriatic
island of Krk, and end at Italy's northern Adriatic port of Trieste, independent
B92 Belgrade radio said. The pipeline could go into operation in 2011 or 2012.
Balkan countries are also considering two other oil pipelines, one from Bulgaria
to Greece and the other from Bulgaria to Albania.
Experts say the three pipelines would not be in competition because they would
serve different oil markets.
BRD-SocGen 2005 profits up 70%
Banca Romana de Dezvoltare (BRD) - Groupe Societe Generale (BRD-SocGen), the
second largest bank in Romania, posted a 2005 net profit of almost 164 million
Euro, up some 70 per cent from the year before, on an advancement of 78 per cent
in the value of its assets, to 5.2 billion Euro, Ziarul financiar reported.
The board of the bank proposed to shareholders that 47 per cent (about 77
million Euro) of the net profit to be distributed as dividends. "This is a
25 per cent increase from last year's figures. The bank has enjoyed a robust
growth last year, with a 38 per cent ROE, which is the best profitability rate
in Romanian banking sector. The Bucharest stock exchange recognise that fact,
and the market value went up to 3.4 billion Euro," said Gelin. By means of
comparison, Banca Comerciala Romana (BCR), the local market leader, has reported
a 2005 net profit of 202 million Euro and assets of 8.9 billion Euro.
BRD-Societe Generale Chairman, Petrick Gelin, said the 20-per cent rise recorded
in the group's gross financial results, to 208 million Euro, indicates there is
a good control over the group's overall spending. Gelin also said he is
satisfied with the record 38-per cent return on equity rate posted by the bank,
compared with BCR's 18.8 per cent. "It is good for us to be cautious
because the banking system in Romania has become stable and big growth rates are
hard to get, particularly because we expect strong competition from Erste
Bank," said BRD Deputy Chairman, Sorin Popa.
S&P affirms Bucharest BB+ long-term rating
Standard & Poor's said recently it affirmed its BB+ long-term issuer credit
rating on the Romanian capital City of Bucharest, based on sustainable economic
development and the city's commitment to containing debt accumulation. The
outlook is stable, New Europe reported.
"The rating on Bucharest reflects the city's high debt burden, its low
financial flexibility, and the need for better transparency," said
S&P's credit analyst Felix Ejgel. "These constraints are mitigated by
Bucharest's strategic position as Romania's capital city, its consistently sound
operating balances, and steady revenue growth." High infrastructure needs
restrict the city's financial flexibility and have led to rapid debt
accumulation. With a 500 million Euro bond issued in 2005, the city's direct
debt had reached 141 per cent of operating revenues by December 2005.
Bucharest's ambitious infrastructure upgrade programme requires more financial
resources. The city, however, has committed not to increase its debt
significantly at least until 2008-2009, when the consolidation of districts'
revenues and inflows of EU structural funds are expected. The city's debt
profile has become more risky after the 2005 bond issue, due to the associated
large bullet repayment, the agency said. In addition, the city is exposed to
foreign currency risk, as all its debt is denominated in Euro.
S&P's puts Railway CFR BB on negative credit watch
Standard & Poor's said it placed the BB rating of Romania's state railway
company CFR on negative credit watch due to CFR's delay in reporting 2004
results under international accounting standards. S&P also put the B+ rating
on the company's freight forwarding unit, CFR Marfa, on credit watch negative,
for the same reason. S&P's decision reflected CFR's strong reliance on state
aid to cover recurrent negative free cash flow coming from high operating losses
and high investment needs, but noted that the state ownership and the government
support offset that weakness. Both corporate ratings have a stable outlook,
however, depending on its findings, S&P may affirm, lower, or withdraw its
ratings on either company, New Europe reported.
Romania shows inconsistency in economic policy - Moody's
Romania's ratings continue to be constrained by the country's inconsistent track
record in terms of macroeconomic policy and question marks over its ability to
absorb an economic shock without experiencing payment strains, Moody's Investors
Services said recently in its annual issuer report for Romania, New Europe
Nonetheless, in light of the positive developments during recent years and the
country's prospective membership of the EU, the rating outlook is positive.
Although Romania's Ba1 sovereign bond rating is high from a historical
perspective following a number of upgrades over recent years, it is still
relatively low for a future EU member. The country has undergone significant
economic and institutional changes over the past few years, and achieved
important improvements in external liquidity as well as government finances and
Moody's noted, however, that the country's rating is limited by two key factors.
"Broadly speaking, Romania's rating is being held down by its sometimes
erratic track record in terms of macroeconomic policy and the fact that it still
displays some of the characteristics of a transition economy, such as high
payment arrears and price subsidies," said Pierre Cailleteau, a Moody's
senior vice president and the author of this report. "It remains uncertain
whether the Romanian economy is yet robust enough to absorb shocks - or even
normal business cycle fluctuations - without encountering difficulties."
The Romanian economy has delivered a solid performance over the past five years,
averaging growth of 5.7 per cent per annum. Growth in 2005, however, was below
potential as the economy was hit by the double shocks of the rising currency and
the worst summertime flooding in decades.
Romania's exports remained buoyant despite the higher value of the currency and
a decline in clothing and textiles exports. However, high energy prices and
strong growth in consumer spending and investment drove a rapid increase in
imports, resulting in a slight deterioration in the country's current account
balance to a deficit of around nine per cent and sustaining concerns about
imbalances in the economy. In addition, Romania's inflation rate is still
amongst the highest in Central and Eastern Europe.
"Romania's process of disinflation remains incomplete, and slowed markedly
in 2005 due to a combination of supply and demand factors, although, positively,
core inflation continues to fall," Cailleteau noted. Going forward, the
National Bank of Romania (NBR) faces some challenging policy decisions, with
monetary policy having finally made the official shift from exchange rate
management to inflation targeting in August 2005. "The NBR faces a delicate
balancing act. High interest rates are necessary to restrain domestic demand,
slow down credit growth - which rose by 50 per cent in 2005 - and break
inflation expectations, but they also attract speculative inflows, pushing up
the value of the currency," Cailleteau said. "A higher currency helps
control inflation, but also hurts exporters, worsens the trade balance and
increases the risk of a disorderly workout when interest rates are eventually
lowered," he added. In addition, with a moderately supportive fiscal
policy, monetary policy carries responsibility for macroeconomic stabilisation.
An important factor is the ongoing process of EU accession, which has been
crucial to the country's recent success and is having a material impact on the
economy and the institutional environment as trade and investment links deepen.
The final go-ahead for accession on January 1st 2007 was supposed to have been
given by the European Commission in October 2005, but this was postponed due to
concerns about Romania's progress in its preparations. A final decision will now
be made in May/June 2006. "Although a postponement of EU accession by one
year is clearly possible - and would not be devastating - there is a fighting
chance for Romania to enter the EU in less than a year," Cailleteau said.
"This will put the country on a solid growth path, setting in train a
gradual convergence of income levels."
FOOD & DRINK
Caroli Foods buys Maestro Industries
As part of its strategy to consolidate its position in the northwestern region
of Transylvania, meat processing company Caroli Foods has acquired Maestro
Industries, a meat processing firm that operates in the northwestern city of
Cluj Napoca, New Europe reported.
According to a report in Romanian News Digest, under the agreement Caroli will
take on Maestro's 75 branded products, its production facilities and 200
employees. The competition watchdog is still to clear the deal.
India's Ranbaxy buys Terapia generic-drug firm
India's biggest pharmaceutical company, Ranbaxy Laboratories Ltd, announced that
it has acquired a fellow generic drugmaker, Romania's Terapia, for US$324
million, Deutsche-Presse-Agentur (dpa) reported.
Ranbaxy, which acquired a 96.7 per cent stake in Terapia, described the deal as
a "major strategic step" in expanding its European operations. The
move will provide Ranbaxy with two additional manufacturing units, 60 products
and access to Terapia's coverage of nearly 4,000 pharmacies and 450 hospitals in
Romania. "In future, we intend to make Terapia's facilities our hub for
manufacturing in Europe," Ranbaxy's chief, Malvinder Mohan Singh, said.
"The deal will combine the strengths of two premier generic companies and
will allow Ranbaxy to leverage its expanded base in the rapidly growing Romanian
pharmaceutical market, across the European Union and CIS markets," Singh
said, referring to the Commonwealth of Independent States, the alliance of 11
former Soviet republics. He added that his firm would be on the lookout for more
mergers and acquisitions in Europe.
Nokia plans to invest 200m Euro in Romania
Mobile phones manufacturer Nokia plans to invest around 200m Euro, New Europe
Company officials said they will consider building a plant for manufacturing
mobile phones. Besides Romania, on the "short list" of the mobile
phones producer another country is included, and the final decision on the
location of the new Nokia factory will be made in May, said the paper. The
Finnish group has two investment options: either they come alone, in which case
they need a plot for an investment of several tens of millions of Euro, or they
bring sub-suppliers, which will increase the investment to over 200m Euro.
Government to invest 325m Euro in tourism offer
The Romanian government will invest 325m Euro over the next two years to improve
ski resorts, spas and beaches as it prepares to join the European Union,
hot-news reported recently, citing the National Tourism Agency.
One programme, amounting to 130m Euro is aimed at bringing winter sports
facilities in Carpathian resorts to international levels. In another programme,
90m Euros will be provided to improve tourism infrastructure in resorts, while a
further 30m Euro will be provided for the development of mountain chalets and
A balanced development program for the Danube Delta and Black Sea resorts will
receive 60m Euro, aimed at obtaining Blue Flag lever for Romanian beaches.
And 15 million will be for a program aimed at promoting the cultural patrimony
of Romania, "Sibiu - cultural European Capital 2007."
Romania now draws half as much tourism revenue even though it has almost three
times the population. Revenue more than doubled to 840m euro last year and
officials predicted it will rise by between 30 per cent and 50 per cent this
year. The government said annual traffic at Bucharest's international airport
will increase almost 70 per cent by 2008 to five million travellers.