Romania sees completion of EU entry talks in the fall; credit rating rosier

BUCHAREST (Reuters) – Romania has a chance to finish European Union entry talks this autumn if it takes action on state aid to industry, commits itself to cutting pollution and bolsters border controls to hamper crime, an EU official said yesterday. The ex-communist country, along with neighbor Bulgaria, missed the EU’s eastward expansion in May and hopes to join in 2007. The Romanian government has said it will complete entry talks by October. Sofia has completed accession negotiations but Bucharest still has five out of 30 negotiation chapters to close, including key areas of competition, the environment and justice where its laws and practices remain far below EU standards. «It is realistic to imagine that we can come to a point where we can propose closure of all of these chapters in the autumn,» the head of the European Commission delegation in Romania, Jonathan Scheele, told a conference. Scheele said the competition chapter could be closed once Romania accounts properly for state aid and tax breaks, especially for its steel industry, which was privatized a few years ago. The EU has taken a similarly tough stance on the sector in negotiations with other eastern European countries, which have now joined the wealthy bloc. «Particularly important is the steel industry, where privatization was a very complex issue and which is a difficult sector throughout the EU in terms of restructuring,» Scheele said. In the environment chapter, the EU wants the government to make investment commitments to cut gas emissions and upgrade the country’s waste treatment plants and waterworks. The government of Prime Minister Adrian Nastase has responded to criticism it was dragging its feet in the negotiations by sending an envoy to Brussels this week to present a «to-do list» of measures answering EU concerns. Many independent think-tanks remain skeptical, however, saying the government has a poor track record in both passing legislation and, more importantly, implementing it. Falling inflation Separately, Finance Minister Mihai Tanasescu said yesterday that Romania’s lower-than-expected inflation in the first half of the year gives the central bank room to cut interest rates. Official data showed consumer prices rose by 3.7 percent in the first six months of this year, some two points below an earlier government forecast. «We expect inflation to be two points below our estimate for the first six months and this will make possible a cut in the central bank’s key rate soon,» Tanasescu told Reuters in an interview before the release of the data. Under a two-year stand-by agreement with the International Monetary Fund on Wednesday, the EU candidate has pledged to curb inflation, one of the highest in the region, to 9.0 percent this year from 14.1 percent in 2003 and to trim the current account deficit at 5.5 percent of GDP. «The rate cut is a coherent move and we expect the central bank to make it as soon as next week,» said Florian Libocor, analyst with BRD-SocGen. Romania’s central bank, BNR, started a monetary easing cycle with a 50-basis-point cut in its deposits rate last month after keeping it flat since the start of the year following three successive tightenings in 2003. National Statistics Board data yesterday showed that in June consumer prices rose 0.6 percent month-on-month after a 0.3 percent rise in May following a 1.2 percent advance in costs of services. But the year-on-year CPI slowed to 12 percent from 12.3 percent a month before. The June inflation figure was above the 0.4 percent median forecast in the latest Reuters poll of analysts, but they said the inflation outlook remained good given the slowing year-on-year and six-month inflation figures. «I’m a bit surprised by June’s monthly figure but the year-on-year inflation is slower so I think the year-end target might be achievable,» said Libocor. Tanasescu also said Romania hoped to win credit rating upgrades as soon as August to reflect the Balkan country’s recent economic achievements, such as the new IMF accord or a landmark sale of oil company SNP Petrom to Austria’s OMV. Analysts said an upgrade was now within reach. «For a long time, we have been of the opinion that Romania is an improving credit story,» said Berna Bayazitoglu, emerging market economist at Credit Suisse First Boston in London. Romania, which hopes to join the European Union in 2007, is now two notches below investment grade, at BB by Fitch and Standard and Poor’s, and Ba3 by Moody’s Investors Service.