Economy out of the woods, still room for worries

IMF and World Bank representatives told a seminar in Bucharest the next priorities of Romania should include privatisations, the return of the Romanians working abroad, complete liberalisation of energy
market, more foreign investments, infrastructure upgrade, private capital and European funds.

The economy’s annual growth potential stands at 3 per cent on the medium term in the IMF’s view, but in order to become sustainable Romania has to hike its production by reintegrating into its labour market the Romanians working abroad, Jeffrey Franks, head of the IMF mission in Romania, stated yesterday at the “Symposium on Economic Recovery and Growth in Romania, the Way Forward”. The event was organized by the World Bank. The IMF official estimates that the GDP will grow by 3.5 – 4 per cent next year and by approximately 4 per cent in 2013.

The centre piece of the whole symposium was the fact that Romania has come out of the critical state it was in. But there is plenty of room for skepticism. “Today the situation is stable. Romania has come out of the state of fever it found itself in for a long time. But I think we shouldn’t hurry. The fact that the patient no longer has fever doesn’t mean he is completely cured,” Steven van Groningen, CEO Raiffeisen Bank, stated in his turn. Likewise, Peter Harrold, World Bank Country Director, Central and Eastern Europe, pointed out that the country is now back on track for economic growth, the key question being “how can we restore the economic balance that can stimulate medium-term development?” He backed the idea of holding detailed talks with the authorities on the priorities the government should have.

The first element that Jeffrey Franks underlined was that sustainable medium-term growth can be achieved only by maintaining macroeconomic stability. The second element in a list of priorities mentioned by the IMF official was ensuring economic growth by attracting investments and labour force and by improving technology. “Many Romanians are not active on the Romanian labour market, many young people. You have to bring them back,” he added. Another essential component needed in order to achieve economic growth is the improvement of infrastructure, namely of roads, railways, the electricity network and the sewerage system.

Franks added that tapping European funds, attracting investors, education and training remain crucial for raising capital, the latter being an essential component of GDP. The aforementioned elements were also underlined by Peter Harrold and Steven van Groningen.

Another important elements are energy and transport sectors, said Joost Kuhlmann, European Commission – Mission Chief. “Unfortunately, the lack of good quality of transport infrastucure is one of the bottlenecks to growth in Romania. The destiny of the national roads is relatively low and there are only 211 km motorways” he also mentioned.
Kuhlmann underligned that there are huge investments needs that cannot be covered by the government alone. Private capital and know how have to be brought in and the opportunities offered by available EU structural funds should be seized. Without this there will remain a drag on future economic growth in Romania.

Private management for large state-owned companies

The 30-40 largest state-owned companies will have private management and the government will hire an independent and internationally-known human resources company to ensure a better selection of personnel, Jeffrey Franks, the head of the IMF mission in Romania, stated for Mediafax at the end of the symposium. He pointed out that although the IMF is monitoring 154 state-owned companies as per the current agreement, it would not make sense to introduce private management to all of them because doing that would result in far too high costs for them. In what concerns the new management of the largest companies, it could consist of either Romanian or foreign citizens, or of a mix between the two, their goal being to find the best solutions in order to maximize profit.

After negotiations with the IMF over the signing of a new agreement, the list of monitored companies was expanded to include nine other companies: the Romanian Post Office, Tarom, the Turceni Energy Centre, ‘Electrica Serv’ Energy Maintenance and Services Branch, Electrica Supply Transilvania Nord, Oltchim, ‘Oltenia’ National Coal Company, Railway Intervention and Telecommunications CFR. The following companies remained on the list: CFR National Railways Company, CFR Passengers, the National Roads and Highways Company, the National Mineral Coal Company, Termoelectrica, Metrorex, CFR Freight, Electrocentrale Bucharest and CFR Electrification Company. The National Land Improvement Administration (ANIF) was removed from that list.

Transparent energy price draws investments in energy sector

The price of natural gas for corporate consumers will rise after the government took the commitment to come up with a new price formula by early June, a formula that would better reflect the developments at international level, Jeffrey Franks stated for Mediafax. On the other hand, Romania should liberalize the energy market because only transparent prices will attract new foreign investments in this sector, Michael Schwarzinger, Austrian Ambassador to Bucharest, stated on Tuesday while attending the Bucharest Stock Market’s opening bell.  On the other hand, the natural gas distributors’ and suppliers’ demand to have regulated tariffs hiked is justified by the hike in the price of imported natural gas and by the use of stored natural gas for a series of industrial consumers, a Romanian Energy Regulatory Authority (ANRE) document shows.

MFP to contract two loans from foreign markets in 2011

Bogdan Dragoi, secretary of state within the Public Finances Ministry (MFP), stated that the Ministry plans to tap foreign markets in the second half of 2011 too. “We started a medium-term programme at the end of 2010. This way we can have better access to foreign markets. We will issue state bonds in the first half of the year and we will definitely do that again,” he said. The MFP official added that the strategy for managing the medium-term debt in 2011-2013 consists of maintaining the debt within sustainable limits and of having a balance between the internal market and the foreign market. “The first two agreements with the IMF gave us this umbrella of credibility and that was reflected in the dropping prices. This year we will issue bonds with a 10-year maturity,” Dragoi added. “It’s interesting for the market; the pension funds and the insurance companies that can reach a longer maturity period of up to 15 years are potential beneficiaries. All of that shows credibility,” he underlined. On the other hand, Dragoi pointed out that in order to lower the financing cost one needs, apart from a continued improvement of one’s credibility, the construction of a secondary market.

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