Friday, February 29, 2008

Romania's budget deficit at 2.6 pct/GDP in 2007

BUCHAREST, Feb 28 (Reuters) - Romania recorded a preliminary government budget deficit of 2.6 percent of gross domestic product last year in international terms, Finance and Economy Minister Varujan Vosganian said on Thursday.

Romania, which originally reported a 2.4 percent gap last year in local accounting standards, targets a budget shortfall of 2.7 percent of GDP for 2008.

But the European Commission has said that using Brussels calculations Romaia's deficit would be abouve its 3 percent Maastricht cap.

"Preliminary data showed the deficit was 2.6 percent of GDP," Vosganian told a news conference.
Vosganian, who said the figure might suffer a modest reduction as a percent of GDP as a result of 2007 GDP data due to be released next week.

The nominal GDP estimated for 2007 is 390 billion lei, but this could be exceeded, he said.
The government has recently been chided by international observers and ratings agencies for its loose fiscal stance and not doing enough to control domestic consumption which is feeding inflation and overheating the economy.

It plans to cut the deficit target to as low as 2 percent of GDP in international terms, a budget revision expected to take place as early as next week. (Reporting by Marius Zaharia; Writing by Radu Marinas, Editing by Ron Askew)

Thursday, February 28, 2008

EU says Romania undersold car plant to Ford Motor Co.

Wednesday, February 27, 2008

BRUSSELS, Belgium: The European Commission said Wednesday that the Romanian government undersold a car plant to Ford Motor Co. last year and should reclaim millions in lost revenue from the state-owned company that sold it.

EU regulators ruled that Romania imposed conditions on the privatization of the Craiova plant that led to a lower sales price. It required the new buyer make at least 200,000 cars within the first four years of the sale and keep on all 3,900 workers.

U.S.-based Ford was the only bidder for the plant last September, paying €57 million (US$77.9 million) for a 72.4 percent stake in the state-owned Automobile Craiova and vowing to invest another €675 million (US$923 million) to upgrade and expand car production.

The EU executive said the stake was actually worth €84 million (US$125 million) and the Romanian state lost €27 million (US$40 million).

Regulators ordered the government to demand Automobile Craiova pay the state the lost revenue from the sale.

The Romanian government took over the debt-laden factory in 2006 after the previous owner, South Korea's Daewoo Motor Co., went bankrupt in 2000.

EU rules prevent governments from favoring one company over rivals by showering it with public money.

General Motors and JC Russian had signaled interest in bidding for Craiova earlier this year as Romania's low-wage workers and membership of the European Union make it an attractive location for making cars.

The plant is currently not turning out any cars and now only sells spare parts.

OTP Bank Romania to slow expansion

28 Feb 2008

OTP Bank Romania will open just five new branches this year, compared to 28 alone in Q4 2007, because of a shortage of qualified staff and high property prices.
CEO László Diósi told MTI on Wednesday that the review of earlier expansion plans and a temporary suspension of granting personal loans at 14 branches of the local division of Hungary’s leading lender do not affect meeting OTP Bank Romania 's (OBR) volume targets, Diósi said adding that OBR plans to break into the black this year.

He said that the bank stopped signing contracts for uncollateralized personal loans at 14 of branches in November, though it will gradually reintroduce the loans from March. He attributed part of the reason for the high rate of problem loans at the bank to under-qualified staff.

Diósi said more than a thousand bank branches opened in Romania in the past three years, creating a shortage of qualified labor. Wages rose 25%, well above the 7% inflation rate.

OBR had 109 branches at the end of 2008, still far from the 170-200 branches that would give it optimal coverage, Diósi said. The unit will, however, focus rather on the better utilization of the existing network and on sales through agents, he said.

OBR will focus on mortgage loans and products new to the Romanian market that have already been tried and tested in Hungary.

OBR racked up losses of Ft 3.5 billion in 2007, still an 18.3% improvement over losses in 2006, OTP Bank said in its preliminary report. (MTI-Econews)

Romania to hold Young Atlanticist Summit in parallel with NATO summit

BUCHAREST, Feb. 27 (Xinhua) -- The Romanian Intelligence Service (SRI) and the U.S. Atlantic Council are to stage the Young Atlanticist Summit in parallel with the upcoming NATO summit on April 2-4 in Bucharest.

The program is aimed at reducing skepticism over the U.S.'s and NATO's capacity to tackle global security issues, organizers told a press conference Wednesday.

"We know that surveys show Europe's skepticism over U.S. capacity to solve the global issues and we know that young Americans are skeptical, too," said Frederick Kempe, chairman of the Atlantic Council of the United States.

"A 2007 survey shows that confidence in NATO grew slowly and we should be worried, as NATO's success is based on U.S.- Europe common activity. And this concerns all matters, from global warming to the fight against terrorism. This is the reason for which we want to involve the young generation in NATO's activities," the chairman added.

Attending the conference, SRI director George Maior said that the summit is being held under the patronage of NATO and its Secretary-General Jaap de Hoop Scheffer, adding that the event is aimed at training the future NATO leaders, analysts and experts.

"I personally believe that the youth summit has a special importance, both as an event for civil society as well as a being training forum for our future experts in international security," said Maior.

The event will be attended by 120 future leaders who will debate issues on the NATO summit agenda, future transatlantic relations and NATO priorities and missions.

The young participants will also hold talks with NATO national leaders and listen to experts' opinions.

Romania plans to float Romtelecom minority stake

BUCHAREST, Feb 27 (Reuters) - Romania plans to float at least 10 percent of leading landline telephone operator Romtelecom, majority owned by Greece's OTE (OTEr.AT: Quote, Profile, Research), this year, the government said on Wednesday.

The float was scheduled for 2006, but has been repeatedly delayed after recent selloffs came under the spotlight on suspicion of commercial espionage.

"We wish that this year, this fall, to successfully finalise the listing procedure on the bourse," Telecoms Minister Karoly Borbely said in a statement.

The cabinet said the procedure will take around eight months to complete and that the planned stake on float could be raised.

The government, which holds a 46 percent stake in the company, said the procedure to select a consultant to advise on the sale will be relaunched. But it did not offer a timing.

A previous consultancy contract with Credit Suisse has expired, officials said. (Reporting by Radu Marinas; Editing by Richard Hubbard)

Romania govt suspends drugmaker Antibiotice selloff

BUCHAREST, Feb 27 (Reuters) - Romania's government on Wednesday decided to suspend the sale of state-owned drugmaker Antibiotice Iasi ATBE.BX, which was scheduled for March 18.

The decision comes after the workers' union of Antibiotice won a court annulment of the law that envisaged an open bidding privatisation method for the firm.

However, an official source from privatisation agency AVAS, which is handling the sale, told Reuters the suspension is temporary and that the company will be back for sale "as soon as possible", likely still in the first quarter.

Late last year AVAS kicked off procedures to sell a 53 percent stake in Antibiotice, its flagship asset, through open bidding, at a starting price of roughly 136 million euros ($204.5 million).

Trade unionists criticised the method saying it was too hurried and put the firm at risk of being bought by an investor not keen on maintaining its core pharmaceutical activity.

AVAS had previously planned to sell the firm to a strategic investor through a process that involved binding bids and included negotiations with short-listed bidders. But it said such a method could lead to granting potential state aid to the company and prompt lengthy European Commission probes.

"Following the government's decision, and also taking into account the social and economic importance of the drugmaker,... AVAS will revoke the privatisation offer of Antibiotice Iasi in the shortest time," the government said in a statement.

The AVAS official said the agency will still use open bidding to privatise the firm.

The agency has said the method is in line with European Union norms as it eliminates any doubt concerning state aid.

European Union newcomer Romania has so far received 53 non-binding letters of interest for Antibiotice, which has ambitious growth plans, including the addition of new products to its portfolio. (Reporting by Luiza Ilie; Editing by Richard Hubbard)

Wednesday, February 27, 2008

Romanian company to develop real estate projects with Chinese partner

BUCHAREST, Feb. 26 (Xinhua) -- Romania's Niro Group is to work on several real estate projects in Bucharest and other big cities in the country with China's Beijing Urban Construction Group Co., Ltd, local media reported Tuesday.

In September, the company is to start building a block of flats and a hotel in Bucharest's Free Press Square, on an area of 3,350 square meters in cooperation with the Beijing partner, said Ecaterina Vanea, CEO of Niro Investment, the main company of the group.

Niro will also kick off the construction of a China Town in northeastern Bucharest this year. The town will be composed of three distinct areas, namely Dragonul Rosu, China Business Center and China Towers Residential.

China Business Center will have a 16-storey office building, conference halls and an exhibition area of 100,000 square meters.

China Towers Residential project features 12 blocks with over 600 flats, which will be the home of the biggest Chinese community in Southeast Europe.

EU orders Romania to recover 27 mln eur state aid from Automobile Craiova

BRUSSELS, Feb. 27, 2008 (Thomson Financial delivered by Newstex) -- The European Commission said that following its in-depth investigation into the privatisation of Automobile Craiova (formerly Daewoo Romania), the Romanian government must recover 27 mln eur.

Competition Commissioner Neelie Kroes said: 'Imposing conditions on a privatisation normally lowers the sales price, so that the state loses revenue and the privatised activity gains a selective advantage'.

The Romanian authorities attached specific conditions to the privatisation, in particular the achievement of a minimum production level of 200,000 cars in the fourth year after the privatisation, the continuation of the current activity for four years and the maintenance of all former employees of Automobile Craiova and Daewoo Romania.

Ford Motor Co (NYSE:F PRS) (NYSE:F PRA) (NYSE:F) was the only company willing to make an offer under these conditions. It offered a purchase price of 57 mln eur and won the tender.

The Commission's investigation revealed that the conditions had lowered the sales price. The market value of Romania's 72.4 pct stake in the core industrial assets bought by Ford was estimated at 84 mln eur, the commission said.

The granting of the aid did not comply with any of the common interest objectives for which aid can be authorised in the EU. The Commission has therefore ordered a full recovery of the aid.

Suez sees Romanian nuclear tender results soon

Reuters - Wednesday, February 27

PARIS, Feb 26 - French utility Suez said on Tuesday it expected to hear within "the next few weeks or the next few months" whether Romania will pick the French firm to build a nuclear power plant in the Balkan country.

A number of countries in central, eastern and south eastern Europe plan to build new nuclear power reactors or extend the life of existing ones to meet growing domestic demand and replace ageing power capacity.

Their plans mirror a worldwide nuclear boom as part of the solution to meet rising energy needs and combat climate change.

"We have submitted bids...and in Romania, the process is quite well advanced," Chief Executive Officer Gerard Mestrallet told journalists after unveiling the firm's 2007 results.

"We expect to hear more in the next few weeks or next few months," he said

Romania, whose two nuclear reactors at the Cernavoda plant accounted for 13 percent of all power in 2007, plans to build two more reactors, each with 706 megawatt power capacity at the same site by 2015. It plans to build a second plant later.

Candidates to build the two new reactors include Electrabel, Enel , Spain's Iberdrola , CEZ, a Romanian unit of Arcelor Mittal and RWE . The investment is estimated at around 2.2 billion euros.

Mestrallet said that the process was slightly less advanced in Bulgaria. "But we are still working at it," he said.

Bulgaria, where nuclear energy supplies 43 percent of all power, plans a new 2,000 MW nuclear power plant at the Danube river town of Belene.

It has contracted Russia's Atomstroyexport, along with France's Areva and Germany's Siemens , to build the plant in a 4.0 billion-euro deal, with the first reactor expected to come online in late-2013.

Sofia is yet to pick a strategic investor for 49 percent of the plant from Italy's Enel , Germany's E.ON and RWE, Czech CEZ and Belgium's Electrabel, owned by French utility Suez.

Suez added it was keeping a close eye on Britain, which last month gave a go-ahead to replace its ageing atomic reactors.

Mestrallet reiterated its plan to develop nuclear power plants in the rest of Europe but said a decision would not be taken before 2009, after the merger with Gaz de France .

The company said it was key for the group to keep the same share of nuclear power in its energy mix in the long term but that it would inevitably decline in the next few years.

"We will develop them in all countries in partnerships, or alone, in countries where we are welcome," Suez head of operations, Jean-Pierre Hansen, told an analyst meeting earlier on Tuesday.

He cited as potential target markets Brazil, the United States, India, China and South Africa.

Official: Romania might miss adoption of euro in 2014

BUCHAREST, Feb. 26 (Xinhua) -- Romania might miss the adoption of the euro in 2014, if inflation remains at a high level, Mugur Isarescu, governor of Romania's National Bank, said Tuesday.

"I'm afraid the adoption of the euro in 2014 might be missed if inflation does not keep at sustainable levels," said Isarescu at a conference on "Romania, an attractive location for investments, or economic overheating?"

He said that Romania, during 2008-2009, should take tough measures to curb inflation.

"If we do not manage to bring it down, it means the anticipations have no grounds any longer, they will be set at a higher level and we will need another two-three years to take the inflation from 8 percent to 4 percent and then to 2 percent," he said.

He said the strength of the national leu currency last year had had an impact on inflation, with the its appreciation having been over-rated amid a high current account deficit.

The inflation rate stood at 0.9 percent this January, while the figure for Jan. 2008-Jan. 2007 climbed to 7.26 percent, up from 6.57 percent last December, according to figures published by the National Institute of Statistics Tuesday.

Romania reiterates commitment to taking part in Iraq reconstruction

BUCHAREST, Feb. 26 (Xinhua) -- President Traian Basescu reiterated on Tuesday the Romania's commitment to taking part in Iraq's reconstruction in a wide range of areas including the political, economic and defense sectors.

The Romanian leader made the remarks when meeting Iraqi Parliament Speaker Mahmood Dawood Salam Al-Mashhadany, who is paying a visit to Bucharest, according to a release of the Presidential Administration.

The two officials discussed the domestic developments in Iraq and the Romanian contribution to that country's economic reconstruction.

Basescu praised the Iraqi authorities' efforts to develop partnerships with the international community, like the International Compact for Iraq, which are meant to contribute to the country's political, economic and social development, the release said.

Furthermore, the Romanian president hailed a decision made by Iraq's neighboring states to get actively involved in the process of turning Iraq into a democratic state as well as their contribution to the achievement of the Iraqi national unity.

Once militant, Romania's miners seek investment

PETRILA, Romania, Feb 27 (Reuters) - Romanian coal miners once rampaged through Bucharest, storming parliament and toppling a prime minister. Their battle now is for investment.

With gas and oil prices soaring, they see a chance to safeguard their livelihoods. The miners' once-feared political power eroded as many mines were shut down in restructuring around a decade go.

Miners hope to attract foreign cash to the coal industry, which could help Romania, with its mix of coal, hydro and nuclear power, become a major source of energy exports to southeastern Europe.

Their worry is that new EU environmental standards, combined with government indecision on privatisation, are holding them back.

Coal fires almost 40 percent of the European Union newcomer's power and government documents show it will continue to do so until 2020 as renewable and nuclear energy take time to develop. Lignite, which is softer than hard coal and dug in open pits, accounted for over 90 percent of Romania's total coal output of 35.1 million tonnes in 2006. Major foreign companies have shown they are keen to join partnerships with the state to manage and upgrade coal-fired power plants to meet environmental targets, but analysts say government delays could put them off.

"Energy reform has slowed down and it is a pity," said Doina Visa, a World Bank operations officer in the sustainable development sector.

"The worry is that privatisation of coal-fired power plants has already been delayed. I don't think the state has all the funds needed to make the upgrades itself and a lot of them may end up shut down."

Miners in Olteanu's Jiu Valley, in Romania's mountainous southwest, suffered in the industry's restructuring in the late 1990s: burning through severance pay, unemployment was rampant and their attempts to run small businesses often foundered, with doughnut shops typically appearing and then vanishing overnight.

Massive layoffs and environmental degradation left towns desolate and desperate. Many left, seeking jobs abroad. Two years ago, local people wrote "discarded town" on buildings in Petrila before officials painted it over.

But Bucharest's centrist government hopes coal, in particular lignite, will help fire Romania's growing energy needs and could turn into a much-needed source of exports.


Romania has drawn up ambitious plans to boost power generation through privatisations -- listings, sell-offs and partnerships. Two more units are proposed at its nuclear power plant in Cernavoda.

But privatisations were put on hold last year when Prime Minister Calin Tariceanu announced plans to set up a mammoth energy company -- which he likened to Czech giant CEZ -- that would incorporate state-owned power producers and distributors.

From hard coal and lignite mines to the antiquated power plants that guzzle the coal, the entire industry needs to speed up improvements to keep up with Romania's growing energy demand.
The government, which has forecast power demand will rise by 3 percent annually, has drawn up plans to modernise and attract private partners for remaining viable mines, as well as ensuring they sign sustainable supply contracts with coal plants.

But it has ruled out privatisation plans for the industry this year, saying it needs more time to analyse potential solutions. It plans to merge viable Jiu Valley hard coal mines with two power plants to create an energy holding similar to three highly coveted lignite firms.

Czech company CEZ, a major investor in Romania, has been vying for the lignite-fired energy holdings not far from Jiu Valley and has bid to upgrade and manage power plants. Also interested were Germany's RWE and E.ON, Italy's Enel and Spain's Iberdrola.
The Czechs complain about Bucharest's indecision over privatisation, saying it complicates investment plans.

Other countries in eastern Europe are also dragging their feet on privatising energy sectors, but analysts warn Romania stands to lose a potentially leading role in the region.
"Privatisations by definition are prone to delays because they are political animals," said Bram Buring, analyst with Wood & Company in Prague.

"If you haven't made the investments somebody else will make them ... and sell you the power."


In the hot damp tunnels 400 metres below ground in Lupeni, a Jiu Valley hard coal mine, miners wish each other 'Noroc Bun' -- good luck. However, many of them doubt their luck, despite officials' hopes the industry will recover.

The need for funds is particularly marked for hard coal mines, which must become self-sustainable by 2010 when the government will end subsidies.

"If you asked me five years ago I would have said 'shut down hard coal.' Now, I am not so sure, given the oil and gas trend. Maybe some cash should be put in upgrades to boost productivity at the mines with good resources," the World Bank's Visa said.

Mining, once a thriving industry employing almost half a million people including jobs above ground, has in the period 1995-2000 cost Romania roughly $6 billion, mostly in subsidies.
Jiu Valley miners were once bound together by strong unions, a feared political force in the 1990s. Their violent riots have been blamed by many for Romania's slow transition to democracy in the early years after the 1989 fall of communism.

In September 1991, thousands of miners stormed into Bucharest and invaded parliament, setting fire to government buildings and forcing reformist Prime Minister Petre Roman to resign. Former President Ion Iliescu denied engineering the protests to tighten his grip on power.
"If money is found, hard coal may have a future," said Sorin Olteanu, a gaunt 42-year-old miner with shoulder-length hair and an earring. (Editing by Charles Dick and Sara Ledwith)

Corruption Probes Soar In Romania

26 February 2008
Bucharest _ Romania's Anti-corruption Department, DNA, investigated and prosecuted 60% more high public officials in 2007 than the previous year, a DNA report said Tuesday.

DNA prosecutors were investigating more than 3,300 cases in 2007, closing 2,070 of them. So 415 persons were indicted for committing 958 types of offences.

The most common corruption charge was bribery in 125 cases, but also counterfeiting, in 121 probes.

In 2006, seven parliamentary deputies, one minister, two state secretaries, two presidents of local councils, two mayors and a DNA prosecutor were investigated and indicted on corruption charges, according to a report published by Transparency International Romania in May 2007. Read more:

Surveys show many Romanians link most of their nation’s problems, from pot-holed streets to a lack of foreign investment, to corruption, nepotism and red tape.

The reform drive has lost steam since entry into the European Union in January 2007, which was followed by deepening feuds among the major parties and a split in the ruling centrist coalition in spring 2007.

According to Transparency International’s corruption perception index in its May 2007 report, Romania remains the most corrupt country in the EU, despite some progress made since 2004.

Romania can be mediator in Kosovo dispute, says minister
26 February 2008, 18:54 CET

(ZAGREB) - Romania's foreign minister said Tuesday that his country could help mend ties between Serbia and the European Union and NATO which have been strained by Kosovo's declaration of independence.

"Romania is a member of both the European Union and NATO and could transmit messages addressed by Serbia to the two organisations as well as the member countries," Romanian Foreign Minister Adrian Cioroianu told AFP in Zagreb.

"At the same time, we can present to the Serbian party concerns and expectations of our Euro-Atlantic partners regarding Serbia," Cioroianu said during a tour of the region.

Belgrade's relations have deteriorated with the United States and leading members of the European Union over their support for Kosovo, which unilaterally declared independence from Serbia on February 17.

So far, big EU players such as Britain, France, Germany and Italy have recognised Kosovo but Romania has refused to do so.

"We are not the only friend of Serbia within the EU, and Belgrade has no reason to feel abandoned," Cioroianu said.

EU "member countries share a common view regarding Serbia's European future," the minister said, expressing hope that "Belgrade will soon receive clear signals for a credible European perspective."

Earlier this year, the European Union offered Serbia a deal on political dialogue, free trade, visa relaxation and educational cooperation.

However, the process of the country's approach to the EU was frozen after attacks on some of its members' embassies in Belgrade during a demonstration on Thursday last week.

Serbia is a member of the North Atlantic Treaty Organisation's (NATO) Partnership for Peace programme, seen as the first step towards membership in the military alliance.

OMV disappoints as charges burden EBIT

By Paul Bolding

VIENNA, Feb 26 (Reuters) - Austrian oil and gas group OMV (OMVV.VI: Quote, Profile, Research) reported higher operating earnings in the fourth quarter but the shares slipped as analysts focused on unexpected charges.

Group earnings before interest and tax (EBIT) were 492 million euros ($729.1 million) in the quarter to December, up 25 percent, but well under the 665 million euros average expected by analysts.

The number included special charges for personnel costs, unscheduled depreciation, impairments and provisions for litigation in Romania, the company said on Tuesday. OMV bought 51 percent of Romania's Petrom in 2004 but some Romanian politicians want the sale cancelled.

EBIT rose to 688 million euros after stripping out the one-off items. Analysts on average had forecast a 14 percent rise to 642 million euros. Petrom's clean EBIT contributed 237 million euros.

The shares were down 1.5 percent at 48.34 euros at 1221 GMT while the DJ Stoxx European oil and gas index was up 0.2 percent.

For 2008, OMV expected another set of robust earnings and higher production volumes in Romania.

"We expect the main market drivers (crude price, refining margins and the USD/EUR exchange rate) to remain highly volatile throughout 2008," said OMV.

Analysts at Sal Oppenheim said the result was slightly below expectations but reiterated their "buy" rating. Exploration and production was in line with forecasts, they said. "Here, OMV benefited from high oil prices and is constantly improving its efficiency."

Merrill Lynch analysts also said the result disappointed but they were positive on the shares on medium-term fundamentals and valuation.

"New investment in the highly profitable E&P (exploration and production) business in Petrom will start to bear fruit in terms of volumes and costs, while the downstream Petrom business looks to be on a positive trend towards stemming systemic losses," they said.


OMV shares have fallen more than 11 percent since the start of the year, in line with the decline in Austria's blue-chip index ATX .

However, they have underperformed the DJ Stoxx European oil and gas index by about 6 percent.

The oil and gas firm saw refining margins in 2008 slightly below last year's level and the U.S. dollar and euro exchange rates remaining at year-end 2007 levels.

The group's oil and gas production was 2 percent below the fourth quarter of 2006 at 323,000 barrels of oil equivalent per day (boed), mainly due to lower volumes in Romania and the UK. These were not fully compensated by higher volumes in New Zealand, Yemen and Austria, OMV said.

Chief executive Wolfgang Ruttenstorfer said in the results statement the company would pursue its plan to take over Hungarian peer MOL MOLB.BU.

MOL and OMV have been in a stand-off since the summer of 2007, when OMV first indicated its takeover plans. The Austrian company holds 20.2 percent of MOL and has proposed a bid valuing its target at $20 billion.

MOL has repeatedly rejected the approach and has spent almost $2.8 billion on share buybacks trying to frustrate it.

OMV also said it would propose resolutions at the MOL annual shareholders' meeting in April that would end an arrangement of "quasi-treasury shares" in MOL held by BNP Paribas (BNPP.PA: Quote, Profile, Research), OTP Bank OTPB.BU, Czech energy company CEZ (CEZPsp.PR: Quote, Profile, Research) and others.

OMV's bid is subject to MOL removing a 10 percent voting rights cap and on cancellation or neutralisation of a 40 percent stake in MOL controlled by its board and friendly institutions.

OMV said its reserve replacement rate -- the extent to which production is matched by new finds -- was 46 percent in 2007, following 406 percent in 2006 after the inclusion of Petrom. (Additional reporting by Karin Strohecker; Editing by Erica Billingham)

Tuesday, February 26, 2008

Romania's 2014 euro entry goal may be at

BUCHAREST, Feb 26 (Reuters) - Romania's goal of joining the euro zone in 2014 might be at risk unless inflation is reduced in a sustainable way this year and next, central bank governor Mugur Isarescu said on Tuesday.

"Without a sustainable reduction of inflation in 2008, 2009 I am afraid that euro adoption in 2014 may not be achieved," Isarescu told reporters on the sidelines of a financial seminar.
Romania, which joined the European Union in 2007, targets inflation of 2.8-4.8 percent for the end of this year and 2.5-4.5 percent in 2009.

Inflation has accelerated in Romania in recent months due to voracious domestic consumption and rising food and energy costs. The centrist government has been chided by international observers for its loose fiscal stance and not doing enough to control consumption which is overheating the economy.

It is also likely to breach this year's target as the central bank expects annual price growth to hit 5.9 percent in December. The bank expects price growth to peak in March at 8.3 percent.
A sharp fall in the local leu currency fanned further concerns about inflation, after the currency hit its lowest level in three years in January at 3.8385 per euro because of concerns about Romania's economic fundamentals.

Isarescu welcomed a bid by the government to cut this year's budget deficit target.
"I understood that (budget) deficit reduction would be significant. At this moment even the message is important. (Even a ) 0.1 or 0.2 (percentage points) reduction would be significant provided that it materialises," Isarescu said.

Finance Minister Varujan Vosganian said earlier this month he will propose a cut of this year's budget gap target to some 2 percent of gross domestic product in international terms.
Romania targets a shortfall of 2.7 percent of GDP this year, but the European Commission has said its calculations put it above its 3 percent Maastricht criterion cap. (Reporting by Luiza Ilie and Marius Zaharia; Writing by Radu Marinas, Editing by Gerrard Raven)

Real estate company sues engineer in U.S. for millions in Romania building case

BUCHAREST, Romania (AP) - A commercial real estate company has filed a defamation suit against a U.S. engineer, saying his false statements led to the suspension of a 20-story office building project in Romania's capital, an attorney said Monday.

Emanuel Necula, an engineer employed on the Millennium Building Development project until 2005, «used statements he knew to be false» to the media, Romania's parliament and EU officials, said attorney Lanny J. Davis, who is representing Millennium, a U.S.-British company.
Necula did not immediately return a message seeking comment left on his answering machine at his office in New York.

Necula is being sued in a U.S. District Court in New York for Euros 10-20 million (US$14.85-29.7 million) for «malicious defamation,» the sum representing the cost of suspending the project, which was ordered by a Romanian court in July.

A Romanian court temporarily withdrew the building authorization on technical grounds.
After he left Millennium in May 2005, Necula wrote to government and EU officials and lobbied Romanian media, alleging that the building in downtown Bucharest was unsafe, according to letters and articles provided by Davis.

He had wanted to make the building from an all-steel structure, but it was being built from a mixture of steel and concrete, according to the articles and letters.

Millennium officials said they had obtained some 20 permits over several years to ensure that the project went ahead.

AP: Rome church refurbishes hearse for shipment to Romania

In Romania, bodies are said to be taken to gravesites in trucks, altered vehicles, wagons pulled by horses or by family members on foot.

A Rome church is planning to send a refurbished hearse to Romania, which church officials say does not currently have any. The 1987 vehicle, filled with medical supplies, will be carried to New York on Friday and shipped overseas to Germany on a 21-day voyage.

The hearse, which was repainted, had its engine and transmission replaced and was thoroughly cleaned inside, is expected to arrive by the end of the month in Lupeni, Romania.

It wasn't until last year that funeral homes began opening and serving the country, said Associate Pastor Daniel Apetroaie of the DaySpring Assembly of God Church. Services were held in family members' homes or the home of the deceased.

"The Communist regime kept (Romanians) closed from the West," he said.

The hearse, donated by Henderson & Sons Funeral Home, will be taken to the Voice of Pentecost, a funeral home and assisted living home operated by Apetroaie's father, Villy Wilson of Romania. Rome residents donated the medical supplies for the senior living home.

The funeral home will open when the new hearse arrives.

"Until recently, the Orthodox were in control of the graveside services," said Rev. Robert Anderson, who added that Wilson "wanted the Pentecostal to have funeral homes, too. We saw a need and wanted to get this together."

Although the hearse was ready in November, it hadn't been shipped yet because the church did not want to risk it being damaged in snow storms in Romania that lasted between November and February and dumped about six feet of snow in the area.

Church officials anticipate sending another hearse to his home country in the future.

"We're hoping this will fuel some fires for getting more hearses to Romania," Anderson said.

'No Secret CIA Prisons' In Romania

25 February 2008
Bucharest _ Romanian officials have again strenuously denied fresh accusations that the country hosted secret CIA prisons on its soil.

"We found no clear evidence about Romanian involvement in CIA flights. It's also in our interests to try to see what happened," Norica Nicolai, former chief of a Parliament committee which investigated
the country's alleged involvement in 'extraordinary rendition' said Monday.

'Extraordinary rendition' is the term used by United States intelligence agencies, such as the Central Intelligence Agency, CIA, which refers to the transport of terror suspects around the world for interrogation.

In these third countries, terror suspects have no legal protection or rights under American law, and Romania has been implicated in a probe which claims the country hosted a prison where suspects were detained and interrogated.

On Sunday, President Traian Basescu denied allegations about the alleged transfer of prisoners at one Romanian airbase.

"The airport was never used for CIA flights. All the United States' flight plans were revealed and, besides, Romanians had access to all buildings on the base," Basescu said.

His comments followed a report by the Associated Press news agency which suggested that on five occasions between 2004-2005, large, mysterious parcels were exchanged which, according to a Romanian official who says he witnessed it, looked like bundled-up terror suspects.

Furthermore on Friday the European Commission, EC, said Poland and Romania have been dodging requests to clarify their possible role in the extraordinary rendition programme.

"The reply so far received from Romania was not considered complete by EC Vice President Franco Frattini. So, we are currently awaiting replies to our reminders," an European official said late last week.

The European Union has previously indicated that if reports of secret CIA prisons in Europe were true, states involved would face serious consequences including the possible suspension of their EU voting rights.

Monday, February 25, 2008

Police spies still haunt Romania

By Delia Radu
BBC Romanian Service, Bucharest

A fierce debate is raging in Romania over investigations into the activities of the communist-era secret police.

The investigative body's work was outlawed by the Constitutional Court - but a government decree overruled the court's decision earlier this month.

The feared Securitate came to symbolise the dictatorship of Nicolae Ceausescu, whose regime collapsed amid bloody street fighting in December 1989.

The National Council for the Study of the Securitate Archives (CNSAS) was set up in 1999.

For several years, it struggled against a reluctant post-communist Romanian Intelligence Service, custodian of the two million surveillance files compiled by the Securitate.

Eventually the council got hold of what was described as "kilometres of files". Its main duties were to help people find and photocopy their personal records and to check the backgrounds of high-profile candidates for important public positions.

Some criticised the council for being slow, disorganised or politically motivated, but most agreed that Romanians needed to know and understand their past.

Several hundred cases of collaboration were publicised - and sometimes the CNSAS information leaked out.

Search for truth

Romania - a new member of the EU - is now awaiting a new law for the investigation of secret files.

Many people across Romania tried to get in touch with me, only to find themselves grabbed by the Securitate
Doina Cornea
Former anti-communist dissident Doina Cornea represents one side in the debate. In the opposite corner is retired Securitate agent Ilie Merce.

"We need the truth about our own lives, we need to break the chain of secrets and lies of the past if we want to be free," says Mrs Cornea.

As one of the few opponents of the Ceausescu regime in the 1980s, this diminutive woman found herself at the centre of a massive surveillance operation.

Her Securitate file consists of 30 volumes, amounting to 7,000 pages. She has only begun to look through this mass of papers.

How does it feel to read all those surveillance notes now?

"First of all, I found it hard to believe how important I was to them," she says.

"Around 100 Securitate employees, some of them high-ranking officials, were involved in the operation.

"There were agents monitoring my moves, my home, family and neighbours, tapping and transcribing everyone's conversations.

"As my calls to fight the oppression were broadcast on Radio Free Europe and followed by my telephone number and address, many people across Romania tried to get in touch with me, only to find themselves grabbed by the Securitate. It was very moving to find these people's letters, complete with envelopes, in one of the files."

Witch-hunt fears

Mrs Cornea says the CNSAS "verdicts" were meant to have moral and symbolic value - they were not the equivalent of judicial verdicts.

She deplores the Constitutional Court's ban and its argument that the council had unlawfully acquired judicial powers.

We can't make culpable whole social or professional categories of people
Ilie Merce
She hopes the new law for probing Securitate files will provide a better framework for the council's activities and will continue to bar former collaborators or Securitate agents from high office.

But Ilie Merce, a member of the legislature and former Securitate agent, has a different view.

"The CNSAS had become an instrument for personal or political vendettas, or trafficking of files, and a new-style political police," he argues.

"The old law proved divisive and sometimes libellous. Yes, the files of officials should continue to be checked, but not made public. Parliament should get the relevant information, or the government, if a particular file seems to involve a cabinet member.

"Whenever an abuse was committed, the victims should seek justice according to the law - otherwise there will be chaos. Whoever did anything wrong should pay for their own mistakes.

"But we can't make culpable whole social or professional categories of people."

The CNSAS has been pursuing cases file-by-file, not collectively punishing those who served in the communist regime.

Its "verdicts" can reveal whether senior officials have lied about their communist past - and can lead to prosecutions.

The right to know

Mr Merce was the Securitate chief in Buzau County, central Romania, when the communist regime collapsed in 1989.

Now an MP for the nationalist Greater Romania Party, he says he is proud to have worked for Romanian intelligence for 25 years, before retiring in 1996.

"In everything I did, I observed the law. But to this day I believe some sensitive information should remain classified. I won't reveal who my informers or the people I used to work with were - that would be very demeaning and unprofessional."

He welcomes the Constitutional Court ruling and considers the CNSAS "dead and buried". So does Romania need an institution to probe the communist secret files at all?

"I won't say such an institution shouldn't exist, mainly to grant people access to their personal files if they were under surveillance and if they want to see them. And then people should decide what to do next, seek justice if they were mistreated.

"But the management of this institution shouldn't issue verdicts, publicise their findings, or reveal them brazenly on TV in the middle of talk shows, as they sometimes did, because such acts can have serious consequences."

Former political prisoners in Romania get only a small allowance - not enough to compensate for the loss of a job or a house. The pursuit of justice for Ceausescu-era crimes remains difficult.

'No Secret CIA Prisons' In Romania

25 February 2008
Bucharest _ Romanian officials have again strenuously denied fresh accusations that the country hosted secret CIA prisons on its soil.

"We found no clear evidence about Romanian involvement in CIA flights. It's also in our interests to try to see what happened," Norica Nicolai, former chief of a Parliament committee which investigated
the country's alleged involvement in 'extraordinary rendition' said Monday.

'Extraordinary rendition' is the term used by United States intelligence agencies, such as the Central Intelligence Agency, CIA, which refers to the transport of terror suspects around the world for interrogation.

In these third countries, terror suspects have no legal protection or rights under American law, and Romania has been implicated in a probe which claims the country hosted a prison where suspects were detained and interrogated.

On Sunday, President Traian Basescu denied allegations about the alleged transfer of prisoners at one Romanian airbase.

"The airport was never used for CIA flights. All the United States' flight plans were revealed and, besides, Romanians had access to all buildings on the base," Basescu said.

His comments followed a report by the Associated Press news agency which suggested that on five occasions between 2004-2005, large, mysterious parcels were exchanged which, according to a Romanian official who says he witnessed it, looked like bundled-up terror suspects.

Furthermore on Friday the European Commission, EC, said Poland and Romania have been dodging requests to clarify their possible role in the extraordinary rendition programme.

"The reply so far received from Romania was not considered complete by EC Vice President Franco Frattini. So, we are currently awaiting replies to our reminders," an European official said late last week.

The European Union has previously indicated that if reports of secret CIA prisons in Europe were true, states involved would face serious consequences including the possible suspension of their EU voting rights.

Sunday, February 24, 2008

Romania Base Suspected CIA Prisoner Site

MIHAIL KOGALNICEANU AIR BASE, Romania (AP) — It always happened at 1 a.m. In a secluded corner of this heavily guarded airfield, two snipers would creep across a rooftop and take their positions. Moments later, just below, a black minibus would arrive and wait.

Three times in 2004, and twice more in 2005, a jet landed and the black bus drove out to meet it. Large, mysterious parcels were exchanged that, according to a Romanian official who says he witnessed it, looked like bundled-up terror suspects.

The official, a high-ranking veteran with inside knowledge of operations at the base, said the planes then left for North Africa with their cargo and two CIA handlers aboard.

His descriptions, told on condition of anonymity to The Associated Press, add to suspicions surrounding Romania's involvement in "extraordinary rendition" — the beyond-the-law transfer of U.S. terror suspects from country to country by the CIA. Human rights advocates say renditions were the agency's way to outsource torture of prisoners to countries where it is permitted practice.

Romania's precise role is a little-reported part of the system that is being slowly revealed, often to the chagrin of U.S. allies. In an embarrassing reversal after years of denial, Britain admitted Thursday that its military outpost on the Indian Ocean island of Diego Garcia had twice been used as a refueling stop for the secret transport of terrorism suspects.

The European Commission on Friday accused Poland and Romania of dodging its requests to clarify their involvement. Both countries deny accusations of wrongdoing, including a report by Dick Marty, a Swiss official working for the Council of Europe, the continent's top human rights watchdog, who accused the CIA of running secret prisons in the two countries.

Prisoners typically were shackled and kept naked and in isolation, he alleged, in violation of the European Convention on Human Rights. Such treatment also would run contrary to Romania's own laws and its commitment to human rights, a key condition to the Balkan nation's 2007 accession to the European Union.

According to the Romanian official:

_ U.S. pilots routinely filed bogus flight plans — or none at all — and headed to undeclared destinations.

_ C-130 Hercules cargo planes and other U.S. military aircraft arriving from Iraq regularly parked in a restricted area just off the runway, where they feigned technical trouble and sat under guard for days at a time — awaiting repairs that never occurred.

_ Three buildings on the military portion of the air base were strictly off-limits to Romanians but were frequented and controlled by the Americans.

"It was all set up and simulated to look like normal activity. But believe me, it was very unusual," said the official, who said he needed anonymity to protect himself.

"If you are 50 yards away, you say they are 'parcels,'" he said. "But I think people were on (the plane) and I think they were bundled up." The entire scene was completely out of character with normal aircraft arrivals or standard cargo protocol, he said.

But top Romanian authorities deny the CIA ran so-called "black sites" on their territory. While the official described a pattern of highly unusual flight maneuvers and covert American activities, he says he never saw a prisoner.

Mihail Kogalniceanu Air Base, former presidential security adviser Ioan Talpes said in an interview with the AP, had an arrangement with the CIA that gave the agency the right to use the base as needed.

"There were official arrangements of a secret and confidential nature which gave CIA planes the right to land at Romanian airports," said Talpes, who worked at the time for ex-President Ion Iliescu. "They had actions there that we didn't know about," Talpes said. He said Iliescu signed an agreement guaranteeing that Romania would secure the perimeter and otherwise not interfere.

John Sifton, who conducts independent human rights investigations, said the dates and descriptions of the flights described by the base official match the timing and routes of known CIA rendition flights recorded in Eurocontrol flight databases.

Those included an April 2004 flight from Guantanamo Bay, Cuba, that went out of its way to stop at Mihail Kogalniceanu before heading on to Casablanca, Morocco.

"It was a time when they were moving people around," Sifton told the AP. The Romania stopovers, he added, "look pretty shady to me."

Marty's report concluded that the CIA secretly held al-Qaida operatives, Taliban leaders and other "high-value detainees" in Romania and Poland between 2002 and 2005.

The report, citing unnamed intelligence officials, said five people either authorized or were aware of the Romania operation: Iliescu, Talpes, former Defense Minister Ioan Mircea Pascu, Sergiu Medar, a former head of military intelligence, and current President Traian Basescu. Detainees were subjected "to interrogation techniques tantamount to torture" and underscored "a permissive attitude on the part of the Romanian authorities."

Basescu's office refused to discuss the allegations. "What business do we have with this?" it replied. Pascu called it "a closed subject," and Medar declined a request to be interviewed.

Beyond the midnight flights and the bus, the base official who spoke with the AP said he had questions about what went on aboard larger aircraft from Iraq that arrived at the base and then parked for several days, supposedly awaiting repairs.

"They misinformed. They lied," he said. "It happened many times and there was nothing anyone could do about it."

President Bush and other administration officials have confirmed the existence of the rendition program but have not named the countries involved. They say the U.S. does not engage in torture.

Romanian officials said the U.S. military has invested about $18 million in Mihail Kogalniceanu Airport, including a $4 million perimeter fence, a new hangar and road improvements. Romania has supported and provided troops for the U.S.-led campaigns in Afghanistan and Iraq.

Talpes, the former presidential security adviser, said Romanian authorities did not intrude on the U.S. "respected zone" at Mihail Kogalniceanu, used mostly to ferry troops and supplies to Iraq and Afghanistan — because they did not want to make "an unfriendly gesture."

Pressed about whether prisoners were tortured, he said bluntly: "Even if I knew that one of my allies did something, I wouldn't tell you."

CIA chief spokesman Mark Mansfield said the agency had no comment about the black bus scenario, but he defended renditions as both legal and effective.

"They have disrupted potential attacks by taking terrorists off the streets, and they have allowed us, as well as our foreign partners, to gain invaluable intelligence on the terrorists who remain at large," Mansfield said.

Sen. Norica Nicolai, a former prosecutor who led a parliamentary investigation, said her probe found no evidence that the CIA operated a prison or conducted interrogations in Romania.

Nicolai said she was still waiting for Marty to respond to a September request to divulge his sources. "It's in our interests to try to see what happened. We are not a third-world country," she said.

But Cosmin Gusa, a leading opposition lawmaker, said a full accounting was unlikely. "Nobody wants to go deeper," he said. "They don't want to talk about this. This topic is a deadly one."

Associated Press Writers Alison Mutler in Romania and Pamela Hess in Washington contributed to this report.

Early Election Call in Romania

22 February 2008
Bucharest _ Romania’s main opposition Social Democratic Party, PSD, is calling for early parliamentary elections, the party's leader said Friday.

Mirceana Geoana, said the PSD will use every legal instrument at its disposal to end the current political deadlock.

This means the PSD will propose a vote of no-confidence in the government, the press claimed.
This decision did not come as a surprise since the PSD has withdrawn its support for Prime Minister Calin Popescu Tariceanu’s minority government. Read more:

The Social Democrats have been instrumental in keeping Tariceanu in power since the collapse of his National Liberals’ coalition with the Democratic Party in Spring 2007 which left Tariceanu with the formal support of just a fifth of deputies in parliament.

Geoana, demanded the government step down to make way for elections months ahead of the scheduled vote to be held at the end of the year.

On the other hand, former Prime Minister and former PSD leader, Adrian Nastase, who became a simple member of the PSD two years ago, was elected the President of the party's National Council.
This is a key position in the party, because it will allow Nastase to compete again for the PSD leadership and participate in some of its most important decision-making.

However the move has sparked controversy since Nastase has been accused of corruption several times.

EU: Poland, Romania Coy on Rendition

By JAN SLIVA – 1 day ago

BRUSSELS, Belgium (AP) — The European Commission on Friday said Poland and Romania have been dodging requests for clarification about allegations they were involved in Washington's program of secretly transporting terror suspects to clandestine prisons.

Britain acknowledged on Thursday, after years of denials, that the U.S. used one of its remote outposts — the Indian Ocean island of Diego Garcia — in the secret transport — which the U.S. calls extraordinary rendition.

EU Justice and Home Affairs Commissioner Franco Frattini sent letters to Warsaw and Bucharest in July urging them to conduct in-depth judicial inquiries into the findings by the European Parliament and the Council of Europe, which both said circumstantial evidence pointed to the countries' complicity in the U.S. program.

Romania and Poland have firmly denied allegations of running secret CIA prisons or aiding the U.S. to spirit away terror suspects to illegal detention facilities.

Frattini nevertheless demanded that the two countries provide clarification concerning "allegations of detention centers in these countries." Neither country has responded in an adequate manner, EU Commission spokesman Johannes Laitenberger said.

"We have not received a reply from Poland, and the information from Romania was not considered complete. ... Frattini sent reminders in January and we're currently awaiting replies," Laitenberger said.

He did not give any deadline but said countries usually respond to commission requests quickly.

Swiss Senator Dick Marty, who led an inquiry into CIA activities in Europe on behalf of the Council of Europe, a human rights watchdog, said the continent is likely to see more admissions of complicity in the coming months.

"When I implicated Britain in my report and specifically mentioned Diego Garcia, a British MP laughed at me and said my case was riddled with holes like Swiss cheese," he said. "Now I have to laugh."

The CIA admitted on Thursday that previous data given to Britain "turned out to be wrong." British Foreign Secretary David Miliband told Parliament that recent talks with U.S. Secretary of State Condoleezza Rice showed two suspects had been on flights to Guantanamo Bay and Morocco in 2002 that landed on Diego Garcia, a U.S. base on British soil.

EU member states have been unwilling to shed light on their possible roles in the flights to secret detention facilities — a practice illegal under EU human rights laws.

Manfred Nowak, the U.N. special investigator on torture, said he had received allegations that the Americans not only refueled at Diego Garcia, as Miliband said Thursday, but also held detainees there.

"I'm not saying that he didn't tell the truth, according to his knowledge. I'm only saying that I had, from the very beginning, allegations that suspected terrorists were held at Diego Garcia. These are allegations, I don't have proof," he said.

The European Parliament is to evaluate how EU countries have responded to the accusations of complicity with the CIA and what they have done to prevent illegal activities by foreign intelligence services on their soil, officials said.

The European Parliament and the Council of Europe have accused at least 14 European nations of colluding with U.S. intelligence in a web of rights abuses to help the CIA program, which began after the Sept. 11, 2001, terror attacks on the United States.

Associated Press Writer Frank Jordans in Geneva, Switzerland, contributed to this report

Serbian president thanks Romania for not recognizing Kosovo independence

Visiting Serbian President Boris Tadic on Thursday voiced gratitude for Romania's stance on the unilateral declaration of independence by the province of Kosovo.

"I am grateful to Romania for its not recognizing the illegally newly-created state of Kosovo, the more so as Romania, in its capacity as member of the European Union, sticks to this principled position," Tadic said during talks with his Romanian counterpart, Traian Basescu.

Tadic also emphasized the fact that Serbia is a component of Europe and would never give up its legitimate interests.

"From Romania's viewpoint, Serbia will get all the support we can offer on this state's road to the European Union," Basescu said in the talks.

He said the EU is interested in Serbia advancing in the integration process and he advised the political leaders in the neighboring country "to talk to the European states, to keep in touch with the EU member states."

"Any strategy of relative isolation is counterproductive for Serbia," the Romanian leader cautioned, adding that all the European capitals are ready to discuss with Belgrade.

Furthermore, Basescu said, "Belgrade should talk to Pristina, and it should find solutions for communication."

Tadic started an official visit to Romania at Thursday noon. It is Tadic's first visit abroad since becoming Serbia's president and since the Kosovo province proclaimed its independence from Serbia on Sunday.

Tadic's visit to Bucharest comes just days after the unilateral declaration of independence by Kosovo and Bucharest's announcement that it does not recognize Kosovo's independence.


Friday, February 22, 2008

Hungarian Minority in Romania: Recognise Kosova


Joining others throughout Europe, Hungarians in Romania called on the country to recognise Kosova.

Below is an article originally published by Balkan Investigative Reporting Network (BRIN) and reproduced in B92:

Kosovo's unilateral declaration was welcomed by representatives of the Hungarian minority in Romania, BIRN says.

They have also Monday [18 February 2008] called for recognition of the Serbian province.

"Sooner or later Romania will have to recognize Kosovo as a new independent state," [Mr. Bela Marko…], leader of the Democratic Union of the Hungarians in Romania, UDMR, said.

This is at variance with Romania's official position, which is to withhold recognition until Kosovo independence is "declared to be in conformity with international law", the online publication says.

In a related development, leaders of the Szeklers National Council (CNS), an organization of ethnic Hungarians in Romania, on Sunday argued that Kosovo's unilaterally declared independence "signaled European Union support for autonomist movements."

The Romanian press also reported that a group of ethnic Hungarians celebrated Kosovo Albanians' independence declaration Sunday [17 February 2008] night in the northern Romanian city of Cluj.

Rally participants carried posters with slogans such as "Well Done, Kosovo!", "Rights for Minorities", and "Long Live National Autonomy!".

Ethnic Hungarians comprise 6.6 percent of Romania's total population according to official data.

By contrast, representatives of the 30,000 or so ethnic Serbs in Romania echoed officials in Belgrade by expressing opposition to independence for Kosovo and warning that the creation of a new state in the Balkans would raise tensions in the region, BIRN said.

EU Commission: Poland, Romania must clarify role in CIA extraordinary rendition program

Friday, February 22, 2008

BRUSSELS, Belgium: The European Commission on Friday said Poland and Romania have been dodging its requests to clarify their possible role in the U.S. extraordinary rendition program.

A day earlier, Britain acknowledged after years of denials that its territory was used by the U.S. to transport suspected terrorists on secret flights.

EU Justice and Home Affairs Commissioner Franco Frattini sent letters to Warsaw and Bucharest last July urging them to conduct in-depth judicial inquiries into the findings by the European Parliament and the Council of Europe, which both said circumstantial evidence pointed to the countries' complicity in the U.S. program.

Romania and Poland have firmly denied allegations of running secret CIA prisons or aiding the U.S. to spirit away terror suspects to illegal detention facilities.

Frattini nevertheless demanded the two countries clarify to him their possible role in the renditions program. Neither country has responded in an adequate manner, said EU Commission spokesman Johannes Laitenberger.

"We have not received a reply from Poland and the information from Romania was not considered complete. ... Frattini sent reminders in January and we're currently awaiting replies," Laitenberger said.

He didn't give any deadline, but said countries usually respond to Commission requests quickly.

EU member states have been unwilling to shed light on their possible role in spiriting terror suspects to secret detention facilities — a practice illegal under EU human rights laws. Britain's admission Thursday followed years of assurances that it did not take part in the renditions program following the Sept.11, 2001, terror attacks on the United States.

The European Parliament is to evaluate how EU countries have responded to the accusations of complicity with the CIA and what they have done to prevent illegal activities by foreign intelligence services on their soil, officials said.

After Britain's admission "we might be pushing into a slightly more open door," said British Liberal Democratic lawmaker Sarah Ludford.

"They've used us and abused us. The U.K. government has turned a blind eye" to the renditions, she said.

Former Romanian Defense Minister Ioan Mircea Pascu has said the EU's calls for further inquiries were unwelcome and that the EU was simply ignoring Bucharest's denials that it permitted such prisons on Romanian soil.

The European Parliament and the Council of Europe, a human rights watchdog, have accused at least 14 European nations of colluding with U.S. intelligence in a web of rights abuses to help the CIA extraordinary renditions program.

Rocky Road Ahead for Romania

RGE Analysts' EconoMonitor
Mary Stokes | Feb 22, 2008

Romania’s economic prospects seemed bright as it entered the EU to great fanfare in January 2007. Just over a year later, massive imbalances have clouded Romania’s sunny economic picture. Danske has classified Romania in the ‘danger zone’ for a hard landing, while Fitch
downgraded its outlook on Romania to ‘negative’ from ‘stable’ earlier this month.

Analysts, like those at Danske and Fitch, have pointed to Romania’s massive current account deficit (estimated at -14% of GDP for 2007) as the main economic risk. Meanwhile, the country’s ever climbing inflation rate (which came in at 7.3% y/y for January 2008 – the fastest pace in 20 months) suggests GDP growth, which is estimated at just under 6% for 2007, is well above its potential rate. Like its neighbor Bulgaria, Romania is clearly overheating.

The question is will Romania get its act together in time to avoid a hard landing. Here are some reasons that suggest it won’t.

1. Politics Matters

If political commentary is often an exercise in presaging disaster, Romania can make a good run for commentators’ European Union (EU) darling of the year award. (Serban Popescu from the Center for European Policy Analysis)

The ongoing feud between Prime Minister Calin Popescu-Tariceanu and President Traian Basescu has crippled Romania’s political process and led to stalled reforms over the past year. Beyond the damage to Romania’s long-term economic prospects, the tenuous political situation also has had immediate effects. For example, S&P singled out political instability as the main factor behind its downgrade of the outlook on Romania’s economy in November 2007. And as the EDC mentions in its political outlook, instead of focusing on dealing with Romania’s growing imbalances, the government spends lots of its time and energy trying to ensure its own survival and manage party infighting.

Under pressure with elections later this year, Romania’s government has effectively gone on a public spending spree instead of running a fiscal surplus to cool the economy. The parliament decided in 2007 to double public pensions (a 43% increase taking effect on January 1, 2008, plus another 33% increase taking effect in 2009). Meanwhile, in December 2007, a 28% hike in the monthly minimum wage was approved. The pension increases and the overly-fast pace of wage hikes compared to that of labor productivity have essentially added fuel to the fire. Unfortunately for Romania, these measures will likely have the undesired consequence of pressuring inflation and strengthening domestic demand, pushing Romania’s GDP growth further above its potential rate, according to ING.

The silver lining is that Romania still enjoys relatively low levels of public debt of around 20% of GDP, but this might not last for long. Romania's government has set its 2008 budget deficit target at 2.8% of GDP, following a 2.4% deficit last year, which should add to the public debt. Meanwhile, analysts and the European Commission have expressed concern that the 2008 budget deficit will overshoot the target and even the 3% of GDP limit required for eventual euro adoption.

In essence, Romania’s political situation suggests any expectations that the government will soon take steps to proactively help unwind the country’s imbalances are wishful thinking.

2. Current Account Deficit - Getting Worse Before It Gets Better

Current-account deficits are not always a sign of trouble, especially in transition countries like Romania. In fact, it’s rational for a country, with a low capital stock that is trying to ‘catch-up’ with the rest of the EU, to borrow from abroad in order to invest and achieve faster rates of growth going forward. But Romania’s -14%/GDP current-account deficit is clearly unsustainable, especially when the drivers of this deficit are examined.

One of the major concerns, according to Fitch, is that the recent deterioration in C/A balances in Romania has been largely domestic demand-driven. It comes from a sharp rise in import growth rates for consumption rather than capital goods, which can lift long-term growth potential. This import growth is also being driven by strong investment growth, but this is mainly in the construction sector where value-added is traditionally low.

While Romania’s imbalances have been primarily private sector-driven, its loosening fiscal policy (described above) should further bolster domestic demand growth and pressure the current-account deficit. The silver lining is that Romania’s currency – the leu – has weakened about 13% against the euro since August, and this weakening should reduce demand for imports. Nevertheless, many analysts expect the current account to deteriorate further before it improves. The Economist, for example, forecasts Romania’s annual current-account deficit will surpass 17% of GDP in 2008.

3. Low FDI Coverage + Lax Fiscal Policy = Hard Landing?

Romania's relatively low foreign direct investment (FDI) coverage is a concern. FDI is one of the more desirable ways for a country to finance its current-account deficit, as it’s generally considered more stable and less susceptible to rapid outflows than portfolio investment. According to Fitch, Romania’s FDI coverage of its C/A deficit was 42% in 2007, compared to 98% in Bulgaria. In 2008, Romania’s FDI coverage is expected to drop to 31%.

This relatively low FDI coverage, combined with Romania’s lax fiscal policy, could spell trouble. According to recent IMF research, more than one-third of 109 episodes since 1987, characterized by large net private sector capital inflows, resulted in a ‘sudden stop’ in capital inflows or a currency crisis.

The IMF found that the chances of avoiding such an outcome and achieving a soft landing were improved by high FDI coverage of the C/A deficit and fiscal restraint – neither of which Romania seems to have at the moment.

4. Households’ FX Lending

Romania is not alone among CEE countries in the fact that many of its citizens have borrowed in foreign currency, such as the euro and the Swiss franc, making them very vulnerable to currency risk. According to Fitch, foreign currency bank loans account for 54% of total bank loans in Romania.

Unfortunately, this substantial foreign currency lending limits the usefulness of monetary policy as an adjustment tool, as Edward Hugh mentions in a recent blog post. So while Fitch may trumpet Romania’s flexible exchange rate as ‘a significant advantage in helping the economy to adjust in a hard landing,' it’s really not much of an advantage. That’s because the ability of the Romanian economy to adjust through a depreciation of the exchange rate is limited by the fact that any significant depreciation of the leu would result in the insolvency of a great number of Romanian households, as those who took out fx-denominated loans would see their debt payments soar.

5. Global Credit Crunch

The elephant in the room is the impact the global credit crunch is having and will have on Romania's economy. As Danske notes, Romania's large funding needs - due to its high external imbalances - make it especially vulnerable to any potential slowdown or cut-off of foreign capital inflows. As a result of the global crunch, Romania is at greater risk of a sharp economic slowdown.

In conclusion, prudent fiscal policy seems like Romania’s best bet to cool the economy. Unfortunately, the realities of the current political environment mean this is unlikely to happen anytime soon. As a result, Romania’s vulnerabilities - accentuated by the global credit crunch - look set to grow in 2008, making a hard landing a growing possibility.