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ROMANIA


 

 

In-depth Business Intelligence

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: 095 - (31/03/05)

The new Romanian government faces its first test in supporting the US in Iraq, a dicey affair for all allies of the American cause there.
Three Romanian journalists were apparently abducted on March 28th, which was Easter Monday. Traian Basescu, the president, who was visiting Romanian soldiers in Iraq at the time of the apparent abduction, said Romanian intelligence experts were investigating with intelligence officials from the US, the UK and Iraq.
The journalists, Ovidiu Ohanesian from the daily newspaper Romania Libera, and Marie Jeanne Ion and Sorin Dumitru Miscoci, from television station Prima TV, all in their 30s, were confronted on the street after interviewing Iyad Allawi, interim prime minister of Iraq. The journalists, who were with a local interpreter, made desperate calls to colleagues in Bucharest during the incident and were overheard pleading with their apparent kidnappers not to kill them. Ms Ion also sent a text message to her station saying: "Help, this is not a joke, we've been kidnapped."
Romania has been a strong supporter of the US mission in Iraq since the 2003 invasion. But an opinion poll released on March 29th showed 55 per cent believed their country's 800 troops in Iraq should be brought home. As in many other countries involved in 'Iraqi Freedom,' the governments, keen to be on the right side of Washington, are more supportive of the US than the respective peoples, especially in Europe. This does not mean that the governments are wrong, only courting unpopularity for staying the course.

A new Anglo-Saxon tilt to foreign policy
Basescu, who was elected president of Romania on December 13th 2004 is, nevertheless, likely to stick to his pro-US line. After all, if 55% are against, this means that 45% are not against, even at a highly emotional moment. 
He indicated recently that he is in favour of a 'Bucharest-Washington-London' axis in foreign affairs. He met Tony Blair earlier this year 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.
The recent events in Iraq are not likely to deflect Romania from its participation in 'Iraqi Freedom.' The comparative 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. That they can now hold elections themselves is no thanks to the Western world. 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- Iraqi and international
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. Why instead of invoking two highly dubious propositions - the complicity of Saddam with al-Qaeda and his possession of WMDs, 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 him.
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 fetish about the non-interference in the internal affairs of a sovereign nation, regardless of the nature of the regime ruling over it, is quite obsolete, 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 Caeusecu 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, the right thing is to put it right. The Romanians have every reason to agree.

New government sworn in; and a new economy in the offing
President Basescu 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 government examines anticorruption strategy 
On March 28th the Romanian government examined in its first reading the national anticorruption strategy, the strategy for the reform of the judiciary as well as the action plans for implementing these strategies. 
The Head of the European Commission Delegation in Romania Jonathan Scheele, who attended the government meeting, said the discussed measures were very important for Romania's EU accession and for the country's future development in the direction of a state of law alike. 

Basescu spells out his plans
Basescu is of course also well aware that the key points of Romania's foreign policy are closer to home, namely 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 eastbank of the Dniester River since mid-January 2005. Recently in Moscow, the leader of the Trans-Dniester region, Igor Smirnov, accused Romania of being "an aggressor" and refused to rule out the possibility that conflicts with Moldova might break out. 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. 

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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AUTOMOBILES

Dacia sees improved turnover


Romanian carmaker Automobile Dacia Groupe Renault forecasts €1bn in turnover and an overall output of 175,000 vehicles for this year, New Europe reported. 
60,000 of all vehicles will be exported. The company plans to increase production capacity from 460 units/day to some 750 units/day and to terminate the Solenza model as of April 1st. Dacia managed to increase sales by 38.6% to 95,296 units last year and has produced a total of 2.5m vehicles since it was established in 1968.

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BANKING

Romania picks up the pace of BCR's privatisation

Romania plans to accelerate the privatisation of its stake in state-controlled Banca Commerciala Romana (BCR) by early 2006, as it prepares its banking system for European Union entry the following year, the president of the Authority for State Assets' Recovery (AVAS), Gabriel Zbircea, said recently. He explained there should be a time delay between the privatisation of the BCR and that of the Romanian Savings Bank (CEC). The suggestion was by HVB Romania's President, Dan Pascariu. HVB admitted it is interested in both banks, but Pascariu said that privatising BCR first will bring in more money for the government, New Europe reported.
The authority's president said the time break between the two privatisations should be established as soon as possible in order not to convey a wrong message to the baking environment. Major foreign banks, such as Germany's Deutsche Bank AG and HVB AG and Italy's Unicredito Italinao SpA, are considering bidding for BCR.

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CREDIT RATINGS

S&P revises Romania's outlook

Standard & Poor's Ratings Services revised its outlook on the Republic of Romania to positive from stable, the rating agency said recently, New Europe reported.
At the same time, the BB+ long-term and B short-term foreign currency, and the BBB_ long-term and A-3 short-term local currency sovereign credit ratings on Romania were affirmed.
"The outlook change is based on the commitment of the new centrist government to step up Romania's economic and institutional reforms, which will in turn solidify the prospect of Romania's timely accession to the EU in 2007," said Standard & Poor's credit analyst Moritz Kraemer.
"At the same time, budgetary developments are likely to improve relative to previous estimates, despite a radical tax reform introduced by the new government on the day after its inauguration."
Macroeconomic stability has greatly improved in recent years. On the back of buoyant economic growth, the general government deficit (excluding the parastatal sector) fell to about 1 per cent of gross domestic product (GDP) in 2004 and is likely to record a similar level in 2005.
Moreover, sustained fiscal and parastatal consolidation will keep government debt below 30 per cent of GDP until the end of the current decade.
Finally, inflation fell into single-digits in late-2004 and formal inflation targeting - to be adopted in 2005 - should further anchor inflation expectations.
The ratings remain constrained, however, by institutional weakness, external imbalances, low levels of economic prosperity and a large, albeit declining, loss-making parastatal sector.
"We expect the new government to remain committed to pushing forward with institutional reform and to working toward a more investor-friendly business environment," Kraemer explained.
"Progress in these areas will increase the chances of EU entry on schedule in 2007," he added. "An upgrade to investment grade will depend on whether the new administration will be able to follow up on its policy announcements with tangible results in the areas of micro-economic reform and transparency," he said.
"Maintaining a cautious policy mix, including prudent fiscal policies, will also be necessary for an upgrade in the next 12 months."
A delay to EU membership into 2008 would not in itself put any downward pressure on the ratings on the country.
Nevertheless, a sustained and significant weakening of the current account balance and the concomitant effects on external debt and liquidity could lead to a decline in creditworthiness, especially if net foreign direct investment were to fall short of expectations.

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FOREIGN COOPERATION

Basescu and Putin talk cooperation measures

New Romanian President, Traian Basescu, met his Russian counterpart, Vladimir Putin, during the first visit to Russia recently, Deutsche Presse-Agentur (dpa) reported recently.
Both countries had managed to revive relations in the past years, Putin said at the start of the meeting in the Kremlin. Russia and Romania signed a treaty of friendship in 2003 which was followed by a 15 per cent increase in bilateral trade in 2004.
Basescu urged the Russian leadership to support Romania's efforts to join the Transdniestrian settlement process as a mediator. "We are asking for Russia's support in our efforts to join the multilateral talks on ways to settle the Transdniestrian conflict," Basescu told a news conference in Moscow.
"Romania is well-familiar with this region and may play a role in the settlement of the conflict," the Romanian president said. "We think the problem of this frozen conflict is as important for Romania's security as it is for Ukraine," Basescu said.
As regards the energy sector, Basescu said Bucharest will consider Russia's assistance in building two power generating units at the nuclear power plant at Cernavoda. "Russia has offered its assistance in building the third and fourth power generating units for the Cernavoda nuclear power plant in compliance with international standards," Basescu said.
"The first and second power units were designed on the basis of Canadian technology," he said.
He also said that Romgas and Russia's Gazprom have drafted an agreement to expand the transit gas pipeline network in Romania. "President Putin and I have also discussed the extraction and transportation of hydro-carbons from Caspian oil and gas fields to the Mediterranean," he said. "Our plans to build underground gas storage facilities in Romania and to upgrade a large thermal power plant built in the 1960s with Soviet assistance are one more area of our cooperation in the energy sector," Basescu said. "We have also reached an agreement to cooperate in launching licensed production of weapons in Romania," the Romanian president said.
In another development the Foreign Ministers of Russia and Romania, Sergei Lavrov and Mihai Ungureanu, respectively agreed to work to prevent Romania's up coming accession to the EU from damaging bilateral relations. "We have agreed to take the necessary measures to arrange matters so that when Romania joins the EU, no damage will be done and relations will continue to advance," Lavrov said after meeting with Ungureanu in Moscow recently. Moscow welcomes the intensive consultations "on fundamental issues that the presidents of Russia and Romania had discussed," he said. "We agreed to speed up wok on an inventory of bilateral relations in order to intensify economic ties," he said.
Lavrov said Russia is also interested in greater interaction with Romania in the framework of OSCE, the Russia-NATO Council, and the United Nations.
Ungureanu called for increasing economic cooperation and expanding the dialogue between the two nations' foreign ministries.

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FOREIGN LOANS

WB grants US$475m in loans

The World Bank granted Romania loans worth US$475m to improve the country's transportation, agriculture and health service and restructure its oversized mining sector, the international financial organisation said recently, New Europe reported.
The bank said the loans would support Romania's efforts to meet the European Union requirements in view of the country's accession to the bloc in 2007. The loans will finance projects to build bypass roads in Transylvania, farm modernisation, and programmes to improve access to health care. The mine closure project is designed to help finance the closure of unprofitable mines and to support socio-economic regeneration of the mining regions.

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SHIPPING

Daewoo unit wins huge order

Daewoo Mangalia Heavy Industries, the Romanian subsidiary of the world's second largest shipbuilder, won a US$510m in order to build six container ships from a German shipping company, Oslo-based broker, Fearnleys AS, said, Bloomberg reported.
The six ships, each able to carry as many as 5,500 standard 20-foot containers, will be delivered to Hamburg, Suedamerikanische Dampfschifffahrts-Gesellschaft KG in 2008 and 2009, the shipbroker said.

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TELECOMMUNICATIONS

Orange's profits surge in 2004

Orange Romania mobile phone operator posted a 335m Euro profit in 2004, compared to 2003, when it stood at 238m Euro, the company said recently, New Europe reported.
The turnover of Orange Romania was 624m Euro last year. In 2004 the company's investments in fixed and floating assets, except for licences, amounted to 145m Euro. Orange Romania had 4.93m subscribers at the end of 2004.

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