Romania: It's Not Exactly Poland, But It's Getting Foreign Investment

Extension of Most Favored Nation trading status should help

ROMANIA doesn't spring to mind when American politicians or investors contemplate global trading partners. But that may change.

Despite losses from Western economic sanctions aimed at its key trading partners, the former Communist-run nation is begining to attract investors, and even presidential attention.

Romania's President Ion Iliescu was pleased to get his first-ever, 40-minute tete-a-tete with President Clinton last month in New York. The meeting was seen as a long-awaited recognition of Mr. Iliescu's democratic and market-oriented reforms. It also gave the former Central Committee member of the Romanian Communist Party a chance to thank Mr. Clinton for Romania's return last year to the trading status of Most Favored Nation (MFN). This doesn't hurt Iliescu's image here and, he hopes, will encourage foreign investors, particularly Americans, to keep coming.

``Our hope is that the US administration would continue to act to extend the validity of the MFN status, not just for one year, but rather over an unlimited period of time,'' Iliescu said after the talks.

The US tops the list of overseas investors in Romania, with a total of $107 million in direct investment, according to the Romanian Development Agency. Among the 1,800 US-Romanian joint-ventures, the Atlanta-based Coca-Cola Company is the No. 1 corporate investor. It has poured about $20 million into facilities here.

Coca-Cola is followed by the Chicago-based Amoco Corporation and the Colgate-Palmolive Company in New York in terms of dollars invested.

The newest investor is McDonald's Corporation of Oak Brook, Ill. In August, McDonald's signed an agreement with a state-owned Romanian company, DMAI Unirea SA, promising to invest $1.5 million.

By next March, McDonald's plans to start feeding Bucharest Big Macs. If that goes well, it could chip in another $10 million by the end of 1995, and at least $50 million over the next five years, says Marian Alecu, Romanian division manager at McDonald's Central Europe.

The 1993 restoration of MFN trading status after a five-year hiatus was a key to pulling in US investors. The decision, which was recently extended for another year, has also boosted Romanian exports to the US: In the first eight months of this year, exports to the US reached $450 million, 1 1/2 times more than 1993, according to Constantin Bontea of the Romanian Trade Ministry.

Mr. Bontea says exports could have been higher but were hindered by the lack of foreign-trade experience among Romanian firms and uncertainty caused by the year-to-year renewal of MFN trading status. He predicts that in 1995, bilateral US-Romania trade will reach $1 billion.

While Iliescu didn't gain unlimited MFN status, Clinton did endorse the newly created Romanian-American Enterprise Fund (RAEF), which is similar to investment funds created for Hungary and Poland.

The RAEF has $50 million in start-up capital to be used for low-interest loans, consulting fees, and direct investment in promising Romanian companies.

The fund is seen as a response to repeated requests by Romanian officials for compensation over the loss of trade caused by the United Nations embargo imposed on Yugoslavia.

Romania has lost $7 billion in exports, according to the Romanian government. The chemical, food, and Danube River transport companies were particularly hard hit by the loss of customers in Yugoslavia. Romania's gross domestic product slumped 12 percent in 1992. Last year, it recovered to post a 1 percent gain.

The embargo against Yugoslavia is only the latest ``unfortunate event'' in a string of hardships since 1989, a Romanian government official says. Embargoes against two of Romania's major oil suppliers, Iraq and Libya, have also caused problems.

Respecting all three embargoes has had political and economic costs for the Iliescu government. The government- sourced insurance does not cover companies against political risks.

At their meeting, Iliescu asked Clinton to lift the embargo on the former Yugoslavia. But he didn't push too hard. Analysts here say Iliescu doesn't want to jeopardize the political and economic capital gained so far with the US. And, they say, that kind of capital could be valuable for Iliescu in the 1996 presidential elections.

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