Romania Can Shine as Haven From Regional Politics, Minister Says

  • Finance minister sees `balanced, sustainable' growth as a lure
  • Budget gap to stay within EU limits, may outperform forecast

Romania’s finance chief sees an opening for her nation to become eastern Europe’s go-to investment destination as nerves jangle over government policies in Poland, until recently the region’s top performer.

The second-poorest European Union member has been underestimated by investors and eclipsed by its neighbors for too long, said Finance Minister Anca Dragu, citing a calmer political backdrop and an economic expansion that’s set to surge more than 4 percent this year. Standard & Poor’s cut Poland’s credit rating on Jan. 15 on concern the new government is undermining the independence of institutions such as courts and media.

“There are certain developments in the region that have investors worried,” Dragu said Friday in an interview in Bucharest. “Compared with that, Romania’s economic growth is balanced and sustainable, we have an educated population and relative political stability that we need to appreciate more because we don’t have extremist parties that cause problems in other countries.”

Leu, Zloty

Romania is no stranger to political drama itself: Dragu is part of a technocrat cabinet led by former European Commissioner Dacian Ciolos, who took over in November after anti-corruption protests in the European Union and NATO member prompted his predecessor to quit. It also faces competition to lure cash fleeing Poland from other local peers, such as the Czech Republic, a regional haven whose 10-year borrowing costs are lower than every country in the world except for Japan, Switzerland, Germany, and the Netherlands.

As selloffs from Beijing to Sao Paulo roil emerging markets around the world, Romania has so far come out on top against Poland. Its currency, the leu, has weakened 0.3 percent against the euro this year, outperforming the zloty’s 3.5 percent loss, the third-worst performance among 24 developing-nation currencies tracked by Bloomberg.

With the economy already among the EU’s fastest-growing, Romania has implemented tax cuts and state-wage increases before elections later this year. Despite the fiscal loosening, Ciolos has pledged to keep the budget deficit within the EU’s limit of 3 percent of gross domestic product. The gap may be even less with economic growth poised to outpace the third quarter’s 3.6 percent annual clip and tax collection improving on efforts to tackle fraudsters, according to Dragu.

Consumption Boom

“I don’t see a risk of exceeding the target and triggering the EU’s excessive deficit procedure because there are a lot of factors that work in our favor,” she said.

Romania is reversing one of the EU’s toughest austerity programs, a drive that helped narrow the budget deficit to 1.5 percent of economic output last year from about 7.2 percent in 2009.

Consumption is booming after reductions in the sales tax, which reached 24 percent in 2010. That growth is sustainable “at this point” because it’s not “excessive,” Dragu said. The government plans to develop a long-term economic growth model that’s more balanced, by boosting investment and attracting more companies, she said.

While tax rates have been lowered, anti-corruption efforts have meant revenue from the value-added tax rose 12 percent last year, according to Dragu. “This is a clear result of our efforts to reduce tax fraud,” she said.

With last year’s government outlays heavily skewed toward December, when the equivalent of 2 percent of GDP was spent, the Finance Ministry will implement quarterly budget planning for state institutions and state-controlled companies, Dragu said.

The government is also planning to complete works on a draft law creating a new system for taxing mineral resources. It intends to send it for approval in parliament during the working session that started on Monday, according to Dragu.

“We’ve already started discussions with the other ministries involved, and we plan to reach common ground so that we’ll be able to put it up for public debate in the coming weeks,” she said.

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