Romania Defence and Security Report Q2 2009

The recent Romanian parliamentary elections, held on November 30 2008, were fiercely contested by the two opposition parties, the Democrat Liberal Party (PD-L) and the Social Democrat party (PSD). The PDL with 166 seats and PSD with 163, have formed a coalition government after lengthy and tense negotiations. Emil Boc of the PD-L is Prime Minister, with PSD's Dan Nica his deputy. The government's first months have been turbulent. President Traian Basescu had nominated Theodor Stolojan (PD-L) as prime minister on December 10, but the following day Stolojan renounced the position saying that younger politicians should step forward. Boc, 42, was nominated by the president later the same day. The government has already had three different interior ministers. In late February, the government passed a budget focussing on public works spending to cushion the economy from the global financial crisis, and is pursuing aid options from the EU and IMF. We believe the Democrat Liberal led government is the most attractive option for ensuring Romania's long-term political stability and economic growth. Not only did the party campaign on implementing the raft of anti-corruption reforms which have been advocated by the European Union, but it is also the most committed on pushing ahead with Romania's convergence to EU norms. In addition, a Democratic Liberal party government will lead to a change in the style of Romanian politics, as it will substantially reduce the friction between the legislature and the executive. The two branches of power will no longer be forced to cohabit, but will be able to work together. This is likely to speed up reforms and lead to a more harmonised approach to policy making.

The Romanian defence industry will continue on its restructuring and privatisation programme. Having seen dramatic redundancies in the recent past, including the loss of 61% of the workforce between 2002 and 2003, the period will witness a further reduction within the Romanian defence industry. However, the losses should level out towards the end of the forecast period. The long-planned privatisation seems to be underway and the Romanian Ministry of Economy and Commerce is receiving offers for the RomArm group of companies. Arms imports will increase during the period as Romania seeks to make the armed forces more efficient through the procurement of new systems, such as the C-130 Hercules. At the same time, exports will generally rise as Romania attempts to return to being a large player on the international market. In summary, the period will witness the Romanian defence industry hasten its transition from centrally planned to market industry (as the sector is set to be privatised) some time near the back-end of the forecast period.

In recent developments, the interior ministries of Serbia, Bulgaria and Romania signed a protocol in September 2008 on the joint fight against crime. The protocol is designed to improve police cooperation in the fight against crime, which is necessary since the security risks which the three countries face are inter-connected. The protocol will particularly extend to cooperation in the fight against cross-border crime, drug smuggling, money counterfeiting, illegal migration and economic crime, and, above all, the smuggling of excise goods, such as cigarettes and oil. In January 2009, Romanian Air Force chief Constantin Croitoru and several other senior staff were dismissed in connection with an arms theft.

Although this signals lingering corruption and organised crime, it also demonstrates that the new government is responding to it decisively.

Following the latest data release from the Romanian National Institute of Statistics, we have revised our 2008 and 2009 economic growth forecasts for Romania to 7.8% and 5.3% (from 5.6% and 5.1%), respectively. While we expect growth to slow over our five-year forecast period, we nevertheless anticipate that it will remain fairly robust, averaging 5.8% through to 2012.