REGIONAL COOPERATION AND ECONOMIC INTEGRATION
REGIONAL COOPERATION AND ECONOMIC INTEGRATION REGIONAL COOPERATION AND ECONOMIC INTEGRATION
infrastructure projects connected to the renovation and development of local infrastructure. Some opportunities are also connected to the remaining privatizations in public utilities distribution (gas, oil and electricity), salt and gas exploration, public transportation, banking services or pharmaceuticals. Given the problems previously encountered as regards absorption and management, the efficiency related to using of the structural funds remains crucial. Significant improvements are required in the area of financial management and controlling structural funds. Therefore it can not be neglected the slowness of the bureaucratic system and the high turnover of personnel as major sources of inefficiency. Additional efforts are required to modernize the public sector and reform public administration as long as one of the key problems which negatively impact the business environment is weaknesses in the public administration, legislation and labor regulation rigidities. 3. Possible effects of the international financial crisis on the FDI FDI FLOWS IN SOUTH EASTERN EUROPE In the last years, the Romanian economy registered a rapid development, with growth rates between 6 % and 9.1 %. But the Romania’s impressive annual GDP growth between 2002 and 2007 has gone together with rising external imbalances. The current account deficit widened from 3% to 14% of GDP in the same period, (EC, 2007). The rapid expansion of financial intermediation, combined with steadily increasing income expectations has fuelled a domestic demand boom, for both consumption and investment, leading to a rapid increase in imports. Between 2000 and 2006, FDI was the principal financing source, covering around 75% of the current account deficit (figure 4). From 2007 onwards, FDI inflows dropped to roughly 50% of the deficit, as the privatization program of state owned enterprises was coming to an end. Also the composition of FDI inflows has changed: the share of equity inflows (including privatization receipts) shrank from 59% in 2004 to 13% in 2007, while intercompany loans have become more prominent, rising from 13% to 52% in the same period. The difference, i.e. reinvested earnings, stayed roughly constant. The rest of the current account deficit was more than covered by “other investment”, being mainly loans and currency deposits. The capital account has remained slightly positive and stood at 0.7% of GDP in 2007, partly reflecting the inflow of EU funds. 339
PART V: Figure 4: Balance of payments components (% of GDP) 20 15 10 5 0 -5 -10 -15 2002 2003 2004 2005 2006 2007 CA deficit FDI Portfolio investement Other investment Source: National Bank of Romania, Annual Reports 2003-2007 The increasing importance of FDI intra-company loans and other investment has resulted in a steady increase in external debt from 30% of GDP in 2000 to 52% of GDP in August 2008. The domestic counterpart of rapidly increasing external debt has been the acceleration of bank lending to households and enterprises. This was the economic situation of Romania when the international financial crisis appeared. One of the major factors with influence on the FDI is the international crisis. It should be taken into consideration that there are both direct and indirect effects of the crisis (Isarescu, 2008): a) Direct effects from banks’ exposure to “toxic assets”. But the direct effects are not present in the case of Romania because the banking system is fundamentally sound, which means: lack of exposure to “toxic assets” which lie at the root of the crisis; traditional banking products dominant due to their high profitability; b) Indirect effects caused by changes in the availability of capital and liquidity conditions and which are significant in Romania, as follows: - availability and cost constraints of external financing because the major impact on the availability of foreign-exchange denominated credit; - decline in the volume of FDI inflows, - negative impact on foreign demand, affecting Romania’s exports; - increased exchange-rate volatility amid the significant decrease in investors’ appetite for risk on emerging markets. The slowdown in the growth of domestic credit brings a slowdown in consumption and investment and the growth slowdown in the Western Europe will affect Romania’s exports and foreign direct investment (FDI). Also, a rise in unemployment will follow and inflationary pressures are not likely to subside because the excess demand in personal incomes. In absence of corrective action, 340
- Page 299 and 300: PART V: developing countries, where
- Page 301 and 302: PART V: Figure 2: FDI inflow distri
- Page 303 and 304: PART V: The economic literature usu
- Page 305 and 306: PART V: The regression equation, wi
- Page 307 and 308: PART V: Table 1. Determinants of FD
- Page 309 and 310: PART V: The key determinants that w
- Page 311 and 312: PART V: REFERENCES Liebscher, K. (2
- Page 313 and 314: PART V: INTRODUCTION In the conditi
- Page 315 and 316: PART V: from government regarding a
- Page 317 and 318: PART V: 306 3.1. Comparative analys
- Page 319 and 320: PART V: are sufficiently developed.
- Page 321 and 322: PART V: monopolistic companies is e
- Page 323 and 324: PART V: Savić Lj., (2008.), Inostr
- Page 325 and 326: PART V: abandoned CEFTA membership)
- Page 327 and 328: PART V: Figure 1: FDI in selected c
- Page 329 and 330: PART V: 318 Table 3: Balance of pay
- Page 331 and 332: PART V: come true if stable politic
- Page 333 and 334: PART V: The task of the effective u
- Page 335 and 336: PART V: Cooperation between the pub
- Page 337 and 338: PART V: needs of Serbia and in that
- Page 339 and 340: PART V: conventional production and
- Page 341 and 342: PART V: REFERENCES Bandiera, O., Ca
- Page 343 and 344: PART V: stability and macroeconomic
- Page 345 and 346: PART V: By economic activity, the m
- Page 347 and 348: PART V: Table 3: Exports and import
- Page 349: PART V: In the last years, a series
- Page 353 and 354: PART V: because the level of per ca
PART V:<br />
Figure 4: Balance of payments components (% of GDP)<br />
20<br />
15<br />
10<br />
5<br />
0<br />
-5<br />
-10<br />
-15<br />
2002 2003 2004 2005 2006 2007<br />
CA deficit FDI Portfolio investement Other investment<br />
Source: National Bank of Romania, Annual Reports 2003-2007<br />
The increasing importance of FDI intra-company loans and other investment has resulted<br />
in a steady increase in external debt from 30% of GDP in 2000 to 52% of GDP in August<br />
2008. The domestic counterpart of rapidly increasing external debt has been the acceleration<br />
of bank lending to households and enterprises.<br />
This was the economic situation of Romania when the international financial crisis<br />
appeared. One of the major factors with influence on the FDI is the international crisis. It<br />
should be taken into consideration that there are both direct and indirect effects of the crisis<br />
(Isarescu, 2008):<br />
a) Direct effects from banks’ exposure to “toxic assets”. But the direct effects are not present<br />
in the case of Romania because the banking system is fundamentally sound, which means:<br />
lack of exposure to “toxic assets” which lie at the root of the crisis; traditional banking<br />
products dominant due to their high profitability;<br />
b) Indirect effects caused by changes in the availability of capital and liquidity conditions<br />
and which are significant in Romania, as follows:<br />
- availability and cost constraints of external financing because the major impact on<br />
the availability of foreign-exchange denominated credit;<br />
- decline in the volume of FDI inflows,<br />
- negative impact on foreign demand, affecting Romania’s exports;<br />
- increased exchange-rate volatility amid the significant decrease in investors’<br />
appetite for risk on emerging markets.<br />
The slowdown in the growth of domestic credit brings a slowdown in consumption and<br />
investment and the growth slowdown in the Western Europe will affect Romania’s exports<br />
and foreign direct investment (FDI).<br />
Also, a rise in unemployment will follow and inflationary pressures are not likely to<br />
subside because the excess demand in personal incomes. In absence of corrective action,<br />
340
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