Wednesday, February 29, 2012

EBRD Interested in Buying Romanian Hidroelectrica Shares

Feb. 28 (Bloomberg) -- The European Bank for Reconstruction and Development is interested in buying shares in Romanian hydropower generator Hidroelectrica SA as the Balkan nation plans to sell a minority stake in the company this year.

The EBRD may be interested in government plans to sell 10 percent of Hidroelectrica by October through an initial public offering on the Bucharest Stock Exchange, or lend investment funds to the company, Louis Borgo of the EBRD’s power and energy department said today at the Ziarul Financiar energy conference.

“We would be interested in potentially buying shares” in Hidroelectrica, though “never the entire stake,” Borgo said in an interview today. “The EBRD’s participation in an IPO-type of environment is basically to send a signal to the market that we believe in this IPO, that it’s been well structured and ultimately that it’s a reasonable investment.”

Romania is selling stakes in energy and transport companies this year to raise funds to cover its budget deficit and aid state-owned companies’ investment in outdated plants and infrastructure to meet the terms of its precautionary international agreement.

‘Informal Talks’

The EBRD is in “informal talks” with another state-owned utility Transelectrica SA, in which the government plans to sell a minority stake this year, to grant loans to fund an investment program in the country’s power grid, Borgo said. Transelectrica needs to expand its power grid to accommodate a surge in power generation stemming from rising investment in wind farms.

“It’s a possibility that we’ve been discussing with Transelectrica for a while,” said Borgo. “We’re interested in assisting them in upgrading the grid or building new lines” or “assisting them in financing,” he said.

The EBRD is considering loans to fund six renewable projects in Romania with an installed capacity of more than 500 megawatts, Borgo said. Wind and biomass projects would require investments valued at “hundreds of millions euros,” he said.

The loans are “under consideration, we’re only at the initial due diligence,” Borgo said. “We’re hoping two or three would make it to the finish line this year.”

--Editors: Alan Crosby, James Gomez

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

Romania Reopens 10-Year Dollar Bond Sale at Lower Yield

Feb. 28 (Bloomberg) -- Romania sold more 10-year dollar- denominated bonds four weeks after it raised $1.5 billion in its first sale of debt in the U.S., taking advantage of falling yields.

The country raised $750 million in the reopening of bonds due 2022 priced to yield 6.45 percent, the Bucharest-based Finance Ministry said in an e-mailed statement. The initial yield for the notes that drew $3.2 billion in bids was set at around 6.5 percent, lower than the 6.875 percent for the bonds sold last month.

“We reopened the issue because there was still demand for Romanian bonds, as investors wanted exposure to Romania, so we decided to take this opportunity to raise funds at a lower cost,” Finance Minister Bogdan Dragoi said in the statement.

The dollar-bond sale is part of a medium-term note program valued at 7 billion euros ($9.4 billion) that's designed to help the government sell debt quickly anytime as it seeks to benefit from lower borrowing costs as the European sovereign-debt crisis eases.

“We see the decision to reopen the sale as positive, since it's consistent with the government's commitment to improve the liquidity,” said Raffaella Tenconi, an economist at Bank of America Merrill Lynch in London. “The timing is ideal.”

The cost of insuring against a default by Romania has declined 46 basis points to 353 basis points today from 399 on Jan. 31, below the five-year credit-default swaps of 513 for neighboring Hungary, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

ECB Liquidity Boost

The sale comes as the European Central Bank prepares to allot 470 billion euros in a second round of three-year funds tomorrow to boost liquidity of the single-currency region's banks, according to a Bloomberg News survey. Using the longer- term refinancing operations, banks can borrow from the ECB at around 1 percent and invest the proceeds in higher-yielding securities.

The yield for Romania's dollar bonds issued in January and due in 2022 reached a record low yesterday of 6.279 percent and increased 10 basis points today to 6.373 percent.

The country plans to borrow as much as 2.5 billion euros of bonds on foreign markets in 2012 through two debt issues after it stopped relying on international bailout funds. The sales will help to narrow the budget deficit, which the government wants to shrink to 1.9 percent of gross domestic product this year, from 4.35 percent in 2011.

Citigroup Inc., Deutsche Bank AG and HSBC Holdings Plc managed the dollar-bond sale.

--Editors: James Kraus, Fergal O'Brien

Romania flexes muscle at EU meeting on Serbia

28.02.12
BY ANDREW RETTMAN
http://euobserver.com

BRUSSELS - Romania caused confusion and annoyance with last-minute demands at an EU meeting on Serbia in Brussels on Tuesday (28 February).

Member states in the end endorsed giving Serbia EU candidate status, but not before extensive discussions with Romania, which threatened until the the very end to block the decision on grounds that Serbia is mistreating a Romanian minority group in the country.

The European Commission also drafted a special declaration to keep Bucharest happy.

"The commission is of the view that, while the legal and institutional framework for respecting and protecting minorities is in place in Serbia, implementation needs to continue to be further improved. It will continue to closely monitor Serbia's efforts in this regard," it said.

Romania had flagged up the minority issue at a meeting of foreign ministers in the EU capital on Monday.

But the doggedness of its opposition on Tuesday took colleagues by surprise, given that it had never made a big deal of it before and that the commission, in its series of extensive annual reports on Serbia, had never identified it as a serious problem.

The prevailing theory is that it wanted to show the Dutch how strongly it feels about the EU's passport-free Schengen zone.

Romania had hoped to join Schengen last year after fulfilling technical criteria. But the Netherlands blocked it on grounds it is too corrupt, causing national embarrassment. For its part, the Netherlands has invested a lot in Serbia's EU bid, helping to make sure in 2011 that it handed over its top war crimes fugitives to the international court in The Hague.

A decision on Romania's Schengen entry is now expected in July.
The Dutch delegation said Romania did not make any kind of Schengen-Serbia link. The Danish EU minister, Nicolai Wammen, who chaired Tuesday's event, also said: "The issue of Schengen was not raised."
But other diplomats and officials in and around the event said the Schengen fiasco was in the air.

One EU diplomat told this website: "It was about the Netherlands and the Schengen bid. The Romanians did not say anything like that today publicly, but there were one or two little comments about it at the Fac [the foreign ministers' meeting on Monday]. It's definitely part of the reason."

An EU official said: "A lot of time was devoted to this today and we were supposed to be preparing for the EU summit on Thursday, which has some serious business on its agenda about the financial crisis."
He added that EU presidents and prime ministers at the summit are now set to rubber stamp Serbia's candidate status. But he did not rule out that Romania's leader, or someone else, might come up with more last-minute objections. "After all, this is the EU," he said.

For his part, Romanian foreign minister Cristian Diaconescu, responsible for the fuss on Tuesday, cancelled his scheduled press briefing and flew back home citing time pressure.

Thursday, February 23, 2012

FT: Romania: OMV and Exxon in gas find

February 22, 2012
by Stefan Wagstyl

Good news for Romania – a “potentially significant” offshore gas disovery in the Black Sea.

It’s far too early to say whether it is a commercial proposition, but investors were excited enough by Wednesday’s announcement by project partners ExxonMobil and Austria’s OMV to move the markets. OMV shares rose by nearly 6 per cent before falling back to trade 4 per cent higher. ExxonMobil stock barely moved – perhaps even a big Black Sea find may not look that big in Texas.

The partners said in a stock exchange statement:


ExxonMobil Exploration and Production Romania Limited (EMEPRL), an affiliate of Exxon Mobil Corporation and OMV Petrom SA, the 51% [Romanian] subsidiary of OMV Aktiengesellschaft, today confirmed a potentially significant gas discovery offshore Romania.

Operated by ExxonMobil, the Domino-1 well is the first deep water exploration well offshore Romania and has a total depth of more than 3,000 m below sea level. The Domino-1 well is located in the Neptun Block, 170 km offshore in water approximately 930m deep.

The exploration well encountered 70.7 m of net gas pay, resulting in a preliminary estimate for the accumulation ranging from 1.5 to 3 trillion cf (42 to 84 bn m³). Drilling operations started at year-end 2011 and are in the process to be finalized.

ExxonMobil and OMV plan new 3D seismic acquisition during 2012. The evaluation of the Domino-1 well results and the new seismic will determine next steps. It is too early in the data evaluation and exploration process to determine whether the Neptun block will ultimately prove to be commercially developable or not.

However, should further work confirm the technical and commercial feasibility of deep water gas production from the Neptun block, further investment during both the exploration and development phases could reach several billion USD with the potential for first production towards the end of the decade at the earliest.

It’s all very technical but the clue to the find’s importance is at the end – the reference to “several billion USD”. Even groups the size of Exxon don’t throw around such numbers loosely.

For Romania, it is particularly significant that Domino-1 is the first deep water exploration well in the Black Sea. While nothing is certain, it raises the possibility of further discoveries. That will be good for one of the European Union’s poorer economies and for the Romanian oil industry, which has a proud history going back to the 19th century.

The discovery comes at an opportune time for Petrom, the former state oil company where OMV has 51 per cent. Reuters reported that Petrom missed analysts’ forecasts in its fourth quarter profits – posting 838m lei net ($255.3m), compared to predictions of 901m lei. Petrom recorded a profit of 781m lei in the year-ago quarter.

Petrom said its full- year net profits jumped to 3.76bn lei from 2.2bn lei in 2010, thanks to a 40 per cent rise in benchmark crude prices and a 1 per cent output increase. But, as it admitted, it was held back by a 504m lei fine imposed by the Romanian Competition Council, for alleged collusion with rivals in the withdrawal from the market of petrol type called Eco-Premium. It is challenging the fine in court.

OMV itself published fourth quarter net profits of €326m (excluding inventory revaluations), up from from €216m a year earlier. For the full year it made €1.069bn, a decline of 4 per cent. The dividend is going up 10 per cent to 1.10 euros a share.

Benchmark crude was 26 per cent higher in the quarter than a year earlier. But output was down 9.7 per cent, due to the effects of the crisis in Libya, which accounts for about 10 percent of OMV’s normal volumes.

But there was good news on Libya. OMV said Libyan output was at 50 per cent of pre-uprising levels at the end of the year and is now at 85-90 per cent. OMV will need that revenue as it implements plans to increase its focus on exploration, development and production – not least in the Black Sea.

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Tuesday, February 21, 2012

Romania's president bets on Putin plan Romania's president bets on Putin plan

(Reuters) - The president of a former communist country in economic turmoil anoints a security service chief as his successor. Sound familiar?

Romania's Traian Basescu has named old ally Mihai Razvan Ungureanu prime minister and he is now the likely party candidate for the presidency when Basescu's term expires in 2014, senior party members said, a move that would echo Boris Yeltsin's promotion of Vladimir Putin in Russia more than a decade ago.

Since winning parliamentary approval earlier this month, the 43-year-old former foreign minister and intelligence head Ungureanu has restored the mood of the unpopular centrist Democrat-Liberal Party (PDL) before a November parliamentary election in the European Union's second poorest member.

His predecessor Emil Boc put the economy back on track by enforcing austerity measures but the resulting slide in popularity left him little chance of posting a decent electoral result after anti-government protests swept the country.

"He (Ungureanu) is seen as the one able to revive the party, given his experience and his age," said a PDL deputy, who took part in the talks which led to the prime minister switch and did not want to be named as Boc is still party leader, for now.

"He stands a strong chance of winning the presidency of Romania two years from now."

PARALLELS LIMITED

The rise of a security service chief to run a country still traumatized by the communist regime's feared Securitate has troubled some, but the parallels with Putin are limited.

Whereas Putin served in the communist-era KGB and helped launch a new war against Chechen separatists on his rise to power, Ungureanu is too young to have worked in the Securitate and unlikely to crack down on minorities; ethnic Hungarians, the largest group, are a key coalition partner.

Having studied at Oxford University, Ungareau has a pro-Western outlook. As foreign minister he cooperated with the United States over Iraq and as intelligence head, he worked with other members of NATO. Romania even had a row with Russia in 2010 over spying that resulted in a tit-for-tat expulsion of diplomats.

Basescu, a PDL stalwart until he resigned to take the presidency in 2004, is much less powerful than Yeltsin was.

But he uses his theoretically ceremonial job to push pro-market policies through the divided parliament and since he cannot stand again in the 2014 election, appears to see Ungureanu as the man to help secure his legacy and the fortunes of the party.

"Putin's role is now taken by Ungureanu, chief spy, destined for a presidential career. So, we can say that Ungureanu's appointment marks Basescu's entry into the presidential campaign for the 2014 presidential election," said political expert Cristian Parvulescu at the Pro Democratia think tank.

Ungureanu rallied the coalition to form a new government in just three days, switching the mood from despair to nascent hope the PDL can stage a comeback.

Fluent in four languages and known as a competent administrator who stays on top of his brief, Ungureanu pledged to continue Boc's program - including privatizations, road building and making business easier - and work with the IMF.

He raised the possibility of limited pension and wage rises before elections and members of the PDL were in celebratory mood after parliament backed his cabinet, even though it has less than 20 percent support in opinion polls.

Romania's per capita wealth is still less than half the EU's average and five years after it joined the bloc, some villages and city districts are without running water or electricity.

A deep recession halted progress and was prolonged by cost-cutting under an International Monetary Fund-led bailout. Emigration is such that the population has fallen 12 percent in a decade and even some professionals struggle to make ends meet.

NEW CONSENSUS?

Boc repeatedly passed difficult laws like salary and pension cuts by decree, bypassing parliament in a technique which could be challenged only by confidence vote. That left a permanent - if small - risk of government collapse and angered the opposition, coalition partners, business and many voters.

Ungureanu, not currently a PDL member but expected to take its leadership at a congress in the coming months, indicated he would break from the previous brinkmanship and seek consensus.

"My experience in diplomacy taught me there's no more powerful weapon than dialogue," he told parliament.

Victor Ponta - who leads the leftist Social Liberal Alliance (USL), riding high with support of 50 percent or more - made a conciliatory speech which hinted there may be some easing in the confrontational approach of Romanian politicians.

Ungureanu has vocal backing from the PDL and analysts say he is in a strong position, despite the party's standing.

"He is a professional, a fine diplomat and intellectual who has an impressive power to unite people around him," PDL Vice-President Gheorghe Flutur told Reuters.

"The widespread idea that Ungureanu is now pursuing a 'mission impossible' is in fact a big political advantage for him, because any small success will bring positive points while any failure would be attributed to the context," commentator Alexandru Gussi wrote in weekly Revista 22.

OLD FRIENDS

The often outspoken former sea captain Basescu has a close alliance with the historian Ungureanu from when the latter was foreign minister.

In 2007 Ungureanu resigned after he told Basescu, but not the prime minister who opposed the president, that two Romanian workers had been held at a coalition base in Iraq on suspicion of spying. He also supported keeping troops in Iraq, backing Basescu and against the prime minister's wishes.

March brings his first big test, when the government will try and put a privatization plan - ambitious but potentially unpopular because of job losses - back on track.

It aims to sell a stake in Transelectica and needs a successful sale to show it is serious about reforming inefficient and debt-laden state companies, which still hold the country back more than 20 years after the fall of communism.

A local election is set for June and will give the first clear sign of Ungureanu's chances in the parliamentary ballot.

Basescu nominates the prime minister so if the USL cannot secure a majority or maintain its fragile alliance, the president would be free to name Ungureanu again even if the PDL is not the leading party.

"He is clean and his profile recommends him for president," said a third PDL lawmaker. "I'm pretty sure he will succeed first in pursuing his challenging tasks as prime minister."

(Additional reporting by Luiza Ilie; writing by Sam Cage; editing by Philippa Fletcher)

Wednesday, February 15, 2012

Romania's Prince Paul Recognized as Royal

BUCHAREST, Romania (AP) — Romania's top court has recognized Prince Paul Hohenzollern as the legitimate grandson of former King Carol II, ending a 21-year-legal battle.

Paul has claimed he was illegally excluded from the royal family by his uncle, the former King Michael, who was the Romanian monarch twice.

It was unclear what effect the ruling would have or whether Paul would make claims on royal family property. Paul welcomed the ruling on Wednesday as a matter of "honor for my family."

The 90-year-old Michael, who was forced to abdicate by the communists in 1947, says Tuesday's ruling does not give Paul any claims to the throne.

Tuesday, February 14, 2012

Romania sends 2 former ministers to prison for corruption

By Associated Press

BUCHAREST, Romania — Two former Romanian agriculture ministers were convicted on Tuesday of corruption and sentenced to three years in prison.

Last month, Romania’s highest court sentenced former Prime Minister Adrian Nastase to two years in prison after convicting him of illegally raising funds for a failed presidential campaign.

The two cases are one reason that Transparency International, a non-governmental organization based in Berlin, has ranked Romania as one of the most corrupt countries in the European Union.

On Tuesday, a court in Bucharest ruled that former agriculture ministers Decebal Traian Remes and Ioan Muresan took bribes and engaged in influence-peddling.

Remes resigned his Cabinet post in 2007 after prosecutors accused him of taking a bribe of $21,000 (€15,800) and the promise of homemade sausages and plum brandy from Muresan, a former agriculture minister who allegedly was acting on behalf of businessman Gheorghe Ciorba.

Prosecutors said the payment was meant to secure favor for Ciorba’s company at a public auction. However, Ciorba reported the bribe to authorities before the auction took place, leading to the prosecution of the two ministers. Given his role in the case, Ciorba was given an 18-month suspended prison sentence.

The January conviction of Nastase was the first time a former Romanian premier has been sentenced to prison since communism ended in the country in 1989. He has said he will appeal.

Romania is under pressure from the EU, which it joined in 2007, to crack down on widespread corruption.

FT: Romanian banks: turning a corner?

By Andrew MacDowall of Business New Europe

Romania’s new government has a substantial in-tray to deal with, not least breathing more life into the sluggish economy. And the politicians know much will depend on whether the banking sector, where business has stabilised recently, agrees to play ball.

Romania’s growth rate is expected to be around 2-3 per cent this year – a far cry from the boom years of 6.5 per cent between 2003 and 2008, but acceptable given the circumstances – while unemployment has fallen and inflation hit a record low in January of 2.7 per cent.

However, the new government under Mihai-Razvan Ungureanu, which was approved by parliament on February 9, knows that it needs the banks’ help to keep the economy from falling back into the recession it only emerged from in 2011.

Thus the comments from the governor of the National Bank of Romania, Mugur Isarescu, following the release of the quarterly inflation report on February 7, who called on the banks to stop raising interest rates on savings in order to increase their liquidity, as this was hurting consumption.

“The prospect of consumption acting as a growth engine depends on the attitude of Romanians and banks who are competing to gain customers, which can be a double-edged sword,” Isarescu told a press conference.

This approach by the banks is a direct result of the difficult years they have endured since the first wave of financial crisis brought to an abrupt end a banking boom that had seen credit growth soar to about 60 per cent annually in early 2008.

The problem was that much of the lending was concentrated in non-productive sectors, particularly real estate, which was inflated by speculation. And when the bust came, Romania’s banks were hit hard, first by exposure to the domestic crisis and the bursting of the real estate bubble, and then by foreign banks withdrawing liquidity in their Romanian operations to shore up their business at home. Foreign-owned institutions account for around 85 per cent of Romanian banking assets (the precise amount has fluctuated slightly during the crisis), and the country’s deep economic funk has been of concern to major European lenders including Erste Bank Group and Volksbank (both Austrian), France’s Societe Generale, Italy’s Unicredit Group, Hungary’s OTP Group, and National Bank of Greece.

It’s been a hard landing. Asset growth stalled in 2009 and 2010, while non-performing loans (NPLs) rose from 6.46 per cent in September 2009 to 14.18 per cent in the same month of last year. But a series of defensive measures by banks, combined with the Romanian economy’s recovery last year, appears to have put the sector back on a more even keel – for the time being.

Towards the end of last year, the NPL ratio started to fall for the first time in years, to 14.1 per cent in December. This is undoubtedly a high level by most standards – the EU average was just under 5 per cent in 2011, according to a report by Ernst & Young – and the drop was a small one. But Vlad Muscalu, an economist at ING Romania, says the falling ratio is a symptom of recovery and he expects the decline to continue. Capital adequacy ratios average a respectable 14.5 per cent, suggesting that banks are in a position to absorb some further shocks, if not a full-blown crisis.

So bankers are cautiously optimistic about the outlook, with some caveats: 2012 will be a slow year, downside risks exist and banks’ approach will be more guarded than before. “The very modest growth outlook is likely to bring the banking market under pressure in 2012, both in terms of the demand for new loans and the saving potential of the economy, which is already one of the lowest in the region,” Lucian Anghel, chief economist at Erste-owned Banca Comerciala Romana (BCR), Romania’s biggest bank, tells bne. “Since the onset of the crisis, all the players strategically focused on a prudent business and a more diversified funding base with a view to increasing independence from parent banks.”

Banks are vulnerable to the effects of the eurozone crisis on the region’s economies. Around 55 per cent of Romania’s exports go to the eurozone, according to Anghel, and the 35 per cent drop in foreign direct investment (FDI) last year can partly be attributed to the single currency’s travails (as well as investor aversion to volatile Romania). A further worsening to the west will have repercussions for Romanian banks.

The issue of independence has been in the spotlight recently due to recommendations from the Austrian government that the country’s banks limit their exposure to emerging Europe. The proposals call on lenders to ensure that the loans they issue in the region do not exceed 110 per cent of the financing they raise locally. While the plans have caused a stir, Vienna has issued assurances that it does not plan to make them enforceable regulations, something that Manfred Wimmer, CFO of Erste Group and a member of the supervisory board of BCR, insists must only be done with the agreement of the central banks of the countries affected by them.

Wimmer tells bne that he expects Erste’s exposure to Romania (as elsewhere in CEE) to track recovering economic growth and consumer confidence, but that it would focus on local currency activities, taking a more conservative stance towards foreign-exchange lending.

BCR’s Anghel, meanwhile, hopes that Romania’s high reserve requirements (15 per cent on leu and 20 per cent on foreign currency loans) should provide a buffer for banks, while low interest rates could provide a leg-up for lending. Over the medium term, infrastructure projects that are just starting to feed through, improved absorption of EU funds (traditionally, pitifully low), as well as the potential for investment in sectors including energy and transport, bode well for much-needed domestic demand.

As ING’s Muscalu points out, banks have good reason to be optimistic, given the scope for growth in an under-banked economy. “Foreign banks will stay here, as they know things will be different five years from now,” he says. “The lending market is only worth around 40 per cent of GDP, whereas it’s 150 per cent elsewhere in the region – that’s quite some potential.”

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Romania May Cut Electricity Exports on Higher Domestic Demand

Romania may interrupt exports of electricity between Feb. 16 and March 15 to cover rising domestic consumption because of freezing temperatures, according to a draft law on the Economy Ministry’s website.

The Balkan nation, which faces a “heavy power deficit” following a drought that kept river-water levels low and increased heating demand, will start cutting power exports from about 500 megawatts per hour, President Traian Basescu said during a speech today.

“There will be no problem in supplying electricity to citizens,” Basescu said. “If we will face problems we can start cutting supplies to companies under a pre-established plan.”

To contact the reporter on this story: Andra Timu in Bucharest at atimu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

Monday, February 13, 2012

Romanian Inflation Rate Drops to Record Low on Food Prices

Romania’s inflation rate dropped faster than economists estimated to a new post-communism low in January, as faltering economic growth and a bumper 2011 harvest limited price increases.

The annual rate fell to 2.7 percent from 3.1 percent in December, theNational Statistics Institute in Bucharest said today by e-mail. The median estimate of 14 economists surveyed by Bloomberg was for a 3 percent rate. Prices advanced 0.4 percent from the previous month.

Policy makers have cut the benchmark interest rate three times since November to a record-low 5.5 percent to buoy the economy as inflation slows and Europe grapples with a debt crisis. Rates are being lowered “in small steps to keep from harming the equilibrium,” Governor Mugur Isarescu said Feb. 7.

“Even though we expect inflation to hit new record lows in the first half of this year, which is in line with the central bank’s view, it is worthwhile reiterating that a further slowdown of inflation will mainly be the result of a favorable base effect in the first half while the monthly rates of inflation could be elevated,” Erste Group Bank AG analysts said in a note to clients today.

The Romanian leu was almost unchanged at 4.3460 per euro as of 10:41 a.m. in Bucharest, while the Bucharest Stock Exchange’s benchmark BET Index rose 0.8 percent to 5,090.37 points.

Price Targeting

The central bank is targeting price growth of 2 percent to 4 percent. It raised its 2012 inflation forecast to 3.2 percent from a November estimate of 3 percent, citing possible increases in food and energy prices, Isarescu said. The bank met its inflation goal for the first time in five years in 2011, when the rate fell to a record-low 3.1 percent.

Food-price growth eased to 0.1 percent from a year earlier in January, compared with 0.95 percent growth in December, on falling vegetable prices, the institute said.

Non-food cost growth slowed to 4 percent from a year earlier, driven by lower electricity and heating costs, compared with 4.45 percent in December, according to the institute. Service-price growth accelerated to 4.7 percent from 4.2 percent the previous month, on rising phone and transport prices, the institute said.

“Regarding our inflation outlook ahead of this release. we looked for a favorable base effect to drive inflation lower over the coming months -- taking it below 2 percent during March-May -- before food prices push higher in the second half, in the region of 4 percent,” ING Bank RomaniaSA economist Vlad Muscalu wrote in a note to clients. “We are expecting the central bank to keep the rate unchanged at the next meeting and we think these expectations will be largely maintained given the hints coming from the central bank.”

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

Saturday, February 11, 2012

NYT: Taking Care of His Adopted Country, One Emergency at a Time

By NICHOLAS KULISH

BUCHAREST, Romania

WHEN Dr. Raed Arafat resigned last month as under secretary of state at Romania’s Ministry of Health, thousands took to the streets across the country to demand his return. The demonstrations turned violent as protesters set fires and threw paving stones and the police responded with tear gas and water cannons.

That it was not the usual reaction, here or anywhere else, to the departure of a government official is a reflection on Dr. Arafat, a Palestinian by birth, who is no ordinary federal employee. He was one of the founders of the country’s widely lauded emergency-response system, and the reason for his departure from the ministry was as public as it was ugly.

When Dr. Arafat (no relation to the former Palestinian leader Yasir Arafat) appeared on a television talk show in January to discuss government plans for a health care overhaul, President Traian Basescu telephoned the program and berated him on the air, accusing the doctor of lying when he had said the government wanted to destroy the emergency system he had spent most of his career building.

Shocked by the ensuing protests, the president backed down and Dr. Arafat agreed to return. “I’m married to emergency medicine,” said Dr. Arafat, 47, who lives alone.

While he was out of his office for only a week, the protests continued, and grew to reflect a broader discontent with wages and pensions, with employment prospects and corruption. This week the discontent claimed Prime Minister Emil Boc, who resigned for what he said was the stability of the country.

Shortly after the fall of Communism in Romania in 1990, Dr. Arafat traveled to Regensburg, Germany, to buy a used emergency vehicle with a defibrillator and resuscitation kit, purchased with the help of friends from the German Red Cross. The young Palestinian doctor drove the car, an Opel Kadett painted with white and orange stripes and capped with blue lights, back to Romania, where he was working on a specialty in anesthesiology.

The beginnings were humble, but the result was not.

The Mobile Emergency Service for Resuscitation and Extrication now has 170 first-responder teams, 12 training centers and 4 helicopters, with a fifth on the way this spring. It is widely viewed here as one of the only parts of a broken health system functioning at a top-notch level.

“At its best, the system is better than what we have, and at its worst it’s certainly still better than what exists in lots of the United States,” said Peter Gordon, an emergency physician at Bassett Medical Center in Cooperstown, N.Y., who worked over the course of nearly a decade with Dr. Arafat to help build the system.

“His attitude is, ‘We can do it better than anywhere in the world,’ ” Dr. Gordon said. “It’s, ‘Let’s not be as good as the Germans, as good as the French, let’s be even better.’ ”

THOUGH he became a Romanian citizen in 1998, the fact that he was an immigrant, working for an adopted country rather than his native land, added to the sense of selfless sacrifice. “Nobody is a prophet in their own house, in their own homeland,” Dr. Arafat said.

Bald, with his remaining hair clipped extremely short on the sides, Dr. Arafat is intense and assertive without being aggressive or overbearing. He gives the impression of someone you would want in the back of an ambulance if you had a heart attack. More often, his volunteer shifts are on one of his agency’s helicopters, where, he said, patients sometimes recognize him if they are conscious. “ ‘It’s Dr. Arafat,’ they say.”

As a boy growing up in the West Bank, Dr. Arafat had memorized the book “First Aid Without Panic” cover to cover, learning “every page, every picture by heart,” he said. Born in Damascus, Syria, and raised in Nablus, West Bank, he described his attitude as “medicine by any means.” At the age of 14 he not only rode with the fire department on emergency calls, but also began teaching the firefighters techniques he had learned from his well-thumbed first aid manual.

By 15 he had begun volunteering at the hospital in Nablus, where he was allowed to give tetanus shots and stitches under professional supervision. His neighbor was a surgeon and head of one of the hospitals, and he spent his school vacations helping out in the operating room.

Young Raed was also accepted by a university in the United States. If not for his parents’ intervention, his future would have turned out quite differently, in a country that could have used his talents but certainly did not need them as badly as Romania. His parents were afraid that if he studied in America, he would stay for good. They did not tell him about the acceptance letter.

Instead he left in 1981, barely 17 years old, for Romania. At the time, his parents were right. “If the regime hadn’t changed, I wouldn’t have stayed at all,” Dr. Arafat said. He studied first in Cluj and then pursued a specialty in anesthesia and critical care in Targu Mures, a city of around 150,000 in Transylvania.

In the autumn of 1989, one government after another collapsed in Eastern Europe. The historic year culminated in Romania with the execution of Nicolae Ceausescu and his wife in December.

IT was shortly thereafter that Dr. Arafat made his trip to purchase the secondhand Opel Kadett. “I never thought that we would get to where we are now,” he said. “The initial idea was to create a single team of mobile intensive care based on models I have seen in France and Germany.”

At a time of upheaval throughout Eastern Europe, the young doctor worked tirelessly to set up a modern and effective emergency-medical system in a country where ambulances were barely more than taxis for the sick. His father had died and left him a small inheritance; Dr. Arafat lived off the money for the next eight years, from 1990 to 1998, as he worked as a volunteer.

And then this year, just as Dr. Arafat established operations in every district in Romania, the government announced plans to privatize the agency, part of an overhaul of the health care system. After years living under an austerity regimen meant to comply with the terms of an International Monetary Fund bailout and to put the country back on sound financial footing, Romanians drew the line at government proposals to tinker with Dr. Arafat’s emergency health service.

“It is not just about him, but it woke people up,” said Gabriel Deliu, 36, a former officer in the Romanian Army who took part in the protests, which continued for several days after Dr. Arafat agreed to take up his post again. “Otherwise people will get in an ambulance and they will say, ‘What is your account number? Do you have a credit card?’ ”

But the same qualities that made him a hero to the protesters, his political independence and dedication to medicine, meant that he had no interest in leading a political movement. “No way,” he insisted. “I said it. Never. No politics.” Dr. Arafat said he had a very good discussion with the prime minister at the time and the president (who said they had been misinformed about the emergency-response component of the proposed health care overhaul) before deciding to return to office, and noted that he had worked well with five different health ministers in two governments.

He seemed to be relieved to be back on the job. “It’s a passion,” Dr. Arafat said. “Sometimes you shouldn’t ask someone, ‘Why do you like this?’ You cannot ask a sports person, ‘Why do you like sports?’ and you cannot ask, ‘Why do you like emergency medicine?’ ”


Mihai Radu contributed reporting.

Friday, February 10, 2012

Reuters blogs: Harsh IMF approach courts disaster in Romania

FEBRUARY 9, 2012
By Martin Hutchinson and Christopher Swann

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

The IMF is courting disaster in Romania. The fund’s draconian conditions led Bucharest to cut public sector wages by 25 percent, far more than elsewhere. Now Romania’s prime minister Emil Boc has resigned and anti-reform forces have been emboldened. Excessive IMF rigour could do lasting harm.

The fund has been trying to soften its fearsome reputation. Managing Director Christine Lagarde has argued that the IMF should be less harsh, admitting that “consolidating too quickly can hurt the recovery and worsen job prospects.”

Sadly, in its treatment of Romania the IMF lived up to its old blood-sucking reputation. The lender’s demands included 100,000 job cuts, as well as steep cuts in salaries and a hefty rise in VAT, which hits the poor directly. Such harsh measures may prove self-defeating. By strengthening anti-market political forces, the IMF may end up pushing Romania away from the policies it encourages.

Romania does not obviously need extreme measures. While its current account deficit reached 14.5 percent of GDP in 2007 (less than Latvia, Bulgaria and Estonia), it has alleviated the problem with a 30 percent devaluation of the leu in 2007-09. Its public spending at 36 percent of GDP is not excessive.

Crude fiscal austerity fails to address Romania’s endemic corruption and other structural economic problems, which help keep the country’s GDP per person the second lowest in the EU. The IMF could help the country deal with the dreadful legacies of the odious Ceausescu regime. Instead, its harshness risks undermining Romania’s fragile democracy – street protests helped bring the government down.

The mauling of Romania heightens worries that the IMF operates with a double standard. Richer nations such as Ireland and Portugal were offered more lenient terms. The Emerald Isle was asked only to cut the pay of incoming civil servants by 10 percent and trim the government payroll by 8,000 while Portugal got away with 5 percent salary cuts and staff reductions through attrition.

When the IMF lends to richer countries, its conditions have softened. For the fund to succeed in its mission it may need to give its more impoverished clients similar treatment

Romanian parliament approves new government

By ALINA WOLFE MURRAY, Associated Press

BUCHAREST, Romania (AP) — Romania's Parliament approved a new government led by a former spy chief on Thursday, and he promised to keep up the austerity measures the country imposed to win international loans but to raise public-sector salaries as soon as he can.

"An era of prosperity will not begin tomorrow," said Prime Minister Mihai Razvan Ungureanu, who is known for his pro-American outlook and close ties with President Traian Basescu.

The change of government became necessary Monday, when Emil Boc, who had served as Romania's prime minister since 2008, suddenly resigned following weeks of widespread protests over the austerity measures and declining living standards.

The nation's ruling coalition hopes its popularity will be improved by Ungureanu and his new Cabinet before parliamentary elections later this year.

But that may not be easy.

Lawmakers voted 237-2 to approve Ungureanu and his Cabinet on Thursday, but the opposition boycotted the vote, and later said it would contest the new government at the Constitutional Court, citing flaws in the validation process of ministers.

The new government was swiftly sworn in before Basescu, who said the Cabinet, with many young ministers, sends a strong signal that it's time for the younger generation to change politics.

"I believe the time of your generation has come. The most important thing for Romania is that you, the young ones, succeed," Basescu said.

Basescu said he expects more transparency and reforms from the new government. He also praised Boc's former one, saying its hard work and unpopular measures have stabilized Romania's economy.

After his government was approved, Ungureanu, 43, said: "I am serious, hardworking. I go to work at six in the morning and leave when the work is done." He called work "the most beautiful form of patriotism."

Ungureanu resigned as head of Romania's foreign intelligence service on Wednesday evening after he was appointed prime minister-designate.

"An era of prosperity will not begin tomorrow," Ungureanu cautioned, pledging to respect Romania's agreements with the International Monetary Fund, the European Union and the World Bank.

"I am not coming in these hard times with unrealistic promises," he said, but added that the government may consider "prudent salary increases" in the public sector, if the economic situation allows it. He said his programs will be based on "prudence and responsibility."

Romanians took to the streets last month amid widespread anger about cuts that Boc's government had instituted to get a euro20 billion ($26 billion) loan in 2009 from the IMF, the EU and the World Bank. The government needed the money to help pay salaries and pensions after its economy shrank more than 7 percent during the global credit crunch. The sales tax remains at 24 percent, one of the highest levels in the EU, and the government is still cutting public-sector jobs to reduce spending.

There is a widespread perception that the previous government did not care about the hardships that many Romanians face. Polls have shown the governing Democratic Liberal Party with about 20 percent support, compared with 50 percent for the opposition alliance of Social Democrats and Liberals.

Romania is expected to hold parliamentary elections in November.

Victor Ponta, leader of the Social Democracy Party, said that while a change of government is beneficial for Romania, citizens expect real change, not just new faces. He added that he has doubts about the competence of some of the ministers.

Ungureanu's Cabinet has seven ministers from the previous Cabinet, but new, younger ones for the key portfolios of economy, finance, interior ministry and agriculture. Critics have claimed that the newly appointed ministers, largely unknown to the public, may act as puppets of former ministers.

Some Romanians also are wary about Ungureanu because of his career as a spy chief in a country with seven intelligence services and no foreign enemies.

Thursday, February 9, 2012

Romanian Lawmakers to Vote on Cabinet as Premier Turns to Youth

Romanian lawmakers will vote on a new government as Premier-designate Mihai-Razvan Ungureanu looks to revive support for the coalition with an injection of youth after a public outcry over wage cuts and tax increases.

Lawmakers will convene at 11 a.m. in Bucharest to discuss the governing program and ministerial candidates backed by the ruling coalition, which holds a majority in parliament. The opposition plans to boycott a vote that will follow the debate.

Ungureanu, 43, has turned to a new generation of politicians to resuscitate the government’s fortunes after austerity measures mandated under a bailout loan sparked protests that turned violent last month. He nominated Bogdan Dragoi, 31, as finance minister and Lucian Bode, 38, to guide the economy as Europe’s debt crisis damps demand for the Balkan nation’s exports and limits credit flows.

“An easy and fast vote would provide some relief, but the market will remain cautious until it has confirmation, or not, that the new government remains committed” to the loan program,’’ saidGaelle Blanchard, a London-based economist at Societe Generale SA. “For now, uncertainty prevails and I’m afraid a certain level of uncertainty will remain until the parliamentary election.”
Leu Reaction

The Romanian leu, the seventh-worst performer among 25 emerging-market currencies tracked by Bloomberg so far this year, was little changed at 4.3542 per euro as of 10:49 a.m., after rising 0.1 percent yesterday to 4.3523 per euro. The leu had posted two days of losses following the resignation of the government on Feb. 6. The Bucharest Stock Exchange’s BET index rose 0.6 percent to 5,059.89.

“The new government will likely be approved by Parliament today” after the ruling Liberal Democrats “replaced all the ministers with low-profile young politicians in an attempt to gain support after falling in polls,” Erste Group Bank AG analysts wrote in a note to clients today. “The continuation of the IMF and EU agreement and an increase in the living standards of the population are key elements of the new government’s program.”

Europe’s debt crisis has roiled financial markets, sparked protests and taken a political toll as well. Former Premier Emil Boc, who resigned on Feb. 6, is among seven European Union leaders who have already given up power, while Slovakia will hold snap elections in March. Romanians are scheduled to cast ballots in a nationwide vote later this year.
Budget Cutting

Romania’s government has pledged to narrow the budget deficit to 1.9 percent of economic output this year from 4.35 percent in 2011 to meet the terms of the loan accord with theInternational Monetary Fund and the European Union.

The coalition is trying to regain voter support, after accusations of corruption and two years of tax increases and government spending cuts, including a 25 percent reduction in public-sector wages, under an IMF-led agreement. The austerity measures prompted the most-violent protests in a more than a decade, leaving 60 people injured.

The EU said yesterday that Romania needs to take “stronger action” to ensure transparency and revamp its judiciary, though “progress is visible.”
Bailout Loan

Romania relied on a 20 billion-euro ($27 billion) loan from the IMF and the EU from 2009 to 2011 to help it emerge from the deepest recession on record. The government secured another 5 billion-euro precautionary accord with the lenders to reassure investors it will keep fiscal discipline ahead of the elections. It doesn’t plan to draw on the money set aside.

The country’s economic growth will probably slow to as low as 1.5 percent this year, after output grew an estimated 2.5 percent in 2011, on declining exports to western Europe and weak domestic demand, according to IMF forecasts.

“Our top priority is to ensure economic growth through investments and European-fund absorption,” Dragoi said yesterday. “We’ll seek to attract 6 billion euros in European funds this year, which roughly means about 5 percent of GDP.”

If Ungureanu, a former foreign minister and head of the Foreign Intelligence Service, fails to get the backing of lawmakers, President Traian Basescu will nominate another candidate for the post of prime minister. A second failure to win support in 60 days may trigger early elections, according to the constitution.

Basescu nominated Ungureanu on Feb. 6 as a candidate for premier, hours after his political ally and Liberal Democrat leader Emil Boc said he was resigning “to ease political and social pressure.”

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

Wednesday, February 8, 2012

EU criticizes Bulgaria, Romania on reforms, sets back their hopes to join borderless zone

By Associated Press

BRUSSELS — The European Union criticized Romania and Bulgaria on Wednesday for being too slow to reform their judicial systems or to combat corruption and organized crime. The move casts doubt on the two Balkan nations joining the borderless Schengen zone anytime soon.

The Netherlands said despite some progress in the two nations, they needed to do more. The Dutch plan to reassess its position that keeps the two nations out of Schengen in July.

“It is a step forward but more needs to be done,” said Dutch Europe Minister Ben Knapen.

The European Commission said in two reports Wednesday that both countries are still lagging in expectations five years after they joined the 27-nation bloc EU.

The Netherlands has led opposition to the two Balkan nations joining Europe’s borderless free-travel zone, arguing that would open the 25-nation zone to an increase in organized crime and corruption. Finland has backed the Dutch position.

Within the Schengen zone there are no checks performed or papers required when people cross national borders.

The Commission said “developments in Bulgaria over recent months point to a need for stronger action” after the report chided the nation for insufficiently dealing with reforms in the judicial and investigative sectors. It also called for “convincing results” in the fight against corruption and organized crime.

“Further efforts are needed during the coming months in order to demonstrate convincing results,” the Commission said.

Romania was also criticized but its report highlighted some progress in the past months.

Knapen acknowledged some progress in Romania but insisted another report in July needed to show a similar willingness to work on the deficiencies before the Netherlands would change its position.

The free movement of people has been one of the EU’s most cherished achievements and it would be a tangible advantage for citizens of Romania and Bulgaria.

The borderless travel dispute has already turned bitter. After the Dutch announced their opposition, Romania began blocking all flower imports from the Netherlands, saying the paperwork was not in order and the plants might contain “dangerous bacteria.” The move was called the “tulip war.”

Romania has said the Dutch opposition stems from the growing prominence of the anti-immigration Freedom Party, which has agreed to support the country’s minority government in exchange for pledges on security and immigration.

PM designate unveils new Romanian government

By Radu Marinas

BUCHAREST, Feb 8 (Reuters) - Romania's prime minister designate Mihai Razvan Ungureanu named his cabinet on Wednesday, replacing all ruling party ministers in an attempt to make a clean break from his predecessor who quit after protests against his austerity measures.

Parliament is expected to back the 43-year-old head of Romania's foreign intelligence service, nominated by the president, on Thursday after he inherited a coalition of the centrist Democrat-Liberal Party (PDL) and smaller groups.

Emil Boc became the latest victim of popular fury across Europe against belt-tightening measures after nearly a month of occasionally violent protests against salary cuts and tax rises imposed under an International Monetary Fund-led aid deal.

The protests in the EU's second-poorest country where the average wage is less than 350 euros ($460) a month, just a quarter of France's legal minimum, have pushed PDL support below 20 percent. A parliamentary election is due by November.

"This is a government that deserves trust and is ready to prove that this is a change of political generation and of governing principles," Ungureanu said in a speech.

"This is a very young government. Among them are exceptional professionals."

Ungureanu proposed that all PDL ministers would be replaced with other members of the same party. He named Bogdan Dragoi, aged 31 but an experienced head of government debt policy, to be the new finance minister, confirming an earlier Reuters report.

President Traian Basescu, the power behind the throne and also a target of protesters, was a PDL stalwart until he had to quit the party to take office and hopes his old ally Ungureanu can revive the PDL's fortunes - even though he is also not a member.













UNCERTAINTY

Romanian financial markets have so far shrugged off the political uncertainty because all major parties have committed to work with the PM but if parliament rejects Ungureanu, Basescu would have to make a new proposal and the extended policy stalemate could trigger a sell off.

Ungureanu proposed that politicians from coalition partners, including justice minister and interim prime minister Catalin Predoiu, retained their jobs.

Lucian Bode, a former power company engineer and senior PDL member, would become economy minister also responsible for energy, replacing Ion Ariton, who failed to push through an ambitious privatisation plan agreed with the IMF.

"They are fresher, younger but not necessarily more competent," said independent political analyst Mircea Marian. "But of course with them, the IMF programme would definitely stay on track."

Ungureanu has not received a warm welcome from the public. Some protesters called for his resignation before he even takes office, expressing concern over his security background in a country once terrorised by the communist-era Securitate.

Basescu holds office until 2014 and cannot seek re-election because he has served the maximum two terms. He would prefer not to work with the leftist Liberal Social Union (USL) alliance, which has more than 50 percent backing in opinion polls.

Newspaper Jurnalul National ran a front page cartoon of Basescu in a leaking hot air balloon in PDL colours, throwing out Boc and other sacked ministers in a desperate survival bid.

Romanian Central Bank Raises 2012 Inflation Forecast to 3.2%

Feb. 7 (Bloomberg) -- Romania’s central bank raised its 2012 inflation forecast on possible food and energy-price increases in the second half of the year amid weakened demand sparked by Europe’s sovereign-debt crisis.

The bank sees consumer-price growth at 3.2 percent, still within its target range, compared with a November forecast of 3 percent, Governor Mugur Isarescu said in a news conference in Bucharest today. The inflation rate will probably drop to 3 percent in 2013.

“Weak domestic demand enables us to forecast that the inflation rate will remain well within the target band, but the very good harvest from last year will have a less favorable impact on inflation this year if it’s a normal agricultural year,” Isarescu said.

The Bucharest-based Banca Nationala a Romaniei cut its benchmark interest rate for a third meeting by a quarter-point to a record-low 5.5 percent on Feb. 2 to support an economic recovery amid the debt crisis and slowing inflation. Rate are being lowered “in small steps to keep from harming the equilibrium.”

Target Met

The bank met its inflation target for the first time in five years in 2011 with the rate falling to a record low of 3.14 percent in December. The target range for this year is the same as last year at between 2 percent and 4 percent.

Prime Minister Emil Boc resigned yesterday after public wage cuts and tax increases prompted countrywide and sometimes violent protests. President Traian Basescu nominated Mihai- Razvan Ungureanu to form a government and get approval from lawmakers.

Boc’s government negotiated new deregulation deadlines for household electricity prices until 2017 from the previous 2015 during a two-week program review by the International Monetary Fund and the European Union, which ended Feb. 5. The government had planned to start negotiating new deadlines for natural-gas price liberalization in April.

“At this stage, we see a reduced impact on the inflation rate stemming from administered price increases, but we might still see price changes when the government resumes talks in April,” Isarescu said.

Leu Weakens

The leu dropped 0.1 percent to 4.3483 per euro as of 12:48 p.m. in Bucharest. The Romanian currency has lost 0.5 percent against the euro so far this year, compared with gains of 7.2 percent for the Hungarian forint, 6.6 percent for Poland’s zloty and 2.2 percent for the Czech koruna in the same period.

The country secured a 5 billion-euro ($6.6 billion) precautionary accord from the IMF and the EU to reassure investors it will keep a fiscal discipline ahead of local and general elections this year. It doesn’t plan to draw on the money set aside by the lenders.

The ruling coalition pledged to lower the budget deficit to 1.9 percent of gross domestic product this year from 4.4 percent in 2011 to avoid possible financing problems stemming from market turmoil.

The international lenders lowered Romania’s economic-growth forecast for this year to between 1.5 percent and 2 percent from a previous outlook of between 1.8 percent and 2.3 percent on slowing exports to western Europe, the country’s major trading partner.

--Editors: James M. Gomez, Alan Crosby

ROKEPOLA@US

To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

Tuesday, February 7, 2012

Romanian Central Bank Raises 2012 Inflation Forecast to 3.2%

Romania’s central bank raised its 2012 inflation forecast and pledged to act against currency volatility stemming from the resignation of the government.

The bank sees consumer-price growth at 3.2 percent, still within its target range, compared with a November forecast of 3 percent, Governor Mugur Isarescu said in a news conference in Bucharest today. The inflation rate will drop to 3 percent in 2013, he said.

“Weak domestic demand enables us to forecast that the inflation rate will remain well within the target band, but the very good harvest from last year will have a less favorable impact on inflation this year if it’s a normal agricultural year,” Isarescu said.

The Bucharest-based Banca Nationala a Romaniei cut its benchmark interest rate for a third meeting by a quarter-point to a record-low 5.5 percent on Feb. 2 to support an economic recovery amid Europe’s debt crisis and slowing inflation. Rates are being lowered “in small steps to keep from harming the equilibrium.”
Target Met

The leu dropped 0.1 percent to 4.3490 per euro as of 1:44 p.m. in Bucharest. The Romanian currency has lost 0.5 percent against the euro so far this year, compared with gains of 7.2 percent for the Hungarian forint, 6.6 percent for Poland’s zloty and 2.2 percent for the Czech koruna in the same period.

The bank met its inflation target for the first time in five years in 2011 with the rate falling to a record low of 3.14 percent in December. The target range for this year is the same as last year at between 2 percent and 4 percent.

Prime Minister Emil Boc resigned yesterday, one day after an International Monetary Fund mission ended a review of the country’s bailout loan program, following public wage cuts and tax increases prompted countrywide and sometimes violent protests. President Traian Basescu nominated Mihai-Razvan Ungureanu to form a government and get approval from lawmakers.

“Any major political change is a stress factor for the markets and these factors must be managed,” Isarescu said. “We don’t see now visible elements of stress in the markets.”

Asked whether the central bank will take measures to prevent volatility, Isarescu answered “of course.”
Deregulation Deadlines

Boc’s government negotiated new deregulation deadlines for household electricity prices until 2017 from the previous 2015 during a two-week program review by the IMF and the European Union, which ended Feb. 5. The government had planned to start negotiating new deadlines for natural-gas price liberalization in April.

“At this stage, we see a reduced impact on the inflation rate stemming from administered price increases, but we might still see price changes when the government resumes talks in April,” Isarescu said.

The central bank can’t reduce minimum reserve requirements on foreign-exchange and leu deposits as “some banks have excessive liquidity,” Isarescu said. The bank left the requirements unchanged at 20 percent for foreign-exchange deposits and 15 percent for leu deposits.

The country secured a 5 billion-euro ($6.6 billion) precautionary accord from the IMF and the EU to reassure investors it will keep a fiscal discipline ahead of local and general elections this year. It doesn’t plan to draw on the money set aside by the lenders.

The ruling coalition pledged to lower the budget deficit to 1.9 percent of gross domestic product this year from 4.4 percent in 2011 to avoid possible financing issues stemming from market turmoil.

The international lenders lowered Romania’s economic-growth forecast for this year to between 1.5 percent and 2 percent from a previous outlook of between 1.8 percent and 2.3 percent on slowing exports to western Europe, the country’s major trading partner.

To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

Romanian Premier-Designate Seeks to Form Cabinet in 10 Days

Feb. 7 (Bloomberg) -- Romanian Premier-designate Mihai- Razvan Ungureanu began talks on forming a Cabinet to rebuild the ruling coalition’s support after violent protests over government austerity measures mandated under a bailout loan.

Ungureanu, nominated by President Traian Basescu late yesterday after Emil Boc resigned, met with leaders of the coalition today at 9 a.m. in Bucharest. He has 10 days to create a government, which then must be approved in a confidence vote within 60 days. Lawmakers may approve the new Cabinet as soon as Feb. 9, newswire Mediafax quoted Boc as saying today.

Support for the coalition headed by Boc fell by more than half after a 25 percent public-sector wage reduction and a value-added tax increase prompted the most violent protests in more than a decade last month. The government wants to narrow the budget deficit to 1.9 percent of economic output this year from 4.35 percent in 2011 to meet pledges under a loan accord with International Monetary Fund and the European Union.

“The political and election noise arrived earlier than expected and raises short-term uncertainty for investors which should be arguably reflected in marginally wider Romanian credit spreads,” Demetrios Efstathiou, the chief of central and eastern European strategy at Royal Bank of Scotland Plc, said in a note to clients today.

Leu Recovers

The leu snapped two day gains yesterday and was little changed at 4.3465 per euro at 10:30 a.m. in Bucharest. The benchmark BET index of shares, which fell as much as 2.7 percent yesterday following Boc’s resignation, gained 0.5 percent to 4,945,86 points at 10:30 a.m. Romania’s euro-denominated bonds maturing in 2018 declined, lifting the yield 16 basis points to 6.38 percent.

“We see no reason to sell Romanian bonds or sell the leu at this stage,” Efstathiou said. “We think that Romania bonds trade fair compared to their regional peers, but a small premium can be added to due to political noise.”

Europe’s debt crisis has roiled financial markets, sparked protests and taken its toll on political leaders. Boc is among seven EU leaders who have given up power, while Slovakia will hold snap elections in March.

Public Outrage

With the next regularly scheduled vote to take place this year, people took to the streets across the country to protest against an austerity budget, the level of living standards and corruption. The protests turned violent on Jan. 14 and Jan. 15, injuring 60 people.

Boc’s resignation “should be seen more as a sign of desperation, given the strong pressure on the government to cede to protests over the last few weeks, versus the stark position of the EU and IMF on issues such as public sector wages and pensions,” Simon Quijano-Evans, a London-based economist at ING Groep NV, wrote in a research report yesterday.

Ungureanu, 43, may name Bogdan Dragoi as finance minister and Andreea Paul-Vass as economy minister, Mediafax reported today, citing unidentified politicians close to the talks. Dragoi is currently deputy finance minister in charge of the Treasury, while Paul-Vass was an economic adviser to Boc.

The IMF, which together with the EU granted Romania a 5 billion-euro ($6.6 billion) precautionary loan, expects the country to honor its terms and any new government must keep the fiscal terms laid out in the agreement after Boc’s resignation, Jeffrey Franks, a mission chief for the Washington-based lender, said yesterday in an interview in Bucharest.

‘Remain Committed’

“The new government must remain committed to Romania’s agreement with the international lenders and continue the fight against corruption,” Basescu said after announcing his choice to lead a new Cabinet.

To win a confidence vote in Parliament, Ungureanu needs the backing of the current ruling governing coalition of the Liberal Democrats, the ethnic Hungarians, the independents’ party and the minorities. The opposition alliance of Social Democrats and Liberals are demanding early elections and won’t support Ungureanu, Liberal leader Crin Antonescu said.

If Ungureanu, a former foreign minister under a Liberal government from 2004 until 2007, fails to get the backing of lawmakers, the president will nominate another candidate. A second failure to win support may trigger early elections, according to the constitution.

--Editors: Alan Crosby, Balazs Penz

To contact the reporters on this story: Irina Savu in Bucharest at isavu@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

Monday, February 6, 2012

Financial Times: A Romanian national fund unlike any other

By Phil Davis

Fondul Proprietatea is a national fund unlike any other. It was set up in December 2005 to compensate people whose assets were confiscated under Romania’s Communist regime and has no equivalent elsewhere in eastern Europe.

Moreover, investment management has been outsourced to a single fund manager, Franklin Templeton, which manages about €3.3bn of Romanian state assets.

Strangest of all, perhaps, the closed ended fund has become an aggressively activist fund and is currently suing the government that created it.

All in all, not your average investment fund.

And yet foreigners are starting to buy into it. Since its listing in January last year to allow restituant claimants to sell their shares, at least three institutional investors have taken the plunge, including Elliott Associates, the US activist hedge fund that has made its name suing emerging market governments around the world and is not known for throwing its money away.

So why the interest?

First, there is the allure of Franklin Templeton’s Mark Mobius, a legendary emerging markets investor who has spent the past 25 years travelling the globe unearthing investment opportunities.

Then it is a play on the energy sector, with most of the 75 companies in the fund connected to energy in some way. This is attractive to institutional investors seeking new ways to increase their allocation to commodities in the expectation that prices will rise over the long term.

In addition, the fund has become more transparent and liquid after its listing on the Bucharest stock exchange. Perhaps most significantly, its shares languish at a 60 per cent discount to net asset value, attracting deep value investors.

Nevertheless, investing is still a leap of faith. It is a play on the Romanian economy, on the willingness of the Romanian political elite to enact reform and on whether Franklin Templeton can guide the state-run companies to higher levels of corporate governance.

The signs are that progress is being made: the daily demonstrations that scar Bucharest are an indication that change is real and sizeable.

In truth, there was little option for the government but to act. In the lead-up to Romania’s accession to the European Union in 2007, it overspent wildly, raising pensions and benefits, while awarding public sector workers 25 per cent pay rises three years in a row. The International Monetary Fund was forced to intervene in 2009 with a €13bn credit line and strict financial targets.

A series of cutbacks – including a 25 per cent reduction in public sector wages – has combined with reforms of the budget process and governance to produce startling results.

GDP, which plunged by 6.6 per cent in 2009, was up 4.4 per cent in the third quarter of 2011. The budget deficit is expected to fall from 7.3 per cent in 2009 to 1.9 per cent this year and inflation has stabilised at 3 per cent.

Tonny Lybek, the IMF representative in Romania, says: “The ship has been turned round. The key now is to accelerate growth with greater use of EU structural and cohesion funds.”

But the IMF is not the sole agent of reform. With meaningful minority stakes in many of Romania’s state-controlled enterprises, the fund has been able to exert pressure on boards to focus on growth and profitability and eliminate waste.

One measure involved vetoing an R&D project led by Romgaz, the country’s largest gas supplier, to recycle carbon dioxide emissions. “The project would cost €1bn and would have been NPV [net present value] negative for the three companies involved,” says Adrian Cighi, a Franklin Templeton analyst. “We voted against it.”

Boards that pursue pet projects or other strategies that destroy shareholder value may think twice in future. Fondul Proprietatea has shocked Romania’s corporate elite by suing individual directors who vote for value-impairing measures. Grzegorz Konieczny, FP’s manager, says: “We introduced the idea of personal responsibility. It sends a message that we are watching companies, boards and individual directors.”

Little by little, corruption, cronyism and inefficiency are being squeezed out of state-owned businesses.

Petrom, the oil and gas conglomerate that is Romania’s largest company, is a poster child for change. Since OMV, the Austrian energy company, acquired a 51 per cent interest in 2004, Petrom has exited non-core and lossmaking businesses, trimmed its labour force from 60,000 to 22,000, created a supervisory board of independent directors and completely overhauled its corporate governance.

“We don’t just follow the new stock exchange rules covering independent directors and so on,” says Mariana Gheorghe, Petrom’s chief executive, “we have instilled business ethics into the fibre of our organisation and generated a whole change in mentality.”

The hope is that Romanian companies will become more efficient and profitable and that many will eventually list on the stock exchange, creating value for shareholders including Fondul Proprietatea. A number of listings would provide transparency to the fund’s unlisted portfolio and undoubtedly narrow the discount of share price to NAV.

But the huge discount to NAV also reflects investors’ concerns about the exposure of the fund to political tinkering. Under pressure from the IMF to reduce its deficit, the Romanian government last year accepted a €100m “donation” from Romgaz.

Fondul Proprietatea was furious. Not only did the move reduce the value of one of its key portfolio companies, it sent a terrible message about governance in the country.

“It was not a huge financial hit to the fund, but it set a bad precedent that could have scared off foreign investors,” says Mr Mobius.

The fund is suing the government to retrieve the Romgaz assets.

However, Mr Mobius thinks the opprobrium heaped on the government over the Romgaz “donation” makes it unlikely it will repeat the trick again.

And the veteran investor insists that Romania compares favourably with other emerging markets.

“Romania is developing much as other eastern European countries have done,” he says. “But I have a feeling it will leapfrog many of those countries in coming years.”
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Romania PM Emil Boc resigns after austerity protests

BBC News

Romania's Prime Minister Emil Boc has stepped down to "defuse political and social tension" after a series of protests against austerity measures.

Speaking after a cabinet meeting, he said he had given up the government's mandate as "it is the moment for important political decisions".

Although Romania's economy grew last year, the government has been hit by three weeks of demonstrations.

Mr Boc has imposed a 25% cut in public sector wages and a freeze on pensions.

Sales tax was also increased to 24%, in a country seen as Europe's second poorest.

Romania said it needed to implement the measures to qualify for the next instalment of a 20bn-euro ($25bn; £17bn) bailout loan from the International Monetary Fund (IMF).'Technocrat government'

In a statement, Mr Boc, 45, said that in a time of crisis, his centrist government had not taken part in a popularity contest but had acted to save the country.

"I know that I made difficult decisions, but the fruits have begun to appear," he said.

Elections in Romania are scheduled to take place in November and there is speculation that President Traian Basescu may seek to appoint a technocrat-led government until the vote.

Protests broke out last month, initially against the resignation of popular junior health minister Raed Arafat, but soon became an expression of discontent against austerity and corruption.

The left-wing opposition USL alliance, headed by Victor Ponta, is currently leading the opinion polls. Mr Ponta suggested last week that Romania should either have early elections similar to Spain, or temporarily install a technocrat administration, like Italy.

Reports Of 'Pirates Of The Danube' Get The Old Heave-Ho

by Eugen Tomiuc

Pulled by a tugboat puffing plumes of smoke, a convoy of barges moves slowly on the Danube, somewhere in southeastern Romania.

Although it’s winter, there’s been little snow or rain and the water level is low. The tugboat stops, unhooks the barges, then begins pulling them in pairs across a stretch of the river that is particularly shallow.

Several barges, filled with ore or coal, wait for hours for their turn. Some pull by the bank, guarded only by a couple of crew members.

This is a scene repeated daily on the Romanian sector of the lower Danube and involves ships from various nations, as the Danube is one of Europe’s main transport routes.

It was a Ukrainian barge convoy that performed this drill on January 4. What happened next is still under investigation by Romanian authorities.

The Ukrainian owner of the convoy, the Danube Shipping Company, said one of its barges -- UDP-1724 -- isolated by the rest of the convoy while waiting to be tugged, was robbed after being boarded by a group of knife-wielding men.

The company said the attackers stole money, fuel, alcohol, and cigarettes and threatened to throw the skipper overboard. No crew members were harmed.

The company filed a complaint with the Romanian River Police, saying it had been the victim of a “pirate attack,” leading the Ukrainian Foreign Ministry to summon Romania’s ambassador in Kyiv.

'They Are Criminals'

Speaking to RFE/RL, Ukrainian Foreign Ministry spokesman Oleksandr Dikusarov stopped short of calling the incident an act of piracy.

"We confirm these facts, these events, that occurred on January 4. We don’t say that they are pirates," Dikusarov said. "They are criminals who attack ships, including Ukrainian ones. ... Firstly, we told our embassy in Bucharest to contact Romanian authorities and get an explanation for the incident involving the Ukrainian ship on the Danube. We were assured that the investigation is ongoing. We are waiting for a reply."

​​A Romanian Foreign Ministry spokeswoman, Doris Mircea, said that an official Ukrainian complaint was handed to the embassy in Kyiv on January 26 and that an investigation was started.

"The request has been forwarded to Romania's Interior Ministry, which is the institution in charge of investigating such complaints," Mircea said. "The Romanian Embassy in Kyiv has informed the Ukrainian foreign minister about the ongoing investigation into an alleged attack on a Ukrainian transport barge in the Romanian sector of the Danube."

Mircea said it was the first time an official complaint about such an incident had been filed. The Interior Ministry in Bucharest said in an e-mail to RFE/RL that there is no record of previous similar incidents, despite reports in the Bulgarian and Ukrainian media about Romanian “pirates” robbing passing transport ships.

Small-Time Contraband

So, do Danube pirates actually exist?

If by this one means something akin to Somali pirates, armed to the teeth and demanding millions of dollars in ransom, then no, they don’t.

Media reports say the crews on transport ships often steal and sell their own cargo and then blame the plundering on “pirates.”

An official close to the investigation into the alleged attack on the Ukrainian barge told RFE/RL on condition of anonymity that it is not piracy but small-time contraband that is taking place along the river.

Impoverished fishermen from Romanian villages along the Danube sometimes climb aboard passing barges to buy or exchange goods.

Contraband scrap metal has become one of the most-prized commodities. They buy it cheaply from sailors and then sell it on the Romanian market for a handsome profit. Sailors, in turn, pocket the money made from stealing from their own cargo.

Such exchanges are often sealed over shots of vodka or homemade moonshine, or samagon, as it is called by the ethnic Russian fishermen who populate Romanian villages along the Danube.

Sometimes tempers flare and violence ensues.

Most likely, the official said, this is what happened on January 4. The Ukrainian barge, while waiting for the tugboat to pull it across the shallow portion of the river, may have stopped in a place that wasn’t under the supervision of Romanian police, in order to “do a little business” with the fishermen – known as lipovans – waiting on the bank.

Fishermen, of course, almost always carry knives, which are vital tools of their trade.

Whatever deal they struck probably soured along the way and the ensuing argument descended into violence. The exact details, however, are still being probed, the official said.

The official added that due to personnel cuts, an average of three policemen cover 50-kilometer stretches of the Danube, increasing the opportunities for theft. To address the problem, the official said ships waiting to be tugged should dock only at river spots supervised by Romanian authorities. That would result in less profit, but more safety, for the crews.

RFE/RL’s Ukrainian Service contributed to this reportRadio Free Europe/Radio Liberty © 2012 RFE/RL, Inc. All Rights Reserved.

IMF official in Romania criticized for attending a party denies any wrongdoing

By Associated Press, 
Published: February 5

BUCHAREST, Romania — The head of the International Monetary Fund’s mission in Romania on Sunday criticized politicians and media for accusing him of misconduct for having attended a party held by government officials at a time of harsh austerity measures.

A video of the party that Jeffrey Franks attended last week at a restaurant in a Romanian mountain resort has been shown by TV stations nationwide.

On Sunday, the American held a news conference in Bucharest to discuss Romania’s economic problems and the austerity measures it has imposed to receive an IMF-led loan.

When asked about critics who have said Franks should not have attended the party, which included drinking and dancing, Franks denied misconduct.

Franks said he was invited “to a lunch that was sponsored by the Ministry of Finance and the National Bank of Romania, which included traditional Romanian food and music in a well-known restaurant.

“I’m afraid to say ... I think that they picked the wrong person to accuse of misconduct here,” he said. I’m a deeply religious person. I’m a Mormon. In my religion, we don’t drink alcohol, we don’t smoke ... and we don’t engage in any behavior that calls into question our moral character. My conscience is clear.”

But opposition politicians and journalists have said that Franks should not have been seen socializing and enjoying himself with government officials, especially because the IMF conditioned its 2009 loan on austerity measures which led to a wave of recent street protests in January.

In May, Franks hit the headlines after he was seen wearing shoes with a hole to visit President Traian Basescu, eclipsing his remarks about more serious issues of public spending, layoffs or inflation in Romania.

At Sunday’s news conference, Franks urged the government to continue reforms, especially in the health and energy sectors, adding however, that he understood Romanians are unhappy with austerity cuts. Recent protests all around Romania were against higher taxes and slashed wages in the public sector.

Franks said that Romania and the IMF had reached an agreement to unlock about €505 million ($664 million) in funds from its standby loan. In 2009, Romania signed up for a €20 billion ($26 billion) loan with the IMF, European Union and World Bank to help pay salaries and pensions as the economy shrank by more than 7 percent.

Franks said the IMF had lowered its economic growth forecast for Romania this year to between 1.5 percent to 2 percent from a previous outlook of between 1.8 percent and 2.3 percent because of a drop in exports to Western Europe, the country’s major trading partner. The economy grew by 2.5 percent in 2011, partly because of a bumper harvest.

IMF, EU trim Romania's growth forecast

(AFP)

BUCHAREST — The International Monetary Fund (IMF) and the European Union on Sunday said they had trimmed Romania's 2012 growth forecast to 1.5-2.0 percent, due to international economic turbulence.

"For 2012 we have slightly revised down our forecast in light of the more difficult economic environment in the euro area," the IMF's representative Jeffrey Franks told reporters in Bucharest.

"We now project growth of 1.5 to about 2.0 percent, depending on improved domestic demand and better absorption of EU structural funds."

An earlier forecast put growth between 1.8 and 2.3 percent.

Despite the adjustment, Romania's economy will still perform better than the EU, he stressed.

The IMF and the EU expect 2011 growth to stand at 2.5 percent, higher than anticipated, thanks to strong exports and bumper harvest.

Official figures are to be released by the statistics institute on February 15.

Franks said the austerity measures adopted by Romania under a 20-billion-euro bailout plan concluded with the IMF and the EU in 2009 had started bearing fruit.

The plan led to a 25-percent cut in public wages and a pension freeze.

Romania last year concluded a second, precautionary-type agreement with the IMF and th EU on a credit line of five billion euros to be drawn only in case of emergency.

"Romania is better prepared than other EU countries to cope with the economic crisis," Franks stressed.

But he called on authorities to continue prudent fiscal policies.

"With the upcoming elections and the economic growth slowdown, it is essential to stay the course of reforms."

The IMF and the EU representatives insisted on a gradual deregulation of the electricity and gas sectors, stressing this was essential to ensure proper market functioning and trigger urgently needed investment.

They also called on the government not to abandon plans to reform health care, after a controversial bill was withdrawn last month.

"Comprehensive reform is needed to put the health sector on a sustainable footing and improve its efficiency," they said.

Romania, IMF Agree on $664 Million Tranche as Balkan Nation’s Growth Slows

Romania and the International Monetary Fund reached a staff-level agreement to unlock about 505 million euros ($664 million) in funds from its standby loan, IMF Mission Chief Jeffrey Franks said.

The eastern European country met the terms of its 5 billion-euro accord by narrowing its budget deficit to 4.35 percent of gross domestic product last year from 6.5 percent in 2010, Franks said at the end of a two-week visit to the capital Bucharest to conduct the fourth review of Romania’s accord.

“The Romanian government must continue reforms, considering the upcoming elections and higher uncertainties in the euro zone,” Franks said. “It will be crucial for Romania to keep a good track record and attract more investments.”

Romania turned last year to the IMF and the European Union for a second agreement from which it doesn’t want to draw funds, after completing a two-year 20 billion-euro bailout needed to prevent a collapse. The government pledged to narrow its budget to 1.9 percent of GDP this year from 4.35 percent in 2011 to keep its international backstop.

The Washington-based fund lowered its economic growth forecast for Romania this year to between 1.5 percent to 2 percent from a previous outlook of between 1.8 percent and 2.3 percent on slowing exports to western Europe, the country’s major trading partner, amid the sovereign-debt crisis, Franks said.

Market Rewards

“Despite a deterioration of our growth forecast, we don’t see now any problem in meeting thebudget deficit target, ” European Commission Mission Chief Istvan Szekely said. “Markets are rewarding Romania for the progress made as shown in the sale of dollar bonds last week.”

The country sold $1.5 billion in 10-year bonds at a 6.875 yield, in its first debt offering denominated in dollars under a medium-term notes program of 7 billion euros until 2013.

Romania, which exited a two-year recession in 2011, saw economic growth accelerating to the fastest in three years in the third quarter, sparked by a bumper harvest and a recovery in domestic consumption. The country suffered its worst contraction on record from 2009 until 2011, when its GDP probably grew 2.5 percent.

The lenders agreed to a government plan to delay the liberalization of electricity prices for households until 2017 and maintained the deregulation deadline for the prices paid by corporates of 2013, Franks said.

Frank also said the IMF and Romania will discuss possible spending increases later this year.
Health-Care Warning

“Further discussions are needed in April for the schedule to liberalize natural gas prices,” he said.

The IMF warned Romania about implementing a new health-care law aimed at securing long-term financing for the current underfunded system, Franks said. The country must also make more efforts to reduce the unpaid overdue debts of local authorities to private companies, Franks also said.

The Washington based lender urged the government to speed- up state-owned companies reforms by selling minority and majority stakes and naming independent managers for the companies.

The government plans to sell 15 percent stakes in Transelectrica SA (TEL), Transgaz SA and Romgaz SA and 10 percent stakes in Hidroelectrica SA and Nuclearelectrica SA. It will also seek to sell a majority stake in Oltchim SA and Cupru Min SA.

To contact the reporters on this story: Irina Savu in Bucharest at isavu@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net