Geert Bekaert and Campbell R. Harvey's
Chronology of Economic, Political and Financial Events in Emerging Markets
Major Political and Economic Events
To promote foreign capital investment, the following measures were introduced: (1) permission to establish companies with up to 100% foreign capital ownership; (2) exemption from the tax on profit for a two-year period, and a reduction in the tax on profit by 50% for the following three-year period; (3) a reduction in the tax on profits by 50% for an additional five-year period in respect of profits reinvested in Romania.a3(first entry)
Banking crises (1990-1993): many loans to SOEs doubtful.a2
A new Foreign Investment Law was adopted. (1)Elimination of the ownership limit on joint ventures; (2) unrestricted used of foreign currency to pay for local goods and services; (3) unrestricted transfers of profits if paid out of foreign currency receipts; (4) repatriation of earnings of up to 8% of the initial capital contribution a year.a3
A new FDI law came into effect. FDI would be allowed in all sectors of the economy, except in areas where the environment or Romania's national security and defense interests must be protected. There would be no limits on foreign equity participation in a commercial company set up in Romania, and foreign investors would be allowed to participate in the management of the investment operation or assign contractual rights and obligations to other Romanian or foreign investors. Foreign investors would be allowed to transfer abroad (1) their share of profits earned in convertible currencies or in lei; (2) the proceeds in freely convertible currencies obtained from sales of stocks, shares, bonds, and other securities, as well as from the liquidation of investment; and (3) the proceeds in lei obtained from the liquidation of investments in freely convertible currencies in three annual installments. All capital goods and means of transport used in the installation of projects would be exempted from customs duties. Foreign investors would also benefit from certain tax advantages.a3
Foreign investors were allowed to transfer abroad, with the authorization of fiscal authorities, the entire amount of their share of annual profits.a3
The introduction of the Insider Trading Laws.a4
The IFCG index was launched.
ADR effective date. (Company=LAFARGE ROMCIM - REG S)a11
The government failed to make progress in negotiations with the IMF on a new standby loan agreement.
(Controls on credit operations) All credit operations became a subject of NBR authorization, except bank loans. (Provisions specific to commercial banks and other credit institutions) Banks are free to effect credit and guarantee transaction with a maturity of less than one year.a3
The government and the State Ownership Fund began taking decisive steps toward accelerating privatization. The sales of a 35% stake in telecom operator Romtelecom, 41% stake in the Romanian Bank for Development concluded successfully.
The Leu depreciated rapidly against dollar.
The government received parliamentary approval to proceed with a package of revised economic laws vital for invigorating the reform process and reviving the country's flagging economy.
Romania avoided default by meeting its Eurobond debt-servicing obligations.
Romania reached an agreement with the IMF for the release of the first tranche of $73 million from a standby credit of $547 million.
Romania met more than $2.0 billion of the $2.8 billion in foreign debt service payments due in 1999. So the country's foreign reserves fell from $2 million at the beginning of the year to $913 million. The leu lost almost 60% of its value against the dollar since January.
(Controls on credit operations) All credit operations extended by nonresidents to residents with a maturity exceeding one year were liberalized.a3
Romania began European Union accession talks and prepared for NATO membership as well.
In the second quarter, Parliament passed the 2000 budget allowing for a consolidated deficit of 3% of GDP to enable Romania to receive IMF funding.
The country's largest fund, FNI, collapsed, and rumors of insolvency at the state-owned Romanian Commercial Bank caused a run on the bank. The government restructured the banks with tighter supervision by the National Bank of Romania (NBR), and the country's two largest banks were privatized. The government announced a 39% reserve requirement.
The World Bank announced that Romania successfully completed the terms of its US$300-million Private Sector Adjustment Loan agreement, and the second US$150-million tranche would be forth coming.
S&P raised its outlook on Romania from negative to stable.
The country successfully placed a three-year euro 150 million eurobond. But month-to-month CPI climbed to 2.8% as drought exerted upward pressure on food prices, while electricity and natural gas tariffs rose as well.
In the forth quarter, the parliament finally passed a law returning private homes confiscated by the Communists. But Romania scored very poorly in the European Commission's annual progress report on EU applicant countries. The ex-communist Party of Social Democracy in Romania (PDSR) won a vote to block further privatization until the elections. PDSR won the subsequent general elections.
70-year-old former president Ion Iliescu became Romania's president and Mugur Isarescu returned to his post as central bank governor.
Romania announced its success in the euro-denominated bond market.
The World Bank and other international agencies and corporations voiced concerns about corruption and private dealings affecting privatization efforts.
The government announced its plan to tap the eurobond market with seven- and ten-year bonds to finance the budget deficit and set new benchmarks.
S&P raised Romania's long-term foreign debt rating to 'B' from 'B-' reflecting accelerating economic growth and slower inflation.
The government lowered the Lombard rate, the lending facility rate, from 75% to 65% and the minimum reserve rate from 27% to 25%.
011025 The World Bank yesterday announced a US$1bn loan for Romania to help finance rural development. Johannes Linn, the bank's representative, said that the funds were unlocked after a meeting he had with Romanian Prime Minister Adrian Nastase. The loan was granted for the period from 2002 to 2004 and it is timely as Romania is still awaiting the decision of the International Monetary Fund (IMF) over its application for a stand-by loan. Linn said that the loan was granted because Romania has made progress with privatisations and reform of the banking sector
011115 Sovereign credit risk rating agency Fitch has upgraded its long-term local currency rating for Romania to 'B+' from 'B'. The long- and short-term foreign currency ratings were affirmed at 'B'. The outlook on the long-term foreign and local currency ratings was revised to positive from stable. 'The decision to upgrade the local currency rating follows a marked fall in the domestic debt from 13.1% of GDP at the end of 1999 to 9.3% in 2000 and signs of increased commitment to a tighter fiscal stance by the PSD government', the agency said in a statement. The 2001 fiscal target was revised to 3.5% of GDP during the summer and the target for 2002 is 3%, which the agency believes is a sign that 'the deterioration in the primary balance that started in 2000 should be brought to a halt'. Anticipated GDP growth of 4%-5% has also strengthened Romania's overall debt dynamics, the agency stated, while reform of the financial sector has meant that the 'potential contingent liabilities facing the government appear to have receded'. Recent progress in privatisation was also a factor in the agency's decision to upgrade Romania's ratings.
020118 The Romanian central bank (BNR) has intervened to stem a rapid depreciation of the leu. The currency appears to have firmed in early trading today at 32000.5, compared to an opening rate of 32,420.47. Dealers reported similar interventions by the BNR earlier in the week to slow a rapid depreciation of the leu resulting from a combination of speculative pressure and persistent hard currency deficits due to renewed demand from importers
020308 The Romanian Central Bank (BNR) withdrew the licence for the Banca Romana de Scont (BRS) yesterday. It is difficult to know if it is a one-off measure or part of a longer-term campaign to clean up the country's financial sector. The BNR has recently tightened its grip over the functioning of the financial markets to avert corruption and fraud in the sector at a time when it is facing consolidation
020311 Inter-party consultations, called last week by the ruling Social Democrats (PSD) to establish whether the government's plans to change the constitution are to go ahead, failed to reach an agreement and the revision of the constitution has been pushed back until 2003.
020422 Standard & Poor's has raised its sovereign ratings for Romania. The agency has also retained its positive outlook on the sovereign, suggesting that a further ratings upgrade is possible in the not too distant future
020423 The Bucharest Stock Exchange (BSE) yesterday reached an all-time high, with all the main stocks posting significant gains. Although investors could have sold their shares and benefited from their rise over the past two weeks, they continued to buy shares instead, irrespective of their price. The BET index, including the BSE top 10 stocks, yesterday jumped by 40.12% compared to January 2002. The market capitalisation also peaked to reach US$1.6bn, an estimated 4.81% of GDP for last year. Some of the biggest gainers were shares in Petrom, up 11.43%, and in the Transylvania investment fund, which increased by 9.38%. The buoyant activity of the BSE over the past three weeks, which culminated yesterday in a record high for the stock exchange, was triggered by increases of Petrom, BRD and investment funds' stocks. The increase is not only due to increased foreign investment on the financial market, but also to Romanian investors increasing their acquisitions due to the current political and economic progress recorded in the country. The massive acquisitions of Petrom shares was also linked to foreign investors' interest in the company, which is scheduled for a sell-off this year
020429 Finance Minister Mihai Tanasescu said yesterday that the successful launch of eurobonds last week will improve the country's chances of gaining some US$300m in loans from the World Bank. The eurobond issue raised US$650m, which, when put together with the money expected from other international organisations, should bring around US$1bn in total to the state's coffers. The figure bodes well for Romania's external credit indicators, especially as it will bring the central bank's total hard currency reserves to well over the US$4bn it currently holds. The national currency, the leu, is expected to appreciate further against the dollar in the coming weeks. The trade deficit gap has narrowed in the first quarter (Q1) and, with exports continuing to rise slightly, the country is expected to enjoy a strong financial position in 2002
020705 The government's consolidated budget gap was estimated at the end of May to amount to -0.7% of GDP, it was reported yesterday. The figure was down from -0.8% of GDP in April. The government has set a target of a year-end budget deficit of -3% of GDP, down from -3.5% in 2001
020906 On 5 September the IMF published its documentation approving the reactivation of lending to the country
021018 Romanian National Bank Governor Mugur Isarescu has stated that the country's inflation rate should will be lower than the 18% initially forecast. Isarescu claims that the inflation forecast will undershoot by between 3% and 7%. The basis of the revised estimate comes after inflation figures for the first nine months of 2002 showed that consumer price inflation had slowed to 11.4%. However, WMRC still maintains its estimate of 22% for 2002, based on the fact that Romanian inflation calculations are questionable and are subject to underrated average family expenditure
021107 The Romanian privatisation agency - Autoritatea pentru Privatizare ?i Administrarea Participa?iilor Statului (APAPS) - is to complete the final tranche of the sale of Banc Post. The remaining 17% stake will be sold to the Greek Eurobank Ergasias for around US$20 million. Eurobank Ergasias will hold a 36.25% stake in the company, but will control 51% of the company through its alliance with the Banco Portugues de Investimento. The sale will raise hopes that a strategic buyer can be found for the Banca Comerciala Romana (BCR), whose privatisation has stalled in recent months as a result of government bureaucracy and delay
021217 Ratings agency Moody's yesterday announced that it was upgrading the ceiling on foreign currency bonds it holds for Romania from B2 to B1 with a stable outlook. It also upgraded domestic currency bonds in step to a rating of B1. All the ratings are with a stable outlook. The upgrade is pinned on an improvement in policy management, and the country's liquidity and debt-servicing burden. Progress in better management of state monopolies was cited as being particularly important, and have been key this year to the government maintaining its IMF credit
030228 Ratings agency Standard and Poors yesterday (27 February) upgraded both local and foreign long-term currency ratings for the Romanian sovereign. The foreign currency rating was improved from B+ to BB- and local currency ratings from BB- to BB. The agency put all its short- and long-term outlooks on positive. The agency pinned its upgrade on the consolidation of public finances, with the government reporting this week the budget deficit at -2.7% of GDP, in accordance with its IMF target. The economy is growing ahead of general expectations, whilst its affirmed position as part of the second tier of entrants from Central Europe into the European Union (EU) will help the country's credit rating
030402 A package of 15 anti-corruption bills has been passed by parliament, but the most important measures have yet to come
030606 The World Bank's board of executive directors has approved a 74.3m euro (US$82m) loan to Romania to assist the country in establishing an effective wholesale electricity market. Part of the funds also will be used to improve efficiency by upgrading the country's power grid. Romania's power sector reform stalled for much of the 1990s, but in the past few years the country has begun to make progress on overhauling the sector, with a major restructuring completed at the end of 2002 and the start of privatisation of the first two of the country's eight regional power distributors earlier this year
030806 Public Finance Minister Mihai Tanascu has said Romania will be cutting payroll taxes further in 2004, Mediafax reports. Full details of the planned cuts will be released in September, but it appears that social insurance contributions are likely to fall by 3%, to reach 49%. It is not clear how the cut will be shared between employers and employees - currently, employers pay 35% of the social insurance contribution and employees 17%. This includes health, unemployment and pension insurance. Payroll taxes, which in 2000 stood at 61%, were later cut to 57% and then this year to 52%. Corporate profit tax cuts are also on the agenda for next year, as are dividend cuts. The changes will be made in the upcoming new Tax Code, which, if approval goes smoothly, should take effect in January 2004, although it is quite possible that there will be a delay. The Tax Code will be accompanied by a Tax Procedure Code, which should simplify tax-paying procedures
031017 Romania's economic rehabilitation has been sealed by the completion of the IMF's successful appraisal of the country during its fourth review under its US$431m stand-by agreement
031219 Fitch has followed Moody's in upgrading Romania's long-term foreign currency rating in the wake of the sovereign's successful conclusion of its IMF stand-by credit agreement
040213 The European Commission has told Romania and Bulgaria that their timetable for European Union integration is still valid, and that it is 'out of the question' for steps to be taken that would suspend it, 'at this stage anyway.' The assurance from EU Enlargement Commission GŁnter Verheugen's spokesman came after members of the European Parliament proposed that Romania's candidacy be suspended while it undertook a thorough reform of its justice system. There are fears that Romania is failing to prevent the trafficking of children abroad in the guise of legal adoptions
040227 The Romanian parliament yesterday formally ratified the country's impending NATO membership by a unanimous 454 votes. There was, essentially, no debate on the issue, with even the far-right Greater Romanian Party (PRM) describing all 14 articles of the treaty as being in Romania's interests. Officials from other parties described the accession as a landmark event that would provide Romania with its best security guarantees ever. The only minor note of criticism came from the opposition National Liberal Party (PNL), which said it was a pity that it had taken Romania so long to meet the criteria for NATO membership. The actual date of NATO's enlargement to include Romania and several other Central European countries has not yet been fixed, although it is likely to take place in mid-2004
040608 Central Bank Finally Moves to Cut Romanian Interest Rates
040608 Five months before general and presidential polls, local elections have dealt the ruling Social Democrats (PSD) a major defeat in Romania's larger cities, although they remain strong in smaller towns and rural areas
040712 The National Bank of Romania this morning moved to slash interest rates by a further 75 basis points following more signs of an easing in price pressures
Regulations on Foreign Investors

Restrictions: No limit on the repatriation of investments. The same currency is to be used for repatriation as used in the initial investment.

Taxation: 10% withholding dividend tax, 25% corporate tax rate, 1% tax on interest from bank deposits and on securities sell transactions to be paid by natural persons according to global income tax law.a7


no changes
be used for repatriation as used in the initial investment.

Taxation: 10% withholding dividend tax, 25% corporate tax rate, 1% tax on interest from bank deposits and on securities sell transactions to be paid by natural persons according to global income tax law.a7

2003 no changes