April 2004
National motorways are struggling to fit into European networks
Romanian exports could reach 20 bn USD this year
says BNR Governor Mugur Isarescu
In just two months, foreign investments worth USD 479 M
Year 2004 started off on the right foot, at least as far as foreign investments attracted by Romania are concerned. Thus, according to data made public by the National Trade Registry Office (ONRC) in the first two months of 2004 Romania attracted more foreign investments than in the same period of last year. ONRC statistics point that the beginning of the year, January and February, brought foreign investments worth 479.31 M USD to Romania. As for the level of foreign investments attracted in February, i.e. the value of social capital underwritten in companies with foreign capital, the level was 221.2 M USD. Data of the Trade Registry also reveal that in the first 2 months, a number of 1,239 trade companies with foreign capital were set up, of which 660 in February. Most of the trade companies running on foreign capital, i.e. 184, totaling 220,091 USD in capital, were set up by investors coming from Italy, followed by German investors - 80 new trade companies, totaling 3.4 M USD in capital, and Hungarian investors - 35 new companies with 309,331 USD total capital. In the top of residence countries of investors in trade companies running on foreign capital, first comes however South Korea, with only 5 new companies but totaling a share capital of 6.2 M USD. Also, according to the Trade Registry Office, in the February standings in terms of amount of share capital underwritten in both new companies and already existing ones (which increased equity capital), the first 40 trade companies with foreign contribution to share capital include: Automobile Dacia SA (French major investor), with a 134 M USD investment, followed by the Victoria SA Auto Salon (American investor) with 53 M USD, ISPAT Petrotub SA (the Netherlands Antilles investor) with 7.5 M USD, Nitramonia SA (USA) with 6.6 M USD and LG Electronics Romania (South Korea) with 6.2 M USD.
(source: Nine O’Clock)
National motorways are struggling to fit into European networks
The requirement of developing the road network, in order to render them compatible with European networks, is of high interest for Romania, which must close a wide gap with this respect.
The Ministry of Transport, through the National Company of Motorways, drafted a strategy of developing and expanding Romania's networks of motorways. The document provides for a number of topical elements:
+ACo- 225 kms of motorway are in construction this year+ADs-
+ACo- financing negotiations are under way for 550 kms of motorway+ADs-
+ACo- works will start this year for another 415 kms of the Brasov-Oradea motorway.
This proves concrete programs do exist and a series of projects are elaborated, while in the case of certain road segments there are certain prospects on securing the due financing.
In page 13, we are presenting interesting data about this struggle, provided by Mihai Basulescu, General director of the National Company of Motorways and National Roads of Romania.
Road transport - in the context of the integration into E.U.
The National Commission for the elaboration of the National Strategy for Romania's Sustainable Development - +ACI-Horizon 2025+ACI- has recently debated the development of the road infrastructure on a long term basis in the context of the integration of the country into the European Union.
The Ministry of Transport, through the intermediary of the National Highways and Roads Company has worked out, as early as 2001, a development and expansion strategy of the highways network in Romania.
National roads network integration into European networks
A powerful stress is laid, in the European context, on the development of the transport network and to conceive their long lasting building and organization it is necessary to take into account the principles necessary in this respect, at European level.
Romania has been included in the plans worked out at global level and that is why our country must fulfill the demands imposed in this respect. This event will bring advantages both at European and local level, taking into account the impact of the road infrastructure on the economic development of a country. To be able to integrate ourselves into the European Union, we must secure this direct physical relationship. The latter refers both to the need of Romania to have an infrastructure at European level and to the commitment of our country towards the European Union, considering the fact that the Romanian territory is crossed by two Pan-European transport corridors. Corridor IV crosses Romania from the east to the west and Corridor IX from the north to the south. Moreover, TEM and TEN networks are also extended on the territory of Romania.
Romania is not important only in the European context. Our country is a key link which secures the connection between continents. That is one more reason for us to have a road infrastructure implemented at the current standards and a strategy at national level, correlated with the international demands.
National highways building programme
Important European funds and E.U. companies and not only have been involved in the implementation of the most ambitious plan Romania has ever conceived so far: the highways construction. Today, we have only 100 km. of highways in our country. 225 km. of highways are being built this year. For 554 km, the negotiations are in different stages of development, either in terms of securing the financing or in a contract concluding process. To all these, we must also add the 415 km. of highway which will cross Transylvania and will connect Brasov and Bors.
Today, we can speak about the Bucharest-Cernavoda highway situated on the Pan-European transport Corridor IV. The length of the highway is of 151 km. and the works are financed by the European Investments Bank, the European Commission, being facilitated through ISPA intermediary, and by the Government of Romania. The estimated cost of this project is of 324,6 million euro.
The first 3 segments: Bucharest-Fundulea, Fundulea-Lehliu and Lehliu-Drajna, which are 97,3 km. long will be finalized in 2004. For segments 4 (Drajna-Fetesti) and 5 (Fetesti-Cernavoda,) which are 54,18 km. long, the contracts were already signed in December, last year and the building works will start before long. The highway will be finalized in 2006-2007. To finance the building of the 65 km. long Cernavoda-Constanta highway, negotiations are underway with the European Union. The by-pass variants of the towns of Sibiu and Pitesti are also situated on Corridor IV.
In Sibiu, the order to start the works was already launched in October, last year. The length of the by-pass variant is of 23,50 km., of which 16 km. have the character of a highway. The 57 million euro project will be financed through ISPA intermediary.
The European Bank for Development and the Government of Romania finance the construction of the by-pass variant of the town of Pitesti with a total length of 15 km.
Building strategy on a long term basis
The most important highways building project, which is located on the Pan-European Corridor IV is Nadlac - Arad - Timisoara - Lugoj - Deva - Sibiu - Pitesti highway.
The 38 km. long Nadlac-Arad segment has been proposed to the financing of the European Commission through the Cohesion Funds and the total value of the works amounts to 147 million euro. The execution period is extending between 2007-2015.
As far as the 57 km. long Arad-Timisoara segment and the Arad by-pass variant are concerned, the Loan Accord with the European Investments Bank amounting to 200 million euro, was signed at the end of 2003. The execution period of this project is 2005-2009.
As regards the 31 km. long Timisoara-Lugoj segment, the negotiation of a financing accord between the Government of Romania and the European Investments Bank is underway.
The estimated cost of the project amounts to 124 million euro and the execution period of the respective project stretches between 2006-2010.
The 91 km. long Lugoj-Deva segment has been proposed to the financing of the Deutsche Bank and the estimated costs of the project is of 638 million euro. The execution period extends between 2007-1015. The estimated cost of the Deva-Sibiu segment which is 116,2 km. long (of which the by-pass length of Deva, Orastie, Sebes is of 40,2 km.) amounts to 863 million euro. The works are expected to be launched in 2007. The 147 km. long Sibiu-Pitesti segment has been proposed for the financing of the European Commission through the Cohesion Funds and the estimated cost amounts to 1,260 million euro. The execution period of the project will last between 2007-2015.
The works for the construction of the Bucharest-Brasov highway will start this year. The 62,00 km.long Bucharest-Ploiesti segment will be implemented on the basis of a public-private partnership. The estimated value of the building works amounts to 324,000 thousand euro.
For the 49,6 km. long Ploiesti-Comarnic segment, the estimated building costs amount to 293 million euro. The execution period of this project is 2007-2015. The 36,00 km. long Comarnic-Predeal segment will be also implemented on a public-private partnership basis. The construction value amounts to 330 million euro. It is also on the basis of a public-private partnership that the 21,7 km. long Predeal-Brasov segment, with an estimated value of 181,000 thousand euro, will be implemented.
Another very important project for Romania is the Brasov-Bors highway. The implementation of the Brasov - Targu Mures - Oradea highway represents an important step forward in the context of the accession to the European Union.
Brasov-Oradea highway correlated with the Bucharest-Brasov highway will secure a direct connection between Romania and Central and Western Europe. This highway will play an important role both for the traffic in the central region of the country, the south-western region (the connection with the port of Constanta) and the northern region through the intermediary of the European roads networks and the network of national rehabilitated roads or whose rehabilitation is underway, as well as for the traffic generated by the large urban centers in the zone of influence of the highway. The highway has been conceived because today the connection with Central Europe on the territory of Romania is carried out through a network of European, national, principal and secondary roads, where the motorvehicles traffic is carried out with difficulty, because on some roads the admissible vehicles flow has been exceeded, the latter being exploited at the highest circulation capacity.
The greatest advantage pertaining to the implementation of the highway is represented by the reduction of the driving time through the elimination of the delays registered in the intersections, at the passages over the railways and the elimination of the direct crossing of some urban zones.
The highway will be a traffic generator on a long period of time, owing to the major reduction of the traveling costs of the endusers.
An important point on the road network in Romania is represented by Bucharest with the role of connection played by its by-pass which joins the European and national roads that reach in their turn all the regions of the country. Today, the current by-pass is stifled by the intense traffic in the respective zone and that is why another by-pass has proved to be particularly necessary, the latter being expected to be implemented jointly with Chinese companies and banks.
On the European transport Corridor IX, Romania will have the 361 km. long Ploiesti-Sculeni highway. Today, the national road no. 5 - Bucharest-Giurgiu - is being enlarged to four lanes. The project implemented with co-funding from ISPA and the Government of Romania will be finalized next year.
The building strategy on a long term basis includes the variants to Corridor IV Lugoj-Caransebes - Drobeta Turnu Severin - Craiova, through Calafat (272 km., 1322 thousand euro) and Craiova - Caracal - Rosiori - Alexandria - Bucharest (200 km., 750 thousand euro.) Moreover, the junction between Corridors IV and IX, which both cross Romania will be made through one of the two highways that have been already proposed: Halmeu - Dej - Vatra Dornei - Suceava (330 km., 1650 million euro) or Halmeu - Sighetul Marmatiei - Vatra Dornei - Suceava (305 km., 1220 million euro.)
(source: Romanian Business Journal)
Governor MUGUR ISARESCU explains
How the Romanian Leu has become more attractive
The Governor of the National Bank of Romania (BNR), Mugur Isarescu recently told a press conference that, judging by the latest statistics and the documents he avails of, the economic situation of the country is returning under control. But what arguments did the Governor produce in support of this statement?
Real chances for an inflation of just 9%
Referring to the inflation rate, this is on a declining trend, while the cumulated level on the first two months of the year (1.7%) was inferior to the one forecast by the Central Bank.
Preliminary data for March hint to the fact that we will have a lower inflation than estimated.
Thus, as far as inflation is concerned, the year started on the right track. We have all chances to meet this year's 9% inflation objective, followed by 7% next year. In 2006, we will get close to 4-6%. This is the result of a medium-term strategy launched as early as 1999, which proves to be observed in the inflation sector too, where forecasts speak of 9.3% for 2004, but also in other indicators, like an economic growth exceeding 5%, with a current account deficit of about 5%, which might be somewhat higher, up to 5.5%. Foreign investment, estimated at about 1.1 bn euro, were smaller each year, but we are expecting that, this year, they will exceed 1.5 bn euro.
As seen in the graph, disinflation usually ranged in the general trend, with slight sways during electoral years. We believe the main source of these sways was the increase of the minimum salary per economy, which proves that inflation largely depends on the income policy.
The fact that the inflation trend is descending, according to the prognosis, also proves the Central Bank took a pro-active and preemptive stance.
Population savings gain momentum
A secondary result of strengthening the money policy last year and returning inflation on a downward trend is the fact that population regained confidence in the money saving process. Compared to December 2003, population savings rose by 2.8% in February this year, including a February to January increase by 2.3% alone. We have never experienced such saving increases during last years. Anyway, savings in ROL had a stronger momentum than those in foreign currency. The trend will continue in March. Naturally, resuming the savings trend relates to the fact that, in spite of interventions by the money policy transmission channels, in which the Central Bank is considered as debtor, the increase of the interest rate by the Central Bank led to increases in the passive interests of commercial banks by 1-3 percent points during the last months.
This fact, superimposed over the inflation rate decline and the small-scale model of the interests to foreign currency deposits made the ROL more attractive.
"Take extra care at credits in foreign currency!"
We did not have the slightest intention to completely stop non-governmental and consumer crediting. From the very beginning, we referred to speed and our wish to see it slowing down, due to macroeconomic reasons. It is obvious that this high speed was related to the increasing account deficit. But, on the other hand and out of prudential considerations, it is really difficult to control the risks posed by a 300% credit expansion in a sector that has so little expertise.
Data show that, after the adoption of the measures, there was an obvious deceleration. In February, credits to population rose by 2.1% compared to December 2003 and zero compared to January 2004, in real terms. But, although we are witnessing a flattening in credits to population, it seems foreign currency crediting had a slightly higher growth rate. Although interests seem attractive, the cost of foreign currency crediting is subject to the influences that exist on the international market, with the implicit risks.
We consider the banks are not advising their clients to take foreign currency credits. And this would be no good advice. We have many doubts related to the market, the euro/dollar parity and, implicitly, the leu/euro or leu/dollar rate. In addition, there are arguments against it, too:
1) Interests on credits in ROL will certainly decrease, once the disinflation trend gets validated.
2) The second certitude is that interests to credits in both euro and dollars will increase.
The message sent by the National Bank of Romania is clear:
Take extra care at credits in foreign currency!
The relative increase of crediting costs in ROL was due to the relative lack of monetary means. Gradually, the Central Bank will get rid of this burden of restoring the payment balance; it will be an absolutely independent bank, the same as its counterparts in Central Europe, with only one target: inflation.
Until now, the particularities of the transition period forced us to simultaneously take into consideration exchange rate, payment balance and reserves.
Export will no longer be stimulated by depreciating the national currency
As shown in the graph, the National Bank enforced what it had proposed, by promoting a higher variability of the exchange rate - which means allowing the market to go up and down, rather than implying instability, fluctuation or volatility, which is not at all the case.
We heard exporters complaining that we are no longer stimulating them through the exchange rate. We will never do it again! We are heading towards the role of Central Bank. Part of the advantages that brought exports to the obvious position of locomotive for economic growth disappeared or are about to fade away. An economic increase based only on consumption is risky. So, take great care at the trade balance.
Since mid-February, we purchased over 300 million euro on the interbank market. We thus managed recover, to the state reserve, all that we had lost during November 2003 - January 2004. (As it is known, at the end of last week foreign currency reserves were nearing 6.6 bn euro. During the last month, the National Bank was frequently present on the interbank market, trying to diminish the appreciation of the ROL against the euro, by practicing higher exchange rates than those announced by banks.
It is not the current account deficit that concerns, but the way it is financed!
Referring to the current account deficit, as a reflection of the macroeconomic skidding felt since as early as last summer, Mugur Isarescu said the problem is the way it is financed, rather than its sheer size. Romania must make an in-depth analysis of how the current account deficit is financed. In Bulgaria, for instance, although the current account deficit amounts to 8.5% of the GDP, compared to 5.8% in Romania, its financing is 80% secured from foreign direct investment, while in Romania the weight of financing through investment stands at 50%. One can thus understand the interest for increasing the attractiveness of FDI.
(source: Romanian Business Journal)
Romanian exports could reach 20 bn USD this year
says BNR Governor Mugur Isarescu
The deficit of the trade balance in the first three months of 2004 is not disquieting, although imports advanced by 5%, as the exports value is getting close to an annual 20 bn USD, BNR Governor Mugur Isarescu stated on Wednesday.
"A comparison between figures in Q1, 2004 and Q1, 2003 is rather irrelevant, because in the beginning of last year imports were very low. Worth noticing is that exports reached a monthly 1.4-1.5 bn EUR," the BNR official explained.
According to the central bank official, data pertaining to January - March 2004 point to a recovery of the foreign balance, however an analysis needs to take into account "what is behind these exports."
In February exports reached 1.4 bn EUR in FOB prices, approx. 21% higher than in the corresponding month of 2003. At the same time, foreign goods entering the country in the first two months totaled 3.3 bn EUR, in CIF prices.
For the first two months, the total trade deficit amounts to 593.2 M EUR, for 2.7 bn EUR worth of exports. Romania last year exported goods totaling 15.61 bn EUR, approx. 939 M EUR more than in 2002. Also, imports totaled 21.2 bn EUR, up 2.32 bn EUR since last year.
On the other hand, Isarescu added, the inflation rate for April will exceed 0.6%, influenced by the natural gas price rise, without going beyond 1% however. According to the central bank official, statistics so far indicate a rise in consumer prices by 1% below the disinflation programme drawn up by the National Bank.
Inflation reached the lowest level in the past 7 months this March, the 0.5% price rise being 0.1% inferior to the one in February and 0.6% inferior to the one in March 2003.
Authorities this year targeted a 9% inflation rate, against the 14.1% in 2003. Calculated since March 2003, the inflation rate totals 13.1%, i.e. one percent lower than in the previous year.
The Board of the National Bank of Romania is analysing a programme to reduce the intervention interest rate, the first modification scheduled to be operated as soon as data pertaining to April 2004 confirm the decrease in inflation.
The BNR Governor voiced his optimism as regards the evolution of macroeconomic indicators, stating that the only threat is posed by salaries, given that in Romania the inflation rate has a structural component closely related to the income level. "We have seen a series of salary raise requests in the media lately," Isarescu added.
Governor Mugur Isarescu took part on Wednesday in a workshop on "The National Bank of Romania Archives." Officials of the central bank announced that the public will have access to certain documents from the bank's archive as of 2005. Governor Mugur Isarescu explained that in a time when we got used to seeing Romania ranking last in various standings, the National Bank of Romania's being the 19th such institution in the world in terms of set up date (England's Central Bank is the oldest) is remarkable.
EBRD reluctant to accelerating BCR privatisation
The European Bank for Reconstruction and Development (EBRD) is reluctant to speeding up the Romanian Commercial Bank privatisation, as it is a portfolio investor which aims to sell the stock for a higher price than the one it paid, BNR Governor Mugur Isarescu stated.
"Both the EBRD and IFC are portfolio investors, which benefit from a strength position: can block any major decision. The main objective of the two institutions is to increase the bank's value. They are maybe interested in selling the stock held in BCR in 2006 for double the price," the BNR Governor said.
In Isarescu's opinion, the value of BCR could be a lot higher, if the Romanian economy continues to grow, and the bank is seen as a restructured, high performance bank, with a reliable shareholder structure.
(source: Nine O’Clock)