United States: Dear Mr President

Life rarely gives us a second chance, but the Romanian people have granted you the opportunity to complete the tasks which you began in 1990 and, if you succeed, to save them from the abyss that they so narrowly missed falling into one month ago. On your shoulders and those of your able Prime Minister, Dr. Adrian Nastase, ride the long unfulfilled hopes and aspirations of Romanians to defeat poverty and return to their pre-war prosperity. However, as you have repeatedly acknowledged, those aspirations cannot possibly be fulfilled without substantial foreign investment — and substantial foreign investment will not be made in Romania until Romania demonstrates that it is committed to establishing a stable legal environment free of corruption and the disorder generated by a multiplicity of impractical and contradictory laws and regulations.

The jobs that have been lost to Romania and the tax revenue that has failed to materialize by the flight of investment capital away from the country is the result of bureaucratic incompetence, red tape, corruption, and the failed promises of successive governments. It is true that the Yugoslav conflicts substantially damaged the Romanian economy, as did Russia’s economic collapse in the last decade which frightened away investors throughout the region. But, over the last four years, there has been a continuous flow of ill-conceived ordinances and decrees that have resulted in turning what should have been a rising tide of foreign investment into a trickle. Fortunately, Romania is a country with immense potential. It has a well-educated population of 22.6 million people, is the second largest country among the former East European communist nations, and it has a large agricultural base, and the potential for strong industrial growth. There is no good reason why Romania cannot harness this potential, and out perform the other nations of the region. The most encouraging achievement of 2000 has been a rise in exports. In the other countries of the region, this was the first sign of an economic turnaround. However, instead of nourishing the business and investment community, Romania has, regrettably, squeezed them financially, ignored or belittled their pleas for assistance, altered the rules of investment retroactively, and failed to adequately deal with corruption. Consequently, while Romania has had only $6 billion invested by foreigners during the last eleven years, nearby Poland had in excess of $8 billion invested just last year.

Your recent speeches in this regard have been encouraging. At times, we even flatter ourselves by believing that they might even have been inspired from the very pages of this publication, which we know you read. But you know all too well that after eleven years of unfulfilled promises, foreign investors will not return to Romania — or even stay — on the basis of your words alone. Only your quick and decisive action on the issues that investors have been raising for years will bring foreign investors back to Romania in the numbers required to create the new jobs and the tax revenues necessary to fight poverty and bring economic stability back to the nation.

Just as Romania’s woes have been primarily self inflicted, so its remedies lie within Romania’s ability to implement. The measures necessary to foster the return of significant foreign investment are apparent. But the willingness of Romania’s new government to act has been questioned in the West – and it is your challenge to remove such doubts as quickly as possible.

You can begin by making it absolutely clear to all investors that business in Romania will henceforth operate pursuant to a stable and transparent set of laws that are understandable, non-conflicting and fairly administered. One way to do this is to bolster confidence in Romanian accession to the European Union. Accession is the singularly most reassuring factor in encouraging foreign investment. It implies a willingness to conform to and abide by the EU’s rules and regulations and end the self-destructive practices of past Romanian legislation. No one can or should question your commitment to Romania’s European integration. You have stated your dedication to these goals since the very outset of your first presidential term. Nevertheless, the actions of the past government have raised issues where none should exist.

Lamentably, and surprisingly, the effort towards accession under the former government lagged behind the desire. Romania is dead last on the list of the twelve applicant nations. Even worse, in the last days of his term, President Constantinescu promulgated certain amendments to Law 51/1995 (Governing the Profession of Lawyers in Romania) which openly violate the terms of Romania’s accession agreement. Succinctly stated, the new amendments are designed to hamper the activities of international law firms in Romania in the foolish notion that this will increase business for the local Romanian Bar. In fact, it will decrease investment in Romania and thus business for everyone. More significant to Romania’s future accession, the amendments to Law 51/1995 are fundamentally inconsistent with the principles articulated in Article 43 of the EEC Treaty granting companies of EC member states the right to establish legal entities in other EC member states. In addition, the new law does not conform to Articles 49 and 50 of the EEC Treaty, which articles are designed to foster the cross-border provision of services, while the law would unreasonably limit and restrict such services. Finally, the Amendments contravene EC Directive 98/5 requiring member countries to facilitate the cross-border provision of legal services. The callous disregard for EU requirements in favor of short-term parochial interests has sent a shudder through the foreign investment community. If Romania truly aspires to enter the European Union, and is committed to harmonizing its legislation with EU norms, it has done the opposite — and in so doing, it has sent the worst possible signal to foreign investors.

There simply cannot be a repetition of the former government’s breach of promise to investors though last year’s retroactive abrogation of statutorily guaranteed tax incentives. There has been no single act more destructive to investor confidence than this foolish action which generated the steep decline in foreign investment. Hopefully, the practices of the past several years of ever-changing investment laws and ordinances issued by the government (often without the necessary regulations appearing in reasonable time) is about to end. One of Prime Minister Nastase’s first acts has been to ask the new parliament to drastically curtail the cabinet's prerogative of ruling by governmental orders. Dr. Nastase’s experience as the former Speaker of the Chamber of Deputies, has taught him that laws should be drafted by legislatures and not in the conference rooms of the government. Additionally, Parliament should now reach out to the communities effected by proposed legislation through public hearings and comment periods before legislation is enacted. This will engender confidence in and compliance with such legislation. The parliament’s bureaucracy must at the same time be streamlined so as to unclog the process and prevent a repeat of 2000 when only 59 of the 453 draft laws, ordinances and emergency ordinances submitted to Parliament were adopted. Such delays in the legislative process have had a detrimental effect on the economy and is one of the prime reasons ascribed by the European Commission’s Report for Romania’s poor progress towards accession.

Among the most serious problems facing both the government and the business community is the lack of an understandable, effective and easily enforceable tax code in Romania. The Romanian tax structure presently consists of a conundrum of laws and regulations that are unclear, incomprehensible, unpredictable and inconsistently enforced. As a result, Romania is unable to effectively finance those government services that are crucial to a developing democracy. Moreover, the instability created by the deficiencies in the tax regime have substantially increased the risk of investment in a country that is in desperate need of capital -- while the black market flourishes at an estimated loss to the nation of approximately $2 billion in tax revenue annually.

As you know, President Constantinescu formed a Presidential Commission on the Improvement of the Business Environment at the joint behest of the Romanian-American Chamber of Commerce, the US-Romania Action Commission, and the Chamber of Commerce and Industry of Romania. It was empaneled to permit a cross section of Romanian society, in cooperation with the Government, to have the opportunity to recommend legislation to the Presidency that could improve, stabilize and enrich Romania's business environment. Since a chief component in the goal to improve Romania’s business environment is the development of a new and comprehensive national tax code whose provisions are clear, unambiguous, fair, rationale and transparent, the initial task of the Commission was to prepare a new tax code for Romania that would substantially aid in creating the legal environment required to attract, maintain and enlarge foreign and domestic investment in the country, and thereby create the jobs and prosperity its people desire and deserve -- the very goal of your Presidency.

The Commission held unprecedented public hearings and issued an interim report. Regrettably, because of political interference, the Commission was unable to accomplish its final task of creating the new Tax Code. The Commission should be reconstituted with a strengthened mandate and allowed to complete its initial task in full cooperation with the Ministry of Finance and the government.

In 1996, you lost your bid for re-election primarily because your opponent appealed to the voters disdain at the pervasive corruption that was crippling the country, and the seeming reluctance of the government to deal with it. The success of the ultra-nationalists in this year’s election was due, more than anything else, to their successful appeal to the voters’ abhorrence of the corruption that has continued to eat away at Romanian democracy, and the failure of the prior government to fulfill its promise to combat it. Corruption has increased over the last four years in virtually all of Romania’s institutions — and it has been felt by foreign investors. It is no longer an oddity for a foreign investor to be asked for a bribe in a court, or by a bureaucrat performing an oversight function, or a customs officer unwilling to allow a perfectly legal import to enter the country. Sadly, this was never an oddity for Romanians.

Rather than building a belief in the virtue of law, successive governments merely gave it lip service while the corrupting power of money has further eroded respect for the law by tainting the judicial system, the police, customs, and local and national government officials. When addressed, senior government officials lamented that if corruption was a significant problem for foreign investors, why had none ever come forward to complain about it. Of course, with the lack of commitment to eradicating corruption demonstrated by former governments and the ire such an ethical approach would provoke within the Romanian bureaucracy, a corruption complaint would have been tantamount to a one-way ticket out of the country.

The Romanian-American Chamber of Commerce recently urged the democratic parties in parliament to unite upon a common platform to eradicate corruption and act upon it. The difficulty is in determining what sort of program will work in Romania? Unfortunately, the lack of an active governmental effort to fight corruption, particularly over the past several years, and continued subsistence wages paid to government employees, has led many formerly honest bureaucrats to mimic their dishonest brethren. Most significantly, the knowledge of the corrupt practices of high ranking officials among many potential targets has obviously dampened the enthusiasm for a full scale anti-corruption effort by those officials for fear of being swept up in the process themselves. However, if Romania again fails to tackle corruption effectively, it will not only be the lack of foreign investment that will suffer. Four years from now, the anger of the Romanian people will engulf the democratic parties, and very possibly the nation itself.

Faced with such circumstances, there may be only one alternative. As distasteful as it might be, a general amnesty on the future prosecution of all official corruption cases should be considered. No one need admit wrongdoing. No investigations would be mounted. Simply put, the page on corruption prosecutions would be turned to January 1, 2001. That would eliminate most of the problems associated with the hesitancy to prosecute past corrupt practices. To be acceptable to the people, the amnesty must be coupled with a major and forever on-going effort at routing out corruption in government. To foster respect for the process, special courts and special prosecutors of impeccable integrity should be created to deal with official corruption cases in much the same fashion as recommended by New York City’s Knapp Commission in the 1970’s. This effort would also entail "sting" operations and other law enforcement techniques that western agencies have already volunteered to support. There is nothing as salutary to a corrupt official as seeing the fellow in the office next door led away in handcuffs after a successful sting operation. Publicity would also help stem the tide of corrupt practices and demonstrate to the Romanian people that this President has the resolve to deal with the problem. Finally, other nations might be put on notice that their foreign nationals who engage in bribery will be prosecuted by the Romanian authorities or, where appropriate, by their home countries under the OECD convention.

Romania’s political class has been allowed to fumble so badly because the Romanian people are still primarily observers of, and not participants in, democracy and good government. They wait for an election to vent their frustrations rather than actively participating in the work of democracy and good government. The sad truth is that communism ravaged civic virtue. Today, few Romanians belong to civic organizations, support their local schools, participate in good government leagues, give of their time to charities, take part in neighborhood associations or, most particularly, partake in party politics. Because these activities are so rare or just do not yet exist in Romania, the checks and balances upon government of an involved citizenry are simply not present. In 1990, you stated that one of your primary tasks was to create a viable opposition in Romania in order to encourage the growth of democracy. Concomitant with the growth of a democratic opposition must be the growth of a civic infrastructure that will, in turn, formulate a sense of public morality and civic responsibility. Your Presidency should play an activist role in promoting the formation of a civic infrastructure and encouraging Western donors to assist in such endeavor.

The West has been less than forthcoming with Romania, demanding austerity and liquidity, while largely ignoring measures to stimulate economic growth. It has paid scant attention to the enormous losses incurred by the Romanian economy through Romania’s adherence to the embargoes against Iraq and Serbia. Your predecessor’s pleas for assistance and understanding were met with little more than grateful platitudes from Western governments. It ought now to be beyond peradventure, that such western neglect of Romania, at least in part, begot Corneliu Vadim Tudor and his band of ultra-nationalists. Your challenge is to marshal the West’s disdain for Vadim Tudor and mold it into concrete policies of assistance. This effort will be significantly aided by the foreign investment community as it sees your determination to build a stable and sensible business environment in Romania, and adhere to the requirements for European Union accession.

The four years of opposition have made the PDSR, again Romania’s ruling party, stronger and wiser. Recent events have made their leaders recognize that if they are not responsive to the will of the people, four years from now, the PDSR will suffer the fate of the PNCTD, the now virtually defunct former ruling party. The Romanian people want strong leadership that will stop bickering and start tackling the nation’s multitudinous problems. The creation of more jobs and an adequate social safety net sufficient to satisfy the populace can be achieved only by solving the problems that keep foreign investment in abeyance.

You are most fortunate to have a government made up solely of your own party, almost a parliamentary majority, and a people united behind you, if for no other reason than fear of what lurks behind in the calamity of ultra-nationalist rule. The ingredients to be successful are present. But to succeed, the nation desperately needs foreign investment that will create jobs and rebuild the tax base; and foreign investment will not return to Romania unless the nation speedily and effectively acts upon investors’ concerns. Without substantial foreign investment, Romania will remain ever dependent upon foreign assistance and deteriorate further into endless insolvency and persistent underdevelopment – and your good intentions and substantial possibilities will be forgotten in the reproach of history.