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Romania and the World Bank - 20 Years of Partnership

The World Bank Country Office in Romania


The World Bank Group

COPYRIGHT PAGE

CONTENTS
FOREWORD Robert B Zoellick
PREFACE Sebastian Vldescu
GLOSSARY OF ACRONYMS

THE PAST: ROMANIA AND THE WORLD BANK20 YEARS OF PARTNERSHIP FOR
DEVELOPMENT AND GROWTH
About the World Bank
Romania and the World Bank
Strategic Framework for World Bank Support
IBRD Assistance
Loans and Credits
Trust Funds and Grants
The Knowledge Bank: Analytic and Advisory Activities
The International Finance Corporation
Multilateral Investment Guarantee Agency
Working for Results
Paving the Way to Growth: Sustainable Private Development
Building Engines for Growth: Infrastructure
Revitalizing Rural Romania: Agriculture
Investing in People: Social Sector Development
Improving the Health Care System
Valuing the Human Potential: Education
Protecting the Disadvantaged
Building New Institutions: Governance and Institutional Development
The World Bank and the Civil Society: Added Value of Participation

THE PRESENT: TURNING THE CHALLENGE OF CRISIS INTO OPPORTUNITY FOR REFORM
Romania Today
Romanias Economy
The World Bank Program: Country Partnership Strategy 200913
Lending and Disbursements under the World Bank Project Portfolio
Projects under Implementation
Knowledge Economy Project
Avian Influenza Control and Human Pandemic Preparedness and Response
Project
Health Sector Reform 2 Project (APL 2)
Social Inclusion Project
Judicial Reform Project
Complementing EU Support for Agricultural Restructuring Project
(CESAR)
Energy Community of Southeast Europe Project (ECSEE APL 1)
Hazard Risk Mitigation and Emergency Preparedness Project
Romania Integrated Nutrient Pollution Control Project (INPCP)
Irrigation Rehabilitation and Reform Project
Modernizing Agricultural Knowledge and Information Systems Project
(MAKIS)
Mine Closure, Environmental and Socio-Economic Regeneration Project

Municipal Services Project


Functional Reviews
Development Policy Loans Program (DPL)

THE FUTURE: MASTER PLANNING SUSTAINABLE GROWTH AND EU CONVERGENCE


A Successful Recovery Strategy
The World Bank Strategic Prioritization
Pillar ITransition to a Competitive Knowledge-based Economy, R&D
Pillar IIInvesting in Human Resources and Combating Social Exclusion
Pillar IIITransition to a Green Economy through Sustainable Development
Pillar IVImproving Resource Allocation in the Public Sector
National PrioritiesHow to help the Romanian Government to Prioritize and Inform Its
Trade-offs across Sectors particularly in a Period of Budget Pressure?
Areas for Action in 2010-2013
Capitalizing on the Banks Value Added
CONCLUSIONS
EPILOGUE: LOOKING FORWARD Franois Rantrua
NOTES

Foreword
For decades, students of security and international politics have debated the
emergence of a multipolar system. Its time we recognize the new economic parallel.
If 1989 saw the end of the Second World with Communisms demise, then 2009
saw the end of what was known as the Third World: We are now in a new, fastevolving, multipolar world economyin which some developing countries are
emerging as economic powers; others are moving toward becoming additional poles
of growth; and some are struggling to attain their potential within this new system
where North and South, East and West, are now points on a compass, not economic
destinies.
Poverty remains and must be addressed. Failed states remain and must be addressed.
Global challenges are intensifying and must be addressed. But the manner in which
we must address these issues is shifting. The outdated categorizations of First and
Third Worlds, donor and supplicant, leader and led, no longer fit.
The implications are profound: For multilateralism, for global cooperative action, for
power relationships, for development, and for international institutions.1

ROBERT B. ZOELLICK

President
World Bank Group

Adapted from The End of the Third World? Modernizing Multilateralism for a Multipolar World,
address delivered at the Woodrow Wilson Center for International Scholars, Washington, DC, April 14,
2010.

Preface
Once the communist regime fell, we moved on to rebuild and develop not only our
administrative and financial systems, both public and private, but also our entire
society. That was no easy job, but we took small steps. We began to integrate Western
models into our own public and private systems, adapting them to fit our own
understanding of things.
Romanias international integration was facilitated by globalization. We have been
net beneficiaries of this process for a good number of years. We connected to the
worlds economic and financial flows. We have improved our business environment
and have grown in economic terms.
Globalization is a process that brings benefits and favors economic interdependence,
but it also creates contamination effects. Today, we are faced with the challenges
generated by globalization, and we have to withstand some powerful economic
shocks.
Over the past 20 years, we have had international partners that bolstered the
confidence of foreign investors in the Romanian economy during our periods of
growth and development as well as at times of major difficulties. The World Bank has
been one of the major pillars that helped maintain economic stability in Romania. In
the Bank, we have had a knowing and fair dialogue partner, one that came up with
tangible solutions for each of our governments. Together we have had a clearly
established purpose: to turn goals into measurable growth in Romania. Today, more
than ever before, we have to maintain the tax incentives and facilities and create new
conditions that attract investors.
Now that World Bank Delegation to Romania is turning 20, I would like to thank the
Bank for all its help in rebuilding and developing our growing society. I am confident
that Romania is going in the right direction, even if some of us cannot yet see the
benefits of our efforts.
SEBASTIAN VLDESCU

Minister of Finance
Government of Romania

GLOSSARY OF ACRONYMS
AAA
APL
BCR
CAP
CAS
CDD
CDF
CPS
CSO
DPL
EBRD
EC
ECA
ECCU5
EIB
ESW
EU
FESAL
FIAS
GEF
HIPC
IBRD
ICSID
ID
IDA
IDF
IFC
IMF
MIGA
NGO
NVZ
PIBL
PPIBL
ROSC
SAL
SDF
SEE
SMEs
TA

Analytical and advisory activities


Adaptable Program Loan
Banca Comerciala Romana
Common Agricultural Policy, European Union
Country Assistance Strategy
Community-Driven Development
Comprehensive Development Framework
Country Partnership Strategy
Civil society organization
Development Policy Loan
European Bank for Reconstruction and Development
European Commission
Europe and Central Asia Region, World Bank
Central Europe and the Baltic Countries Country Unit, World Bank
European Investment Bank
Economic and Sector Work
European Union
Financial and Enterprise Sector Adjustment Loan
Foreign Investment Advisory Service
Global Environment Facility
Heavily Indebted Poor Countries initiative
International Bank for Reconstruction and Development
International Center for the Settlement of Investment Disputes
institutional development
International Development Association
Institutional Development Fund
International Finance Corporation
International Monetary Fund
Multilateral Investment Guarantee Agency
Nongovernmental organization
Nitrate Vulnerable Zone
Private Sector Institution Building Loan
Private and Public Sector Institution Building Loan
Reports on the Observance of Standards and Codes
Structural Adjustment Loan
Social Development Fund
Southeast Europe
Small and medium enterprises
Technical assistance

THE PAST: ROMANIA AND THE WORLD BANK


A HISTORY OF PARTNERSHIP FOR DEVELOPMENT AND GROWTH

About the World Bank


The World Bank is a vital source of financial and technical assistance to developing
countries around the world. Our mission is to fight poverty with passion and
professionalism for lasting results and to help people help themselves and their
environment by providing resources, sharing knowledge, building capacity, and
forging partnerships in the public and private sectors.
The World Bank Group is made up of five development institutions owned by their
member countries: the International Bank for Reconstruction and Development
(IBRD) and the International Development Association (IDA)together known as
the World Bankplus International Finance Corporation (IFC), Multilateral
Investment Guarantee Agency (MIGA), and International Center for the Settlement of
Investment Disputes (ICSID). Each institution plays a different but complementary
role in advancing the vision of inclusive and sustainable globalization (box 1).
To ensure countries continue to have access to the best global expertise and cuttingedge knowledge, the World Bank Group constantly revises its programs to assist the
poor, as well as its range of financing options, to meet pressing development
priorities. The three pillars of the World Banks efforts today are:

Results: Together, we are continuing to sharpen our focus on helping developing


countries deliver measurable results.
Reform: New reforms at the World Bank Group are aimed at improving every aspect
of our work: the way projects are designed (investment lending), how information is
made available (access to information), and how our staff is deployed to best assist
governments and communities (decentralization).
Resources: Together, we have embarked on a campaign to secure a capital increase in
2010to ensure member countries continue to have a strong financial partner that can
meet the challenges of an ever-evolving world.

Box 1 At a Glance
The World Bank consists of the International Bank for Reconstruction and Development (IBRD) and the International
Development Association (IDA).
The World Bank Group consists of the IBRD and IDA plus International Finance Corporation (IFC), the Multilateral
Investment Guarantee Agency (MIGA), and the International Center for Settlement of Investment Disputes (ICID).
International Bank for Reconstruction and Development
Established 1944, 187 current members
IBRD aims to reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development,
through loans, guarantees, and nonlendingincluding analytical and advisoryservices. Its profits fund several
developmental activities and ensure financial strength, which enables low-cost borrowing in capital markets, and good terms
for borrowing clients. Owned by member countries, IBRD links voting power to members capital subscriptionsin turn
based on a countrys relative economic strength.
International Development Association
Established 1960, 169 current members
Contributions to IDA enable the World Bank to provide US$7 billion a year in grants and interest-free credits to the worlds
81 poorest countries, home to 2.5 billion people. This support is vital because these countries have little or no capacity to
borrow on market terms. IDA helps provide access to better basic services (such as education, health care, and clean water
and sanitation) and supports reforms and investments to foster productivity growth and create employment.
International Finance Corporation
Established 1956, 182 current members
IFCs mandate is to further economic development through the private sector. Working with business partners, it invests in
sustainable private enterprises in developing countries and provides its clients with long-term loans, guarantees, and riskmanagement and advisory services.
Multilateral Investment Guarantee Agency
Established 1988, 175 current members
MIGA encourages foreign direct investment in developing countries by providing guarantees to foreign investors against
losses caused by noncommercial risks. MIGA provides technical assistance to help developing countries disseminate
information on investment opportunities and uses its legal services to smooth possible impediments to investment.
International Center for Settlement of Investment Disputes
Established 1966, 144 current members
ICSID encourages foreign investment by providing international facilities for conciliation and arbitration of investment
disputes, in this way helping to foster an atmosphere of mutual confidence between states and foreign investors.
Source: http://web.worldbank.org accessed June 22, 2010.

Romania and the World Bank


Romania has been a member of the International Bank for Reconstruction and
Development since 1972, International Finance Corporation since 1991, and the
Multilateral Investment Guarantee Agency since 1992. As a member of the
International Bank for Reconstruction and Development, Romania has subscribed
US$401.1 million shares, 0.25 percent of total subscriptions. Therefore Romania has
4,261 votes.
9

The Bank Groups activities in Romania have tracked the course of the countrys
progress from socialism to free market and European Union (EU) accession, and
beyond. The World Bank was a major player in Romanias transition, particularly
during the 1990s when the prospect of EU accession was not yet a driving force for
reform. The Banks financial support not only helped finance the costs of transition
but at times was crucial to avert external liquidity crises and to signal confidence in
the Romanian economy. The Bank also played a significant role in supporting
Romania's endeavor to join the European Union, both in terms of financial and
intellectual contribution to reform efforts.
Strategic Framework for World Bank Support:
Country Assistance / Partnership Strategies
The Banks shareholders and management have long recognized the importance of
placing individual Bank activities in an overall strategic contextfor a sector or a
country. Country Assistance Strategies (CASs) provide Bank management and the
Board of Executive Directors with an indicative business plan for the delivery of
Bank services over a specified time (most frequently four years), to support the
achievement of specific development results by the country's authorities.
The CASalso called Country Partnership Strategy or Joint Assistance Strategy
lays out a selective program of World Bank Group support for a particular country.
This strategy is developed by Bank staff in meetings with government officials and in
consultation with country authorities, civil society organizations, development
partners and other stakeholders. It takes as a starting point the country's own longterm vision for development and takes into account the Bank Group's comparative
advantages in the context of other donor activities. The strategy is designed to
promote collaboration and coordination among development partners in a country.
The CAS includes a comprehensive diagnosisdrawing on analytical work by the
Bank, the government, and other partnersof the development challenges facing the
country, including trends in and the incidence and causes of poverty. The CAS
identifies the key areas in which the Bank Group's assistance can have the biggest
impact on poverty reduction. In its diagnosis, the CAS takes into account the
performance of the Bank's portfolio in the country, the country's creditworthiness,
state of institutional development, implementation capacity, governance, and other
sectoral and cross-cutting issues. From this assessment, the level and composition of
Bank Group financial, advisory, and / or technical support to the country are
determined.
To track program implementation, the CAS is increasingly results-focused. It includes
a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes.
In IBRD countries such as Romania, the CAS reflects the Banks renewed efforts to
develop partnerships with middle-income clients, as well as the fact that demand is
more difficult to anticipate in middle-income countries because their potential sources
10

of finance are more diverse than those of poorer countries. As a result, IBRD CASs
are more indicative, and their implementation more flexible.
Over the last two decades, five CASs provided the strategic framework for the Banks
work in Romania, reflecting the alignment between the countrys goals and the
support of the World Bank activities. The Banks strategic objectives, as outlined in
the first three CASs, can be grouped into three main categories: promotion of
sustainable private sector growth, poverty reduction and human development, and
improvements in governance and institution building.
(1) Promotion of sustainable private sector growth. This was to be pursued through
macroeconomic stability, exposure to world prices, increased competition in markets,
privatization, and improved financial intermediation. Sustained growth also required
the development of essential infrastructure. Agriculture took on a special place
because of the size of its labor force.
(2) Poverty reduction and human development. This objective became increasingly
important with the second CAS and was to be pursued through rural development,
social protection, improvements in health and education, and environmental
sustainability.
(3) Improvements in governance and institution building. This was to be pursued
through rationalization of the role of the state and strengthening public administration
and regulatory agencies as well as local institutions.
As Romania moved toward EU membership, the Bank refocused or accelerated work
in several areas critical to Romanias EU integration process, including judicial and
public administration reforms, revenue mobilization and public expenditure
management. The last two country strategiesrenamed Country Partnership
Strategiesreflected a shift of emphasis to legal and institutional harmonization to
EU integration, which required implementation of structural reforms and institutional
strengthening. Therefore Bank support has moved toward greater flexibility and
responsiveness within a strategic framework, anchored on the EU integration process.

IBRD Financial Assistance


Loans and Credits
The Bank offers two basic types of loans and credits: for investment operations,
through the IBRD, and for development policy operations. Countries use investment
operations for goods, works and services in support of economic and social
development projects in a broad range of economic and social sectors. Development
policy operations (formerly known as adjustment loans) provide quick-disbursing
financing to support a countrys policy and institutional reforms.
Each borrowers project proposal is assessed to ensure that the project is
economically, financially, socially, and environmentally sound. During loan
11

negotiations, the Bank and the borrower agree on the development objectives, outputs,
performance indicators, and implementation plan, as well as a loan disbursement and
repayment schedules. While the Bank supervises the implementation of each loan and
evaluates its results, the borrower implements the project or program according to the
agreed terms.
Between 1991 and 2010, the World Bank / IBRD has supported a total of 55 Bank
projects in Romania, with a total commitment of about US$5.5 billion. The World
Bank commitments reflected continued strategic support of sustainable private sector
growth, poverty reduction and human development, and improvements in governance
and institution building (figure 1).
Figure 1 Historical Commitments, 19912010

The peak of the World Banks involvement in Romania was between 1991 and 2006,
when the Bank approved a total of 50 IBRD-financed operations with commitments
of US$5.0 billion, about US$300 million a year. However, lending volumes were
higher in the 1990s at US$335 million a year, compared with 200005 at US$288
million a year. The Bank strategy in Romania has reflected the countrys evolving
priorities (figure 2). Focus, in early years, was on the financial and private sector
development (in average 31 percent of total commitments), complemented by
operations targeting human development and improvement of social protection
mechanisms in order to mitigate the transition to market economy impact on most
affected categories (in average 22 percent of total commitments). More recently,
triggered by the need to mitigate the effects of financial crisis, the Bank-supported
priorities have been the human development and social protection areas (in average 26
percent of the active commitment), matched by financial and advisory support for
improving public sector governance, and financial and private sector development (in
12

average 26 percent of the active commitment). Adjustment operations accounted for


about 40 percent of total lending since 1991.
Figure 2 Romania: Lending by Major Theme, 19902010

Figure 3 Romania: Lending by Major Theme, May 2010

The Banks financial assistance accounted for about 30 percent of all net multilateral
assistance in 19922004, and 16 percent of all net inflows, public and private. By the
end of 2000, the World Bank was Romanias largest creditor of Romania, holding
13

about 20 percent of the countrys total outstanding debt, as compared with about 15
percent of at end-2004.

Trust Funds and Grants


Donor governments and a broad array of private and public institutions make deposits
to trust funds housed at the World Bank. These donor resources are leveraged for a
broad range of development initiatives. The initiatives vary significantly in size and
complexity, ranging from small, freestanding arrangements to multibillion dollar
onessuch as Carbon Finance; the Global Environment Facility (GEF); the Heavily
Indebted Poor Countries Initiative; and the Global Fund to Fight AIDS, Tuberculosis,
and Malaria. In Romania, seven operations have been funded by trust funds: one by
the Prototype Carbon Fund, and six projects cofinanced by the GEF:
GLOBAL ENVIRONMENT FACILITY GRANTS

Danube Delta Biodiversity GEF Project


Biodiversity Conservation Management GEF
project
Agricultural Pollution Control GEF project

Energy Efficiency GEF project


GEF Hazard RiskMitigation and Emergency
Preparedness project
GEF Romania Integrated Nutrient Pollution
Control project

US$M
4.5
5.5
5.2
10.0
7.0
5.5

The World Bank launched a grant facility in 1992Institutional Development Fund


(IDF)as a recommendation of the Task Force on Technical Assistance. The IDF
was designed to finance quick, action-oriented, discrete, generally innovative,
upstream capacity-building activities that are identified during (and closely linked to)
the Bank's policy dialogue and economic and sector work. Romania received nine
IDF grants:
INSTITUTIONAL DEVELOPMENT FUND GRANTS

Restructuring Bucharest Municipal Administration


Child Welfare Services
Capacity Building for Economic Communication
Capacity BuildingMacro Analysis
Legal Draft and Regulatory Management
Poverty Reduction Monitoring and Evaluation
Capacity Building for Roma Inclusion
Strengthening Financial Management Capacity
Romanian Public Sector Accounting

14

The Knowledge Bank: Analytic and Advisory Activities


One key role and recognized competitive advantage of the World Bank is to provide
analysis, advice, and information to member countries so they can deliver the lasting
economic and social improvements their people need. One way is through economic
research and data collection on broad issues such as the environment, poverty, trade,
and globalization. Another is through country-specific, nonlending activities such as
economic and sector work, which evaluates a country's economic prospects by
examining its banking systems and financial markets, as well as trade, infrastructure,
poverty, and social safety net issues, for example.
We also draw upon the resources of our knowledge bank to educate clients so they
can equip themselves to solve their development problems and promote economic
growth. By knowledge bank we mean the Banks wealth of contacts, knowledge,
information, and experience acquired over the years, country by country and project
by project, in development work. Our ultimate aim is to encourage the knowledge
revolution in developing countries.
These are only some of the ways our analyses, advice and knowledge are made
available to our client countries, their government and development professionals, and
the public: poverty assessments, public expenditure reviews, country economic
reports, sector reports, and topics in development.
Analytical work on policy issues positioned the Bank to take an effective role in
advising successive Romanian governments on the reform agenda in the short- to
medium-term. The most recent analytical work in Romania included the 2006 Public
Expenditure and Institutional Review; the 2008 Public Sector Pay Practices; the 2007
Notes on Pensions, Health Sector Policy, and Education Policy; the 2007 report on
Private Sector Development Strategy; the 2008 Notes on Municipal Finance and on
Regional Development; the 200708 Programmatic Poverty Assessments; the 2008
Report on Financial Sector Literacy and Consumer Protection, the 2008 Discussion
Paper on a Student Loan Scheme; the Policy Briefs issued in January 2009; the 2009
Joint International Monetary FundWorld Bank Financial Sector Assessment
Program; the 2009 Reports on the Observance of Standards and Codes (ROSC)
initiative on accounting and auditing; and the ongoing Public Expenditure Review
Update.
International Finance Corporation
International Finance Corporation committed more than US$1.5 billion (including
syndications) of investments in the private sector, free of any state guarantees. IFC
investments throughout the years have stimulated private sector development, trade,
and job creation and have boosted confidence in the banking sector. IFC investments
reached such key sectors of the economy as banking, general manufacturing,
telecommunications, infrastructure, health, micro, small, and medium-size enterprises.
IFC has been directly involved in the privatization and restructuring of large stateowned enterprises in the banking and utility sectors. IFC has played an active role in
developing the financial markets, including improving access to finance for small and
15

medium enterprises (SMEs) and helping two large bank privatizations, Banc Post and
Banca Comerciala Romana (BCR). IFC has also worked with local banks on
introducing new products and services such as local currency-linked products as well
as developed nonbank financial institutions such as leasing and housing. IFC has also
helped enterprises increase their competitiveness and attract foreign investors.
Investments include financing the largest private placement for a Romanian risk
(Romanias first mobile phone company) and investing alongside foreign technical
partners in general manufacturingboth greenfield and post-privatization. In
addition, IFC has invested in regional projects that benefit the entire country:
Medicover in the health sector, Raiffeisen Bank International, and private equity
funds.
In the health sector, IFC investments and advisory have helped stimulate the growth
of private participation and support the delivery of higher quality and more accessible
services. IFC efforts include successfully assisting the government in setting up
public-private partnerships for medical services. Since the beginning of the global
financial crisis IFC has played an active response role in Romania, investing more
than US$410 million (including US$150 million in syndications) to help stimulate
economic recovery and employment.
Since 1991, IFC has committed more than US$1.1 billion of its own funds in 52
projects and has arranged about US$428 million in syndications to support projects in
the financial markets, telecommunications, general manufacturing, oil and gas, and
infrastructure sectors. This includes more than US$628 million to support the
development of micro, small, and medium enterprises. At end-June 2010, the IFC
portfolio in Romania stood at around US$518 million. As such, it is IFCs fourth
largest portfolio in the Europe and Central Asia (ECA) Region after Russia, Turkey,
and Ukraine.

Multilateral Investment Guarantee Agency


The Multilateral Investment Guarantee Agency has guaranteed 13 projects in
Romania, including Raiffeisen Zentralbank Austrias equity investment in Banca
Agricola. It also guaranteed the loans accommodated by Volksbanken Austria to
modernize Colea Clinical Hospital and those provided by Raiffeisen Bank for
enlarging loan operations for small and medium enterprises (SMEs). MIGAs
outstanding guarantee portfolio in Romania consists of three contracts in the
financial sector. At the of end of fiscal year 2010, the agencys gross exposure in
Romania is about US$102 million (equivalent to 1.4 percent of MIGAs gross
exposure), while the exposure net of reinsurance amounts to about US$55 million
(also equivalent to 1.4 percent of MIGAs net exposure).
As an investor country, Romanias gross exposure is US$9.6 million, representing one
project in Moldovas financial and leasing sector.

16

Investor
country
Austria

Host
country
Romania

Gross
35.3

Status
A

Romania

25.7

Romania

23.8

Romania

50.65

Romania

11.34

Banking

Romania

69.8

Romania

13.9

Austria

Financial
services
Banking

Romania

19.62

Austria

Banking

Romania

47.73

Austria

Banking

Romania

86.28

Austria

Services

Romania

7.9

Netherlands

Manufacturing

Romania

29.97

Greece

Banking

Romania

15.8

Raiffeisen Bank SA (RBRO)

Romania

Leasing

Moldova

6.16

Raiffeisen Bank SA

Romania

Financial
services

Moldova

7.34

FY
2005

Guarantee holder
Bank Austria Creditanstalt AG

2005

Austria

2004

Raiffeisen Zentralbank
sterreich AG
Raiffeisen Zentralbank
sterreich AG
Raiffeisen Zentralbank
sterreich AG
Euromedic Diagnostics BV

Netherlands

Sector
Financial
services
Financial
services
Financial
services
Financial
services
Services

2004

Bank Austria Creditanstalt AG

Austria

2003

Bank Austria Creditanstalt AG

Austria

2002

Raiffeisen Zentralbank
sterreich AG
Raiffeisen Zentralbank
sterreich AG
Osterreichische Volksbanken AG

1997

SF-BAU Projektentwicklung
GMBH
Efes Breweries International
B.V.
Commercial Bank of Greece S.A.

2009
2008

2005
2004

2001
2001
1999
1998

Austria
Austria

A
A

Source: MIGA
Working for Results
Over two decades, the key issue facing Romania gradually evolved from the transition
from a centrally planned to a free market economy, to the transition from an as yet
imperfectly operating market economy to EU membership. The overriding objective
of the Banks strategy since 1991 has been to help Romanias transformation to a
market economy and, farther along the way, to EU membership, while protecting the
most vulnerable individuals and groups during the transition.
After the fall of communist regime in 1989, Romania faced some of the worst starting
conditions among the transition economies. The country had to deal with extremely
distorted markets, all-encompassing state ownership, overdependence on energy and
heavy industry, and a badly eroded capital base, including a precarious physical
infrastructure. Science, technology, and intellectual capital were crippled by long
years of international isolation. On the positive side, were the absence of external debt
and a wide range of natural resources, including a fertile agricultural base, and
substantial deposits of coal, lignite, oil, and natural gas.
In addition, the legacy of the communist rule left a bureaucracy that was insecure,
politicized, and corruption prone. The forced repayment of external debt during the
final years of the regime and the ensuing austerity had left the population poor and
17

weary. New governments, attempting to avoid shock therapy, introduced reforms as


gradually as possible. Vacillating government commitment became a major trait of
Romanias reform efforts, especially during the first decade of transition.
The 1990s first saw a precipitous drop in GDP and then economic and financial
instability throughout the decade. The half-hearted reform efforts, and limited
capacity to implement reforms, were combined with complex institutional and social
factors. For much of the early and mid-1990s, economic policies were characterized
by false starts and policy reversals, a stop-and-go approach to reform. Private sector
development was hampered by continuing macroeconomic instability, the slow pace
of privatization, the continuing state support for state-owned enterprises, an
unreformed financial sector, and legal and regulatory barriers to the growth of new
firms. After 1989, the industrial and agricultural sectors shrank in real terms and as a
percentage of GDP. Of particular significance has been the evolution in agriculture:
while the sectors share of GDP declined from 23 percent in 1990 to about 15 percent
today, the share of the labor force in agriculture increased from 30 percent to about 40
percent during the same period. This suggests that the agricultural sector functioned
as a safety net, keeping large numbers of people out of extreme poverty.
The primary focus of the Banks strategy has been on restoring growth through
private sector development and privatization. When the first loan was made, in
1991the Technical Assistance/Critical Imports projectcommercial lenders
were not yet ready to extend financing, and other donors were hesitant. In essence, the
early Bank strategy was to provide badly needed foreign exchange and help mobilize
other donor resources in order to facilitate the first structural reforms and support
selected sectoral development efforts. The Bank also provided loans to support health
services rehabilitation, agriculture, transport, education, industry, and the petroleum
sector, as well as a SAL. The March 1994 CAS covering 199597, in addition, aimed
at pricing reform in the energy sector and the development of education, a land
market, and infrastructure.
The May 1997 CAS covering 19982000 placed increased emphasis on poverty
reduction, rationalization of the role of the state, and environmental protection. The
Bank adjusted its support to reform implementation and deteriorating macroeconomic
conditions. By 1999 a major financial crisis ensued, and the poverty rate peaked at 36
percent in 2000. But the crisis itself and pressure from the international financial
institutions changed the political will to reform. That provided Romania the
opportunity to accomplish some badly needed reforms, under the guidance of Bank
adjustment lending. These events marked a turning point in Romanias overall reform
achievements. The crisis was contained and was followed by steady economic
growth, driven by a strong investment and export performance, while inflation fell
gradually.
The decision by the European Union Council of Ministers in December 1999 to open
EU accession negotiations for Romania further catalyzed momentum for reform, and
impressive progress was possible in stabilization, growth, and private sector
development. The 2002 CAS therefore put more emphasis on institution building and
governance reform, reflecting a better record of policy implementation and an
improved macroeconomy.
18

The Romanian economy experienced an economic boom in 200308, associated with


the process of accession to the European Union, leading to rapid gains in poverty
reduction. Growth averaged more than 6.5 percent a year during that period, reaching
over 7 percent in 2008. Absolute poverty declined from 35.9 percent in 2000 to 5.7
percent in 2008. A large part of the domestic absorption boom was driven by private
investment: as EU accession prospects became more certain, capital flows,
particularly foreign direct investment, were attracted by perceptions of lower
investment risk that made Romania a good investment location. Sharp increases in
asset prices and rising collateral values added self-reinforcing momentum to the
absorption boom.
In 2006, when Romania was at the threshold of EU membership, the new strategy
renamed Country Partnership Strategy (CPS)reflected the Banks support for the
challenges of integration with the European Union: acceleration of structural and
institutional reforms, fiscal risks to macroeconomic stability and weaknesses in
capacity to absorb EU funds, and reducing poverty and combating social exclusion.

Paving the Way to Growth: Sustainable Private Sector Development


To promote private sector development, the Banks strategy focused largely on
creating the right policy environment and market institutions in which the private
sector could prosper.
The bulk of private sector development-supportive lending was in the form of four
Adjustment Loans, two of them accompanied by loans that mainly financed
specialized Technical Assistance (TA) for implementing the reform program. The
only investment lending in support of private sector development was the Industrial
Development Project that financed the investment needs of private firms producing
for export. The Bank also helped the private sector by financing rehabilitation of
critical infrastructure in energy, transport, and telecommunications. These loans also
financed technical assistance for developing and implementing options for sector
restructuring to promote private investment and competition in the sector. Economic
and sector work (ESW) in the form of country economic memorandums and sector
reviews (in finance, energy, transport) served as inputs in the design of Bank lending
operations. The economic report in the early 1990s, for instance, outlined the core of
the reform program that was supported by the first SAL. The ESW also served to
promote better understanding in Romania about the imperative and directions for
reform and to help mobilize other donor support.
The reform agenda, supported by adjustment lending, was typically comprehensive
and covered most of the important issues, although there were shifts in emphasis and
approaches over time. The importance of macroeconomic stability and its links with
structural reforms in state-owned enterprises and banks was recognized early on. All
the loans focused on privatization and restructuring of state-owned enterprises and
reforms to tighten financial discipline.

19

Liberalization of prices and foreign trade and exchange regimes was part of the
agenda of the SAL and the Financial and Enterprise Sector Adjustment Loan
(FESAL), but they were no longer an issue for later operations. Reform of the
financial sector was an important component of the FESAL in the mid-1990s, and
became the central focus of a Private Sector Adjustement Loan (PSAL 1) in 1999
to rid the source of the financial crisis at the time. Energy pricing reforms were
supported in all operations but comprehensive sector reforms took center stage only in
the second Private Sector Adjustment Loan (PSAL 2), in 2002.
By mid-1999 Romanias worsening economic and financial difficulties had reached a
crisis. Peak amortization payments had precariously drained reserves. Financial
market confidence was low, even among international financial institutions, following
years of disappointing reform efforts. However, the Bank took the initiative and broke
the impasse by approving PSAL 1 on June 10, 1999. The loan included some real and
long overdue reforms. This action helped restore some confidence to private sector
financiers. PSAL 1 was accompanied by a technical assistance loan, the Private
Sector Institution Building Loan (PIBL). The implementation of PSAL 1 was
largely successful. The financial crisis was overcome, and macroeconomic
performance improved: in 2000 GDP grew for the first time since 1996; tight fiscal
and monetary policy, and reductions in quasi-fiscal expenditures helped bring down
inflation to about 46 percent. But the main achievement of the loan was reducing the
drain on the economy from the banking sector. The turning point was shutting down
Bancorex, one of the large state banks with a huge portfolio of nonperforming loans.
Banca Agricola (the state bank that was used as a conduit for lending to the
agricultural sector) was prepared for its privatization, which came in 2001. At the
initiative of the World Bank, an Asset Resolution Agency was established to manage
the nonperforming loans of the state-owned banks.
In the enterprise sector, too, progress was made as the pace of privatization picked up.
A centerpiece of PSAL 1 was that some of Romanias major industrial enterprises
were targeted for sale to private investors under the guidance of international
privatization advisers. These enterprises included the two highly profitable aluminum
companies ALRO and ALPROM, the giant steel company SIDEX, and the Romanian
airline TAROM. With the exception of TAROM which could not be sold for lack of
investor interest (partly reflecting worldwide overcapacity in the airline industry), the
three other companies were ultimately privatized.
The restructuring / privatization process of banks and enterprises was continued under
the second Private Sector Adjustment Loan PSAL 2 (also accompanied by a TA
loanthe Private and Public Sector Institution Building Loan, PPIBL), with
special focus on reforms in the energy sector which remained a major source of
subsidization of state-owned enterprises. The loan also supported the implementation
of an action plan to remove administrative barriers to private business, based on
recommendations in a study by the Banks Foreign Investment Advisory Service
(FIAS) under PSAL 1. Driven by the EU accession timetable, implementation was
generally satisfactory. Major achievements included the sale of majority shares of the
giant petroleum company PETROM to private foreign investors in July 2004 and the
sale of two electricity distribution companies, soon followed by further privatizations.
20

Building Engines for Growth: Infrastructure


A considerable share of the Banks assistance program was directed to
rehabilitation of Romanias infrastructure, essential for the development of the
private sector.
While most Bank financing went for investment and equipment needed for
rehabilitation and expansion, loans typically also included a technical assistance
component for improving the policy-making capacity of the ministry in charge and for
developing plans for restructuring the sectors to make them efficient. Indeed, often the
rationale for the Banks involvement was to facilitate sector restructuring to promote
competition and private sector investment.
On the whole, the infrastructure projects were successful in increasing production
capacities, and they often contributed significantly to institutional development.
However, Bank adjustment loans, IMF Standbys, and EU accession requirements
were the driving force behind sector policy reforms and restructuring.
The Banks objectives in the roads sector were to upgrade the system, increase its
efficiency, strengthen the private sectors role in transport, introduce competition in
public works, and help reshape transport institutions. Cofinancing was provided by
European Bank for Reconstruction and Development (EBRD), European Investment
Bank (EIB), and EU-PHARE. Studies for road user charges, railway restructuring,
and urban transport were financed under the TACI project, and provided background
for Bank involvement in the sector. The first Transport project and loan to Romania
materialized in 1993, and a second Roads project (19972006) was developed.
Physical achievements have been substantial, and much of the road network has been
rehabilitated or strengthened. Progress was made in commercialization and
privatization of road maintenance and in modernizing, privatizing, and improving the
efficiency of the construction industry. Vehicle inspection capacity was improved and
is now in line with EU standards. Under the first of two projects the Bank helped
establish a Road Fund to ensure funding for road maintenance.
The Banks objectives in railway rehabilitation were to support restructuring,
improve efficiency, and increase passenger comfort and safety. The Railway
Rehabilitation project, cofinanced by EBRD and EU-PHARE, was very successful:
significant restructuring took place in addition to improvements in physical
infrastructure (track renewal, integrated railway information system, improved
telecommunications).. The national railway company was unbundled into five
autonomous companies infrastructure, asset management, freight, passengers, and
accounting and finance. There was a significant retrenchment of staff. A new Railway
Law provided an appropriate legal environment for the industry.
The Banks objectives in the Petroleum Sector Rehabilitation project were to
increase domestic oil and gas production and to facilitate sector restructuring so as to
encourage private investors. The project, cofinanced by the EIB and EU-PHARE,
paid for modern equipment, materials, and TA. . Physical objectives and considerable
21

institution building were achieved: the TA helped develop a legal framework for the
hydrocarbon sector and a national geological data base was created. Progress in sector
restructuring or reforms in energy pricing and payment discipline advanced due to the
EU accession negotiations and cross-conditionality in IMF Standbys and Bank
adjustment lending, especially PSAL 2.
The goals of the Power Rehabilitation project were both physical output targets and
sector restructuring. The physical targets were achieved and restructuring was
initiated in 1998, also driven by the prospect of EU accession and Bank-Fund cross
conditionality in adjustment operations and Standbys.
The Banks involvement in telecommunications led to successful outcomes, the
fundamental transformation of the sector also being driven primarily by the prospects
of EU accession. During the period of the Telecommunication Reform and
Privatization Support project, the Romanian telecom sector was not so much reformed
as transformed, with explosive growth in mobile services, complete decontrol of the
sector, and improvement in nearly all indicators of the breadth, quality, and efficiency
of service.
The Electricity Market project was highly successful and facilitated Romanias
accession to the European Union in January 2007, for compliance with power sector
aspects. Romanias power market operatorOPCOM Power Exchangewas established
and developed as reflected by its increasing share in Romania's total electricity supply. Multiyear tariff regulation was introduced for transmission and the power distribution
companies. Romania has become a regional leader in the Energy Communitythe
regional energy market in Southeast Europe.

Revitalizing Rural Romania: Agriculture


The Banks broad objectives in agriculture were to support a series of policy
reforms and engage in investment lending to foster the transition to an efficient
agricultural market economy. Agricultural reforms were among the first
elements of systemic transformation introduced in Romania in the early 1990s.
The past two decades have seen progress in reducing agricultural subsidies and
hence the drain on the budget, in making the subsidies transparent, and in
privatizing or closing loss-making large enterprises. Support for rural
development created new opportunities and improved living conditions for rural
communities.
Following the 1989 Revolution, Romanian agriculture, like other sectors of the
economy, faced daunting obstacles to becoming a competitive market system: poor
price signals, quantitative market interventions, bureaucratic management, soft budget
constraints, pervasive state ownership, inappropriate and worn-out capital stock, and
underdeveloped processing / marketing channels. Agriculture could not be expected
to prosper until all these constraints were eased, and removing any one of them would
likely have little perceptible effect. Over time, additional constraints emerged. By the
time the Bank became involved, the first stage of land reform had already been
22

completed. It took the form of restitution of land to its original owners or heirs,
which, in essence, resulted in a proliferation of small plots for much of the
agricultural land. In addition, as the rest of the economy failed to grow and workers
were laid off, many of them moved to rural areas, further worsening the already high
labor / land ratios.
The ultimate goal of the Bank was to help increase rural incomes and employment,
foreign exchange earnings and growth. At first, the Bank was optimistic about the
prospects for agriculture, calling it a candidate for rapid export growth (1994 CAS).
The Banks involvement in Romanian agriculture started early on and has been
significant, including substantial ESW, and lending. The adjustment operation in
1997Agricultural Sector Adjustment Loan (ASAL)absorbed half of all
commitments. The achievements of ASAL were significant. Most importantly Central
Bank refinancing of agriculture was ended, and the much reduced subsidies were
transparently placed on budget. Privatization targets were achieved: the ASAL
privatized or closed a large number of loss-making enterprises, particularly the very
large livestock enterprises. Also, conditions aimed at removing legal obstacles to
agricultural land sales and leasing were fulfilled. The achievements were fundamental
and proved sustainable, though not sufficient to promote growth, given the many
other constraints on agriculture.
The 1992 Private Farmer and Enterprise Support project provided an injection of
modern imported machinery to the sector. The project supported private development
in rural areas, raised agricultural output, increased production efficiency, generated
employment, and improved living standards.
The 1998 General Cadastre project was clearly needed, since clear title is essential
to the operation of a land market, through which land consolidation was to be
achieved. A unified national registration system was established in all 42 judets
[administrative units the equivalent of which could be counties] with professional
registrars in place throughout the country, and 163 offices providing efficient,
integrated registration and cadastre services. As a result, average time to process a
simple registration was cut, the number of recorded real estate transactions increased
by 30 percent, 650,000 parcels were surveyed during the project period, and about 1
million titles were registered by the end of the project.
The Agricultural Support Services project (2000) was motivated by the CAS
identification of agriculture as a priority sector with good prospects for expanding
supply. The project, focused on research and extension, provided immediately needed
technology, information, and training for private farmers and agro-processors. It
improved efficiency, cost effectiveness, and client relevance in the management of
research and extension.
The Rural Finance Loan (2001) faced the fundamental problem that the private bank
culture was heavily collateral oriented at that time and not staffed to lend on the basis
of productivity. The project provided financing for private entities and individuals
through a Rural Credit Line and Leasing Facility and other subloans and micro-loans
for farm and nonfarm investments in rural productive activities. The project
contributed to the prosperity of individual farmers and their families, rural micro23

entrepreneurs, and micro, small, and medium businesses by financing more than
US$64 million in farm and off-farm investments.
The Rural Development project (RDP, 2002) made a significant contribution to
empowering rural communities to decide and manage local infrastructure investments.
This resulted in more than 800 km of commune road rehabilitations, more than 400
km of water supply lines, improved access to services, reductions in the number of
flood- or snow-isolated villages, increased access to running water, and reductions in
time spent on household water collection. Financed by the World Bank through a
US$40 million loan, the project was completed in 2007, with an impressive impact on
the lives of people in more than 130 communes in most depressed counties in
Romania. Beyond building roads and channeling water, the Rural Development
project made a significant contribution toward developing relationships and building
trust and community spirit between local authorities and villagers. For its innovative
approach and demonstrated impact, the RDP was one of the winning projects in the
World Bank competition Improving Lives of People in Europe and Central Asia in
2009.
The Forest Development project (2003) improved management of state-owned
forests through capacity building and technical innovation for environmentally
sustainable, cost-effective forest management. Pilot systems were established for
forest management among underserved private forest owners, and for building roads
in pilot areas in a way that improves economic and environmentally sound access to
timber resources.
The World Bank supported the conservation of ecological integrity in the Romanian
Carpathian Mountains and biological diversity in the Danube Delta. The Romanian
Danube Delta Biodiversity GEF project in 1994 was the first project directed at
protecting Black Sea wetlands, by protecting and enhancing the ecosystems and
biodiversity of the Danube Delta within Romania. The subsequent Biodiversity
Conservation Management project was financed by a GEF grant for 19992006.
The global environmental objective was sustainable conservation of the biological
diversity and ecological integrity of the Romanian forest, alpine, and meadow
ecosystems of the Carpathian Mountain chain. The project also assisted Romania in
establishing effective, intersectoral, participatory planning and sustainable
management of natural ecosystems and associated landscapes at selected
demonstration sites in the Carpathians and mechanisms to support replication of these
activities at other priority conservation sites.
The Bank remains active in the agriculture sector with three ongoing projects: one
that supports the implementation of land tenure and titling reform and enables greater
absorption of EU funds; another aims to improve the competitiveness of farmers and
agro-processors through improved advisory services to modernize the agricultural
research apparatus, and to improve food safety, in line with EU requirements; and a
third supports the rehabilitation and reform of irrigation systems to increase
agricultural productivity.
Investing in People: Social Sector Development
24

The Banks assistance was highly relevant in social sector development. In health
care, the accent was on rehabilitation and upgrading of the primary delivery
system, which was near collapse, and on reforms of the sectors financing and
management to ensure a sustainable and cost-effective system. The driving force
of the education strategy was to help develop the new skills needed in a marketoriented economy. Bank interventions in social protection were designed to help
alleviate poverty for the more vulnerable groups in society and those most
affected by the market reforms.
The austerity imposed during the final decade of the communist regime had starved
the social sectors of funds and led to a serious deterioration in the provision of basic
social services. Romanias health status in particular had declined both in absolute
terms and in relation to neighboring countries. The Banks first involvement in the
social sectors was a sizeable loan for Health Services Rehabilitation in October
1991. That was followed by a loan for education in April 1994, and then increasing
assistance for social protection and poverty reduction. In addition, in 2005 policy
reforms were supported through the Programmatic Adjustment Loan (PAL). In
19912009, 15 percent of the Banks commitments for Romania were in support of
social sector development, split roughly equally among health, education, and social
protection. Lending was underpinned by substantial ESW, including: a Local Social
Services Delivery Study in 2002, Poverty Assessments in 1997 and 2003, a Health
Sector Study in 1992, a Health Sector Support Strategy in 1999, a human resource
strategy study for the 1990s, and work on education.

Improving the Health Care System


The Banks development impact in the health sector took time to materialize. The
first intervention was early, in 199196, with the Health Rehabilitation project.
That project, for rehabilitation and upgrading of the primary health care delivery
system, provided equipment, spare parts, drugs, medical supplies, and knowledge
transfers health providers. First steps were also taken toward a major restructuring of
health sector financing and management to ensure a sustainable and cost-effective
health care system in the medium term.
Some important reforms were adopted in 1997, including the establishment of
compulsory, payroll-funded health insurance, decentralization of service to the district
level, increased hospital autonomy, and the creation of a system where family doctors
became private practitioners. Through the combined impact of the Health Sector
Reform project (2000) and Programmatic Structural Adjustment Loan (1999), a
National Health Services Strategy for the public health sector was finally developed.
Bank projects in the health sector also included support for capacity building and
institutional development in critical areas, such as development of capacity for policy
analysis, training in health services management and public health. Because of its
generous financial assistance for supplies and rehabilitation of health equipment and
infrastructure, the Bank probably also contributed to improvements in health
indicators, such as infant mortality and life expectancy.
25

Valuing the Human Potential: Education


Outcomes in the education sector have been significant. Both within the Romanian
government and between the government and the Bank (and other donors) there was
early agreement in the 1990s on the need for reform if Romania was to compete in the
international environment. The Banks initial focus was on upgrading the quality of
basic and secondary education through the development of new curricula and teacher
training programs, the updating of textbooks and educational materials, and the
development of new evaluation and assessment systems.
The major outcome of the Education Reform project was the shift in the education
sector, starting in 1994, from a centralized systembased on a standardized
curriculum framework, a single textbook per subject, and ineffective student
evaluation systemto a reformed system with a flexible curriculum framework,
alternative textbooks and a modern evaluation system. The project supported the
development of 66 new curricula, reforms in both pre-service and in-service teacher
training, professional training standards, certified trainers, the setting up of a National
Center for Teacher Training and a National Assessment and Examination Agency,
and the development of 3,000 occupational standards and validated test items. A
textbooks market was created, and 348 alternative new titles for 150 subject grades
were secured for compulsory education. At the same time, in-school management was
strengthened through training of 10,000 principals and more than 6,000 administrative
personnel. In addition, 30,000 teachers received training on curriculum and didactics,
and more than 11,000 teachers were instructed in informatics and communication
technologies. The project also included a pilot for rural education addressing equity
issues in the system and preparing subsequent interventions. These ambitious reforms
were necessary and responsive to the challenges associated with Romanias transition
to a market economy and a democratic society.
Subsequently the Bank supported the adaptation of higher education to the demands
of the market economy through access to new undergraduate programs and new
postgraduate teaching and research program grant awards under the 1996 Reform of
Higher Education and Research project loan. As a result of the project
interventions, new and more relevant academic programs were introduced with more
than 900 grants implemented by universities for undergraduate and continuing
education as well as for postgraduate education and research. These grants also
increased the quality of teaching and research by improving teaching equipment and
introducing new teaching methods. The institutional development impact of this
project was demonstrated by the establishment and operation of the councils that had
an important role in the capacity of the higher education system in Romania: the
National Higher Education Finance Council, The national University Research
Council, and the National Council for Evaluation and Academic Accreditation. At the
same time, the project helped strengthening university autonomy through increased
capacity to prepare and implement subprojects; also, university staff increased their
managerial and entrepreneurial skills.

26

The Bank also supported Romanias efforts to bring schools up to established safety
standards and to improve the Ministry of Educations institutional capacity at the
national and district levels to plan, develop, and maintain the public educational
physical plant, through the Schools Rehabilitation project (1997). The work done by
the government in this area, in school selection, design and subproject
implementation, with Bank financial and policy support, became a model for followup projects funded by other donors. Efforts in education sector reform, particularly in
education financing, were continued by further lending operations and technical
assistance.
The 20032009 Rural Education project (REP) aimed to narrow the gap between
urban and rural access and quality of education, but had a significant nationwide
impact extending beyond rural areas of Romania. It helped improve the overall
policy-making capacity of the Romanian education authorities and agencies, as
evidenced by the development and application of national education indicators
compatible with international reporting systems, the development of a coherent
database structure for informed decision making, and the elaboration of annual
national reports on the status of education. In addition, successful project
interventions are been expanded at national level (e.g., mentoring activities, open
distance learning programs). For its National Education Database, the Romanian
Ministry of Education, Research and Youth, and its Project Management Unit, were
awarded a Good Practice Label 2007 by the European Commission in the category eGovernment, under the topic Efficiency and Effectiveness, Benchmarking. Also, for
its demonstrated impact and the innovative approach, the REP was one of the winning
projects in the World Bank's competition Improving Lives of People in Europe and
Central Asia in 2008.

Protecting the Disadvantaged


The Bank pursued its overall objective in social protection and poverty alleviation
through several means: strengthen the capacity of labor offices to provide
employment services, strengthen the Ministry of Labor and Social Protection to
monitor and evaluate employment and social protection programs; labor retraining;
pension reform; improved targeting of social assistance; and the promotion of
Community-Driven Development (CDD). Much progress has been made. A National
Agency for Employment was created in 1998, comprising a network of offices with
countrywide reach and operating effectively. A National Adult Training Board and
five regional training centers were established and are fully functional. Progress was
also made toward pension reform that further led to the introduction of private
pension funds. The public pension system has improved considerably: a new Pension
Law was adopted in 2001 (almost five years after the Bank introduced reform
proposals in the Employment and Social Protection project); the retirement age
was increased gradually, and contribution rates updated. As a result, the burden of the
public pension system on public finances was reduced (until 2007 when the process
started to reverse). At the same time, progress has been made in the capacity to
evaluate poverty status by the Romania Antipoverty and Social Inclusion
Commission.
27

The Child Welfare project (1998) actively promoted community-based approaches


as sustainable and cost-effective alternatives to institutionalized child welfare. The
most tangible result was the large reduction in the number of children in state-run
institutions.
The Bank also lent in support of the 1999 Social Development Fundfirst Phase
(SDF I) to contribute to poverty alleviation through Community-Driven Development
and enhancing social capital. The SDF has proven the potential of local self-help
capacity for providing small rural infrastructure, community-based social services and
income-generating activities. The fund became an example in the region for its
implementation success. Given its impact, the Bank continued support through the
second Phase (SDF II), initiated in 2002, that consolidated the positive experiences
under the SDF I, increased the scope and number of community subprojects, and
promoted innovative approaches.
Reflecting another aspect of its involvement in social sector activities, the World
Bank helped in the preservation of Romanias rich cultural heritage. Through its
Cultural Heritage project, aid went to cultural sites like the Brancusi Sculptural
Ensemble, the Mogosoaia Palace, and the fortified churches in Saxon villages in
Transylvania. The project has also supported the preparation of an inventory of
cultural heritage sites throughout the country. The Cultural Heritage project assisted
in preserving priority cultural heritage sites and objects, and developing a new
national partnership strategy for the cultural sector by testing different approaches
with a view to improving its overall management.
The Cultural Heritage project also supported a key goal of the Banks CAS at the
time: to help Romania rationalize the role of the state by strengthening public
institutions, fostering partners in the private sector, and building local capacity
through community mobilization and competitive tendering processes. Community
mobilization at historic Saxon village pilot sites in Transylvania and elsewhere has
produced significant income-generating opportunities for some of the countrys poor,
ethnically diverse areas through revival of cultural-based tourism. Public institutions
at local and national levels have been strengthened through the projects requirements
for transparency and accountability in procurement and financial management of
project-related activities. The project has also complemented other Bank and donor
support for Romania through rural development and Social Investment Fund
initiatives.

Building New Institutions: Governance and Institutional Development


Romania has made considerable progress over the past twenty years in developing
institutions compatible with a market economy. Institutional development has
gradually become a central element in the Banks assistance strategy.
Like other countries in Eastern Europe after the fall of communism, Romania lacked
the basic institutions needed to support the transition to a market economy: an
appropriate legal and regulatory framework, separation of regulatory and commercial
28

interests, and a financial system that could operate on a commercial basis to enforce a
hard budget constraint on borrowers. Unlike some of its neighbors, Romania had
hardly experimented with even limited policy or institutional reforms to separate
commercial and regulatory functions or to promote private sector activity. Moreover,
among the aftermath of the communist regime was an insecure and corrupt
bureaucracy.
Romania has made considerable progress over the past twenty years in developing
institutions compatible with a market economy. But the country had lagged behind
other Central and East European countries in policy reform and institutional
development, until the prospect of EU membership became the driving force for
reform and modernization.
The Bank was slow to focus on governance and institutional development, at least in
the context of its adjustment lending, but these topics have gradually become a central
element in the Banks assistance strategy. One objective of the 1997 CAS was
strengthening and rationalizing the role of the state. The 2001 CAS stated that a major
lesson of the previous CAS period was the need for the Bank to take an active role to
support strengthening institutions for a market economy (governance, anticorruption,
and business environment). The 2001 CAS included support for reforms of the
governments institutional, regulatory, and governance framework. The main
instrument for implementing these objectives was the second Private Sector
Adjustment Loan (PSAL 2), followed by a series of programmatic adjustment loans.
The Bank has been fairly successful in promoting institutional development (ID)
through investment projects but at first did not do it through its adjustment operations.
The Banks investment projects were usually designed to combine investments with
management and regulatory improvement and typically included technical assistance
to promote institutional change.
Notable accomplishments included:

Regulatory frameworks were developed in telecommunications, the petroleum


sector, and water supply. One of the most successful efforts at supporting a
regulatory framework has been in the power sector. Although the impetus for
power sector reform came from EU accession, the contours of the
restructuring were developed in-house in Romania even before the European
Union came up with its guidelines. In 1998, a technical committee was created
to work out options for power sector reform. Based on this committees
recommendations, Romania, unlike most other countries in the region, chose
to adopt a more liberal and competitive framework for the sector (the ThirdParty Model, in contrast to the Single-Buyer Model). Consequently, Romania
was one of the few countries in the region that did not have to modify its
power sector framework when the European Union produced its guidelines for
the sector. However, the Bank is credited with a key supporting role through
valuable ideas, funding of TA for committee support, and support through
project funding and conditionality.
The Education Reform loan supported curriculum reforms, teacher training
reform, new forms of student assessment including the set up of a specialized
29

agency for assessment and examinations and introduced alternative textbooks


and strengthened their quality.
The School Rehabilitation project made possible education in schools that
otherwise could not function properly. The most significant strength remains
the impact on about 260,000 students benefitting from a safe environment for
education.
The Higher Education and Research project supported the introduction of
new and more relevant academic programs with more than 900 grants
implemented by universities and colleges. Management at the system and
individual university level was improved by operations of the National Higher
Education Finance Council. Also, the project enhanced the role of the National
University Research Council as a semi-autonomous institution overseeing the
system.
The Rural Education project facilitated access of rural students to better
quality education through a range of successful activities including:
professional development of teachers through innovative school-based
mentoring programs, improvement of school facilities and provision of
teaching learning materials, promotion of school-based innovation programs
and community participation, improvement of policy-making capacity at both
central and local levels.
The Social Development Fundin both its phases succeeded in helping poor
communities organize themselves, identify their own needs, and implement
subprojects designed to improve living conditions and alleviate poverty in
their communities. Beneficiary assessments showed an increase in the capacity
of community-based organizations, local authorities, and nongovernmental
organizations (NGOs) to deal with problems of the poor in a demand-oriented,
participatory way.
The Transport project successfully supported commercialization and
privatization of road maintenance and helped modernize and privatize the
construction industry.
In the Railway project, a new legal and institutional framework was
established. Supervision was intensified to ensure that ID received adequate
attention.
The Employment and Social Protection Fund project helped reform social
insurance and social assistance programs. A major achievement was the
institutional development of the National Agency for Employment and its
countrywide network.

During the last decade, the Bank has focused increasingly on issues of institutional
development and governance reforms. Analytical and advisory activities (AAA) on
governance and business environment2 have had a substantial impact in raising
awareness of the effect of governance on development. Bank fiduciary safeguard
work3 has made useful recommendations on improving financial management and

BEEPS, the diagnostic survey of corruption, and the FIAS study of administrative barriers.

An internal report on country procurement assessment, a Country Financial Accountability Assessment in 2003.

30

accountability. Public Expenditure Reviews in 1998 and 2002 and a Local Services
Delivery study in 2002 provided solid analysis of expenditure management issues.
The Report on Observance of Standards and Codes, in 2003 and further in 2009,
focused on the strengths and weaknesses of the accounting and auditing environment
that influence the quality of corporate financial reporting in Romania.
The most important step the Bank has taken to support institutional development and
governance reform was the Programmatic Adjustment Loan (PAL), in 2004. The PAL
had explicit governance and institutional development objectives including legal
reform, civil service reform, strengthening transparency and governance through laws
on declaration of assets and conflict of interest, and regulatory reform in the energy
sector. Design of the PAL was coordinated with the European Union. This increased
its effectiveness because of Romanias strong motivation for EU accession and the
credible commitment it gave to locking in reforms. The PAL helped the European
Union monitor progress, and judicial and other institutional reforms gained more
traction under these conditions.
The Banks prime achievement was to help Romania gradually stabilize the economy
which contributed to the turnaround in growth, and further to a constant decline in
poverty. The Bank was a major player in the shift in Romanias structural reform
performance between the end of the 1990s and its EU accession.

The World Bank and the Civil Society: Added Value of Participation
The Banks interaction with civil society organizations (CSOs) in Romania has been
generally positive especially since 2000. Until 1997, the degree of interaction was
fairly low due to both the nature of the Banks activity as well as the low capacity of
the CSOs to engage with the Bank. 1997 was a turning point in the Banks
collaboration with Romanian CSOs, as the Bank increased its proactivity in
consultations with CSOs as well as in engaging them in the preparation and
implementation of Bank-financed operations in the social sectors.
Another reason for the improvement of Bank-CSO relations was the decentralization
of the Small Grants Program that helped the Bank maintain consistent communication
with the nonprofit community. An important qualitative step in the relationship with
the CSOs was the implementation of the Comprehensive Development Framework
(CDF) in Romania (box 2). The CDF consultations raised the quality and scope of
consultations with civil society and with the NGO community in particular. This
interaction was followed by regular meetings with Romanias representative on the
Europe and Central Asia NGO Committee (ECANGO) as well as by CAS / CPS
consultations.

31

Box 2 Romania and the Comprehensive Development Framework


The Comprehensive Development Framework (CDF) initiative, launched in Romania in 1999,
helped shape the governments development agenda. Recognizing the Romanias difficulties since
1990 in reaching domestic consensus on its medium- and long-term development priorities, the
Bank agreed to the Romanian authorities request that the country be included in the pilot group of
CDF countries. Accordingly, the CDF initiative in Romania has been specifically directed at
building consensus for a development strategy.
The CDF initiative in 1999 and in extensive consultations through 2000 revealed a consensus in
Romania around two strategic goals: (a) poverty reduction and (b) EU accession. At the same time,
the following development priorities and constraints were highlighted: (a) ineffectiveness of public
institutions, especially the legal system; (b) integration with Western Europe; (c) lack of access to
economic and social opportunities; (d) poverty in the midst of substantial natural endowment; and
(e) a poorly functioning market economy.
The CDF process helped shape the agenda of the government that took office in December 2000
and which obtained parliamentary approval of its Governing Program 20012004. The major
objectives of that program were: (a) restoration of economic growth; (b) reduction of poverty and
unemployment; (c) fighting corruption; and (d) acceleration of integration in the European Union
and the North Atlantic Treaty Organization. The main program pillars were: (a) ensuring
macroeconomic stability; (b) improving the quality of government services, including the
regulatory functions and the judiciary; and (c) creating a business environment that attracts foreign
and domestic investors in emerging small and medium enterprises and privatized enterprises.

32

THE PRESENT: TURNING THE CHALLENGE OF CRISIS INTO AN


OPPORTUNITY FOR REFORM

Romania Today
Romania is a middle income country with a GNI per capita of US$8,280 in 2008.4
With a population of more than 21 million, it is the second largest country in Central
and Eastern Europe and the seventh largest of the 27 members of the European Union.
Romania joined the European Union on January 1, 2007, following the completion of
the negotiations in 2004 and the signing of the Accession Treaty in 2005. The
prospect of becoming an EU member constituted a solid external anchor for the
Romanias transformation throughout its transition. Nevertheless, accession to the
Union and the adoption of EU standards was neither the beginning nor the end of the
integration process. The reform agenda remains important, and structural adjustment
has to continue to ensure sustained meshing with the European Union.
In 2009, after eight years of rapid economic growth and impressive gains in poverty
reduction, the shockwave of the global economic and financial crisis exposed the
growing imbalances and economic vulnerabilities in Romanias economy. These
weakness are rooted in a large, unfinished agenda of public sector and governance
reforms.
Romanias task is a difficult one. Short-term fiscal consolidation must be reconciled
with the need to mitigate the social costs of the crisis, and the sources of sustainable
and equitable growth must be restored. The crisis has forced fiscal adjustment
measures and a reevaluation of policies, including those for public sector wages and
the pension system. Success in mitigating the impact of the crisis hinges on the
commitment of the political establishment and the capacity of public sector
institutions to work together to enact bold reforms and to mobilize key stakeholders
and the population behind them.
In 2009, the government of Romania sought international multilateral support,
including from the IMF, the European Commission (EC) and the World Bank Group.
The IMF, the EC, the World Bank and other international financial institutions have
agreed to support the reforms committed to by the Romanian government with a
package totaling 19.95 billion in 200910. The multilateral support program aims to
cushion the effects of the sharp drop in capital inflows while addressing Romanias
external and fiscal imbalances and strengthening the financial sector. The program
seeks to:

strengthen fiscal policy further to reduce the governments financing needs


and improve long-term fiscal sustainability

http://database.worldbank.org. (Atlas method).

33


maintain adequate capitalization of banks and liquidity in domestic financial
markets

sustainably reduce inflation

secure external financing and bolster confidence

Romanias Economy
Romanias pre-crisis economic performance was remarkable, although important
vulnerabilities persist. After 2000, the government implemented macroeconomic and
structural policies supportive of growth and disinflation. Advances in structural
reform led to improved financial discipline in the enterprise sector. Foreign direct
investment inflows, were estimated at between 5 percent and 6 percent of GDP in
peak years but decreased dramatically as the international crisis hit. Romania has
steadily narrowed differences with the European Union in income, competitiveness,
and living standards, but the gap is still large. In 2008, income per capita was around
44 percent of the EU-27 average, but this gap may widen in 200910.
The Romanian economy experienced an economic boom in 200308, associated with
the EU accession process, leading to rapid gains in poverty reduction. However, after
growing by 7.1 percent in 2008, in 2009 the Romanian economy was heavily affected
by the global financial downturn and contracted by some 7.2 percent. By mid-2009,
the economy was in a sharp recession. Industrial output dropped by about 15 percent
year on year according to the mid-year monthly figures. Exports fell by more than 20
percent over the same period. Construction activity fell sharply, and credit growth
slowed from the very high rates recorded in previous years to 11.2 percent year on
year in June, reflecting the difficulties banks were facing finding viable projects.
Romania was ranked 55th in the World Banks Doing Business 2010 survey, down 10
places compared with the previous year. The main problems appear to lie with
difficulties in employing workers, where the country ranks 113th, and in paying taxes
(ranked 149th).
The economic crisis threatens to turn into a large-scale human crisis in Romania. The
last decades progress on poverty reduction is at risk. Although the poverty rate
decreased dramatically from 36 percent in 2000 to 4.5 percent in 2008, Romania still
had 1 million poor in 2008. With the economy contracting in 2009, this number is
expected to increase to between 1.2 million and 1.3 million in 2010. Children and
youth43 percent of the poor in both 2008 and 2009face the highest risk of
poverty. Poverty remains concentrated in rural areas, but urban poverty is likely to
increase faster than rural poverty, as a consequence of increased unemployment and
significant impact of crisis on the nonagricultural informal workers.
The international support package has already produced two of its desired objectives,
helping Romania to avoid a series of dramatic effects of the recession, such as the
depreciation of the national currency or the state's incapacity to pay salaries and
pensions. However, the public sector still lags behind the private one in terms of
34

adjustment and has yet to reform before a healthy revival can be seen. Structural
reforms are critically important to improve the transparency, predictability, and
development effectiveness of public spending at both central and local government
levels. To be successful, these reforms need full and sustained political commitment,
as well as buy-in from the population.

The World Bank Program: Country Partnership Strategy 200913


Facilitating Romanias economic integration and social cohesion with the European
Union, while providing the necessary support to contain the impact of the
international crisis, is the focus of the Banks present agenda for Romania. The Bank
Group and the Romanian government are engaged in a four-year Country Strategic
Partnership 200913. In the present context, the dual objective of the Bank is to help
Romania deal with the economic and financial crisis and to broaden and deepen the
reform program for sustainable and equitable growth. As the global financial crisis
has exerted a significant strain on the Romanian economy and society, the current
CPS sets out how the World Bank Group is supporting Romania's efforts to restore
sources of sustainable and equitable growth in order to emerge, strengthened, from the
crisis, while reducing the immediate impact of the crisis on the poor. The Bank
program centers on advisory and analytical activities and a programmatic series of
Development Policy Loans (DPLs) to support the government's goals of further EU
convergence. Broadly, the CPS puts emphasis on reforming the public sector,
encouraging growth and competitiveness, and promoting social inclusion.
The CPS recognizes the prime role of the EU as main partner of Romania, and the
lead of the IMF in putting together the crisis-support package. At the same time, the
CPS builds on the significant value-added the Bank can bring to Romania's policy
agenda, especially in the design and implementation of structural reforms. The Bank
works in areas not covered, or insufficiently covered, by EU cooperation (e.g., health,
education, social protection, pensions, public administration), and helps the
government design and assess implementation of plans to achieve the acquis
communautaire.5 The Bank also supports cross-sectoral integrated solutions and can
provide a global perspective on experiences with reform.
As part of the multilateral financial support agreed on with Romania to address the
effects of the global economic and financial crisis and promote the governments
reform agenda, of the government, the World Bank committed to provide support in a
proposed three-part DPL program amounting to one billion euros. The World Bank
support focuses on longer-term structural issues in three key areas:

The term acquis communautaire, or (EU) acquis is used in European Union law to refer to the total
body of EU law accumulated thus far. The term is French, acquis means "that which has been
acquired", and communautaire means "of the community".

35

public sector reforms, notably in fiscal / public financial management to


improve the transparency and predictability of public spending and the quality
of public services
strengthening social protection (social assistance and pensions) to cushion the
impact of the crisis on the vulnerable and to improve the efficiency and
viability of these programs
financial sector reforms to enhance the resilience and functioning of the sector.

These measures would support the countrys longer-term stabilization and economic
restructuring agenda. The first Development Policy Loan (DPL 1) in the amount of
300 million (US$423 million equivalent) was approved by the Banks Executive
Board on July 16, 2009.
Lending and Disbursements under the World Bank Project Portfolio
Romania has the eighth largest active portfolio in the Banks ECA Region and the
third largest portfolio in ECCU5 in terms of active commitment.
At end-June 2010, Romanias active portfoliocommitments worth US$1.12 billion
ranked eighth in the ECA Region (following TurkeyUS$7.2 billion,
KazakhstanUS$2.6 billion, AzerbaijanUS$2 billion, UkraineUS$1.6 billion,
HungaryUS$1.4 billion, RussiaUS$1.3 billion, CroatiaUS$1.18 billion). The
portfolio consisted of

13 IBRD lending operations with a net commitment of US$1.116 billion, two


of them6 cofinanced by the GEF and a parallel one7 financed by the EIB;

1 Partial Risk Guarantee for Privatization of Banat and Dobrogea Electricity


Distribution Complexes;

1 Prototype Carbon Fund; 1 Japan SDF for Empowering Roma Communities;


and

11 AAAs.
One regional operationthe Energy Community in Southeast Europeis part of a
broader, EU regional program to develop a functional regional electricity market.
Almost half the portfolio (47 percent of total commitments) supports EU-aligned
priorities and capacity building in the areas of social inclusion, education, health,
agriculture, and sustainable, environmentally friendly development, and the
preparation of pipeline feasibility studies, to attract EU grant investment financing.
The rest of the portfolio is targeted toward development and EU convergence
priorities such as judicial reform, energy sector restructuring, the knowledge economy
and hazard-risk mitigation.

Hazard- Risk Mitigation and Integrated Nutrient Pollution Control

Health sector Reform APL 2

36

Figure 4 Romania: Lending by Major Theme, May 2010

Projects in Implementation

Knowledge Economy Project

Approved on

Revised
closing date

Amount

Undisbursed balance

11/29/2005

6/30/2011

US$60 million

US$ 29.8 million

In February 2000, as Romania began negotiations for EU membership, the Romanian


government opened all negotiation chapters, including the one on information and
communications technology (ICT). In doing so, Romania committed itself to adopt all
37

the EU regulations in the ICT field. A National Strategy for the New Economy and
the Implementation of the Information Society (200210), built on the Lisbon agenda,
emphasized improvement of ICT infrastructure; the need to increase the use of
technology and e-services across Romania; human resource training; and, network
security. In 2001, Romania adopted the e-Europe + Action Plan, designed specifically
for countries that were candidates for EC membership, as part of the effort to
implement the Lisbon Agenda. This was since updated under the e-Europe 2005
Action Plan, which emphasized the objective of promoting secure services,
applications, and content, based on widely available broadband infrastructure.
The World Bank committed to support Romanias efforts in the ICT sector by
financing the Knowledge Economy project with US$60 million. The objective of the
project is to accelerate the participation of knowledge-disadvantaged communities in
the knowledge-based society and economy in Romania. To this end, the project will
enable the government to implement the National Strategy for the New Economy and
Implementation of the Information Society, as well as the European Union (EU)
programs related to the information society for all. The project has three main
components:

Component 1. This component, to provide access to ICT in knowledgedisadvantaged communities and improved digital literacy, is to deliver
physical equipment and connectivity and training for the local populace in the
basic digital literacy skills required to increase their utilization of knowledge.
Component 2. This component, to develop and promote e-government
Services, will finance the full-scale implementation and deployment of a small
number of e-government services, currently being piloted through local
community e-networks as the primary means of access, prior to full-scale
deployment nationally.
Component 3. This component, to promote e-commerce and innovation
support for micro, small, and medium enterprises (MSMEs), will facilitate
Internet-based networks between MSMEs, both in horizontal clusters, and
vertical supply chains, serving as a platform of both absorption of innovations,
and market support, making MSMEs better informed, more competitive, and
placing Romania in-line with EU standards.

The project, an example of best practices (Box 3) supported the CAS objectives of
promoting growth through private sector development by promoting the use of ICT
technology as a means of driving micro and SME-led growth, building human capital,
and reducing poverty. Related to the knowledge economy sector, the Bank funded the
Romania e-Readiness Report in 2003. Other operations related to knowledge
economy activities had mentioned such activities, but this one is the first attempt to
tackle Romanias KE issues in a coherent, focused, and strategic.
The project is expected to ultimately contribute to the development of an information
society, better prepared to integrate and compete within the EU. The project is
expected to improve the quality of government services, including regulatory and
judiciary actions, as well as creating an enabling business environment, especially to
support the development of new MSMEs. Cost-saving efficiencies would be
38

generated through implementation of transparent e-government services, while the


employment of ICT and Internet services would improvements in further to the
improvements in education in primary and lower secondary schools.
The implementation of Component 1 is quite far along. Among the results to date are:

Forty-four percent of most disadvantaged communities now have access to


ICT by establishment of 255 networks in 208 communes and 47 small cities,
covering about 1.8 million people.
Staff for 10 local electronic networks have been trained and employed by local
authorities.
All the local network nodes are operational, with shared management and IT
administration, and are linked to schools, town halls, public libraries, 502
primary and secondary schools, and pubic information access points.

Box 3 Success Story: Knowledge Economy Project Won European Union Medal, 2008
The Knowledge Economy project was selected by the European Commission as one of the
five medal winners of the e-Inclusion Awards 2008. This award recognizes contributions for
overcoming the disadvantages of living in remote areas by bringing together communities
with common interests though scattered over a very large region. It was also acclaimed as the
project with the best information content at the IT&C awards in Romania in Bucharest in
2006.
Specifically, 255 communities all over Romania and their 1.8 million residents have been
given an opportunity to participate in the new knowledge-based economy through the
successful implementation of the local electronic networks. These are computer networks
serving as knowledge centers that provide information and services to local authorities,
schools, public libraries, citizens, and small businesses. This project component also provides
professional and financial support for networking between communities and schools initiated
by the beneficiary client-groups, from the education, public administration and business
sectors.

Avian Influenza Control and Human Pandemic Preparedness and Response


Project
Approved
on

Revised
closing date

Amount

Undisbursed
balance

39

9/8/2006

12/31/2010

37.7

21.3

The Avian Influenza Control and Human Pandemic Preparedness and Response
project was developed as an emergency operation to deal with the avian and human
pandemics in Romania in 200506.
The project is an integral part of a national program to increase Romanias avian and
human influenza preparedness to control the spread of influenza among animals and
humans. Initially, the project aimed to support activities in prevention, preparedness,
and contingency planning, response and containment under the three components:
animal health, human health, and public awareness, including communications,
monitoring and evaluation. Restructured in 2009, the animal health component was
cancelled.
The justification for the Bank involvement is the global public goods aspect of the
HPAI, one of many emerging and reemerging zones, and its strong link to poverty
reduction. HPAI control programs require a multidisciplinary approach to integrate
technical, social, economic, political, policy, and regulatory issues in addressing a
complex problem. The Bank is well-placed to build upon its knowledge of
multidisciplinary approaches needed in such a project, which draws on evidence and
lessons learned in the various regions regarding emergency preparedness responses
and multidisciplinary approaches. The Banks experience with multisectoral
emergency response and risk-mitigation projects makes it well qualified to bring
together the relevant ministries, government agencies, and the donor community
address the social and economic impacts of such pandemics and to ensure high-level
political coordination.
Through its work with FAO, WHO, EU, USAID, and other international partners
within Romania, the Bank has assisted Romania in leveraging additional resources to
address both preparedness and outbreaks and to assist with institutional assessments.
In addition to its financial role, the technical assistance provided by the Bank has been
important in similar global or regional emergency situations such as SARS, tsunami
relief, and HIV/AIDS.

Health Sector Reform 2 Project (APL 2)

Approved on

Revised
closing date

Amount

Undisbursed
balance

12/16/2004

12/31/2010

US$80 million

US$38.2 million

40

The proposed project is included in the 2002-04 CAS that sets as one of its objectives
the improvement of delivery of health services. This project is one of the targeted
poverty interventions identified in the CAS to address inequity of access to basic
social services across regions and for vulnerable groups.
The Health Sector Reform 2 project continues the support provided to the
Government of Romania by the World Bank in the implementation of key elements of
the program set out in 2000 through the first Health Sector Reform project, adding
also support for the rehabilitation of the maternity and neonatal care units. The
strategic purpose of this program is a healthy Romania, with lower morbidity and
fewer premature deaths, equitable access to health services, and improved efficiency
of the health system.
The objectives of the project are to:

improve efficiency and equity in the planning and regulation of the health
service delivery system;
reduce preventable deaths among emergency medical cases; and
help the Romanian health sector to better focus on priority public health
problems, thereby reducing preventable illness and deaths.

New technical assistance (TA) activities related to drafting legislation in line with
DPL sector reforms, and a study on prevention of informal payments were included
in the Loan Agreement.
Project interventions in the areas of mother and child care and emergency services are
targeted at priority areas of preventable morbidity and mortality, and are expected to
contribute to improving the health status for conditions where Romania lags behind
other EU recent member countries. Investments supporting higher quality and
improved access to effective primary care and regionalized perinatal care have
achieved substantial improvements of health outcomes and more efficient use of
resources in other countries in the region.
The cost of the project is US$206 million, supported by a US$80 million IBRD loan,
a US$81 million EIB loan, and US$44.8 million in funding from the Government of
Romania. Training activities under two components were supported by two parallel
Swiss grants implemented through Romanian NGOs.

Social Inclusion Project

Approved on

6/13/2006

Revised
closing date

Amount

Undisbursed
balance

3/1/2011

US$58.5 million

US$50.2 million

41

In the pre-accession years, Romania took a significant number of actions to facilitate a


smooth integration with the European Union. Among them, social inclusion and
poverty reduction measures, targeted at disadvantaged groups, were meant to
contribute to the Romanias continued stability, social cohesion, participation in
growth, and economic integration. Romania and the European Commission signed a
Joint Inclusion Memorandum on June 20, 2005, aiming at preparing the country for
full participation in the open method of coordination on social inclusion agreed by
EU member states. The memorandum identified as vulnerable social groups the Roma
minority, children at high risk, persons with disabilities, youth over 18 leaving the
state child protection system, and victims of domestic violence. The Social Inclusion
project (SIP) is helping the Romanian government give assistance to those groups
through existing and new programs.
The Bank has contributed to increasing awareness on Roma issues by jointly
organizing regional conferences with the Open Society and the European Union.
These conferences have led to the creation of the Roma Education Fund and the
launching of the Decade of Roma Inclusion (200515). Romania participated in all
these events and, like all the other EU member states, affirmed its determination to
reduce social exclusion of Roma. Romanias desire to modernize its approach to the
social assistance of persons with disabilities, youth at risk, and victims of domestic
violence can benefit from the Banks recent work in this area. In particular, the
recognition of persons with disabilities as a persistent group of the poorest people in
any society led to efforts to improve policies both to help disabled become productive
members of society and to assist them in living in a humane and dignified manner.
Romanias successful child welfare reform, supported by the Bank, is a model for
reforming residential care for people with special needs.
Through the Social Inclusion project, the technical relationships that have been
developed are kept active through reuse, thus building country systems. Hence, the
project is also increasing Romanias capacity to use EU structural funds. The project
is designed to be consistent with the Romanias reforms, aiming to turn ownership
and authority to local authorities, while transforming the ministries into technical
entities rather than implementers.
Supporting Romanias efforts to raise living standards and include disadvantaged
people in the social network is in line with the poverty alleviation and social inclusion
pillars of the 2006 and 2009 CPSs. The project aims to achieve:

a 20 percent reduction in the gap between targeted poor Roma settlements and
neighboring communities as measured by the living conditions index;
a 70 percent reduction of Roma in targeted poor settlements;
a 5 percentage-point increase in the number of children from vulnerable
groups living in targeted communities
services developed for persons with disabilities to score at least 80 percent on
the standards compliance index for each category of quality standards;
an increase of at least 40 percent in the employment rate of 18-year-old
beneficiaries of multifunctional center services.
42

Four components of the support the implementation of inclusive programs to meet


priority objectives set in the Joint Inclusion Memorandum: the Priority Interventions
Program, the Inclusive Early Childhood Education Program, the Social Assistance
Programs (disabilities, youth at risk, and victims of domestic violence), and Capacity
Building for Social Inclusion. The project is highly relevant in all respects. About 70
percent of the loan funds had been committed under selected investment subprojects
relating to Roma priorities, kindergartens for children at risk, shelters for victims of
domestic violence, and persons with disabilities.

Judicial Reform Project

Approved on

Revised
closing date

12/15/2005 4/1/2011

Amount

130

Undisbursed
balance

127

Institutional reforms, similarly to economic reforms, have accelerated since 2000 after
a slow start early in the transition period. When the Romanian government embarked
on an ambitious economic development program to enhance economic growth, reduce
poverty, and integrate smoothly into the European Union, it realized that sustained
progress in growth and investment required institutional reforms to complement
economic reforms. A weak judicial system, poor accountability, and widespread
perception of corruption were seen as liabilities to business and therefore to private
sector investment and growth.
One of the critical lessons from the East Asian financial crisis and the transition
process in Eastern Europe and the former Soviet Republics was that, without the rule
of law, economic growth and poverty reduction can be neither sustainable nor
equitable. Improvements in public administration generally, and in the justice sector
in particular, became a main focus of the Romanian governments reform plan.
The prospect of EU accession drove much of Romanias recent reform, especially the
direction, pace, and progress of legal and judicial reform. The Judicial Reform project
was designed to accelerate progress toward accession and to compliment the EU
assistance in the area of judicial reform.
One of the biggest challenges for the transition countries in Eastern and Central
Europe has been the reorientation or recreation of legal and judicial institutions,
which in the early 1990s were ill-suited to the needs of a market economy. The World
Banks assistance was initially targeted more heavily toward the development of
specific commercial laws and regulations than on reform of implementing and
enforcing institutions. Starting from the rnid-1990s, the focus of Bank assistance
gradually shifted toward supporting judicial reforms, and the Bank started to devote
more resources toward increasing the efficiency and effectiveness of courts and other
legal institutions. It gave support to the introduction of modern facilities, case
43

management practices, information sharing, training of judges and other court


personnel, and strengthening of mechanisms to ensure transparency and
accountability. The project was intended to contribute to achieving CPS priority goals
by supporting structural reforms in the judicial system. The 200609 CPS for
Romania identified successful integration and social cohesion with the European
Union as a main theme of the Banks support at that time. In support of Romanias
overarching objective of convergence with the European Union, the CPS was founded
on three main priorities: achieving sustainable and equitable private sector-led high
growth, upgrading fiscal management systems and reducing fiscal vulnerabilities, and
enhancing governance and upgrading the judiciary and other public institutions.
Establishment of an independent and efficient judiciary was one of the core EU
requirements in the context of Romanias accession and ultimately determined its
actual date. Development of a dynamic private sector also depends heavily on the
speed of judicial reforms. Many dimensions of court performance matter for doing
business. Yet in Romania, many companies still rate the courts as slow, ineffective,
corrupt, and incapable of enforcing laws. Last, effective legal and judicial institutions
are essential for guaranteeing equitable delivery of basic social services and social
protection for the vulnerable, while still developing efficient markets.
The projects development objectives are

to increase efficiency o f the Romanian courts, and


to improve accountability of the judiciary, which reduce corruption
through transparency.

In order to reach the goals of efficiency and accountability, the following areas require
support under the project:

upgrading of court infrastructure and automation;


court administration reform, including a program of case delay reduction
and reorganization of internal working arrangements in courts; and
institution building for the main judicial governing bodies (e.g. Superior
Council of Magistrates, High Court of Cassation and Justice and Ministry
of Justice).

The success of the project will be measured by:

improved capacity of the court system to adjudicate disputes (in terms of


fairness, speed, affordability and ability to enforce decisions);
improved court facilities, in line with international standards;
improved public image of the judiciary; and
enhanced competence, professionalism, and integrity of judges and court
staff.

Substantial progress has been made in contracting the courts infrastructure


rehabilitation works, and the commitment of loan funds is expected to exceed 40
percent by end 2010.
44

Complementing EU Support for Agricultural Restructuring Project

Approved on

Revised
closing date

Amount

11/27/2007 6/30/2013 65

Undisbursed
balance

62

As a result of EU accession in 2007, Romania now has almost unlimited access to the
opportunities offered by membership in one of the worlds strongest single markets
and one of the most competitive and dynamic economic and political entities. EU
accession rewarded Romania for unprecedented political and institutional reforms.
However, it neither guarantees successful economic integration, nor does it
automatically protect Romanian entrepreneurs from strong competitors on European
markets. Accession challenges have been mastered. Now the much more difficult
integration challenges are beginning to unfold. The major one is to phase out
Romania's national agricultural (support) policy in making the transition to the EU
Common Agricultural Policy (CAP).
The comprehensive reform of agricultural policies, begun in early 2005, set new
priorities and redefined agricultural support instruments to pursue the completion of
the land property reform, the development of a family farm segment, the reduction of
market distortions, and institutional strengthening. The corresponding policy tools
include systematic registration of land, subsidized land transaction costs for emerging
family farmers, enactment of a life annuity scheme, and enhancement of the
agricultural consultancy system. Although such measures do not qualify for CAP
support, their extension beyond January 2007 remains a responsibility of the
Romanian and is contingent on compliance with the EU regulatory framework and
availability of financial resources.
CAP implementation offers substantial opportunities, but Romanias agricultural
sector is not fully prepared to use CAP opportunities and to satisfactorily cope with
initial adaptation challenges. Scarce knowledge and information about national and
European provisions and funding opportunities among the agricultural population at
large and the locking of the vast majority of holdings in miniaturized structures are
main limiting factors. As a result, a large segment of the agricultural population is
economically and socially vulnerable. These people have great difficulty complying
with the new and complex set of agricultural requirements and therefore cannot take
advantage of market opportunities and EU and domestic assistance in order to manage
their income and assets.
Awareness, information, and knowledge about funding schemes and regulatory
framework are limited. Information and guidance needs extend well beyond
agronomic and CAP funding aspects. Banking and investments, inheritance and assettransfer laws, marketing, social security, management, are among the issues that may
need to be addressed. Several specialized sections of the information and advisory
45

services are swiftly developing in Romania, but as yet no integrated guidance system
is in place to jointly address the wide-ranging needs of the agricultural population.
Market-orientation and funding eligibility of most agricultural holdings are restricted.
The Romanian agricultural sector does not fully utilize its widely recognized agroclimatic potential, as it continues to be dominated in number by miniaturized (semi-)
subsistence holdings with limited market orientation and eligibility for CAP funding.
Currently, 50 percent of the agricultural land is divided up into no fewer than 4
million holdings, that make up 98 percent of the total number of Romanian farms.
About 80 percent of all farms are subsistence holdings; 45 percent are smaller than 1
hectare and are therefore ineligible for most CAP support schemes.
Land and property reform have yet to be completed, and the land market also needs to
be developed. These two factors continue to limit access to credit and other rural
financing options and have delayed farm restructuring responsive to market demand.
The property titles issued so farreportedly covering 95 percent of the total
agricultural land and 37 percent of the total forestry landdo not constitute legal
proof of ownership in the eyes of CAP-paying agencies and commercial banks. For
that, titles must be registered in the registry (land book) system, following
unequivocally the boundaries of the parcel identified through cadastre survey.
Because the farmers must bear all of the high associated costs, registration advances
at a snails pace. Property-related insecurity constrains CAP eligibility, limits access
to rural credit (critical to both complying with counterpart financing requirements of
CAP investment grants and accessing operating and investment capital), and deters
formal participation in the land market.
Against this background, the government of Romania, the European Commission, and
the World Bank identified as one of the most important sectoral development
challenges the provision of effective guidance services to the agricultural population
and the completion of land reform through systematic registration of property titles.
Consequently, the World Bank CPS for 200709 recognized the need for supporting
... a shift of agricultural policy toward completing the land reform process by
securing land tenure, and promoting efficiency and competitiveness. The latter is
particularly important for small and medium-size farms.
Therefore the objective of the Complementing EU Support for Agricultural
Restructuring (CESAR) project is to facilitate market-based farm restructuring by
enhancing the ability of farmers, farm family members, and farm workers to manage
their assets and income. Under this overarching objective, the CESAR project helps
Romania in completing the property title registration of land assets in rural areas to
improve the security of land property rights and reduce transaction costs on rural land
markets.
Equally important, the project assists the Romanian government in improving the
delivery of guidance services that enable the agricultural population to more
sustainably manage its income and assets and thus contribute to the absorption of
available national and EU support programs.

46

Project activities will be conducted in selected areas of Romania and will be designed
to allow for regional adaptability and scalability.

Energy Community of Southeast Europe Project (ECSEE APL 5)

Approved on

Revised
closing date

Amount

Undisbursed
balance

1/27/2005

6/30/2010

US$ 84.3 million

Continued development of the power sector is crucial to sustain economic


development in Southeast Europe. Power supply situation is tightening and threatens
to constrain economic activity and impinge on the quality of life if not addressed with
determined regional action. Investment over the past 10 to15 years has been limited,
with the average age of capacity now in excess of 30 years. Significant capacity
additions will be required during the next 10 years, along with matching transmission
and distribution system investments if demand is to be met and severe power
shortages and supply interruptions are to be avoided.
The SEE countries have acknowledged that solutions to these regional issues based on
isolated national markets are neither feasible nor desirable as a means of attempting to
close investment gaps and emerging demand and supply imbalances. As part of a
wider movement to strengthen regional cooperation, Romania, other SEE
governments, decided to cooperate in the power sector. To that end, in December
2003, those countries and the European Commission signed the Athens Memorandum
for the development of what is now called the Energy Community 1. A legally
binding Treaty formally establishing the Energy Community was signed in October
2005 and became effective in July 2006.
The World Bank is an active participant and promoter of the Athens process, at the
invitation of the European Commission. The Bank is providing regional lending,
policy advice and technical assistance to support the Energy Community. Bank inputs
include a regional trade strategy in 2004 and its update in 2006. In January 2005 the
Bank approved a US$1 billion adaptable program loan (APL) program, and an APL1
project, to Romanias Hidroelectrica, which is also the borrower of the proposed
project. Seven operations to six other countries have since been prepared and
approved: Albania, Bosnia and Herzegovina, Macedonia, Montenegro, Serbia and
Turkey (two operations) are also accessing the facility. In addition, a closely related
technical assistance project has been approved for Kosovo for the development of
power generation for the regional market. The total volume of Bank assistance so far
committed is more than US$400 million.
The Romanian governments energy strategy, reconfirms Romanias commitment to

improving the competitiveness of electricity and gas markets;


47

supporting the development of the Energy Community and internal


energy market of the European Union; and
proactively participating in the development and implementation of the
new EU energy policy.

The Energy Community of Southeast Europe (ECSEE APL 5) project supports the
objectives of the Energy Community APL. Its development objectives are to develop
Romanias hydropower generator Hidroelectricas capacity to provide peaking power
and ancillary services to the regional / European electricity markets and support its
institutional development.
Romanias ECSEE APL5 is implemented by an independent public company
(Hidroelectrica) and finances priority investments for a functioning regional
electricity market, specifically the rehabilitation of the Lotru hydropower station. The
project has performed well.

Hazard Risk Mitigation and Emergency Preparedness Project


Approved
on

Revised
closing date

Amount

5/20/2004 12/20/2011 150

Undisbursed
balance

55.9

Romania is wide open to earthquakes, floods, and a range of other natural disasters
that cause countrywide economic and human losses. Since 1908, 14 earthquakes
measuring 7 or greater on the Richter scale and 8 major floods have been recorded
affecting almost 2 million people and causing massive economic losses. The 1977
earthquake, measuring 7.2 on the Richter scale, resulted in economic losses well in
excess of US$2 billion. The July 1991 flood affected an area of about 1,400kmz and
caused damage estimated at US$0.5 billion (more than 12,000 buildings, 990 km of
roads, 14 km of railroads, and 150 bridges). Floods, in 1997 and 1998, caused
damages estimated at US$310 million and US$150 million, respectively. Romania
also faces the risk of water pollution from mining accidents. The accidents at tailings
dams in the Maramures region in 2000 have shown the need for mainstreaming safety
and environmental concern into mining operations.
Romania was the first country in the ECA Region to request the Banks assistance in
preparing a comprehensive hazard risk-management project in advance of disasters.
The usual pattern has been that the Bank is asked for help after a disaster. Romania
can thus be regarded as a good example for other disaster-prone for taking a strategic,
pro-active approach with an eye toward reducing vulnerability to multiple natural
hazards.

48

Romania's high exposure to natural disasters, the seismic vulnerability of its housing
stock and infrastructure, and the expected high economic losses from catastrophic
events called for a national catastrophe insurance mechanism that would help reduce
the government contingent liability due to natural disasters by transferring highly
concentrated catastrophe risk to the international reinsurance and capital markets.
Introduction of a catastrophe insurance program must, however, be preceded by
technical feasibility work to prepare Romania for launching the program. The project
will support these studies, which are to enable the government to make sound policy
judgments on the legal and institutional design of the future insurance program.
The project also has a global environmental objective to reduce catastrophic spills of
transboundary pollution loads from mining into the Danube and Black Sea Basins and
to provide for replication of measures that prove successful. In support of this
objective, the project, through a proposed GEF-cofinanced component, is assisting
Romania in piloting and replicating hazard-prevention and remediation activities to
improve the management and safety of tailings dams and waste dumps; and in
catalyzing transboundary cooperation on integrated water resources management of
the Tisza Basin. The successful implementation of the GEF-cofinanced component
will serve as a model for replication for reducing mining accident risks to human
health and aquatic ecosystems throughout Romania and other parts of the Tisza and
Danube Basins.
To date, through the Hazard Risk-Mitigation and Emergency Preparedness project,
Romania is much better prepared to respond and manage calamities. The National
Centre for Management and Oversight of Intervention (CNCCI) has been operational
since 2008, managing and supervising response action to be taken in case of disaster
through the Information Management System for Emergency Situations (SMISU).
Fifteen public buildings exposed to earthquake risks have been consolidated and
seismically retrofitted. Flood protection works have been installed at 11 sites. Four atrisk water retention dams and three tailings management facilities in former mining
zones (e.g., the Nov tailings pond and dam by Baia Bora mine) have been reshaped
and secured.

Romania Integrated Nutrient Pollution Control Project (INPCP)

Approved on

Revised
closing date

Amount

10/30/2007 12/31/2013 68.1

Undisbursed
balance

65.5

Romanian agriculture is dominated by individual and household farms, around 4


million agricultural holdings of less than 1 ha to 2,000 ha. Households in the Nitrate
Vulnerable Zones (NVZs) have an average of 2.2 hectares of arable land for crops and
livestock (one or two cows, pigs, chickens, and even sheep housed close to the family
dwelling in substandard buildings). Practices for animal waste management vary with
49

traditions, but few households have controls to prevent direct seepage of effluents into
the soil and groundwater. Privatization of farmland has encouraged farmers to keep
livestock at home (in the NVZs 96 percent of the cattle and 62 percent of the pigs are
in households). In some regions, animal waste is simply dumped in fields without
regard to its value as fertilizer or threats to human health and the environment. Most
rural households lack a formal waste collection and disposal service. Now that the use
of chemical fertilizers is limited by high prices,8 inappropriately handled organic
manures are the main source of nitrate discharge on arable land. However, as prices of
agricultural commodities increase, it is critical to ensure that chemical fertilizers do
not compound water pollution in the future.
Small and medium-size farms typically do not take into account environmental
impacts, and awareness is still low of alternatives for to comply with the Nitrates
Directive, which requires compliance to qualify for farm subsidy payments in NVZs.
Private land owners, farmers, and agro-processors require incentives and broader
knowledge of economic benefits to adopt technology for improved land management
to reduce nutrient loads. Significant EU grants are available to help private farms
make necessary on-farm capital investments. Hence, best-practice demonstrations,
farmer training, and awareness must be scaled up and spread geographically while
demand for these changes is being promoted in parallel.
Water and wastewater service provision in Romania is low compared with other
European countries. Of the 10 million people living in rural areas, 33 percent are
estimated to have access to a piped water system. Fewer are presumed to benefit from
such service, however, because many systems do not function properly due to poor
maintenance and / or lack of funds.
About half the rural population is served by public or private wells; the remaining 17
percent is served by public standpipes with varying travel distances to obtain potable
drinking water. Many water systems are not in compliance with the EC Drinking
Water Directive. The level of sanitation is even lower: only 12.9 percent of rural
households are served by a sewerage network, and only 10 percent of rural
households have their wastewater treated (about 94 percent of the sewers in Romania
are in urban areas). The remaining rural areas depend, at best, on septic tanks or
cesspits, usually poorly built and maintained. Rural households and public buildings
(schools, community centers and local public administration) commonly lack indoor
toilets and running water for immediate hand washing.
The combination of underdeveloped sanitation, poor livestock management, and a
large number of small farms results in significant nitrate and microbial contamination
of shallow groundwaterthe main source of potable water in rural areas. The effects
of this are observed in high concentrations of nitrates, an indicator of general
pollution and contamination affecting both the environment and public health, and
reported incidences of acute infantile methaemoglobinaemiablue baby disease. In
2005, 241 cases of blue baby disease were reported by the Institute of Public Health in

Application of NPK averages 36 kg / ha, about 25 percent of previous levels.

50

24 of the 41 counties, which in some cases were linked to nitrate levels well in excess
of 100 mg / l. Community well-testing programs in Romania indicate the problem is
likely to be more widespread than shown by official monitoring data. Pilot programs
in Romania have shown that behavior can be modified through a combination of
targeted public awareness programs and demonstration investments, ultimately raising
demand and farmers willingness to invest their own resources.
Romania began to invest in improved environmental infrastructure with the support of
EU pre-accession funds. Coverage of these investments will be expanded into the next
decade and beyond with continued substantial support from the EU Structural and
Cohesion Funds Government strategies support solid waste service regionalization at
county level. Eventually, transfer stations will be reaching out to the rural areas that
most need to lower the organic content of their waste if Romania is to meet its
national waste stream targets.
Similarly, the government strategy for water and sewerage provision emphasizes
regionalization as a priority to improve cost-effectiveness and service quality. Thus,
the strategy focuses on large to medium-size cities and towns that would later act as
hubs for extended services.
Prospects of converging investment in NVZs to achieve improvements therefore vary
widely depending on the location and context of county-level planning. A lack of
funds and capacity for feasibility study design is a further barrier to attracting
investments to rural areas. Specific interventions and greater awareness are thus
required to help promote the convergence of investments in NVZs.
Environmental investments demand an extensive and improved capacity for
intergovernmental coordination. The Romania Water Authority through its River
Basins has been designated to lead coordination of the Nitrates Directive
implementation and reporting at both the river basin and county levels through
interagency working groups. Core administrative structures for environment at the
national, regional, and local levels similarly play a critical role in ensuring adequate
environmental compliance and enforcement, raise awareness of legal requirements,
promote appropriate technical solutions, and support transparent and cost-effective
decision making through collection and wide dissemination of data and information.
Over the past decades, the Black Sea has suffered severe environmental damage due
to eutrophication, resulting from increased nutrient runoff from agriculture, coastal
erosion, insufficiently treated sewage, and inadequate resource management that has
led to long-term ecological deterioration. Black Sea Environmental Program (BSEP)
studies revealed that 58 percent of the nitrogen and 66 percent of the phosphorous
flowing in dissolved form into the Black Sea come from the Danube River Basin.
Romania has the largest land drainage area of the 13 countries comprising the Danube
Basin (29 percent) and the largest population share (27 percent). Its location at the
bottom of the basin presents special challenges in terms of managing waterways with
pollutant waste loads from upstream countries, but it also means that Romanias landbased actions, particularly for nutrient management, have the most direct effects on
the Black Sea. Therefore, actions taken in Romania to stem nutrient pollution flow
51

into the Danube River and the Black Sea are critically important and would result in
benefits to other riparian states.
Reducing nutrient runoff (nitrogen and phosphorous from agriculture) into the
Danube River and the Black Sea is an integral part of the countrys environmental
strategy as well as the Black Sea and Danube River Basin Strategic Action Plans. The
Romanian government has assumed international obligations under the Bucharest
Convention, the Odessa Ministerial Declaration on the Protection of the Black Sea,
and the Danube River Protection Convention to reduce nutrient discharge to the Black
Sea. To meet the EU Water Framework Directive requirements, the 13 Danube Basin
Countries were cooperating to develop a River Basin Management and Action Plan by
200910 that requires country-specific data and inputs from all riparian states.
Therefore the Integrated Nutrition Pollution Control loan and associated GEF grant in
the portfolio will help Romania to meet the EU Nitrates Directive requirements by
reducing pollution discharge into water bodies and strengthening institutional and
regulatory capacity. The overall development objective of the proposed project is to
support the Government of Romania to meet the EU Nitrates Directive requirements
by reducing nutrient discharges into water bodies, promoting behavioral change at the
communal level, and strengthening institutional and regulatory capacity.
Toward these goals, the project will provide technical assistance and specific
investments to increase the use of environmentally friendly agricultural practices as
well as manage animal and human wastes to reduce nutrient loads in Romanias
surface and groundwaters.
The global environment objective of the Integrated Nutrient Pollution Control project
is to reduce over the long-term, the discharge of nutrients (nitrogen and phosphorous)
into water bodies leading to the Danube River and Black Sea through integrated land
and water management. Project activities are directly linked to the GEF-funded
Strategic Action Plan for the Protection and Rehabilitation of the Black Sea. The
project will also contribute to development of the future Danube River Water Basin
Management Plan through practical field-based practices. The proposed interventions
will build on the successes of a pilot activity in Calarasi County and help to
implement priority actions identified in the Black Sea-Danube Strategic Partnership
Nutrient Reduction Investment Fund, the Danube River Strategic Action Plan, and the
Danube River Basin Pollution Reduction Program supported by GEF.
The GEF DanubeBlack Sea Strategic Partnership Program. The Ministry of
Environment and Sustainable Development is nearing completion of a GEF-funded
Agricultural Pollution Control project, under the umbrella of the DanubeBlack Sea
Strategic Partnership Nutrient Reduction Investment Fund. The program, the World
Bank and GEFs earliest effort to mainstream environment and nutrient reduction
considerations into agriculture, was a pilot for Romania and many other countries in
the two basins that replicated similar interventions. The five-year Agricultural
Pollution Control project demonstrated reductions in nutrient discharges into water
bodies in the project area and met its global objectives of reducing nutrient pollution
in Romanias water bodies.
52

Outcomes in the pilot county included

an increase in the percentage of households with livestock using


village and household manure storage facilities and segregating
waste, from less than 5 percent to 52 percent by December 2006,
which is in excess of the original 45 percent target by mid-2007;
an increase in afforestation of erosion-prone locations to about 75
percent; and
an increase in the number of farms using appropriate nutrient
management (reduced chemical fertilizer application and increased
organic manure) from one or two farms at the start to more than 30
percent of the arable area, meeting the overall expectation at the
start of the project.

This single-county pilot helped demonstrate both environmental and quality-of-life


benefits through a concerted program of action. Although actions toward
implementation of the EU Nitrates Directive were initiated under the Agricultural
Pollution Control project, a significant amount of work remains for comprehensive
implementation on a national scale.

Irrigation Rehabilitation and Reform Project

Approved on

Revised
closing date

7/31/2003

3/31/2011

Amount

80

Undisbursed
balance

33.1

The economic importance of the agricultural sector has decreased, but agricultural
employment remains high relative to the total employment. Almost 30 percent of
employment is in agriculture, compared with some 2 percent in EU-15 and between 3
percent and 14 percent in EU-8. Within the European Union, Romania has the highest
proportion of population deriving its main income from agricultural activities, and
among the lowest competitiveness in agriculture. About 45 percent of Romanias
people and more than 70 percent of its poor live in rural areas.
Romania has a total of 15 million hectares of agricultural land, two thirds of it arable.
Thus, its agricultural sector has considerable potential to produce a commercially
viable and diverse mix of temperate crop and livestock products. This potential is still
unfulfilled, due partly to problems inherited from the socialist regime and partly to
hesitant, stop-and-go sectoral and macroeconomic policies. During the early 1990s,
land reform dismantled 5,000 collective farms and returned the land to the original
owners. As a result, about 4 million small private farms emerged, leading to the
present dual-farm structure of agriculture. Private farming had to struggle for years
because of disappearance of marketing channels, lack of experience with private
53

farming practices, and inconveniences and diseconomies of fragmented landholdings.


In addition, the liberalization of energy prices resulted in the almost complete
disappearance of the uneconomic irrigation subsector, which depended heavily on
energy. The deterioration of existing irrigation facilities and the absence of on-farm
irrigation management were also critical constraints to developing and maintaining
private commercial farming.
Irrigation is vital to Romanian agriculture for several reasons. First, it offsets rain
deficits in the countrys semi-arid southern and eastern regions. While average annual
rainfall for the country is 750 mm, the average rainfall in the southern and eastern
regions is less than 500 mm (the typical upper bound of semi-aridity), with uneven
seasonal distributions (less than 20 percent of total rainfall occurs in summer). The
water demands of crops during July and August are between 300 mm and 500 mm,
leaving a crop water deficit of some between 200 mm and -350 mm. This makes
irrigation necessary for most summer crops (e.g., maize, vegetables, sugarbeet,
sunflowers, potatoes, and alfalfa). Irrigation also minimizes the climatic risks
affecting agriculture, enabling the stable production necessary for commercial
farming. It can also encourage private farmers in certain areas to convert to highervalue crops such as vegetables. Economic irrigation depends on a number of factors,
such as pumping height, irrigation intensity (percentage of total area), and cropping
patterns. During the first decade of transition, both the technical state and the
economics of irrigation were affected in many ways. For years, irrigation had to be
subsidized by the state to keep the system going. A profound institutional reform of
the irrigation sector became a necessity by 2000s.
Therefore the Romanian government and the World Bank signed a loan agreement in
2003 to fund the Irrigation Rehabilitation and Reform project. The project is
intended to restructure the land reclamation sector, improve irrigation management,
and increase irrigation business efficiency. The project finances the rehabilitation of
irrigation infrastructure in selected areas and supports reforms of irrigation policies
and institutions (public and private) to manage irrigation systems cost-effectively and
facilitate application of the 2010 EU no irrigation subsidy regime.
Irrigation systems at Sadova-Corabia, Nicoreti terrace (first stage), Viziru terrace and
Brilei terrace (second stage) were selected. Systems that had to be covered by the
upgrade program were selected based on several criteria. One of the criteria was
business, how efficient irrigation had to be. Based on a study that the World Bank had
made in 199294, the irrigation systems that were supposedly economically viable
after the upgrade were identified per jurisdictional areas. The study found that
pumping elevation was vital for the business efficiency of irrigations and the
maximum elevation was established at 70 m. The upgraded system at Sadova-Corabia
covers 40,310 hectares of arable land. The pumping stations, supply canals, and
distribution canals were repaired, 20 percent of the underground pipelines of the older
systems were replaced, and protective curtains 200 km long were restored to prevent
wind erosion.
For the second system in this project, the irrigation system on the Nicoreti-Tecuci
terrace, the investment consisted of upgrading the main pumping station and the
irrigation canal network. An irrigation water semi-automatic management system was
54

introduced, and 25 percent of the existing irrigation system was also replaced. The
upgrade of the irrigation system on Viziru terrace also included the installation of
some floating pumps, out of the total 10 pumps located on the Danube riverbank.
Another criterion for selecting areas where irrigation systems could be upgraded was
the existence of the irrigation water user organizations (IWUOs). These organizations
used a 2004 regulation to unite into federations that have a legal right to manage the
main infrastructure from the National Land Reclamation Authority. The project paid
special attention to attracting the users of irrigation services into the decision-making
process. Although IWUOs have become more powerful with support from the project,
they are still weak in their relationship with the National Land Reclamation Agency,
which holds a virtual monopoly over the supply of irrigation water. For that reason,
creating a federation by uniting several IWUOs could help shift the critical mass in
managing these systems from state organizations toward IWUOs.

Modernizing Agricultural Knowledge and Information Systems Project

Approved on

Revised
closing date

11/16/2004 9/30/2010

Amount

50

Undisbursed
balance

31.8

The creation of a competitive agricultural sector that would allow Romania to


function effectively in the new EU environment depends largely on the existence of
an efficient national agricultural knowledge and information systems (AKIS).
Currently, the capacity of the Romanian AKIS is inadequate in assisting farmers and
the agro-food industry to meet relevant agricultural EU directives that will allow them
to capture the benefits of EU accession. The EU places particular emphasis on the
maintenance of land in good agricultural condition. To be eligible for direct singlefarm payments, farmers have to maintain and conserve their land and comply with
statutory requirements regarding public, animal and plant health, occupational safety,
environmental and animal welfare. In this context, Romanias farmers associations are
key to effectively creating larger operational farm units while leaving the ownership
with small holders. To become competitive in the EU and obtain the benefits of the
CAP, Romanian farmers need much more effective access to information and research
results than they have had. The research, extension, and education subsectors at the
time of accession were inefficient and not well positioned to help Romania take full
advantage of EU membership.
The development objective of the Modernizing Agricultural Knowledge and
Information Systems project (MAKIS) is to assist the Romanian government in
improving the competitiveness of farmers and ago-processors. This will be achieved
through:

55

strengthened National Authority for Sanitary, Veterinary, and Food Safety


and better implementation of measures for inspection control, risk
management, and communication in food safety matters;
modernized and strengthened national research and extension system to
provide staff in the food safety agency as well as within the research and
extension organizations with necessary agricultural knowledge, skills, and
technology facilities;
improved technology development and advisory services to ensure access
to relevant information and technology by the farming community; and
increased access for farmers and processors to knowledge of technologies
related to production, quality control, food safety, processing, and
marketing in order to meet EU requirements.

The project is not a poverty-focused operation. It is designed to help the farming


community achieve increased and sustainable productivity and meet relevant EU
agricultural directives that will allow them to capture the benefits of EU accession.
The primary beneficiaries would be middle-size and small farmers with the potential
to become commercial.
Project impact will be measured in terms of: increased food safety; improved
agricultural productivity and competitiveness; and increased access to and adoption of
improved farm practices, marketing strategies, and post-harvest technologies leading
to increased household incomes.

Mine Closure, Environmental and Socioeconomic Regeneration Project

Approved on

Revised
closing date

12/16/2004 5/31/2010

Amount

120

Undisbursed
balance

69.7

The reform of the mining sector started in 1997, with a voluntary downsizing from
171,000 workers to 82,000. Years later, as part of its accession engagements to the
European Union, the Romanian government committed to reduce its high subsidies to
mining, more than US$150 million in 2003. In 2004, To reform the sector and help
respond to EU accession rules, a new Mining Sector Strategy was approved.
The overall objective of the 200410 Mining Sector Strategy was to transform the
mining industry into a profitable sector and to support economic growth and
sustainable livelihoods in the mining regions of Romania, in support of Romanians
economic integration into European Union. The elimination of all subsidies to stateowned mineral and metal mines by 2007, and coal mines by 2010, was one objective
of the strategy. This required downsizing of the mining sector from 57,738 in January
2004 to 26,650 workers in 2007, and imposed hard budget constraints on mining
companies so that they can meet their full operating costs. Environmentally sound
56

mine closures and socioeconomic regeneration to reduce unemployment in the mining


regions were a prerequisite for achieving the program objectives.
The World Bank has supported this reform process through the Mine Closure and
Social Mitigation project (MCSMP) which supported the closure of 31 mines and
social mitigation measures to assist redundant miners. The development objective of
the project was to strengthen the governments ability to undertake mining sector
reform by building the ministrys capacity for closing uneconomic mining enterprises
through support for closing complex mines and ancillary enterprises in an
environmentally sustainable manner; providing support to the National Agency for
Development and Implementation of Reconstruction Programs for the Mining
Regions, local communities and other agencies for community-based planning and
socioeconomic regeneration of the mining regions.

57

Box 3 Mine Closure Opening New Windows of Opportunity for Romania


Above the picturesque Romanian village of Budas, machines in an open pit mine once scraped the
earth for coal500 000 tons of it a year. Now the mine is buried under a new landscape; lakes have
been dug to hold fish and water cattle; and hillsides are shaped to grow meadows and forests. The
scenery is the result of government efforts supported by the World Bank to sustainably close mines
no longer needed throughout Romania.
Harnessing energy and mineral resources had been the cornerstone of Romania's economic
development strategy since the 1950s. The communist policy of economic self-sufficiency led to an
excess of mines opened in Romania without any consideration of viability or environmental
concerns. In 1989, when output reached its peak, 278 mines were in operation. By the late 1990s,
many of these mines had become a major drain on resources but closing them was expected to have
significant adverse environmental and social consequences.
Two mine-closing projects have played a significant role in ensuring that, once the Romanian
government had identified economically unviable mines, they could be shut down in a socially and
environmentally sustainable way. The social impact of stopping production was mitigated through
efforts to provide new jobs and business opportunities as well as training to miners and others who
lost their jobs in the closings. Environmental clean-up efforts at retired mines have helped reduce the
long-term impact on those sites. The projects have also developed long-term capacity for conducting
similar operations within the National Agency for Mineral Resources and for supporting
socioeconomic regeneration of affected localities through the Romanian Agency for Sustainable
Development of Industrial Areas.
The burden on the state budget was partly reduced between 2002 and 2006, when the government
closed 235 mining units, while coal output barely changed. The Bank provided technical assistance
to identify loss-making and unviable mines and to facilitate the governments successful mine
restructuring operation.
Closing a mine in an environmentally friendly way is slow and expensive. Waste dumps had to be
dug up and contaminated dirt trucked out and buried safely. In all, more than 100 hectares were
returned to nature.
We replanted the same type of trees so that all this area is covered by forest again, said Nicolae
Turdean, the mine-closing project director. This is private land at the end of the day, and we had to
give the land back to the people the way it used to be before the mining activity started.
For this World Bank Project, closing the mine also meant cleaning up the village. The main street
and the villages one bridge, both damaged by years of truck traffic, were rebuilt and houses flooded
by mine runoff are now protected from water. Of hundreds of unprofitable mines in Romania, 38
have been rehabilitated under this project. In this area, in the middle of Transylvania, where mining
once was king, a new venture is thriving: bottling prized mineral water from the areas springs and
wells.]
Lignite or brown coal was extracted for more than a century from one mine in Raco. At cleanup a
meter of polluted soil was carted away, underground shafts were flushed for months to avoid
polluting the groundwater, and 24 buildings were torn down. Now, where a polluted mine site once
sat, there is a lumber yard, and a new lake. Locals hope to develop an industrial park at the site and
to capitalize on the new lake by attracting tourists.

58

Municipal Services Project

Approved on

Revised
closing date

7/13/2006

6/30/2011

Amount

131.7

Undisbursed
balance

42.8

As an EU member, the Romanian government has to comply with the acquis


communautaire including the environmental protection legislation that provides
specific directives on water and wastewater.
The investment costs to meet the EU directives on improving water services and
wastewater services are estimated at 5.6 billion and 9.5 billion, respectively (by
end-2018). These costs relate mainly to increasing the coverage of piped water
supply, developing sewerage networks, and constructing wastewater treatment plants.
In addition to these investments, the economy will have to bear the operation and
maintenance costs and the investment costs to rehabilitate infrastructure.
The Municipal Services project was designed to assist Romania in meeting EU
environmental directives in the water and wastewater sector, thereby improving the
quality and coverage of water and wastewater services. This objective will be met
through

the support of infrastructure development in the municipalities of Bucharest and


Arad to improve water and wastewater service and stormwater management; and
preparation of priority water and wastewater projects in 11 counties. The proposed
projects will be submitted for financing by EU Structural and Cohesion grants
along with other cofinancing.

At the time of project approval, in 2006, In Bucharest, Romanias capital, about 20


percent of its 2.2 million residents did not have running water and used water from
wells far below the quality standards set by EU law. The project targeted areas of the
city that were not connected with sewerage and where use of low-quality septic tanks
increased the risk of contamination of groundwater, a source of drinking water. In
Arad, a city with a population of 190,000, about 90 percent of the citizens in the
project areas did not have access to sewerage networks. The project also supports the
development of stormwater drainage to reduce flooding in both cities. In both cities,
the project requires the water and wastewater concessionaires to expand services to
the project areas in line with the strategic action of the Environment Sector
Operational Program to improve peoples access to utilities and piped water supply.
The project builds on the successful Bank-financed Bucharest Water Supply project
(19962001), which supported the public water operator, Bucharest Water and
Sewerage Company. Under the Bucharest Water Supply project, the Bank supported
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the rehabilitation of water network to reduce water losses and supported private sector
involvement.
The project supports Romanias efforts to meet its commitment to the EU through a
pipeline of priority environmental investments tapping EU Structural and Cohesion
funds. The project will directly improve the quality of water and wastewater services
and reduce flooding of low-lying city areas where new drainage networks will be
built. The project also supports urban services (water, sewerage, and stormwater)
which will support urban development in Bucharest and Arad and allow water and
wastewater services to meet requirements in EU directives.
Functional Reviews
The Romanian government has agreed to request functional reviews of its public
administration by an independent consultancy, as specified in its Memorandum of
Understanding with the European Commission, signed on June 23, 2009. The
government plans to initiate such reviews to support its goal of modernizing the
public administration and improving its ability to fulfill its commitments to the EU
under the Europe 2020 agenda. As a result of the economic crisis, the Romanian
government has had to make difficult choices among policy priorities. The functional
reviews will be a useful input to help institutions use public resources effectively. The
government has asked the World Bank to lead the reviews on its behalf.
This consultancy project is to help Romania develop short- and medium-term action
plans to strengthen the effectiveness and efficiency of the public administration,
especially the functions related to Romanias implementation of the Europe 2020
Strategy. Among topics to be addressed the project will examine whether the policy
goals and objectives of key ministries and agencies are clearly defined in measurable
and achievable terms; whether the management systems, policies, staffing, and
internal organizational structure are appropriate for them to meet their objectives; and
whether factors external to the institutions may impede their ability to meet objectives
fully. In some cases, the ministry represents only a small portion of the overall sector
spending, but the goal of the consultancy is to improve performance of the ministry
and the broader sector in which it operates.
The project will focus on vertical reviews of 12 ministries, agencies, and other
public bodies in seven sectors: Transport, Education, Agriculture and Rural
Development, Public Finance and Economic Management, Center of Government,
Private Sector Development / Competition Council. For each institution the project
will develop an assessment of the current situation and future needs broadly based on
the following thematic framework:
i.
ii.
iii.
iv.

Resource Uses across Policy Domains: What drives cost in the sector?
Strategic Framework: Is sector performance well-defined and monitored by
the institution?
Organizational Structure and Systems: What are the barriers to effective policy
planning and implementation in the sector?
Financial Management: Do budgeting and reporting functions effectively
support policy implementation?
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v.

Human Resource Management: Do policies and procedures for managing staff


assure effective use of human resources?

Development Policy Loans Program


The Development Policy Loans (DPL) program, amounting to 1 billion, represents
the support provided by the Bank as part of the international multilateral package for
Romanias reform program. The DPL program focuses on public financial
management, the social sector, and the financial sector.
The first DPL, totaling 300 million, was approved by the Board of the World Bank
on July 16, 2009, signed on September 1, 2009, and disbursed on October 20, 2009.
The DPL reform agenda supports policy measures and structural reforms to achieve
fiscal sustainability in Romania and uphold the recovery process. It closely
complements programs supported by the IMF and the European Union.
The second DPL, planned for released in 2010, targets three key areas: improving
public sector efficiency, protecting the poor and the vulnerable, and strengthening the
way the financial sector functions. The reform agenda supported by the DPL is
progressing well. The new Pension Law is already under debate in the Parliament, and
the Fiscal Responsibility Law has been promulgated. Deep reforms are underway in
health and in education. The implementation of a new unitary pay system has
advanced, and a representative sample of public sector jobs has been evaluated under
the supervision of the bipartite Pay Commission. This will provide the basis for
drafting the implementing legislation of the Unitary Pay Law, which is expected to be
submitted to Parliament by September. The Bank is also working with the Ministry of
Labor to ensure that the needed social assistance programs for the poor and the
vulnerable are consolidated, rationalized, well-targeted, and appropriately
comprehensive in coverage, while using public resources efficiently and reducing
leakages from the social protection programs.
The DPL programs public financial management reforms include cross-sectoral
measures relating to the Medium-Term Expenditure Framework, and initial steps on
public sector pay reforms. The framework will introduce more stability, predictability,
and transparency in public spending. The reform of the public sector will achieve a
more transparent and motivating system of public pay. In addition, the proposed
program of operations focuses on sectoral reforms in education and health, where,
again, the measures seek improvements in fiscal management, service delivery
efficiency, and equitable access.
The measures to strengthen social protection in the DPL program focus on social
assistance programs and pensions that cushion the impact of the financial crisis and
economic downturn as well as improve the efficiency and viability of these programs
for the future.
In the financial sector, the reform measures supported by this program of loans fall
under two broad categoriescontingency planning and reforms to enhance the
governance and supervision of the financial sector with a view to strengthening
sectoral resilience, functioning, and stability.
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THE FUTURE: MASTER PLANNING, SUSTAINABLE GROWTH, AND EU


CONVERGENCE
A Successful Recovery Strategy
Of all the Banks Regions, Europe and Central Asia was hardest hit by the crisis,
reflecting pre-existing vulnerabilities in many countries. Current account deficits
arising from large private sector savings-investment imbalances, were severe. GDP
dropped by 6.2 percent in 2009, and, though projected to rise by 2.7 percent in 2010
and 3.6 percent in 2011, growth rates in most economies will remain below potential.
Unemployment and bank restructuring will continue to be pervasive. Compared with
the pre-crisis period, high nonperforming loans, weak public finances, and low
international capital flows are likely to dampen investment growth in many countries,
including Romania. Significant downside risks persist, including the possibility of a
double-dip recession or increased financial difficulties for banks in the ECA Region.
Over the medium term, a gradual economic recovery is expected in Romania, where
its pace and strength will reflect the restoration and broadening of the economic
reform agenda initiated before EU accession.

Focus on the crisis, and flexibility. Accordingly, the 200913 Country Partnership
Strategy is focused on the financial crisis. The CPS is designed to support Romania
for sustainable and equitable growth, with a dual objective: dealing with the economic
and financial crisis and broadening and deepening the reform program for sustainable
and equitable growth. The flexible approach of this CPS offers the ability to respond
to evolving circumstances and demand by adopting a results-based program centered
on development outcomes and objectives. The strategy reflects government priorities
and the Banks comparative advantage and value-added. The DPLs, including the
budget support to Romanian authorities and help with the institutional reforms remain
an important part of this plan.
A mid-term CPS review will take place by June 2011. This review will be the result
of extensive consultations with the government and stakeholders. The World Bank
team in Romania proposes a redefinition of the main axis of the country strategy in
line with the new Europe 2020 Agenda, which is replacing the Lisbon Strategy. The
CPS will be based on the Europe 2020 pillars:

Pillar I: Transition to a Competitive Knowledge-Based Economy, R&D

Pillar II: Investing in Human Resources and Combating Social Exclusion

Pillar III: Transition to a Green Economy through Sustainable Development

Pillar IV: Improving Resource Allocation in the Public Sector

Functional reviews, a guiding framework. The ongoing Functional Reviews of the


Romanian Public Administration will provide a guiding framework for the CPS
review, especially in terms of implementation of recommendations made in the
functional reviews.
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Strategy to improve effectiveness. The World Bank has launched a strategic


positioning exercise to better understand the Banks role, to see where the national
priorities match the Banks comparative advantages. Against the backdrop of a
economic volatility in 2010, marked by internal and external uncertainties, the World
Bank Country Office in Romania launched this comprehensive strategic exercise to
determine how the Bank could improve its effectiveness in supporting Romania.
National priorities. The question addressed was how best to help the Romanian
government prioritize and inform its trade-offs across sectors, especially in a period of
budget pressures. The strategic positioning exercise was based on a perception survey
done in February 2010. The results showed that prioritization is important and
becoming increasingly so. The aim of the exercise was to identify and prioritize the
country needs for technical and financial assistance. It was based on an ample opinion
survey carried out with a representative sample of highly influential political and
economic decision makers, ranging from current government members and former
prime ministers to advisers from various institutions and other key stakeholders. The
survey investigated which of Romanias needs for assistance in various sectors and
subsectors correspond to the key comparative advantages of the World Bank. The
findings of the survey were subject to intensive consultations with the Romanian
government, representatives of the European Commission, and other significant
stakeholders. The consultative process is ongoing.
Setting a baseline for future monitoring. Following the results of the strategic
positioning survey, a benchmarking exercise was started to confirm the strategic
priorities and set a baseline for further program monitoring using key performance
indicators. A team of consultants in close cooperation with the Romania Country
Office identified key indicators for monitoring and evaluation (M&E) and targets to
be achieved in each sector. The analysis gave an overview of the performances in
each sector against the expenditures based on measurable indicators, which allow
comparisons within sectors (at the subsector level) and across them, taking into
consideration the distance between Romania and the European Union measured
against specific targets. This global picture enables the identification of both priorities
and tradeoffs for Romania's convergence with the European Union. Therefore the
study has identified the main areas for action for the following period.
Areas for Action in 201013
These are:

monitoring and evaluation of public policies,


public administration reform,
social sector reforms for inclusive growth,
climate actions and sustainable growth,
rural development and agriculture,
knowledge economy and innovation, and
subnational government administration.

Restructuring vs. investing more. The baseline exercise brought out the need to
develop an M&E system, an area of World Bank expertise. For convergence to EU 27
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performance standards, structural reforms are recommended in public administration,


social sectors, rural development and agriculture. Additional investments would be
required to improve Romanias performance in the knowledge economy and
innovation, climate actions, and sustainable growth.
The sector analysis needs to be refined, taking into consideration M&E methodology
developed by the European Commission in relation to the Europe 2020 Strategy. This
exercise is intended to unfold in close partnership with the European Union, the
Romanian government, the private sector, NGOs, academia, and other relevant
groups. An in-depth analysis at the sector and subsector level is being developed by
adding two new sets of indicators: institutional indicators (using various studies and
the Functional Reviews) to point out the main bottlenecks, and indicators regarding
the Structural Funds (e.g., number of ongoing projects, rate of absorption). The results
and findings of the strategic prioritization and benchmarking exercise will help
increase the governments to define priorities and to update the current CPS. The
Banks business model in Romania will continue to evolve, transforming the Bank
from financier to adviser. As seen in the results of the survey, the Bank is expected to
help the Romanian government and has already started to do so. Therefore, to make
the most of this assistance, it is important that the government set the national
priorities.

Capitalizing on the Banks Value Added


The World Bank can contribute significant value-added to Romanias development
policy agenda, especially in structural reforms. Feedback from clients and
stakeholders has highlighted several positive aspects from the Bank's work over the
years. The Bank was viewed as offering good quality, impartial advice, as being in
Romania for the long haul, and acting as a valuable agent for change and for donor
coordination.
Since Romanias accession, the European Union and EU-related institutions have
become Romanias main external partner. The European Union has committed more
than 32 billion in grants to Romania for 200713, equivalent to about 25 percent of
Romanias GDP in 2009, to further EU objectives of convergence and cohesion,
support for small and medium enterprises, environmental sustainability, innovation,
development of trans-European transport and energy networks, and sustainable and
secure energy. The European Investment Bank and the European Bank for
Reconstruction and Development are key supporters of Romanias development
objectives. The EIB is the largest institutional investor in Romania with a portfolio of
6.2 billion and planned activities of 1.5 billion for 2009 and 2010. The EIB plays an
important role in providing required co-financing for EU structural and cohesion
funds and also technical assistance to support convergence, infrastructure,
environment, and energy goals. EIB lending focuses on industry, transport, and
energy. The EIB lends at both national and subnational levels. The EBRD invests in
both the private and public sectors in areas such as power, transport, municipal
infrastructure, financial institutions, and the corporate sector. The EBRD is supporting
Romanias efforts to decrease the intensity of its carbon fuel consumption and is
promoting energy efficiency projects and energy efficiency loans via the banks.
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The Bank has reengaged with the European Commission to upgrade coordination with
the European Union, and the portfolio relevance for EU convergence was renewed.
Building on past support to reform and analytical work, the World Bank can play an
important role in supporting post-crisis management and reform in the areas of public
finance management in general and public expenditure in particular, public sector
pay, education, health, social protection, and the financial sector.
The Bank can provide value-added in four ways:

Substance. The Bank can be a strategic partner in sectors for which there is
limited or no coverage in the EU acquis communautaire, namely health, education,
social protection, pensions, and public administration.

Approach. The acquis sets the goals and standards to be achieved by member
states, but usually leaves to each of them the choice of implementation path to reach
those goals. The Bank can assist with a diagnosis of the degree of readiness to achieve
European goals, present options, and provide capacity building for implementation,
help with the how to of complex policy and reform issues. The Bank can help
design implementation plans; identify costs, benefits, and areas of vulnerability; build
capacity; andwith other partners assist in the implementation of the plans.

Cross-sector integration. Some topics demand a holistic, cross-sector


response, which the Bank is well-placed to provide. For example, the demographic
shifts under way in EU10 countries will require solutions that incorporate a range of
structural reforms, including in health, education, and pensions.

Global perspective. The Bank can draw on experience in other countries to


bring innovative ideas, examples, and lessons and learn from EU-10 countries to
enhance programs across the range of the Banks client countries. One example of
sharing global ideas is the conditional cash transfer programs that were initially
developed in Latin America and are now being applied in the United States and in
Europe.

NOTES
Insert the notes here. They could go on the inside back cover.

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Conclusions
As the world is recovers from the crisis, Romania, too, is working to gain strength. In
this, the World Bank has pledged its assistance. It is not a mere promise, but a natural
continuation of an engagement deeply rooted in already existing results.
Today the Bank itself is going through a reform meant to make it stronger, more
dynamic, more responsible, results oriented, and transparent. At the Spring Meetings
in 2010, the Bank member countries endorsed a historic package of reforms and also
approved the Banks first major capital increase in more than 20 years. It is a living
example that the World Bank is best suited to manage change through knowledge
management, and a testimony that best practices and experiences can and should be
transferred to its clients.
As for Romania, a lot has already been achieved, and a lot still remains to be done. In
this process, the World Bank takes pride in positively affecting peoples lives not only
by providing knowledge through its analytical work, and technical assistance, but also
through concrete results of lending that has been either budget support and support for
policy and institutional actions, or investment operations. For what remains to be
done, the World Bank stands ready to continue its work in a strategic manner, for the
best interest of its client.
The opening of the World Bank Country Office in Bucharest in 1992 ushered in a
new phase of RomaniaWorld Bank relations. Romania had joined the World Bank
on December15, 1972. The first lending to Romania was approved on June 27, 1974,
US$4.9 billion for 56 development projects. Today, 35 IBRD and IFC staff are
assigned to the Bucharest office. They are managers, economists, operations officers,
program assistants, and consultants working every day to assist to Romania, their
partner-client. Their roles have been defined in ways that will help Romania reach its
targets through a set of jointly defined activities. By customizing and innovating for
Romania the Bank keeps a local touch in its global activities. This is a promise to
deliver with a focus on Romania, growth, reforms, and EU convergence.

66

Epilogue: Looking Forward


The political and economic development experienced by Romania during the last 20
years is impressive. It has been rewarding for the World Bank, organization and staff
alike, to have been recognized as a partner to this historic growth. Unfortunately, the
financial crisis revealed how urgent and necessary institutional reforms are in
Romania. For the World Bank team it is an honor to be called upon to advise and
assist a sophisticated European country such as Romania, through the crisis and
beyond. It shows the trust built over the years, but it is also a challenge to the World
Bank to bring the best expertise and its most relevant knowledge.
The challenges faced by Romania, as well as by other countries in the Banks Europe
and Central Asia Region, are about managing changes, drastic ones, and building a
more competitive economy, a more efficient administration in the service of the
citizen, and a more demanding civil service administration. These changes will be
structural and sometimes even cultural, since they will deal with privileges, with
redefining the incentives and promotions in the administration, as well as with
allocation of budgets in the Ministries.
To face this crisis, Romania needs more than advice. It needs strong willingness, clear
priorities, good governance and also wider alliances across all political parties. During
this period the government and the people can count on the World Bank not only to
listen carefully, to bring its best to the table, but also to help strengthen this coalition
for change and development, that is needed more now than ever before.

/SIGNATURE/
FRANOIS RANTRUA
Country Manager
Romania

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