Romania’s recent economic and political achievements have prompted all international rating agencies to upgrade the country’s ratings.
In September 2005, Standard & Poor’s raised Romania’s long-term foreign currency rating to investment grade at BBB– (‘BBB minus’) with stable outlook. At the end of 2005, Fitch affirmed the country’s long-term foreign currency at BBB– (‘BBB minus’). Also, the US financial rating agency Moody’s upgraded the Romanian government long-term and short-term foreign and local currency ratings to Baa3 in October 2006. These changes contributed to an improvement in Romania’s position on foreign capital markets.
The latest data on GDP growth indicates a 7.4% increase for the first semester of 2006 as opposed to the same period in 2005. The Government expected a GDP growth of around 6.7% in 2006.
The large privatizations that took place in 2005 (e.g. the sale of two major electricity distribution companies: Electrica Oltenia and Electrica Moldova to Ceske Energeticke Zavody (CEZ), and E.ON AG), the introduction of the new Fiscal Code and also the country’s EU accession process, positively influenced the level of FDI.
Meanwhile, the National Bank of Romania (BNR) hard currency reserves, excluding some 104.8 tones of gold, rose to EUR 16.7 billion at the end of December 2005 from EUR 10.8 billion the previous year. At the end of September 2006, total reserves were around EUR 20 billion.
The Monitoring Report of the European Commission released in September 2006 acknowledged progress made by Romania with regard to macroeconomic stabilization and economic reform.
Further progress has been acknowledged in reforming the justice system as well as in the fight against corruption.
Romania's achievements have also been recognized by the rating agencies with Moody’s upgrading Romania’s long-term and short-term foreign and local currency ratings to Baa3 with a stable outlook in October 2006 while one year ago, S&P raised Romania's long-term foreign currency credit rating to investment grade at 'BBB-', with stable outlook.
The new government moved fast to modify the fiscal code with the aim of bringing it into line with EU requirements and to provide an atmosphere of business stability and predictability in Romania.
The new code that came into force on 1 January 2007 maintains the single flat tax rate of 16% and VAT remains at 19%.
The code also stipulates that micro-companies pay a 2% tax on revenues earned in 2007, 2.5% on revenues for 2008 and 3% on revenues for 2009.
Capital gain for sale of shares is taxed at 1% for long-term holdings (more than one year) and 16% for short-term holdings (less than one year).
The privatization process continues with large-scale sell-offs slated to take place in the financial sector (i.e. the National Savings Bank-CEC), in the energy sector (i.e. the National Gas Company - Romgaz, three power complexes and three electricity distributors), in post and radio communications (i.e. the Romanian Post, the National Radio communications Company), in the pharmaceutical sector (i.e. Antibiotice Iasi), and in the transport sector (i.e. the Romanian Freight Railway Transport-CFR Marfa).
Since the beginning of 1990, Romania has had a free market economy countered by a continuous government presence in the industrial sector.
Successive governments have made strides in liberalizing and privatizing the economy.
Romania sits at the crossroads of many traditional commercial routes that allow access to a further 200 million consumers within a 1,000 km radius of Bucharest.
The main focus of these routes is the Danube River and the port of Constanta, the largest port on the Black Sea, which is currently linked to the North Sea through a new permanent navigation route formed by the Rhein-Main-Danube Canal.
The country boasts of a workforce which is experienced in areas such as engineering and manufacturing and is relatively cheaper compared to most other Eastern European countries.
There is a large industrial infrastructure in many of the country’s leading cities, which together with the country’s considerable natural resources possess substantial potential for exploitation and development.
Like many countries in Eastern Europe and the former Soviet Union, Romania has been struggling to switch its previous central economy into a market economy.
Successive governments have found it very difficult to turn the economy around because of the lack of hard currency and because of the inability to secure external funding of the country due to its high budget deficits, mainly accrued from the continuous financing of loss-making state industries.
It has been hard to change many of the old economic and financial mechanisms, as well as the bureaucratic culture that was inherent in many of the old institutions.
In the last 3 to 4 years the overall economic environment has improved and the indicators look healthier.
Romania is a Constitutional Republic.
The present Constitution was adopted by the Parliament on 21 November 1991 and was subsequently amended and ratified by Law 429/2003, such amendment being effective as of 29 October 2003.
The Romanian Constitution confirms among its aims a multi-party system, a free-market economy and the respect of human rights. Legislative power is vested in a bicameral Parliament that is made up of a lower house of 345 seats (Chamber of Deputies) and an upper house of 140 seats (Senate). Parliamentary elections are held every 4 years while presidential elections are held every 5 years.
The President is elected by direct universal vote and has powers that are limited by the Constitution. The President is required to:
Under the Constitution, private property is equally guaranteed and protected by the Romanian State.
Foreign nationals and stateless persons may obtain the right of ownership over land under the conditions resulting from Romania’s accession into the European Union or by virtue of domestic laws and other international treaties to which Romania has become a party. All statutory provisions pertaining to civil, commercial, criminal, and administrative and tax matters are enacted by the Parliament.
International treaties are binding only if ratified by the Parliament. Since the revolution in 1989, the reformation and harmonization of laws with EU standards has become a key driver in Romania’s efforts of joining the EU.
In 1994, Romania ratified the European Convention for the Protection of Human Rights and Fundamental Freedoms. In accordance with the relevant ratification law, Romania has agreed to enforce the rights guaranteed by this convention, including among other things the right of individual petition, and to recognize the competence of the European Court of Human Rights.
To this end, any Romanian citizen may bring a case against the Romanian State before the European Court, the rulings of which are binding upon the Romanian State.
Through the legislative initiatives of the recent years, many of the laws that are typical for a market economy have been enacted and have led to the relative stabilization of Romania’s legal system. The laws concerning dispute resolution and related procedures are well established in Romania. The concept of arbitration is also widely spread.
The court system is organized at the national, county and local levels and is divided into civil and criminal. The High Court is the highest judicial forum of Romania. Unlike the US Supreme Court, the Romanian High Court cannot exercise judicial review, adjudicating on the conformity of laws with the Constitution and other regulations of the Parliament to the same effect. This competence is attributed to the Constitutional Court of Romania. Moreover, judicial precedent does not constitute a recognized source of law.
Romania officially joined the Alliance at the end of March 2004, some 55 years after NATO had been established.
Romania has diplomatic relations with over 170 nations. This has enabled the country to join important organizations and be party to key agreements including the following:
In addition, Romania has concluded a number of bilateral agreements concerning trade, avoidance of double taxation, and mutual guarantees of investments.
The modern legal system in Romania dates back to the mid-19th century. The Romanian justice system is based on French, Belgian, Italian and German models.
To fulfill its responsibility for the functioning of the courts and the supervision of state marshals, state notaries, and the national bar organization, the Ministry of Justice was divided into six directorates:
The 1992 law on reorganization of the judiciary established a four-tier legal system, including the reestablishment of appellate courts, which existed prior to Communist rule in 1952. The four tiers consist of courts of:
The court system also includes military courts. Military courts were established on a territorial basis, subdivisions being determined by the Council of Ministers.
Under the law, the courts are independent of the executive branch. The constitution vests authority for selection and promotion of judges in the Ministry of Justice. Judges are appointed for life by the president upon recommendation from a panel of judges and prosecutors selected by parliament.
The Ministry of Justice exercises powers related to administration of the justice system, execution of punishments, as well as in connection with the activity of the Public Ministry, based on strict application of the laws and in keeping with the democratic principles of the rule of law, ensuring adequate conditions for the entire justice system.
The Romanian Constitution reinstated the Superior Council of the Magistracy, a body of the judicial authority with management powers and disciplinary jurisdiction. Its members are elected directly from the general assemblies of the magistrates by court levels, their list being forwarded through the permanent offices of the Chamber of Deputies and the Senate to the legal commissions with a view to hearings in a joint session. Subsequently, the list of candidates is put to the vote in a joint session of the two chambers of Parliament.