AMBASSADOR'S MEETINGS WITH KEY ECONOMIC MINISTERS

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