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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT MAY 2005 BUCHAREST STOCK EXCHANGE ECONOMIC AND POLITICAL DEVELOPMENTS Politic and Economic Environment: Romania's transitional economy has achieved marginal progress during the last decade. Large portions of Romania are suitable for agriculture with some regions endowed with the highly fertile chernozem soil, which is so prevalent in neighboring Ukraine. Agricultural privatization has proceeded with 75% of the sector transferred from the state by 1995. Although, periodic drought and inadequate capital investment have threatened Romania's historic agricultural self-sufficiency. Minerals, forestry and fishery are also significant contributors to economic output. Romania's capable, low cost work force and tourism potential hold promise for the future. Foreign direct investment, which has historically originated predominately from EU nations, has totaled US$ 7 billion over the last decade, cumulatively about 15% of current GDP. In July 2003, President Iliescu visited President Vladimir Putin in Russia. The trip was made for the purpose of signing a mutual friendship treaty. Earlier, in May 2003, Romania and Russia reached an agreement, which mutually recognized national sovereignty and their respective borders. Efforts were also made to resolve a dispute over the annexation of the country now known as Moldova by the former Soviet Union in 1940. 1 Key Information Contacts National Securities Commission www.cnvmr.ro Ministry of Public Finance www.mfinante.ro National Bank of Romania www.bnro.ro ECONOMIC RATIOS Domestic savings PAGE 60 Romania Lower-middle-income group Trade Indebtedness Investment Economic Performance: On the back of improving macroeconomic stability and buoyant economic growth, S&P’s recently revised its outlook on Romania’s sovereign credit ratings from stable to positive and consequently placed the country into investment grade level . The outlook change is based on the strong commitment of the new centrist Government to step up economic, institutional and structural reforms, expected to strengthen country’s perspectives to join EU in 2007. The unemployment rate has continued on a declining path throughout the 2004 year, after having reached a maximum in February and March (7.8%). Since then, the rate has continuously decreased, with the exception of November when it slightly increased by 0.1% month over month basis. 2004 inflation dropped for the first time below 10% to 9.3% year-over-year basis in December 2004, marginally exceeding the 9% initial target. An important contribution to the drop in last year inflation came also from - National Bank of Romania, which maintained a restrictive monetary policy up to June, thus avoiding a surplus of cash in the economy. Tax collection improvement has reduced the January - November fiscal deficit to 0.2% of GDP, in spite of the electoral year. GROWTH OF INVESTMENT AND GDP (%) 20 15 10 5 0 -5 -10 -15 97 GDI GDP Announced as one of the main priorities of the new Cabinet formed by a coalition of four reformist centre-right parties headed by the new Prim-Minister, fiscal code has been amended to allow the introduction of the flat income tax of 16% as of January 1st 2005. Starting from the same date, the tax on corporate profit has also been lowered to 16% from 25%. According to preliminary estimates, in 2004 current account deficit widened to 6.2% of GDP (as against 5.8% in 2003) on the back of imports inflated by higher consumption and ROL appreciation. FDI financed 70% of the gap in line with 2003’s coverage. 2004 FDI expectations point to US$ 4.7 billion, 80% above the established US$ 2.6 billion target, suggesting a 6.2% share of GDP (as against 2.7% one year earlier). Such a strong hike in FDI’s share is mainly due to the EBRD and IFC’s payments totaling US$ 222 million for 25% stake of Romanian Commercial Bank as well as OMV’s US$ 871 million paid for 33.34% stake in SNP Petrom. 1 Economic and Political Overview, County Watch Incorporated, 2005 98 99 00 01 02 03 * World Bank reports
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT MAY 2005 BUCHAREST STOCK EXCHANGE ROMANIA GDP/EMPLOYMENT BY SECTOR OF ORIGIN Sector % GDP % Employment Agriculture 13.9 37.5 Industry 32.6 32.1 Services 53.5 30.4 ROMANIA MONEY SUPPLY, INTEREST RATES AND FOREIGN EXCHANGE RESERVES GROWTH OF EXPORTS AND IMPORTS (%) 35 30 25 20 15 10 5 0 -5 -10 25,000 20,000 15,000 10,000 5,000 0 97 Exports Imports 98 99 00 01 02 03 EXPORT AND IMPORT LEVELS (US$ Millions) Exports 97 Imports 98 99 00 01 02 03 1998 1999 2000 2001 2002 Money Supply M1 (lei-billions) 21,115 28,431 44,320 61,603 83,907 Money Supply M2 (lei-billions) 92,530 134,115 185,060 270,512 373,715 Growth Rate M1 17.7% 34.7% 55.9% 39.0% 36.2% Growth Rate M2 48.9% 44.9% 38.0% 46.2% 38.2% Interest Rates deposit rate 37.9% 35.0% 35.0% 35.0% 29.0% lending rate 64.0% 74.2% 51.9% 42.2% 27.0% Foreign Exchange Reserves (US$ millions) 2,867 2,687 3,922 5,442 7,211 Exchange Rate Period Average (lei/US$) 8,876 15,333 21,709 29,061 33,055 Annual % Growth 23.82 72.75 41.58 33.87 13.74 INFLATION (%) 160 140 120 100 80 60 40 20 CURRENT ACCOUNT BALANCE TO GDP (%) 0 -1 -2 -3 -4 -5 -6 -7 GDP deflator CPI 97 97 98 99 00 01 02 03 98 99 00 01 02 03 * Economic Overview, Country Watch Incorporated, 2005 * World Bank reports PAGE 61
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