Adrian Nastase: a premier in a hurry

Euromoney, January 2002

Adrian Nastase, the prime minister of Romania and Social Democratic Party leader, has been described as "a proactive politician". During a recent trip to the UK, he explained that positive action is his priority.

Adrian Nastase is a determined man, not least when it comes to his schedule. Working 16-hour days during his trip to the UK, Romania's premier met prime minister Tony Blair, spoke to the Confederation of British Industry about investment opportunities in Romania and even found time to address students at the Oxford Union.

Fresh from his latest round of talks with UK foreign minister Jack Straw about Romania's accession to Nato, he bounded into a hotel room to talk to Euromoney, crammed in more views on Romania's economic reform than one might imagine could be squeezed into 15 minutes and was on to his next appointment. Any thoughts of slipping in a few final questions as we were escorted outside were swiftly quashed when we saw the besuited security guards at the door.

Nastase is the new leader and fresh face of the Social Democratic Party (PSD). Impeccably dressed and softly spoken, he talks with serious determination about his plans. He has a four-year strategy through a programme of macroeconomic and structural reform to turn Romania into a market-driven economy. He wants to stamp out endemic corruption and streamline bureaucracy. He wants Romania to become a key member of Nato and the EU, and a strategic bridge between southern and eastern Europe.

His critics expect him to be just the latest in a string of premiers during Romania's painful 12-year transition from communism to have valiant words mired by inaction. Yet others are more hopeful. Marco Annunziata, senior economist at Deutsche Bank emerging markets research, says: "Many premiers have promised and not delivered, but this time I am optimistic. Nastase's government is a lot more cohesive that the preceding one and I think he knows that he has to fulfil the economic conditions for EU accession, as most of the population support it. Yet Romania is lagging behind virtually everyone else in the accession process."

If anyone can look beyond the quagmire of internal bureaucracy, it should be Nastase. The 51-year-old has held a string of professorships and fellowships in public international law at Romanian academic institutions. His international human rights and peace work ranges from his position as visiting fellow at Unesco's human rights and peace division in the early 1980s to his membership of the directing board for the Institute of Security Studies, East to West, in New York from the early to mid-1990s. He has written over 150 articles on human rights protection in Europe or other aspects of international or domestic law and was minister of foreign affairs for the PDSR between 1990 and 1992.

Those who say he should concentrate on delivering on his promises might take a look at his achievements of the last two months of 2001. Nastase has garnered support for Romania's EU and Nato membership from both Blair and US president George W Bush. The EC's latest annual country report on Romania is expected to commend its economic growth, dwindling unemployment and inflation. A new $380 million stand-by loan agreement has also been concluded with the IMF and Moody's Investors Service says it will re-evaluate the country's rating on the basis of the new IMF agreement and Romania's economic reforms to date.

Nastase is justly proud of the IMF agreement. "It was a huge effort and it was also important because it was a period of testing some of our policies before the board would ratify the agreement," he says. In the 12 months that Nastase's PSD party has been in power, the government has tackled those IMF prerequisites, including reducing public-sector pay, raising energy prices and continuing structural reform.

It's time to deliver Its macroeconomic reforms have reduced previously spiralling inflation to less than 30% this year, Romania now has the fastest growth rate in central Europe, over 4% so far this year, and the budget deficit has been cut from 3.7% at the beginning of the year to 3.5% in the second half. Productivity has grown more than 10%; exports more than 15%.

Agreeing a standby loan is one thing, but five previous loan agreements have failed because key structural reforms have not underpinned macroeconomic progress. For this loan agreement to succeed, the country has got to step up the privatization of its many loss-making state-owned industries, the arrears of which are estimated to be about 50% of GDP. Nastase accepts that some of the criticism levelled at Romania's transition from communism has been valid and is frank about what is left to be done. "I'm sure that Moody's and the other rating agencies will want to see not only the IMF agreement, but if we are able to implement it. As to that issue, I would respond that, in fact, during the past 12 months, we have proved that we are very serious and committed."

The privatization of Romania's single largest loss-making state industry in a deal worth around $500 million is a key step forward and a transaction that many commentators said was unlikely ever to happen. Nastase went to the final signing of the sale of Romania's steel manufacturer, Sidex, the largest in eastern Europe, to Anglo-Indian company LMN-ISPAT, during his trip to the UK. This follows the sale of a major commercial bank, Banca Agricola, to Austrian group Raffeisen earlier this year.

Although some bankers have argued about whether the timetable can be met, Nastase insists that the government is on course to complete the privatization of Romania's biggest bank, Banca Commerciale Romana, by the end of next year. Next up is the state-owned energy sector, an area of reform that the IMF says is particularly crucial.

"The energy sector is perhaps lagging behind the privatization process, which is why we have decided to address this in several ways," says Nastase. "First, as an experiment there will be a privatization of two electricity distributors. We have also started the privatization of 21 hydroelectric units and Romania's biggest oil company, Petrom."

The prime minister has to perform a juggling act. He must transform and privatize Romania's old industrial base, cope with extremely high unemployment and the pressures of retraining, and simultaneously trying to bolster macroeconomic statistics.

Nastase will need strong popular support if he is to step up the pace of reform to meet IMF loan and EU accession criteria. Annunziata says: "The government has relaunched the economic conditions for growth and we are approaching the middle part of the electoral term, so this is an ideal time for passing more reform. Clearly progress has been made, but it has been incipient progress. The next 12 months will be crucial."

Copyright Euromoney Magazine