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April - 2005

Economic News


IMF agrees to higher budget deficit

International Monetary Fund has agreed to a higher budget deficit for 2005, but recommends an increase in the flat tax from 16 per cent and also a higher level of VAT from the current 19 per cent. The IMF accepted a budget deficit of 0.7 percent of GDP for 2005. The international financial experts say that increasing the VAT by two to three percent would boost the state budget and help keep a low deficit, but this would come into conflict with levels agreed with the European Union.


Massive million-Euro banking fraud revealed

A 2,700 billion lei (74 million Euro) hole in the banking system has emerged between 2002 and 2003, according to an evaluation by National Prosecutor's Office (PNA), the central bank and managers of commercial banks. This was partway due to a consortium, made up of workers from banks and from more than 50 firms, who set up a fictitious operation to illegally obtain credits. These credits are alleged to have included 45 billion lei from Banca Romaneasca, 1,200 billion lei from BCR and 510 billion lei from Romanian International Bank.

UK Vodafone buys out Canada’s Connex share

British mobile phone giant Vodafone is buying out Romanian MobiFon (Connex) and Czech Oskar mobile companies from Canadian Telesystem International Wireless in what could ammount to a 4.4 billion USD deal. Vodafone will increase its stake in Connex from 20 to 99.1 per cent. The remaining 0.9 percent is owned by state minister for SMEs and PUR-member Gheorghe Copos, who is not currently selling. MobiFon's market value is estimated at 1.5 to 2.3 billion Euro


Now BCR could be up for sale before CEC

Signs from the Government reveal that they are looking to offload the largest Romanian bank, BCR, before national savings bank CEC in the biggest privatization yet to occur. President of the Authority for State Assets' Recovery (AVAS), Gabriel Zbircea, said there should be a four-month time delay between the sale of BCR and CEC to allow investors who lost the bid for one of the banks to compete for purchasing the other. He added that BCR's privatisation is one of the government's priorities, so this process will be accelerated. This means the bank could be sold first. Interested banks had, on the whole, preferred to look into buying CEC first and then, if they had failed in this purchase, to examine the BCR sale.


Fight against cartels begins

Four fifths of Romanian firms are violating the competition law, according to the Competition Council, the most serious of which are secret agreements between competitors to influence and control the market in cartels. “Romania has to fight against cartels, because in a country where anti-competition laws are imposed, investors will come,” said Ulf Boege, the president of Federation of Unions from Germany on a recent visit in Romania. Keen to show its effectiveness, Mircea Berinde, president of the Competition Council said the department was continuing to apply penalties for up to ten per cent of companies' turnover for such violations.

Firms with health debts targeted

The new leadership's crusade on debts gains pace as the privatisation authority (AVAS) freezes the banking accounts of up to 1,900 companies with health insurance debts to the state. Representing debits worth a combined 4,640 billion lei (122 million Euro), AVAS has submitted the order to 38 banks. “The bank presidents are only allowed to accept payments previously endorsed by the Bank Asset Resolution Authority, except for those on behalf of AVAS and legal privileges such as salaries,” AVAS officials said. Most of the sums are owed to the health centres in Caras Severin, Alba and Bucharest.


Trigranit in final talks for billion-Euro deal

Hungarian-Canadian firm Trigranit says it is in the final stages of signing an agreement for a private-partnership project for Bucharest city worth between 800,000 and one billion Euro. The Esplanade project, over 700,000 sqm between the derelict national library and the headquarters of Banca Tiriac, consists of a museum, concert hall, office space and what aims to be the tallest office building in Romania. British banking dynasty, the Rothschild family, is also a shareholder in the project.

CEC boss replaced by national bank man

After only eight months in the job, savings bank CEC president Enache Jiru will be out of a job, following the Ministry of Finance's proposal to Prime Minister Tariceanu. A counsellor in the national bank (BNR), Eugen Radulescu will be the replacement, who is set to oversee the bank's privatisation. CEC's administration council is also set to change, with some seats taken by state secretaries from the Ministry of Finance.

GE in nuclear electric revamp deal

Local electrical transport network administrator Transelectrica and global firm General Electric have signed a contract worth 9.6 million Euro to modernise the electric station of 400 kV at Cernavoda, set to start at the same time as Unit 2 of Cernavoda Nuclear Electric Plant. The financing will be supported by Transelectrica's own budget.


Wine exports fall as imports rise

Local wine exports have decreased by 8.6 per cent according to the National Master of Vineyards and Wines (PNVV), while last year wine imports increased by 54 per cent on the previous year. The Ministry of Agriculture has come under criticism for granting domestic wine producers only a 4,500 lei incentive for each bottle exported outside the EU. The PNVV has asked for a 15,771 lei grant, although such payments may come into conflict with existing EU competition laws.


Holland and IBRD grant for civil and business reform

Netherlands foreign ministry and International Bank of Reconstruction and Development have agreed on a two million Euro grant to support Romania's Second Programmatic Adjustment Loan. Activities financed by this grant will occur before the 2007 accession date in the areas of judicial, financial, political and democratic reform, including restructuring of state owned enterprises and capital market development.

Unsurprisingly, state rail firm faces bankruptcy

State rail firm CFR is close to bankruptcy owing to debts to the tune of thousands of billion in lei and an infrastructure in total disrepair. The transport company has 19,900 billion lei debts (554 million Euro) of which 10,000 billion lei (278 million Euro) is to the state budget. This slump is the main impediment to CFR workers' chances of an increase in salary.

Costlier Logan still a cheap alternative

Renault-Dacia's Logan is set to be sold at 7,500 Euro in Germany, around 2,000 Euro higher than its Romanian version, but still placing the vehicle in competition with second-hand cars on the market. Germany has asked the car to be fitted with ABS, air bag, electric windows and central locking systems. This year's Logan, with minor adjustments, has risen in price from 5,000 to 5,800 Euro in price. The car will be launched in France and Germany this June.

Norway to aid in Delta development

Nordic Investment Bank (NIB) will provide a 30 million Euro loan to the Government to help develop projects and improve the environment in the Danube Delta. This will be paid back over 20 years with a ten year grace period.

Healthcare and water supply receive loan boost

European Investment Bank has signed a 79 million Euro loan contract with the Government for health and the environment. 66.4 million Euro is earmarked for the national health sector in 42 Romanian counties including Bucharest, while 12.6 million Euro is to improve water supply services in small and medium-sized towns in 15 counties in a scheme co-financed by the World Bank and state budget.

Record car purchases see oil firm profits surge

Rompetrol has increased its profit to over seven million USD in the first two months of the year. This was reportedly due to the ROL strengthening compared to the USD and the record number of car sales registered by the automobile market in Romania in January and February.

Payments on plastic double

Payments on Visa cards last year in Romania increased by 95 per cent on 2003. Romanians spent over 164.4 million USD in 3.3 million Visa card transactions (a 130 per cent increase) during 2004. Usage of debit cards in shops rose by 155 per cent in the same period, up to almost three million transactions and 152.5 million USD in payments, with almost 12 million USD spent on credit cards. 15,727 shops now accept Visa and the number of holders at the end of last year in Romania is 2.8 million, an increase of almost a third on 2003.

New tax on interest payments

Individuals will receive a new ten per cent tax on gains derived from interest payments and equity transactions obtained after 1 April 2005, This tax, active from 1 January 2006, is in addition to the flat income tax of 16 per cent on all revenues.

Turkish firm picks up BCC contract job

Summa Romania is the general contractor of the new Bucharest Corporation Center, due to be completed by Christmas this year, Gabriel Grosu, business development assistant Summa told The Diplomat. The investment, by BCC SRL, is around seven million Euro. The building, on 58-60 Polizu Street, will have a total area of 18,300 sqm, covering 16 floors and three additional underground ones.