FREE GEOPOLITICAL NEWSLETTER

romania  

For current reports go to EASY FINDER

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: 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

« Back

 


 
Published by 
Newnations (a not-for-profit company)
PO Box 12 Monmouth 
United Kingdom NP25 3UW 
Fax: UK +44 (0)1600 890774
enquiries@newnations.com