Books on Romania
% of GDP
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
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
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,
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,"
The FIC official emphasised that Romania also has problems related to data
security, copyright, excessive tax bureaucracy, labour code and economic control
"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.
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.
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
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
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
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.
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)
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.
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
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.
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
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.
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
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.