05BUCHAREST1584 / 2005-07-15 13:58:00
Embassy Bucharest
                UNCLAS SECTION 01 OF 03 BUCHAREST 001584 
 
SIPDIS 
 
STATE FOR EUR/NCE - WSILKWORTH, EB/IFD 
STATE PASS USTR 
USTR FOR LERRION 
TREASURY FOR STUART 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/CEEB/BURGESS/KIMBALL 
STATE PASS USAID 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, EAID, EIND, EFIN, RO, flood, disaster relief 
SUBJECT: ROMANIA STRUGGLES TO OVERCOME EFFECTS OF FLOODS, 
FORECAST CALLS FOR MORE RAIN - AND TURMOIL 
 
REF: Bucharest 1563 
 
Sensitive but Unclassified.  Not for circulation outside USG 
Channels. 
 
1. (SBU) SUMMARY:  Recent flooding in Romania's eastern 
regions have caused extensive damage to roads, suspended 
electricity and gas networks, submerged prime agricultural 
land and affected more than 14,000 households.  This comes 
on the heels of prior spring floods in the southwestern 
areas that, taken together, have hit a large swath of 
Romania.  In a country with poor infrastructure and 
subsistence agriculture, the damage will certainly hit the 
economy, as the GOR and individuals struggle to rebuild. The 
full effects of the floods on the budget and macroeconomic 
growth will only reveal themselves in the coming months, but 
will probably cause the Romanian budget to exceed the IMF- 
imposed budget deficit ceiling.  Many Romanians have 
criticized the government for slow and inadequate 
response to the flooding and for focusing on partisan 
political concerns.  END SUMMARY. 
 
Flooding Causes Widespread Damage 
--------------------------------- 
2. (U) Damage estimates from the previous, less widespread, 
flooding in May surpassed one billion Euros. The most recent 
flooding has affected more localities (500 in 31 counties 
throughout Romania), according to provisional GOR reports 
released by the Ministry of Administration and Interior. 
The floods have luckily taken only a minor toll on life, 
resulting in at least seven deaths and several cases of 
missing people.  Thousands of people, however, have been 
left homeless and more than 10,000 homes were evacuated and 
250 were destroyed.  Emergency workers and volunteers 
rescued stranded residents from rooftops as water rose as 
high as nine feet in some villages. 
 
3. (U) The road infrastructure was heavily affected, with 17 
national roads, 327 county roads and 54 communal roads 
submerged, according to the Ministry of Transportation, 
Construction and Tourism.  Hundreds of bridges and 
footbridges have collapsed.  The three most affected 
counties include Bacau, Arges and Vrancea, areas known for 
farming, livestock and wood manufacturing. 
 
Economic Impact Still Undetermined 
---------------------------------- 
4. (U) The flood's affect on the economy is difficult to 
estimate at this time, as flash floods continue and new 
waves of heavy rain are expected for next week.  However, 
according to preliminary estimates from the Ministry of 
Agriculture, approximately 450,000 hectares of agricultural 
land have been affected by floods (nearly five percent of 
total agricultural land) with total damages reaching 130 to 
140 million Euros, approximately $160 million. 
 
5. (U) According to some estimates, crop losses will cause 
wheat prices to soar by 22 percent, as 150,000 hectares of 
land cultivated with wheat are affected.  Fifteen percent of 
land cultivated with sunflower and five percent of land 
cultivated with corn are also inundated, although the GOR 
has produced no damage estimate in this sector at this time. 
Livestock losses, however, are estimated at almost half a 
million USD. 
 
6. (U) Nor will the losses be confined to the agricultural 
sector.  Transporters are still assessing the damage caused 
by delays in freight shipment.  Many factories in the area 
were also inundated, with many uninsured.  The transport of 
petroleum from southern Moldova to refineries was also 
affected. 
 
GOR Worried About Impact 
------------------------ 
7. (U) After surveying the heavy flooding in Bacau county, 
Prime Minister Calin Popescu Tariceanu on July 14 stated 
that "the budget deficit no longer matters."  Tariceanu 
further stated that after six months of bargaining between 
the GOR and the IMF, the macro-economic targets negotiated 
for this year - a budget deficit of 0.7% of GDP, a 7.5% 
inflation rate, and 5.5% economic growth - no longer hold 
significance due to the natural disaster that has devastated 
31 counties throughout the country. 
 
8. (U) President Traian Basescu also on July 14 requested 
the support of the European Commission for channeling twenty 
million Euros from PHARE EU funds for emergency re- 
construction of roads and bridges.  The World Bank will 
reallocate $33 million from existing projects to complement 
state budget resources for the immediate reconstruction of 
infrastructure and homes damaged by the floods.  The GOR 
yesterday announced a financial assistance package including 
$344,000,000 for reconstruction, $507,900 for social 
assistance, and approximately $1,000,000 for thirteen tons 
of food to be sent to the affected areas. 
 
.While the IMF Stands Firm 
-------------------------- 
9. (SBU) Econoff spoke with an economic assistant in the 
local IMF staff, who stated that the IMF will not easily 
abandon its deficit target.  Graham Justice, resident IMF 
representative, is expected to meet shortly with the GOR 
State Secretary responsible for the budget to review 
government plans on cost control associated with the 
flooding.  The IMF staffer emphasized that because flooding 
is expected to continue, it is too early to assess the 
overall economic impact.  She expects the GOR will request a 
softer budget deficit target, but strongly prefers that they 
look for cost savings on either the expenditure or revenue 
sides.  Since revenues have been much stronger than 
forecast, she believes the GOR may have maneuvering room. 
 
EU Still Assessing the Damage 
----------------------------- 
10. (SBU) Econoff spoke with an economic analyst from the 
European Commission's Bucharest office who was noncommittal 
about the flood's economic impact due to a lack of data.  He 
stated that any damage that requires repair work could be 
viewed as positive for the economy, while situations that 
boost operating costs, such as higher transportation fees, 
will have a negative affect on GDP.  The analyst was 
dismissive about the overall affect on total agricultural 
output, and felt that in general the floods would likely not 
be a "big deal" for the macro economy.  He doubted the 
flooding would impact EU accession and felt that if 
anything, the situation may attract more sympathy from EU 
member states. 
 
GOR Response Perceived to be Slow 
--------------------------------- 
11. (SBU) Many Romanians have expressed anger at what they 
perceive as the GOR's slow and inadequate reaction to the 
flooding and the humanitarian crises that have followed in 
its wake.  Both media analysts and ordinary citizens have 
criticized political leaders for focusing on PM Tariceanu's 
expected resignation and the possibility of snap 
parliamentary elections (see Reftel) rather than addressing 
what most Romanians view as a major economic and 
humanitarian catastrophe.  Romania's best selling daily 
newspaper, "Libertatea," observed July 15 that flooding has 
turned Romania into an "ocean" in which "more than half of 
the country's territory is covered with water," provoking an 
"exodus of Romanians from their own country."  Against this 
backdrop, former President Iliescu called on President 
Basescu earlier this week to convoke the Supreme Council of 
National Defense (CSAT) in order to declare a state of 
emergency, condemning the current government's insistence on 
playing political games rather than focus on a natural 
disaster of national proportions. (Ref) PM Tariceanu 
publicly rejoined that "the necessary measures have already 
been taken.  We cannot make water no longer flow, but the 
authorities had and will have a prompt reaction, so I 
believe there is no need to declare an emergency."  Media 
commentators observed that declaration of a state of 
emergency could imply calling in the armed forces to provide 
humanitarian assistance. 
 
U.S. Mission Assistance 
----------------------- 
12. (U) Even before this latest outbreak of flooding, 
labeled in press reports as one of the worst of the past 
century, Embassy's former Charge D'Affaires had declared the 
flooding a disaster on July 5, 2005, after receiving a 
request for assistance from the GOR, which enabled the USAID 
Office of Foreign Disaster Assistance to provide $50,000 for 
immediate humanitarian relief.  This assistance will target 
one of the hardest hit areas, and will provide emergency 
commodities including water sterilization tablets, household 
assistance kits (blankets, mattresses, clothing, 
flashlights, dishes, rubber boots and gloves, basic food 
items including oil, sugar, canned food, fruits and 
vegetables), and individual hygiene kits (soap, detergent, 
toothbrush, toothpaste, sanitary alcohol). 
 
AmCham in Romania Announces Relief Efforts 
------------------------------------------ 
13. (U) The American Chamber of Commerce in Romania (AmCham) 
has started a campaign among its members to fund relief 
efforts.  The AmCham Board also authorized 5,000 Euros as an 
immediate donation and is urging all of its members that 
have already donated money or supplies to inform AmCham so 
that it can keep track of the efforts. 
 
Comment 
------- 
14. (SBU) The floods may have made already tight IMF budget 
targets virtually impossible to meet, as Romania prepares 
for lower productivity and increased costs relating to 
damages.  Continuing flooding, which is predicted at least 
into next week, will likely further drive the budget off- 
target and lead Romania into an increasingly challenging 
budget situation unless IMF targets are relaxed.  With Prime 
Minister Tariceanu's admission that spending on flood 
assistance will occur regardless of the current budget 
plans, he is admitting that Romania is unlikely to meet its 
fiscal targets. 
 
15. (SBU) It is still too early to assess the overall impact 
of the floods on the Romanian economy.  However, the 
presence in the hard-hit rural areas of many subsistence 
farmers suggests that the real humanitarian and financial 
impact will be more serious than EU and IMF observers are 
willing to admit at this time. 
 
16.  (SBU) This latest episode of flooding, judged by some 
to be one of the worst of the past century, also seems to 
have complicated the current convoluted political picture 
still further, and threatens to erode the current 
government's popularity if the GOR is not seen to address 
the latest economic and humanitarian challenges adequately. 
One of President Basescu's advisors told Charge on July 14 
that the GOR is likely to reach out to us again to see what 
resources we can make available to alleviate the suffering. 
End comment. 
 
Taplin 

            
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