| U.S. Government Assistance to Eastern Europe under the Support for East European Democracy (SEED) Act -FY 2004 Released by the Bureau of European and Eurasian Affairs January 2005 II. Country Assessment--Romania U.S. STRATEGIC INTERESTS OVERVIEW OF U.S. GOVERNMENT ASSISTANCE In FY 2004, the U.S. Government (USG) provided an estimated $47.92 million in assistance to Romania:
During FY 2004, 371 Romanians traveled to the United States on USG-funded exchange programs.
U.S. ASSISTANCE PRIORITIES
Democratic Reform Programs: USG-funded programs are designed to help local governments improve the delivery of services, strengthen financial management, increase their responsiveness to constituents’ needs, and open decisions to citizen participation. The U.S. is helping civil society organizations to monitor and improve local government performance. To advance decentralization and bring government closer to the citizens, U.S. experts continue to recommend changes in local government legislation. In addition, U.S. programs foster more effective citizen participation in local politics, thereby increasing the accountability of municipal and county political representatives.
USG democracy programs promote the rights of ethnic minorities, particularly members of the Hungarian and Roma communities, and help to ensure that the lessons of the Holocaust are not forgotten. U.S. programs also press for expanded opportunities for Romanian youth through active civic involvement. Through the American Chamber of Commerce, the U.S. fosters corporate philanthropy in order to create a "culture of giving" and volunteerism, while also encouraging companies to become more involved in solving community problems.
Economic and Social Sector Reform Programs: Privatization of the Romanian economy is in its final stages, with only about 20 percent remaining under state ownership, but a large gray economy is not captured in official statistics. Within the next two years, economic reforms must prepare Romania for EU accession in 2007. Because only nine percent of the economy is competitive in international markets, increasing its competitiveness must be the country’s top priority. The key to doing so will be the Romanian Government’s (GOR) ability to administer its judicial and regulatory systems so that a market economy develops naturally, free of undue government red tape and corruption. The GOR’s capacity to maintain proper oversight of financial developments and complex EU-mandated programs is also important. As investment, both local and foreign, accelerates, U.S. assistance to ensure proper training in the oversight of the financial markets will become even more critical. At the same time, support for the introduction of mortgage-backed securities and mortgage bonds, and the improvement of company listings and corporate governance rules for the stock exchanges, will continue. Anti-money-laundering and other fraud-detection measures at the National Securities Commission, Anti-Corruption Prosecutor’s Office, and the National Bank of Romania (NBR) are being improved with U.S. assistance. The staff of the National Securities Commission and the NBR is being trained to increase their supervisory capacity.
Strengthening the competitiveness of private companies, especially small and medium-size enterprises (SMEs), is an important goal of U.S. programs. New financial instruments are being developed to provide long-term capital and encourage new companies to list shares, issue bonds, and trade debt instruments. Business associations, chambers of commerce, and government agencies are being helped to improve their services for small businesses. Micro-lending services are being provided in 23 of 41 counties. Additional capital funds for micro-lending in these counties will be leveraged from the GOR and World Bank. U.S. agriculture programs focus on forming water user’s associations to facilitate the privatization of state-owned irrigation systems, reforming subsidies, improving food sanitation standards, and drafting legislation for a market information system that will make Romanian agriculture more competitive. Security, Regional Stability, and Law Enforcement Programs: Romania’s strategic location in the Balkans, access to the Black Sea, and NATO membership increase its importance to U.S. national security. Romania is an active partner for stability in the Balkans, with troops serving in Kosovo and Bosnia, and it plays a key role in many Black Sea regional initiatives. Romania contributes directly to the Global War on Terrorism in Afghanistan and Iraq, with troops serving in both countries. The U.S. is helping to restructure Romania’s military and to develop its C-130 airlift and other niche capabilities that will contribute to NATO’s evolving new missions. The U.S. is helping the GOR to improve its relations with neighboring states, particularly those along NATO’s new frontier to the north and east. Apart from resolving outstanding disputes, improved relations will lead to increased success against cross-border criminal activity.
In the wake of the September 11 attacks, America’s border security interests clearly require that Romania strengthen its law enforcement and anti-terrorism capabilities. The U.S. is training police and prosecutors in new investigative techniques and in tracking money flows (a capability needed in the fight against corruption as well). The U.S. is also working to improve coordination among law enforcement agencies, both within Romania and among member states of the Southeast European Cooperative Initiative (SECI) Center in Bucharest, and to establish interagency and intergovernmental coordination to reduce cyber-crime and trafficking in persons, conventional weapons, weapons of mass destruction, and drugs.
Fighting corruption and advancing the rule of law are key endeavors that support the U.S. national interest in bolstering Romania’s democracy. Progress in these areas is essential for achieving other strategic goals. U.S. assistance supports Romanian institutions as they seek to strengthen the independence of the Superior Council of Magistrates and to draft new laws that expand and clarify public financial disclosure requirements. Moreover, by providing ethics training for judges and court staff, U.S. assistance enables greater independence, integrity, and transparency of the judiciary.
SECTORAL ASSESSMENTS
Democratic Reform
Although Romania’s elections have been deemed free and fair since 1990, and despite progress on some fronts, significant challenges in establishing a vibrant democracy remain. Endemic corruption, continuing high levels of poverty, and a lack of accountability among office holders erode confidence in democracy. Judicial independence and integrity remain problematic, fueling public cynicism toward democratic institutions and discouraging investors.
Civil society remains weak, with limited influence on public policy or opinion. Partially as a legacy of communism, the concept of citizenship -- including active citizen involvement -- has yet to take root among much of the population. This is exacerbated by a party-list system for parliamentary elections, which further weakens the ties between national-level officials and their constituents. The central government has transferred responsibility for many services to local governments but without providing adequate financial resources. Unfunded mandates in utilities, education, social welfare, and health remain a pressing problem. Under the government that left office late in 2004, that problem was particularly acute for communities with elected leadership not of the same party as that ruling at the national level. The recently approved strategy for public administration reform includes a roadmap for decentralization that it is more a strategy for de-concentration, as it largely delegates additional responsibilities to centrally appointed county prefects, rather than to elected local governments. Moreover, the GOR has failed to assess adequately decentralization’s financial impact on local governments. Too little attention has been paid to the efficient mobilization and use of local resources, the need for citizens to establish community priorities, and the means to enhance local service delivery.
To address these issues, U.S. assistance focuses on decentralization, social service delivery, advocacy and citizen participation, civic education, alternative dispute resolution, judicial reform, media education, and political party strengthening. These activities increase citizen participation in local decisions and improve the delivery, effectiveness, and accountability of public services. Expanding the give and take between NGOs and local branches of political parties helps local politicians to develop platforms that respond to citizen concerns.
USG assistance, in FY 2004, contributed to better democratic governance and the initiation of replicable best practices. U.S.-assisted NGOs successfully lobbied for local government reforms that address citizen concerns, such as the lack of services for domestic violence and trafficking victims, the absence of medical services in villages, the need for home care for the elderly, and the requirement for transparent local budgeting. NGOs sponsored local budget hearings and encouraged citizen participation. As a direct result of these hearings, 19 new services have been created in small communities. With U.S. assistance, 13 local governments have completed their first-ever capital improvement plans that include all operations and maintenance costs. These plans are an essential step in obtaining a credit rating, so that the local government can issue bonds to finance badly needed infrastructure construction and rehabilitation. The GOR is now replicating the emergency medical services model, piloted with U.S. support in 2003, throughout the entire country.
Using models created by Romanian-American partnerships, NGOs promoted civic activism, philanthropy, and volunteerism, as well as inclusion of vulnerable groups, especially Roma. In support of the June 2004 local elections, USG assistance helped to increase the dialogue between civic groups and local political parties, trained campaign managers, identified the needs and concerns of constituents, and educated voters in many counties about candidates and their political platforms. Public information activities have informed high school and university students about their role in civic society and their need to be involved in the political process. U.S. support for the development of free, independent, and responsible media has been important to NGOs in countering government moves to buy up and control, or silence, journalists, editors, and media owners via veiled or overt threats and acts of intimidation.
Economic and Social Sector Reform
Since mid-2000, Romania has made key fiscal and monetary policy reforms that have had significant impact in improving its macroeconomic stability. Key indicators include the following: (1) The economy has had five years of solid growth, with at least six-percent growth expected in 2004. (2) Annual inflation rates have decreased from a high of 40.7 percent in 2000 to an anticipated 10 percent for 2004. (3) Official currency reserves at the National Bank continue to increase and stood at $11.9 billion at the end of September 2004. (4) Privatization of major portions of the energy industry took place in 2004.
Improved macroeconomic performance and growth over the past four years have contributed to a decline in the poverty rate. In 2003, one in four Romanians still lived in poverty. Poverty remains significantly higher in rural regions, however, with four persons in 10 living in poverty. About 45 percent of the population is engaged in agriculture, most in small-plot subsistence farming. Per capita GDP reached only $2,600 in 2003, and Romania remains one of the poorest EU aspirants. The share of GDP generated by the private sector is still relatively low, at 69 percent at the end of 2003, compared with an average of 76 percent of GDP for other countries in the region. Economic restructuring, including the privatization of the remaining large state-owned industries, remains a major challenge to Romania, if it is to maintain macroeconomic stability and expand its market-based economy to provide meaningful jobs and decrease poverty.
Corruption, red tape, and an uneven playing field limit both domestic and international investment. By September 2004, Romania had attracted $10 billion in foreign direct investment (FDI) since 1990. However, at $400 per person, FDI is the lowest in the region, compared with $587 in Bulgaria and $2,400 in Hungary. This disadvantages Romania for its future development. The U.S. is pressing the GOR to improve the business climate in order to attract more investors. Necessary reforms include elimination of burdensome license and permit requirements; shortening the time to obtain licenses; reform of the labor code; lower taxes for small businesses; improved intellectual property protection; and a range of effective measures to counter corruption.
The U.S. provides assistance in four key economic areas: reform of the legal and regulatory environment for business; backing for organizations and government agencies that support business; increasing the competitiveness of private enterprises; and privatization of state-owned companies.
U.S. advisors continued to address key legal constraints to business development. The new Fiscal Code, which was drafted with U.S. assistance and included input from the business community, was adopted in January 2004. U.S. advisors finalized and submitted to the GOR for review the "Mortgage Legislative Package," which amends existing mortgage and cadastre laws, as well as new drafts of the mortgage bond and securitization laws. In conjunction with the microfinance coalition, U.S. advisors drafted legislation that will increase lending to micro and small enterprises through non-bank financial institutions. They helped draft a new Commercial Code that will further liberalize the electricity market and facilitate its integration into the European market.
USG programs implemented the telecenter concept, which allows the GOR to comply with the EU’s Universal Service Law by providing communication services to poor, rural people while avoiding an estimated annual investment of $520 million in fixed telephones for individual subscribers. Local and U.S. private companies contributed $280,000 to set up four pilot centers. A new $32 million World Bank project will replicate the telecenters in rural areas around the country.
U.S. assistance continued to enhance the GOR’s ability to manage its water resources. USG programs leveraged $52 million to fund the rehabilitation of the Cluj water and wastewater plant and complemented a $14 million World Bank grant that reduces the environmental impact of agriculture. U.S. advisors conducted a feasibility study that the GOR will use to justify a potential $100 million investment to ameliorate the impact of floods and droughts, and improve the response to accidental pollution spills. At five companies in northeast Romania, U.S. advisors implemented environmental procedures that reduced operating costs by $275,000 and decreased some pollutants, such as cyanide, by as much as 90 percent.
With U.S. assistance, the GOR restructured the National Irrigation Authority, which regulates the country’s irrigation systems and monitors the water users’ associations (WUAs). By providing training to 174 WUAs that manage over 600,000 hectares of farmland, the U.S. assisted in the privatization of the state-owned irrigation system and prepared the necessary conditions for an $80 million World Bank loan for rehabilitating the irrigation infrastructure. U.S. advisors helped to set up the first certification organization for organic products that complies with EU legislation and enables the export of organic goods to Europe.
The U.S. expanded its small business lending program, which now covers 23 of Romania’s 41 counties. It has provided $4.3 million in loans, of which $2.6 million was leveraged from the GOR and the World Bank. U.S. expertise facilitated access to the EU pre-accession funds for agriculture and rural development by creating a streamlined application procedure and assisting agribusinesses to prepare financial proposals that met the required 50 percent contribution. This year a total of $3.5 million was disbursed, with U.S. assistance.
U.S. programs have played an important role in improving the legal and regulatory environment that facilitated the privatization of two large electrical and two major natural gas distribution companies that drew $727 million in foreign investment. A new system for electricity and gas tariffs was designed that takes real costs and future infrastructure requirements into account.
U.S. public relations programs on economic reform help NGOs, the press, and the GOR to understand better what needs to be done to bring foreign, especially American, investment to Romania. The U.S. has also undertaken outreach activities to educate people about the benefits of genetically modified products (GMOs) and counter negative stories on them in the press. Intellectual property rights and corruption are a particular concern, and the USG message has been shaped to reflect this concern.
The health and child welfare situation in Romania remains fragile. Life expectancy at birth is 71 years. The infant mortality, under-five mortality, and maternal mortality rates are among Europe’s highest. Infant mortality is 25 percent higher than the Eastern European average and five times the Western European average. Over 26,000 children still live in state-run homes for children. Child abandonment remains high, with about 5,000 children abandoned each year, although about half are eventually reunited with their families. Romania’s nascent community services, which care for almost 80,000 children, still require assistance to mature into an effective, sustainable system. In the early 1990s, Romania had the largest number of pediatric AIDS cases in Europe. There are now over 8,000 adolescents living with HIV/AIDS. The prevalence of HIV/AIDS continues to rise, and without a sustained prevention program, the rate will accelerate as AIDS-infected children become sexually active. Romanian legislation on health financing is still weak and conducive to waste and inefficiency, leaving the health system under-funded and overburdened.
In FY 2004, U.S. assistance helped reduce the number of institutionalized children by 4,750 (15 percent). The U.S. supported over 130 alternative community services, provided by NGOs. U.S. advisors helped to draft legislation incorporating standards for all the new child welfare services – including on adoption, life skills training for youth, child abuse, and neglect. U.S. consultants helped the GOR to implement a national reproductive health system. The number of trained primary health care staff offering reproductive and maternal health services has grown from 43 in 2000 to over 3,000 in 2004. Strong GOR leadership has resulted in new protocols and standards of service, as well as a significant government commitment to ensuring an adequate supply of contraceptives. National campaigns were held about unwanted pregnancy, reproductive health services, early detection of breast cancer, prevention of HIV/AIDS, sexually transmitted infections, and the fight against discrimination. With USG encouragement, United Way Romania was born, and private businesses partnered with NGOs to provide skills training to almost 1,000 young people graduating from children’s "homes" in FY 2004. The U.S. has helped to develop an efficient national child tracking system to provide dependable information on which to base decisions affecting children’s needs and care. Romania received a $38 million grant from the Global Fund to Fight AIDS, Tuberculosis, and Malaria.
Security, Regional Stability, and Law Enforcement
Romania’s location makes it particularly relevant to U.S. security goals in a potentially volatile region. U.S. assistance has helped the GOR to implement an aggressive military reform program to improve Romania’s NATO interoperability. Activities have included the provision of an advisory team to support military restructuring, acquisition of an additional C-130 aircraft, English-language training for officers and NCOs, and deployment of Romanian troops with U.S. and NATO forces.
U.S. support to the SECI Regional Center for Combating Transborder Crime continues. The Center is an increasingly effective operational and intelligence center for combating organized crime. SECI includes regional task forces to combat trafficking in persons, narcotics smuggling, commercial fraud, and terrorism. The U.S. provided technical advice to the General Prosecutor’s Office on developing an organized crime task force. The U.S. encouraged regional cooperation by hosting a study tour of justice officials and anti-corruption specialists from the Republic of Moldova. The Rule of Law program has assisted in creating new legislation to raise professionalism of judges and prosecutors.
The U.S. judicial anti-corruption program supports the implementation of codes of ethics for judges and court staff, and strengthens the independence of the judiciary. In June 2004, Parliament passed judicial reforms, which included laws on the Statute of Magistrates, Judicial Organization, and the Superior Council of Magistrates. These laws address some key problems, such as the lack of judicial independence and executive branch interference in judicial matters. The U.S. Alternative Dispute Resolution pilot program in Craiova has Ministry of Justice support and is becoming both a model for such programs, as well as a training center for facilitators and trainers. The Ministry hopes that when Alternative Dispute Resolution is adopted more widely, it will reduce the backlog of cases clogging the courts. During 2004, an anti-trafficking-in-persons "best practices" manual, produced with U.S. assistance, was used to train 100 police officers, including 42 women. This manual is used in 13 countries in the region to train border police, specialized police units, and prosecutors on best investigative techniques and tactics to reduce trafficking while protecting victims. The U.S. is also making grants to NGO-police partnerships for anti-trafficking awareness campaigns, and to NGOs that rehabilitate victims of trafficking.
Humanitarian Assistance
The U.S. sent excess property (food, furniture and clothing) worth $1.76 million to Romania for distribution by two NGOs to the needy. Emergency disaster assistance, valued at $50,000, was also provided to victims in storm-affected counties late in FY 2004. The funding was used to purchase emergency food supplies, repair destroyed homes, and distribute some of the excess property that could meet the victims’ immediate needs. In addition, the Department of Defense (DOD) implemented a variety of humanitarian and civic assistance programs that complemented its military assistance.
COUNTRY PERFORMANCE MEASURES ECONOMIC & DEMOCRATIC REFORMS, 1991-2004
Data are drawn from EBRD, Transition Report (November 2004) & Freedom House, Nations in Transit 2004 & Freedom in the World 2004. Ratings are based on a 1 to 5 scale with 5 representing the most advanced.
ECONOMIC STRUCTURE AND HUMAN DEVELOPMENT, 1990-2004
World Bank, World Development Indicators 2004 (2004); UNICEF, Social Monitor 2004 (2004); EBRD, Transition Report (November 2004); and UNDP, Human Development Report (2004).
MEASURES OF PROGRAM EFFECTIVENESS IN FY 2004 DEMOCRATIC REFORM Performance Indicator: Increased ethics awareness among judges
FY 2004 Results: The target was achieved, with 200 judges having been trained in judicial ethics since October 2003. The National Institute of Magistrates will include judicial ethics training in its curricula, using the trainers’ handbook, trainees’ manual, and hypothetical scenarios developed by U.S. advisors. Performance Indicator: Improved credibility and sustainability of NGOs
FY 2004 Results: The target was partially achieved. NGOs formed more coalitions on important issues, such as justice reform, domestic violence, and transparency in candidate selection. NGOs used the new Freedom of Information Law to increase their monitoring of both the local and central governments. Several NGOs increased their visibility and informed voters on candidate and party policies, and monitored local elections. Six NGOs organized local budget hearings and encouraged citizen participation. As a direct result of these hearings and citizen input into the process, 19 new services have been created at the local level. Polling data and focus groups, organized by NGOs, informed political parties of the issues most relevant to the electorate. ECONOMIC AND SOCIAL REFORM Performance Indicator: Accelerated economic reform
FY 2004 Results: Thetarget was achieved. Romania continued its positive growth for the fifth straight year, with GDP expected to rise by more than 6 percent. Inflation is projected to be about 10 percent. Privatization in the crucial energy sector is progressing with the sale of the largest oil company, as well as two electrical distribution and two gas distribution companies. Privatizations by the State Asset Resolution Agency (AVAS, previously called APAPS) have moved ahead, and the GOR expects complete divestiture of the remaining 142 state-owned companies by mid-2005. FDI is expected to be 25 percent higher than last year, well above the GDP growth rate. The EU has declared Romania a functioning market economy, although the EU has stated concerns about Romania’s competitiveness. Romania closed the agriculture chapter in July 2004. Although the GOR claims that arrears have dropped to less than 34 percent of the GDP, compared to 40 percent at the beginning of 2004, this figure does not include exemptions granted to companies based on legislation, i.e., legislation for speeding up privatization. In addition, the GOR has maintained the practice of rescheduling budget arrears for state-owned or politically connected companies. Performance Indicator: Rate of change in U.S. exports to Romania compared with rate of change of GDP.
FY 2004 Results: The target was partially achieved. U.S. exports to Romania reached $345 million between January 1 and September 30, 2004, growing by 85 percent over the same period in 2003. Their rate of growth will by far exceed that of the GDP. The disagreement over tariffs remains a contentious issue. The General System of Preferences has been discussed with the GOR, which was asked for tariff reductions for items of particular interest to U.S. exporters already in 2002, in line with the expectations of the GSP program. Romania reduced tariffs on a small number of U.S exports in 2004, but now appears to be backsliding on even these modest changes.
FY 2004 Results: The target was achieved. Most of the reduction in the number of children in institutions resulted from transfers to the community-based services that increased significantly this year. Also, adolescents are "graduating" from the institutions faster than younger children are entering the remaining ones. SECURITY, REGIONAL STABILITY, AND LAW ENFORCEMENT Performance Indicator: International law enforcement cooperation.
FY 2004 Results: The target has been achieved. SECI-Interpol coordination has been established. SEEPAG is running, with U.S. legal assistance. Romania and Moldova are cooperating on several anti-trafficking cases. There were 50 successful prosecutions in Romania as a result of the work of the SECI Human Trafficking Task Force. The anti-terrorist working group is operational. Performance Indicator: Corruption deterrence and prosecution.
FY 2004 Results: The target has been partially achieved. Prosecutions of high profile cases have begun. These include a Member of Parliament and a former Minister. The procedural mechanism for prosecuting Members of Parliament has been amended, and at least one prosecution has been initiated. (The constitutionality of PNA jurisdiction over Members of Parliament has not yet been confirmed). An asset disclosure law has been enacted. It is not yet accompanied by an enforcement mechanism. ROMANIA
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