US embassy cable - 05BUCHAREST84

C O N F I D E N T I A L SECTION 01 OF 02 BUCHAREST 000084 
 
SIPDIS 
 
INFO EUROPEAN POLITICAL COLLECTIVE 
DEPT OF COMMERCE WASHDC 
DEPT OF TREASURY WASHDC 
 
DEPT FOR EUR/NCE - WILLIAM SILKWORTH 
DEPT PLEASE PASS TO USTR - LISA ERRION 
COMMERCE FOR JAY BURGESS AND JONATHAN KIMBALL 
 
E.O. 12958: DECL: 01/10/2014 
TAGS: ECON, EFIN, ETRD, PREL, RO 
SUBJECT: AMBASSADOR'S MEETINGS WITH KEY ECONOMIC MINISTERS 
IN NEW GOVERNMENT 
 
REF: BUCHAREST 3293 
 
Classified By: ECONOMIC SECTION CHIEF JOHN R. RODGERS FOR REASONS 1.4 B 
 AND D 
 
1. (C) Summary: The Ambassador's first calls on new Romanian 
government ministers responsible for the economy reveal 
pro-business and pro-American attitudes.  They want to move 
ahead aggressively to change perceptions of Romania as a 
destination for foreign direct investment.  In particular, 
they intend to introduce more transparent procedures, root 
out corruption and pursue tax cheats.  Post assesses them as 
sincere and dynamic, but the government bureaucracy the 
previous government left behind will be difficult to motivate 
to make radical changes in the short term. Post will engage 
the new team to assist them and advance U.S. business and 
trade interests.  End Summary. 
 
2. (C) Ambassador and Econ Chief met during the first week of 
January 2005, with three key Romanian government (GOR) 
economic ministers shortly after they took office. Minister 
for Economics and Commerce, Codrut Seres, Minister for 
Finance, Ionut Popescu; and State Minister for Economic 
Coordination, Adrian Videanu were all enthusiastic about 
making radical changes in how Romania does business and eager 
to work with the United States.  They also realize the 
hurdles and problems they have inherited in making the 
economy competitive and resilient as it enters the European 
Union in less than two years. 
 
The Young and the Restless 
-------------------------- 
3. (C) The ministers are young ) Videanu is 42, Seres is 35, 
and Popescu is 40 - and have significant exposure to Western 
business practices.  For example, Minister Videanu, a 
self-made millionaire, got his start in the marble business 
with a loan from the Romanian American Enterprise Fund and 
enthusiastically endorses American business practices and the 
culture of success in the U.S.  They are also extremely 
ambitious, planning to bring about change in a short amount 
of time.  Further, despite being from different parties in 
the governing coalition ) Videanu is from the Democratic 
Party (PD), Seres is from the Humanist Party (PUR) and 
Popescu is from the National Liberal Party (PNL), they all 
appear to speak (and truly understand) the same free market 
language. 
 
4. (C) They pointed to their coalition government,s swift 
introduction of a flat tax of 16 percent for corporate and 
personal income as a signal of their intention to re-shape 
the way Romania does business (Septel).  This is only their 
first step, they claim.  In addition, over the next 3 months 
Minister Videanu wants to modify the fiscal code, change the 
labor code, eliminate administrative barriers to companies, 
and criminalize tax evasion.  Minister Popescu also wants to 
use the nascent capital markets for more effective 
privatizations by selling state-owned shares in companies on 
the stock exchange. 
 
5. (C) The main objective of the legal changes the new 
government is pursuing is to attract greater volumes of much 
more foreign direct investment (FDI). Indeed, Romania lags 
significantly behind most other former communist countries in 
Central and Eastern Europe in per capita FDI inflows. 
 
Creating a Level Playing Field 
------------------------------- 
6. (C) In addition to legal changes, the new ministers also 
want to introduce a new climate of transparency and fairness 
in the way the GOR approaches improving the business climate. 
 The new government intends to create a more level playing 
field for competition and to treat foreign and domestic 
businesses equally under the law.  They also want to clamp 
down on the previous government,s penchant for granting tax 
relief to struggling enterprises or even bailing out bankrupt 
firms run by political cronies.  In this regard, they pointed 
to their government,s action to suspend the previous 
government,s decision to save a failed refinery (RAFO: see 
Ref B) run by politically well-connected &businessmen.8 
 
A Novel Approach: Go After the Crooks 
------------------------------------- 
7. (C) For all three ministers, another important element in 
creating a level playing field and improving the business 
climate is to attack the pervasive corruption in society. 
Each minister emphasized the importance of ensuring that the 
Justice Ministry is truly independent of political influence 
so that it can pursue criminal cases even against &the big 
fish.8  As Minister of Finance Popescu phrased it, the 
government wants to punish offenders, but &we would prefer 
to lose in court than to interfere in the justice process.8 
Ambassador,s Message:  We Can Help 
----------------------------------- 
8. (C) The Ambassador,s message to the ministers was that 
the United States will assist Romania with advice and 
cooperation to help Romania develop its economy even more 
rapidly.  In addition, he stated that many American firms 
want to do more business in Romania and will welcome the 
announced change of attitude to FDI. 
 
9. (C) The Ambassador also pointed out that some American 
exports to Romania are being hurt by tariffs that exceed 
those granted to EU countries and the USG wants to discuss 
this with the GOR.  This is linked with the lower tariffs 
Romania enjoys through the USG,s General System of 
Preferences (GSP).  Economic Minister Seres, confirmed that 
the Minister-Delegate for Trade, Iulius Winkler, had 
discussed this issue with him already.  Seres remarked that 
this is a delicate issue, since the EU wants Romania to 
maintain tariffs that give its companies an advantage over 
U.S. exports, but that the GOR is willing to discuss it to 
try to achieve a solution.  Minister Seres suggested 
convening a technical level discussion to explore approaches. 
 The Ambassador agreed, saying that the embassy would consult 
with USTR and Commerce. 
 
Comment: The Hard Part Has Just Started 
--------------------------------------- 
10. (C) The Embassy welcomes the forward-looking and 
market-oriented perspectives of the new set of economic 
ministers.  Nonetheless, the catch will be working with 
holdover bureaucracies less amenable to change than 
themselves.  In general, however, the embassy has a very 
favorable impression of the first steps of the new economic 
team in Romania and plans to engage intensively with the GOR 
to provide advice and assistance where appropriate.  Finally, 
the very pro-American stance of the new government even lends 
some hope to address the long-simmering GSP tariff issue. 
 
DELARE