Saturday, February 9, 2008

Romania: Shot Across the Bow

Oxford Business Group Latest Briefing

On February 4, reports released under the European Commission's Cooperation and Verification Mechanism (CVM), highlighted shortcomings in Romania's efforts to fight corruption.

According to the report, the country needs to strengthen "its efforts to maintain the legal and institutional stability of the Romanian anti-corruption framework". The perception of corruption may weaken Romania's reputation abroad, adding additional concerns to those of political turmoil and rising inflation. However, the report is not a full and final assessment of Romania's progress and makes clear that the country has made important progress by setting up anti-corruption mechanisms.

The report found issue in all of the benchmark areas it addressed. It noted "delays have occurred" in the establishment of a national integrity agency, the implementation of a "coherent" strategy of recruitment for the judiciary and in the fight against local corruption.

The harshest and most worrying criticism was over Romania's performance in tackling high-level corruption, where it said there has been the least progress. The EC expressed concern that proposed changes to the criminal code will hamper anti-corruption efforts and noted that court cases against senior politicians appear to have come to a standstill.

The CVM was established upon Romania's entry into the EU, to "set the framework for further work" in tackling corruption, an area in which the country was seen to be lagging behind the rest of the union. The framework linked the development of anti-corruption mechanisms to judicial reform, which was also making "insufficient" progress.

The report was the second published on Romania since accession, the first having been issued on June 27. Neither has been intended to be a detailed assessment of the country's progress in achieving the commission's benchmarks, but rather were progress reports towards a full report due in the middle of this year.

June's report cautiously praised the government's efforts to "remedy weaknesses", but largely concluded that not enough time had passed since the implementation of the CVM to make a judgement on whether legislative changes were being effected on the ground. It also ruled out the use of safeguard provisions, which the EU had written into Romania's accession pact allowing the suspension of some of the $25.5bn worth of funding to be delivered by 2013 if targets were not met. However, the conclusion warned that, "in particular, there is a need to step up efforts in the pursuit of judicial reform and the fight against corruption".

This month's assessment was not sparing in its criticism of Romania's action plan to meet the CVM benchmarks, which was developed at the EC's suggestion. Although the government's "serious commitment" was praised, the plan fails to address issues of the stability and longevity of the anti-corruption fight, including the renewal or replacement of schemes with finite timelines, and lacks a detailed strategy on local corruption, the report noted. It urged Romania to target its policy better through smaller programmes that take into account institutions' ability to absorb funds - a problem that has been highlighted by EU watchdog groups in the past.

The EC raised concerns that proposed changes to the Romanian Criminal Procedure Code will counteract the anti-corruption drive. At President Traian Basescu's order, parliament is currently reviewing amendments it passed last October. The changes include limiting criminal investigations to six months, a ban on searches and interception and taping without informing the suspect beforehand, and, most controversially, handling fraud below 9m euros ($13.2m) as a minor offence, punishable by a maximum of five years in prison. According to the report, "if promulgated, these amendments would have a substantial negative effect on the efficiency of criminal investigations in Romania in general," as well as hampering joint investigations with other EU member states.

Furthermore, while the welcome removal of immunity from prosecution for current and former ministers has resulted in the prosecution of eight senior politicians, several of the cases have been stalled in confusion. The commission noted that it remains unclear whether the prosecutions' evidence is inadmissible, or whether the prosecution can remedy the situation without having to restart the process. Given Romania's past issues with the independence of the judiciary, this uncertainty and lack of progress is particularly worrying.

The response of the business community to the report has been muted. The economy continues to grow strongly and there is a palpable sense the murkiness of the 1990s is gone. However, the EC's comments are undoubtedly bad public relations for Romania, at an inopportune time. Towards the end of last year, ratings agency Standard & Poor's downgraded Romania's credit rating amid political uncertainly. The country overshot its inflation target last year and there are fears the government's fiscal policy is unsustainable.

But the report's message is not an outright condemnation of Romania, and it was not intended to be. It is a shot across the bow and a call to get Romania's house in order before the full assessment later this year. As in the previous report, the EC praised efforts to set up institutions and laws to combat corruption, but found fault with implementation on the ground. This has been compounded by fears that politicians accused of corruption will be able to wriggle off the hook.

The robust anti-corruption stance of leading politicians such as Basescu seems to have been sidetracked by political infighting and a lack of momentum and coordination at a local level. Romania, however, has made large strides in the right direction. Now it must prove to the EC it can focus its resources effectively and optimise and use the anti-corruption mechanisms it has put in place.

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