'RESOLUTE ACTION TO PROMOTE BUSINESS' - Address by H.E. Adrian Nastase - Before the US Chamber of Commerce, 31 October 2001

Ladies and Gentlemen,

I am honored to seize this opportunity to brief you on the latest developments in Romania, and about the core measures that my Government is taking to improve the business environment and stimulate foreign investment.

The central goal is to complete our transition and transform Romania into a fully functional market economy. The results of the past months confirm that we are on right track and the economy is responding positively.

This Government took office in December 2000. After ten months the main economic indicators show an improved position of Romania: GDP grew by 4,9% in the first semester of 2001, i.e. the highest rate in Central and Eastern Europe; the monthly inflation rate trough September dropped to 2.2 p.c. from above 3.0 last year; industrial output is 10 p.c. higher and Exports 14.7 p.c. larger than a year ago; budget deficit after nine month is 2.7 p.c. of the GDP, confirming that we are within the targeted limit for the whole year. In a few words, we are compliant with the targeted foals agreed with the IMF and the World Bank.

We will continue the restrictive-focused macroeconomic policy in the coming year, together with measures for stimulating the growth of the private sector and policies to promote social cohesion.

For next year we set as major targets a GDP growth of 5 p.c., a further decline of inflation rate to 22 p.c., accompanied by a strict policy of containment of the wage bill, a budget deficit of no more than 3 p.c. of the GDP and a 9.7 p.c. real growth of investment.

I know that business community has great expectations concerning the coordination, and especially the sustainability of our policies. I assure you that my Government is determined to fulfill the commitments and to increase the share and the role of the private sector in the overall economy.

This starts with domestic political stability which is essential for economic growth and the establishment of an entrepreneurial culture. In the twelve years that have passed since the fall of Communism, Romania proved the most stable country in the Balkans, despite the adverse foreign environment. Democracy is safe in Romania and political stability is here to stay.

We are committed to do all our part to build a safer environment, cleaner and safer from terrorist networks, from the black holes of money laundry, from organized crime, trafficking in human beings, arms and drugs that all make civilized nations and business unsafe.

Ladies and Gentlemen,

One of my Government's task is to take action to improve the fair competitiveness and make the business environment friendlier with respect to setting up companies, transfer of profits and market exit strategy.

Romania represents a large market, second only to Poland in Central and South East Europe. Our geographical location facilitates access to over 200 million consumers, on a range of 1000 km around.

Although we do offer comparative advantages, and we do have a number of success stories, not many investors have plunged in the Romanian market. On the whole, foreign investments in Romania have fallen short of expectations.

The question that both ourselves and you need to ask is: why?

I acknowledge there are a number of problems that foreign investors legitimately raise, a cluster of obstacles that we have identified and we work closely with the World Bank and the European Union to remove. A couple of weeks ago, the Government has already approved the action plan to remove the administrative barriers and we together with the Parliament we hope that we will deliver a friendlier framework by mid of next year.

The basic idea is offering to you and other investors a stable and clear regulatory framework. Our focus on providing foreign investors the right business environment is reflected in the Law on the Promotion of Direct Investment that my Cabinet has adopted this year. Let me highlight a few of its main provisions: First of all, it provides for equitable treatment, as well as the unimpeded freedom to repatriate profit yearly, to transfer abroad profits yielded by shares, dividends, bonds or any other income sources related to the investment. It stipulates important facilities for investments that exceed 10 million USD, incentives for leasing operations and investing in free trade areas. We do not charge custom duties and VAT for any imported capital good.

We offer special tax exemption for periods between 2 to 4 years for investments in IT and communications, as well for agriculture and the food processing.

We are particularly focused on the IT sector which is becoming one of the most vibrant areas in Romania. My IT Minister Dan Nica, here with me, will visit Virginia Tech and conduct a road - show supported by US Trade and Development Agency. [Today, I have witnessed the signing of two significant deals between Romania and two American companies: Harris, Inc., which will provide technical equipment for modernizing the Romanian radio-communication capacities, and Qualcom, for developing 3D new wireless data communication technology in Romania.]

To build an attractive environment, we simply cannot allow Romania's red tape to choke its potential, or to create opportunities for corruption. That's why the Romanian Ministry of Justice has enacted earlier this month a tough program to fight corruption, endorsed by the Government and openly presented to the public.

Among other things, it includes the creation of a 'one stop shop' department for relations with foreign investors, under the direct subordination of the Prime Minister, to ensure that major foreign investors have easier access to decision-makers. This department will also provide assistance to investors who commit over $10 million.

This does not mean that we are less interested by the development of the SMEs sector. Small and Medium size companies are the lungs if we want our economy to breathe. In this spirit, we introduced a 1.5 p.c. flat rate on turnover tax for SMEs.

Ladies and Gentlemen,

Turning to privatization, I am pleased to inform you that this year we achieved two landmark deals: selling the bank 'Banca Agricola' to the Austrian group Raiffeisen and the steel mill 'Sidex' to the Anglo-Indian group Ispat. The bid for 'Electroputere' Craiova, has just appeared in the New York Times. I wish to say that the Romanian Privatization Agency has rejected the proposal that such a company be bought by the employees' association and clearly stated our preference for selling it to a well experienced manufacturer in a transparent manner. We have also speeded up privatization in tourism, where we expect all the remaining assets to be offered for sale until the end of this year.

Next year, the focus will be on privatizing the largest Romanian bank, BCR, as well as regional distribution companies in the electricity and natural gas areas, and the large aluminum smelter ALRO and the profile manufacturer ALPROM. Also high on our agenda are the sale of the remaining stock in the largest and, for the time being sole land telephone operator, ROMTELECOM. Sale of most of state-owned agricultural will complete by 2003.

In the energy field we are committed to open the market further and foreign investors are invited to set up joint ventures in thermal and hydroelectric power. We're particularly interested in the presence of American investors and innovative management in the energy field, especially in the future privatization of PETROM, the largest national oil and Gas Company with operations already developed in some former soviet republics.

Other major deals in the mechanical engineering industry will be Hidromecanica, Romvag, Tractorul, ROMAERO and Avioane Craiova. We also intend to privatize of the Radio- Communications Company.

We're particularly interested in developing Greenfield investments because they represent a way to avoid the replication of the same development model that we've had so far. To this scope, we have implemented a welcoming legislation for setting of industrial parks.

US presence

Concerning the US-Romanian bilateral economic and trade relations, let me give you some figures on the US presence: With the total volume of bilateral trade that amounted in the year 2000 to 770.9 Million USD, and a level of US FDI in Romania of 366.9 Million USD in the same year, the US is hardly in a leadership position among foreign investors. What this shows is that our relationship and the US presence in Romania do not reflect the enormous business potential that we have.

The good news however is that this year the figures of the first half of the year indicate a distinctive upward trend, with the US FDI taking the fourth place by mid-2001 and bilateral trade showing signs of picking up. But we need to take it further.

There are in fact quite a number of major U.S. investors in Romania, such as COLGATE-PALMOLIVE, QUALCOMM, CITIBANK, PROCTER & GAMBLE, WHIRPOOL, HONEYWELL, KRAFT FOODS. They've been quite successful in Romania, and I'm quite positive that there are many other companies who can enjoy similarly successful results.

Conclusion

For our part, our economic governance will be flexible, pro-active and results-oriented. We have a clear strategy for the next four years that we will put in practice that has economic reform as its centerpiece, and as you can see, we've made significant progress.

I am supported in committing to that by the design of a Medium Term Economic package endorsed during this month by the IMF, the World Bank and the European Union in an unprecedented policy stance. I would like you to take this as a very strong guarantee about our intentions.

Our goal is to create a vibrant, competitive and knowledge-based economy, capable of supporting the aspirations of the Romanian people to join both NATO and the European Union.

I believe that one of the most important lessons of September 11 attack on America has thought us is the vital importance of unconditional solidarity between nations that share the same values and a deeper sense of common purpose. I speak to you as the Prime Minister of a country that has not faltered in its rapid reaction to commit itself immediately and unconditionally in fighting along the United States and its allies in the war against terrorism. We share the same values and we wish to be a secure host to American investments.

Together, responsible governments and business community, we have the duty to make the world a safe and prosperous home for our and future generations. We must take our future into our hands now.