Wednesday, June 8, 2011

Basescu: Romanian privatisation will kick start economy

June 7, 2011  by Neil Buckley
ft.com

Romania will launch a new round of privatisations in the coming weeks, offering minority stakes in half a dozen mostly state-controlled energy companies, says Traian Basescu, the country’s president.

The Romanian president told beyondbrics in an interview the new privatisations could become an “engine of growth”. After suffering one of the longest recessions in the European Union, Romania is searching for ways to kick start the economy.

The programme will include selling a 10 per cent stake from the government’s remaining 40 per cent holding in Petrom (SNP:BUH), the oil producer that is Romania’s biggest company, already controlled by Austria’s OMV (OMV:VIE).

It will also include 15 per cent stakes in state-controlled Transelectrica (TEL:BUH), the national power grid; Romgaz, the largest natural gas producer; and Transgaz (TGN:BUH), the gas distributor. And it will sell 10 per cent each of Nuclearelectrica, a nuclear generator, and hydropower company Hidroelectrica.

“We will sell important percentages on the market in the largest state-owned companies, before the end of the year” said Basescu. “The money obtained through these tenders will go into a development fund, it is not destined for consumption.”

Romania imposed brutal austerity measures after letting spending get out of hand in the boom years and having to turn to the IMF and EU for a €20bn bailout. It slashed public sector pay last year by a quarter and benefits by 15 per cent, and hiked value added tax by 5 percentage points.

With that kind of shock to domestic demand, some analysts warned growth would be slow to return.

But Basescu insists that after Romania finally emerged from recession in the first quarter – beating expectations with year-on-year growth of 1.6 per cent – the full-year outlook is better than previously thought.

“Our growth for this year was initially evaluated at 1.5 per cent,” he said, “but our objective is a minimum of 2 per cent growth.”

One reason for his optimism was that the outlook for the agricultural harvest was “unexpectedly good” – though fruit and vegetable farmers have been hit by the German E. coli scare.

Another factor was that Romania was finally improving its chronically slow absorption of €32bn of EU funds available to it after it joined the 27-nation bloc in 2007.

It had absorbed only 2.6 per cent of the available cohesion funds – to support infrastructure projects – at the end of 2010, but this had already improved to more than 10 per cent. It had also absorbed more than 20 per cent of agricultural funds.

“Large-scale infrastructure work will start from now, motorways, railways, modernisation – bids were just finalised,” the president said. Improving Romania’s backward transport network is seen as vital to avoid losing out to better-developed neighbours such as Hungary or Poland in the fight for a slice of an investment pie that is much diminished since the pre-crisis years.

Romania was complementing the EU-funded programme with a €4bn scheme, financed by commercial banks, to improve rural infrastructure, Basescu added.

The president admitted foreign investment had fallen in the first quarter from a year earlier, but suggested it had bottomed out and would now pick up.

With an almost missionary zeal, however, Basescu insists there is no alternative for countries that overextended themselves to putting their fiscal house in order.

“Of course I recommend to everybody to adjust their costs in order to achieve fiscal consolidation,” he said. Europe’s famed social model had to be driven by a dynamic and competitive market economy, not the other way round.

But what about the fact that he and Romania’s centre-right coalition have seen their popularity plunge as a result of the austerity measures?

“Sometimes politicians have to pay the cost if people don’t like the measures,” he said. “The problem for politicians is they can simply lose elections. But if a nation loses its momentum, it is extremely costly.”

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