Romania- Credit-to-Cash Advisor e-Newsletter

Constitutional Republic made up of executive, legislative and judicial branches. 41 counties (judete, singular - judet) and 1 municipality (municipiu). Capitol is Bucharest. The Romanian Constitution confirms among its aims a multi-party system, a free-market economy and the respect of human rights.

Legal System

Formerly a mixture of civil law system and communist legal theory. Romania’s legal system is now based on the constitution of France's Fifth Republic. The country has made notable progress in aligning with the acquis communitaire (the governing laws of the European Union), a requirement for joining the EU, hopefully in 2007. A number of normative acts, beginning with the fundamental law and the Constitution, were adapted to European standards in 2003.

Economy

Lei per US dollar: 32,654 (10/20/04); 33,200.1 (2003); 33,055.4 (2002); 29,060.8 (2001); 21,708.7 (2000); 15,332.8 (1999)

Statistic	2000	2001	2002	2003	2004(e)	2005(f)
Real GDP Growth Rate(%)	2.1	5.7	4.9	4.9	6.0	5.2
GDP Per Capita ($ at PPP)	4,461	4,837	5,140	7,000(e)
Inflation (%)	45.7	34.5	22.5	15.3	12.0	8.9
Unemployment Rate (%)	10.5	8.6	8.1	8.0	8.0
Exports (UDS billions)	10.4	11.4	13.9	17.6	22.3	26.1
Imports (USD billions)	12.1	14.4	16.5	22.2	27.1	31.2

Leading Markets (2003): Italy 23.5%, Germany 15.5%, France 7.3%, UK 6.2%, Austria 4.4%, Turkey 4.3%, US 4.1% (2003 est.)

Leading Suppliers (2003): Italy 19.8%, Germany 17.5%, France 7.5%, Russia 7.1%, Austria 5.2%

Leading Exports: textiles and footwear, metals and metal products, machinery and equipment, minerals and fuels, chemicals, agricultural products

Leading Imports: industrial suppliers, capital goods, fuels and lubricants, transport equipment, food and beverages

General Economic Situation

Like many countries in Eastern Europe, Romania has struggled to change from its previous central economy. Officially, Romania has had a free market economy since 1990. This is countered though by a continuing government presence in the industrial sector. Successive governments have made strides in liberalizing and privatizing the economy, but have had difficulty turning it around due to a lack of hard currency and the inability to secure external funding because of high budget deficits accrued from loss-making state industries.

In mid-March 2003, the United States granted Romania "market economy" status, which is expected to enhance the confidence of U.S. firms considering working with Romanian firms and investing in the country. Romania is currently an associate member of the European Union and hopes to attain full membership by January 1, 2007. Thus, Romania’s economic policy for the next several years will be driven by the need to meet EU membership requirements and integrate into Western markets. 2007, however, is considered by most to be a very aggressive target for this poor country where income per person is just 10% of the EU average. In fact, in March 2004, the European Parliament stated it would be impossible to achieve this deadline unless Romania successfully tackled issues like corruption, lack of judicial independence, harassment of the media and police brutality.

Still, Romania’s overall macroeconomic performance over the last four years has been positive. GDP growth has been around 5% since 2001. Inflation has been steadily decreasing since 2000. As a result, all major international rating agencies have repeatedly upgraded the country’s ratings.

Business Climate

Romania sits at the crossroads of many traditional commercial trade routes, allowing access to more than 200 million consumers within a 1,000 km radius of Bucharest. The country boasts a skilled, relatively low-cost work force experienced in areas like engineering and manufacturing. There is a large industrial infrastructure and considerable natural resources that possess substantial potential for exploitation and development. Also, much of the economy remains underdeveloped and offers great potential, particularly in the industrial, agricultural and tourism sectors.

Many of the laws typical of a market economy have been enacted, leading to relative stability in Romania’s legal system. Laws concerning dispute resolution are well established, and the concept of arbitration is widely spread. Romanian legislation does not put any restrictions on converting or transferring funds and there is no limitation on the inflow or outflow of funds for remittance of profits, debt service, capital gain, return on intellectual property. Property and contractual rights are recognized; however, judges have little experience in the functioning of a market economy, international business, or the application of new Romanian commercial laws. Thus, third party arbitration generally provides the most effective means of dispute resolution. Romania is a signatory to the New York Convention of 1958 regarding foreign arbitration awards and is also a party to the European Convention on International Commercial Arbitration. In addition, Romania has an International Commerce Arbitration Court administered by the Chamber of Commerce and Industry of Romania.

Cumbersome bureaucratic procedures and the lack of transparency are a major problem in Romania. And, regulations are continually changing, often overnight, without advance notice. In addition, though Romanian law and regulations contain provisions intended to prevent corruption, enforcement is generally weak Bribery demands by mid- to low-level officials are not unusual, and the Customs Service, Municipal Zoning offices, local financial authorities and other bodies are affected to some degree by this problem.

Successful companies share a common approach to doing business in Romania -- either establishing themselves in the country so they can analyze the local situation and develop the most effective corporate strategy, or working with well-established Romanian partners

Credit and Collections

Risk Assessment

Country Risk Rating: B - An unsteady political and economic environment is likely to affect further an already poor payment record.

Romania has continued to post good growth with some sectors, including textiles, pharmaceuticals and cosmetics, car and spare parts manufacturing, achieving above-average results. Lower debt-servicing costs and an adjustment in energy prices has helped reduce public sector deficits. However, an explosion in credit along with increased wages has caused a deterioration of external accounts and an increasing need for financing. Despite a difficult social situation and severe institutional shortcomings, political risk has remained moderate. Company payment delays, though, have remained substantial with frequent defaults.

Sources for further information on doing business in Romania

This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Romania. For further information, contact info@abc-amega.com.

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," August 2004.

Romania

Government