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Romania: The Next European Tiger?

  • Robert Lyle

Hong Kong, 24 September 1997 (RFE/RL) - Romania is using the Hong Kong meetings of major international economic institutions to make a push to improve its image in the global financial community.

Taking the opportunity offered by an IMF and World Bank sponsored seminar, Romania officials told global investors that the country now has its basic finances in order and will be charging ahead on a revised and improved privatization program.

Romanian National Bank Governor Mugur Isarescu told the seminar that while the country has been "lagging behind" the rest of the region in shifting to a market economy -- private business accounted for just 52 percent of the national economy last year -- it is rapidly catching up. The private sector should account for at least two-thirds of Romania's GDP (gross domestic product, a measure of the size of the economy) by next year.

Similarly, while Romania has been slow in drawing foreign direct investment -- it totaled around $624 million in 1996, according to the U.N. World Investment Report -- Isarescu says that he expects it to jump to $1 billion by the end of this year.

The country has set up a new privatization program, reorganized and redrawn by the State Ownership Fund.

The fund's Director, Adriana Miron, told the seminar that the organization is taking a market oriented approach, valuing enterprises at their market values rather than at book value, and then offering the "largest and most attractive" first.

The shift from book value -- the calculated cost of all a companies assets -- to market value -- what those assets are really worth on today's market -- is a critical difference in the program.

It means some firms will go for a lot more than book value because they have attractive futures, while older, worn out heavy industry firms, which were costly to built but have little value on today's market, will be priced far lower.

She said authorities learned many lessons from the first program which managed to privatize only 3,000 enterprises -- mostly small and medium sized firms -- in three years. Now, she says, they have privatized another 1,300 at the end of August, and expect to have the total privatized to nearly 5,000 by the end of this year.

"Our goal is to privatize 50 companies each week," she said.

Miron said the first response to the changes has been very encouraging. The fund has begun to run advertisements in international finance and business publications about some of its first major offerings and is already getting a large number of inquiries.

Isarescu says that state-owned banks going to be among the firms privatized. Of the five major state banks, which currently control 70 percent of the banking business in Romania, three are being prepared for privatization. He said he expects at least two to been sold off by the middle of next year.

The rest of the banking sector in Romania is filled by around 30 licensed banks and 15 foreign banks.

Isarescu says the central bank and the government are reviewing what further reforms might be needed for the country's banking system, including a commercial banking supervisory agency similar to those in western nations.

A private investment banker, Antonius Van der Heijden, head of the Dutch ING Barings bank operation in Romania, told the seminar that for the first time since the end of the Ceausescu regime, Bucharest seems heading in the right direction.

"There is a good team in the government and they are doing a good job," he said. For the first time, there is a "totally changed perception of Romania" and if the country continues on the course it is now following, it will have "a very bright future."

Romania could be the "next European tiger," he said.

The owner of a Canadian textile company which has had joint ventures in Romania since 1965, J.A. Seroussi, echoed Van der Heijden's endorsement. He said while nothing is ever perfect, he is more optimistic now than he has ever been about investing in Romania.

Former World Bank treasurer Donald Roth, now managing partner of a European investment group, acted as moderator at the seminar. He said there is no question that Romania is now at "a crossroads" and that which path it follows into the future depends on Bucharest making good choices now.