Interview with Varujan Vosganian, Minister of Economy and Trade, Romania February 2007

Interview with Varujan Vosganian, Minister of Economy and Trade
Nine O’Clock – February 27, 2007

Mr. Minister, what were the first measures that you undertake in your new office?

The first priority that I undertook when I became minister was to restore the credibility of the Ministry of Economy and Trade. When I took over, the institution was being ground by scandals, queries, summoning to the Corruption department, etc. From that point of view, I brought a new head to the MEC Controlling Corps – a police commissar with considerable expertise in dealing with corruption and fraud cases who is free of all political interference. The outcome of his efforts will become visible in a few months from now.

I have initiated talks with the main energy generators, providers and users in Romania in order to find a mechanism through which the large energy consumers could have a direct access to the producers. Our country needs a genuinely free energy market.

For the first time did I make public the list of market shares held by the power suppliers and the shares of the electricity producers in 2005 and 2006.

The Commission preparing the Energy Strategy has started working, seeking to complete it most probably this May and designed to help increase the security of supply, competitiveness in the area of energy and bridge the impact on the environment. In 2014, Romania will be a regional energy power and a reliable electricity exporter.

We have developed the draft Government decision addressing the building of Cernvoda Units 3 and 4. Unit number 2 will be started in the next two months and will reach its maximum capacity by the autumn.

I have also met up with many ambassadors in order to attract foreign investment and to boost trade.

The issue of fuel stocks has been temporarily resolved by the appropriation of quantities from the state reserve. But how did we end up at an impasse in the first place? Can a similar situation be prevented in the future?

It wasn’t exactly an impasse, but we shouldn’t have ended up in that position either. On my very first day at the ministry I assessed the winter fuel supplies and measures to urgently increase them. We had and still have problems related to the energy production by hydro power plants, as reservoirs are 50 per cent full. At the Mintia energy complex we had a problem about delays in the supply of fuel.

To prevent such a situation it is necessary for us to invest in enlarging the storage facilities and to diligently secure the stocks for the winter during the summer.

Do you believe that the industry will continue growing at this high pace in 2007 as well? What are the factors capable to sustain growth?

The Gross Domestic Product grew by over 8 per cent in 2006. This year we expect the economy to grow by around 6.5 per cent. The industry will surely keep the fast growing trend in 2007 too. The Greenfield investments made in the latter half of 2005 and in 2006 will begin producing results. The main sectors that will enjoy a special development will be the automotive and car part industry, the machine, equipment, electrical equipment and part production, the furniture industry, the building and building material sector, etc.

A lot of technology and industrial raw materials are being imported. Are we to expect even higher such imports after the accession to the EU, hence the enlargement of the trade and current account deficits?

Even if in 2006 imports outran exports, important positive trends could be noticed in their structure mainly generated by the need of the economy to restructure and modernise itself: smaller share of raw materials and semi-manufactured goods, of consumer goods on one hand and larger share of investment goods and highly technical goods, on the other hand.

In the evolution of export we have noticed a qualitative performance, manifested in the faster growth of the export of goods generated by the industries of medium to high technology of a higher complexity and added value, as well as by the sensitive reduction in the share of low processed goods. Those trends also highlight a higher degree of adjustment of Romanian exported products to the foreign markets and the better capitalisation on Romanian exported goods.

The faster growth of import than of export increased the trade balance deficit. But, if we analyse that deficit, we shall see that it is mainly in connection with goods provided to the industries and with capital goods that have sustained the restructuring, modernization and growth of the economy all this time, which means that they are capable of generating growth, exports and new jobs.

Of course the higher trade and current account deficits are both a reason of concern. But they are supported by our economy that is becoming more robust every year. We can only grow fast by importing technologies and raw materials. It is what Poland, the Czech Republic and Hungary have done, as well as other of the EU 10.

Romania is already facing a regress of lohn processing as it was anticipated by the various specialists. How will domestic producers cope with the international competition in the field? What alternatives to lohn processing can you think of and how can MEC support the Romanian operators in the field?

Lohn processors mainly operate in the textiles industry and they were informed in due time about the demands on the EU market. Naturally, all the textiles producers in the EU are affected by the ‘invasion’ of Chinese goods. It is not a circumstantial process, but a long term one. The Ministry of Economy and Trade supports the producers by helping them attend international fairs and tradeshows, with budgetary funding, etc. Companies in the sector should establish associations, invest more in promotion and marketing and diversify their market possibly by steering part of their production to the Romanian market. The vast majority of those companies make quality goods at competitive prices but they are not known well enough in Romania

How much is there still to be privatised in the industrial sector and what are the measures that MEC can take to make the process transparent and fair?

The main authority that takes care of industrial privatization is the State Asset Resolution Authority (AVAS). Naturally, in MEC’s portfolio there are still many companies awaiting privatisation. The rhythm and modality to privatise them are now being thought through. I can assure you that all processes will be 100 per cent transparent. The most important cases of privatisation this year appear to be Daewoo Craiova and Antibiotice Iasi. A stock of Transgas shares will also be listed on the Bucharest Stock Exchange this year and preparations for the listing of shares in Romgaz, Hidroelectrica and Nuclearelectrica will also begin.

The Government is going to be resized by reducing the number of portfolios, to fit European objectives. Will you also proceed to an internal restructuring of MEC?

The Ministry of Economy and Trade is already restructured since last year. We still have to work on improving the effectiveness of every directorate in the ministry.

A lot has been said about the fact that, post accession, many Romanian SMEs and other companies will ‘succumb’. How many do you expect them to be? How fast can Romanian companies adjust to EU requirements mainly in terms of the environment?

The adoption of environmental standards by all Romanian companies is an extremely serious issue. The Ministry of Environment, the Ministry of European Integration, the Ministry of Economy and Trade, the Ministry of Public Finance and other relevant agencies have been telling the operators since 2001-2002 about the need for them to make investment in the sector. If companies are found in non-compliance with environment standards, they will be drastically fined or even shut down. But I am convinced that the number of companies to be closed down will not be very large. I trust the responsibility of Romanian managers.

Of course that many SMEs in the trade or services sectors will go bankrupt because they will be unable to withstand the pressure of the small prices offered by the big retailers. That is something normal, natural. That is what happened in other countries as well. But the crucial part to be played in that does not come from the environmental standards, but rather from the lower competitiveness and productivity. On the other hand, many new companies will be established

Romanian exporters have always drawn alarm signals. First they lost the preferential taxation, now the RON/EUR and USD exchange rate goes in the wrong direction for them (they have even accused the central bank of not supporting domestic production by not intervening on the foreign exchange market, and by letting the RON appreciate). How can MEC support them, especially considering the anticipated long-term RON appreciation trend?

The appreciation of the national currency is mainly the result of the economic growth and of the higher confidence among financial investors. Another important factor that has contributed to the improvement of the local currency was the speculative capital. BNR tries to contain the influence of speculative capitals by reducing the monetary policy interest rate from 8.75 per cent to 8 per cent. The Government doesn’t have too many tools available to help the exporters. They should consider more often instruments to hedge exchange rate risks mainly the forward on the exchange rate. There are other instruments as well, in the portfolio of Eximbank.

Is the CNH situation a singular one in the Romanian industries or the ‘secret’ expenditure is a practice in the state-owned industrial sector? What measures do you plan to take if illegal expenditures are found?

We have not had any indications about cases similar to CNH. In its case, an order was issued in 2004 permitting them to classify certain expenditures. If those are proved to be illegal, the people responsible will be liable under the law.

by Anca Bernovici

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