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Romania firmly on its way towards EU accession

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Sebastian Vladescu, Romania’s Minister of Public Finance.

Kurt Geiger, EBRD Business Group Director for Financial Institutions.

Cristian Popa, Vice-Governor of the National Bank of Romania.

Yoram Israeli, Chief Financial Officer of Tnuva Romania.

Thomas Leissing, Chief Financial Officer of Egger Holzwerkstoffe Gmbh.

Hildegard Gacek, Romanian Banking Team Director at the EBRD.

In light of the European Commission’s conditional ‘yes’ to Romania’s and Bulgaria’s entry into the EU in January 2007, Romania’s country presentation at the EBRD’s Annual Meeting on Sunday afternoon was sure to attract a big crowd. Panellists and participants eagerly anticipated a statement by Sebastian Vladescu, Romania’s Minister of Public Finance, on his view of Romania’s chances for a scheduled entry into the EU.

Accession not in doubt

Cutting right to the point, panel moderator and EBRD Business Group Director for Financial Institutions, Kurt Geiger, challenged Mr Vladescu on his opinions about the latest Commission report. Mr Vladescu readily acknowledged that “there are a lot of emotions around” but that he was personally not so emotional about the report. “From my point of view Romania already is an EU member state and acts like a member state.”

Mr Vladescu added that he was personally involved in the negotiations on the Commission’s 2007 budget, which was being designed with 27 member states in mind. He expects the government will need another six to seven months to resolve all outstanding issues and emphasised that EU accession in January 2007 was the only plan that existed in Romania at the moment.

Prudence necessary for sustainable growth

Cristian Popa, Vice-Governor of the National Bank of Romania and EBRD Temporary Alternate Director, continued by providing a brief overview of current economic trends in Romania. He stated that after an inflation rate of 8.6 per cent last year, inflation is expected to be back on target by the end of 2007 at 4.0 per cent. Mr Popa further expected last year’s growth rate of 4.1 per cent to pick up again this year and to reach about 5-6 per cent of GDP.

Tight monetary policy conditions were, however, necessary to curb excess demand, which was growing and more persistent than forecast. “If we can converge towards the Maastricht criteria, which are vital for accession to the euro zone, and bring inflation down to the required levels, it’s the single most important contribution we can make to Romania’s long-term stability. Promoting austerity and prudence when everybody wants to consume is not the best position to be in, but that’s what a central bank is there for,” Mr Popa commented.

Romania’s assets are its people

Business panellist Yoram Israeli, Chief Financial Officer of Tnuva Romania, a large Israeli food company investing in dairy products, maintained that while Romania was a country in transition it had a clear west European outlook. Moreover, fast-growing markets combined with an increase in consumer demand meant that Romania has huge investment potential.

More important though, Mr Israeli maintained, was the power of the Romanians themselves who believe they deserve more: “They are ready to be part of an investor’s dream, creating, maintaining and striving for high standards. It is a great feeling to be in Romania at the moment”.

Legal uncertainties remain

Thomas Leissing, Chief Financial Officer of Egger Holzwerkstoffe Gmbh, a chipboard producer, confirmed the positive observations made by other panellists, stating he felt he was in a country that was already an EU member. His only concern was the ongoing transition in the legal environment and especially the lack of co-operation between the people and politicians in interpreting and executing new laws, leading to a degree of uncertainty.

After such largely positive feedback Mr Vladescu was ready to hear some criticism and admitted to challenges in the legal arena, but added, “Don’t forget we had only 15 years to adapt to a market economy”. The new levels of FDI also highlight problems in the education system, as investors increasingly expect a highly-educated and well-trained workforce. This, Mr Vladescu asserted, creates a strong need for investments in the education sector.

“Some regions are underdeveloped”

A further challenge raised during the panel discussion was Romania’s poor local infrastructure. Mr Vladescu accepted the assertion that the local road system would not support the expected increase in traffic and that further investment was clearly needed. The minister said “We need to distribute our wealth to all Romanian citizens. This requires an improvement in the local infrastructure, as well as public institutions such as schools and hospitals.”

Mr Vladescu further pointed out that there is a huge market for infrastructure projects in the next 10-20 years. Major road, rail and airport projects were already planned, with the EBRD as an important partner.

Of equal importance, Mr Vladescu maintained, was to find the right people to manage these projects, otherwise they would never be completed.

Hildegard Gacek, Romanian Banking Team Director at the EBRD, proclaimed 2005 a record year for Bank business in the country with over €500 million invested mainly in the private sector and mirroring the great interest of investors from western Europe. Ms Gacek also observed an increase in interest from non-European investors, such as Israel and India who see Romania as a way to eventually enter the EU market. She stressed that the EBRD will remain committed to Romania after EU accession.

Written by EBRD Communications Intern Claire Vogt.

31 May 2006