Identifier
Created
Classification
Origin
05BUCHAREST1584
2005-07-15 13:58:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Bucharest
Cable title:  

ROMANIA STRUGGLES TO OVERCOME EFFECTS OF FLOODS,

Tags:  ECON EAID EIND EFIN RO 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 03 BUCHAREST 001584 

SIPDIS

STATE FOR EUR/NCE - WSILKWORTH, EB/IFD
STATE PASS USTR
USTR FOR LERRION
TREASURY FOR STUART
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/CEEB/BURGESS/KIMBALL
STATE PASS USAID

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EAID EIND EFIN RO
SUBJECT: ROMANIA STRUGGLES TO OVERCOME EFFECTS OF FLOODS,
FORECAST CALLS FOR MORE RAIN - AND TURMOIL

REF: Bucharest 1563

Sensitive but Unclassified. Not for circulation outside USG
Channels.

UNCLAS SECTION 01 OF 03 BUCHAREST 001584

SIPDIS

STATE FOR EUR/NCE - WSILKWORTH, EB/IFD
STATE PASS USTR
USTR FOR LERRION
TREASURY FOR STUART
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/CEEB/BURGESS/KIMBALL
STATE PASS USAID

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EAID EIND EFIN RO
SUBJECT: ROMANIA STRUGGLES TO OVERCOME EFFECTS OF FLOODS,
FORECAST CALLS FOR MORE RAIN - AND TURMOIL

REF: Bucharest 1563

Sensitive but Unclassified. Not for circulation outside USG
Channels.


1. (SBU) SUMMARY: Recent flooding in Romania's eastern
regions have caused extensive damage to roads, suspended
electricity and gas networks, submerged prime agricultural
land and affected more than 14,000 households. This comes
on the heels of prior spring floods in the southwestern
areas that, taken together, have hit a large swath of
Romania. In a country with poor infrastructure and
subsistence agriculture, the damage will certainly hit the
economy, as the GOR and individuals struggle to rebuild. The
full effects of the floods on the budget and macroeconomic
growth will only reveal themselves in the coming months, but
will probably cause the Romanian budget to exceed the IMF-
imposed budget deficit ceiling. Many Romanians have
criticized the government for slow and inadequate
response to the flooding and for focusing on partisan
political concerns. END SUMMARY.

Flooding Causes Widespread Damage
--------------

2. (U) Damage estimates from the previous, less widespread,
flooding in May surpassed one billion Euros. The most recent
flooding has affected more localities (500 in 31 counties
throughout Romania),according to provisional GOR reports
released by the Ministry of Administration and Interior.
The floods have luckily taken only a minor toll on life,
resulting in at least seven deaths and several cases of
missing people. Thousands of people, however, have been
left homeless and more than 10,000 homes were evacuated and
250 were destroyed. Emergency workers and volunteers
rescued stranded residents from rooftops as water rose as
high as nine feet in some villages.


3. (U) The road infrastructure was heavily affected, with 17
national roads, 327 county roads and 54 communal roads
submerged, according to the Ministry of Transportation,
Construction and Tourism. Hundreds of bridges and
footbridges have collapsed. The three most affected

counties include Bacau, Arges and Vrancea, areas known for
farming, livestock and wood manufacturing.

Economic Impact Still Undetermined
--------------

4. (U) The flood's affect on the economy is difficult to
estimate at this time, as flash floods continue and new
waves of heavy rain are expected for next week. However,
according to preliminary estimates from the Ministry of
Agriculture, approximately 450,000 hectares of agricultural
land have been affected by floods (nearly five percent of
total agricultural land) with total damages reaching 130 to
140 million Euros, approximately $160 million.


5. (U) According to some estimates, crop losses will cause
wheat prices to soar by 22 percent, as 150,000 hectares of
land cultivated with wheat are affected. Fifteen percent of
land cultivated with sunflower and five percent of land
cultivated with corn are also inundated, although the GOR
has produced no damage estimate in this sector at this time.
Livestock losses, however, are estimated at almost half a
million USD.


6. (U) Nor will the losses be confined to the agricultural
sector. Transporters are still assessing the damage caused
by delays in freight shipment. Many factories in the area
were also inundated, with many uninsured. The transport of
petroleum from southern Moldova to refineries was also
affected.

GOR Worried About Impact
--------------

7. (U) After surveying the heavy flooding in Bacau county,
Prime Minister Calin Popescu Tariceanu on July 14 stated
that "the budget deficit no longer matters." Tariceanu
further stated that after six months of bargaining between
the GOR and the IMF, the macro-economic targets negotiated
for this year - a budget deficit of 0.7% of GDP, a 7.5%
inflation rate, and 5.5% economic growth - no longer hold
significance due to the natural disaster that has devastated
31 counties throughout the country.


8. (U) President Traian Basescu also on July 14 requested
the support of the European Commission for channeling twenty
million Euros from PHARE EU funds for emergency re-
construction of roads and bridges. The World Bank will
reallocate $33 million from existing projects to complement
state budget resources for the immediate reconstruction of
infrastructure and homes damaged by the floods. The GOR
yesterday announced a financial assistance package including
$344,000,000 for reconstruction, $507,900 for social
assistance, and approximately $1,000,000 for thirteen tons
of food to be sent to the affected areas.

.While the IMF Stands Firm
--------------

9. (SBU) Econoff spoke with an economic assistant in the
local IMF staff, who stated that the IMF will not easily
abandon its deficit target. Graham Justice, resident IMF
representative, is expected to meet shortly with the GOR
State Secretary responsible for the budget to review
government plans on cost control associated with the
flooding. The IMF staffer emphasized that because flooding
is expected to continue, it is too early to assess the
overall economic impact. She expects the GOR will request a
softer budget deficit target, but strongly prefers that they
look for cost savings on either the expenditure or revenue
sides. Since revenues have been much stronger than
forecast, she believes the GOR may have maneuvering room.

EU Still Assessing the Damage
--------------

10. (SBU) Econoff spoke with an economic analyst from the
European Commission's Bucharest office who was noncommittal
about the flood's economic impact due to a lack of data. He
stated that any damage that requires repair work could be
viewed as positive for the economy, while situations that
boost operating costs, such as higher transportation fees,
will have a negative affect on GDP. The analyst was
dismissive about the overall affect on total agricultural
output, and felt that in general the floods would likely not
be a "big deal" for the macro economy. He doubted the
flooding would impact EU accession and felt that if
anything, the situation may attract more sympathy from EU
member states.

GOR Response Perceived to be Slow
--------------

11. (SBU) Many Romanians have expressed anger at what they
perceive as the GOR's slow and inadequate reaction to the
flooding and the humanitarian crises that have followed in
its wake. Both media analysts and ordinary citizens have
criticized political leaders for focusing on PM Tariceanu's
expected resignation and the possibility of snap
parliamentary elections (see Reftel) rather than addressing
what most Romanians view as a major economic and
humanitarian catastrophe. Romania's best selling daily
newspaper, "Libertatea," observed July 15 that flooding has
turned Romania into an "ocean" in which "more than half of
the country's territory is covered with water," provoking an
"exodus of Romanians from their own country." Against this
backdrop, former President Iliescu called on President
Basescu earlier this week to convoke the Supreme Council of
National Defense (CSAT) in order to declare a state of
emergency, condemning the current government's insistence on
playing political games rather than focus on a natural
disaster of national proportions. (Ref) PM Tariceanu
publicly rejoined that "the necessary measures have already
been taken. We cannot make water no longer flow, but the
authorities had and will have a prompt reaction, so I
believe there is no need to declare an emergency." Media
commentators observed that declaration of a state of
emergency could imply calling in the armed forces to provide
humanitarian assistance.

U.S. Mission Assistance
--------------

12. (U) Even before this latest outbreak of flooding,
labeled in press reports as one of the worst of the past
century, Embassy's former Charge D'Affaires had declared the
flooding a disaster on July 5, 2005, after receiving a
request for assistance from the GOR, which enabled the USAID
Office of Foreign Disaster Assistance to provide $50,000 for
immediate humanitarian relief. This assistance will target
one of the hardest hit areas, and will provide emergency
commodities including water sterilization tablets, household
assistance kits (blankets, mattresses, clothing,
flashlights, dishes, rubber boots and gloves, basic food
items including oil, sugar, canned food, fruits and
vegetables),and individual hygiene kits (soap, detergent,
toothbrush, toothpaste, sanitary alcohol).

AmCham in Romania Announces Relief Efforts
--------------

13. (U) The American Chamber of Commerce in Romania (AmCham)
has started a campaign among its members to fund relief
efforts. The AmCham Board also authorized 5,000 Euros as an
immediate donation and is urging all of its members that
have already donated money or supplies to inform AmCham so
that it can keep track of the efforts.

Comment
--------------

14. (SBU) The floods may have made already tight IMF budget
targets virtually impossible to meet, as Romania prepares
for lower productivity and increased costs relating to
damages. Continuing flooding, which is predicted at least
into next week, will likely further drive the budget off-
target and lead Romania into an increasingly challenging
budget situation unless IMF targets are relaxed. With Prime
Minister Tariceanu's admission that spending on flood
assistance will occur regardless of the current budget
plans, he is admitting that Romania is unlikely to meet its
fiscal targets.


15. (SBU) It is still too early to assess the overall impact
of the floods on the Romanian economy. However, the
presence in the hard-hit rural areas of many subsistence
farmers suggests that the real humanitarian and financial
impact will be more serious than EU and IMF observers are
willing to admit at this time.


16. (SBU) This latest episode of flooding, judged by some
to be one of the worst of the past century, also seems to
have complicated the current convoluted political picture
still further, and threatens to erode the current
government's popularity if the GOR is not seen to address
the latest economic and humanitarian challenges adequately.
One of President Basescu's advisors told Charge on July 14
that the GOR is likely to reach out to us again to see what
resources we can make available to alleviate the suffering.
End comment.

Taplin