Analysis: Romania's private defense

By SAM VAKNIN, UPI Senior Business Correspondent

SKOPJE, Macedonia, April 15 (UPI) -- Romanian President Ion Iliescu contests his homeland's geography. On Monday, at a joint press conference with Bulgaria's President Georgi Parvanov, he cast both countries as "central-south European" rather than the derogatory "Balkan." Both polities are well on their way to join NATO and the European Union -- though NATO expressed reservations after embarrassing leaks of classified military data in both Bucharest and Sofia.

Romania -- a signatory of a strongly worded letter supporting the war in Iraq -- has pledged 278 soldiers within nuclear, biological and chemical decontamination units, medical and engineering corps and military police. Close to 100 of them are already deployed in the Gulf. Romania also opened its airspace and a Black Sea air base near Constanta to 1,000 U.S. troops. It shared with the coalition intelligence about Iraqi infrastructure, which it helped construct in communist times.


The United States, peeved by the recalcitrant pacifism of the French and Germans, intends to shift some air bases from Old Europe to the east -- Bulgaria, Poland and Romania. This could signal the revival of the region's moribund defense industries. Potential buyers are taking note.

Col. Gen. Safar Abiyev, the Azeri defense minister, visited Romania last week to discuss "military cooperation" -- mainly training, technology transfer, a scholarship programs and interoperability exercises within NATO's East European program "Partnership for Peace." Romania's trimmed forces participate in peacekeeping operations in Kosovo, Afghanistan and Bosnia.

Romania's Social Democratic government led by Prime Minister Adrian Nastase was elected in January 2001 and immediately embarked on a revamp of the country's obsolete armed forces. The NATO-compatible Romanian army in 2005 will comprise 112,000 mostly professional elite soldiers and 28,000 civilians -- a shadow of its former bloated self. The Ministry of National Defense was further depleted by the transfer of the soon-to-be-privatized armaments industry to the Ministry of Industry and Resources.

The defense budget -- at about $1 billion or one-fortieth of gross domestic product -- barely covers one-fourth of the armed forces' procurement needs. Hence the constant stream of welcome donations: Two years ago Germany handed over a Gepard antiaircraft system and the United States gave four C-130B aircraft, part of an Excess Defense Article transfer. Canada and Norway followed suit. The Defense Ministry resorts to frequency spectrum sales to the private sector to make ends meet.


Still, Romania is investing heavily in a military communications network and in the modernization and upgrading of its antiquated tank and armored vehicles fleets. The defense industry is collaborating with the Israelis to produce ammunition for its antiaircraft artillery and to upgrade its aging MIG-21 "Lancer" fighters. Air traffic management and air space control are also priorities as are attack helicopters.

Romania's outdated weapons manufacturers used to supply 70 percent to 85 percent of the country's needs and export some $1 billion annually, mostly to other Warsaw Pact members and to Arab and African clients. More than 200,000 people were employed in the sector. Romania even has its own materiel trade fair -- Expomil.

The remnants of the industry reap the benefits of the military's all-pervasive overhaul, but the decrepitude is evident. The Ministry of Industry and Resources explains:

"Starting with 1990, following the structural changes in the world arms market and the politic economic and social transformation in Romania, this sector has entered an increasing decline. The drastic decrease of the demand on the world market and lack of local orders, the low level of technology automation and labor productivity, associated with an improper management were the main factors which have lead to this situation. Privatization was started, with some performing companies sold to private local investors."


The sector is undergoing a wrenching restructuring with non-core activities spun off or closed, employees made redundant as functions are outsourced and 12 companies slated for privatization, including manufacturers of ammunition, vehicles, optoelectronics, electronics, airspace companies and a shipyard.

The remaining 15 firms and a research institute are owned by ROMARM, an opaque and ubiquitous statal holding group. Romania also sports 11 contractors in private hands. They are members of PATROMIL, a non-governmental trade association.

But the sector's only hope of survival is foreign. It is a predicament shared by all post-communist applicants and candidates in Central and East Europe. Joint ventures, co-production, technology transfer, offset programs (promoted by the Offset Law) -- allow indigenous makers to leap into NATO's lean and mean, high-tech 21st century. Eurocopter and DaimlerChrysler, for instance, serve as strategic partners to Romanian production facilities.

Aware of this nascent market, Western companies, backed by the political and pecuniary muscle of their countries, are aggressive bidders. BEA Systems just won a $190 million contract to refit two frigates for the Romanian navy. The deal is insured by the British government's Export Credits Guarantee Department. The London offices of Deutsche Bank and ABN Amro Bank tackled the financing.


To its delight, Romania is becoming somewhat of a regional defense hub. The premiers of five other ex-communist states that were invited to join NATO next year (Bulgaria, Estonia, Latvia, Lithuania and Slovakia) as well as the foreign minister of a sixth (Slovenia), met near Bucharest to discuss their accession.

Together with Greece, Turkey and Bulgaria, Romania is a contributor to the South-Eastern Europe Brigade, established in 1998 by the South-Eastern Europe Defense Ministerial, an informal group of the area's defense ministers from Albania, Bulgaria, Croatia, Greece, Italy, Macedonia, Romania, Slovenia, Turkey and the United States. The United States, Slovenia and Croatia serve as mere observers.

Yet, its growing stature aside, Romania is still besieged by its old ills. According to defense analysts, rogue Romanian arms dealers sold weapons to pariah states such as Iraq. Members of the vicious and discredited security service Securitate permeate the upper echelons of the country's defense establishment.

Last May, when the media published a non-flattering article translated from The Wall Street Journal, the Ministry of National Defense sent a statement to several Romanian newspapers, reminding journalists that "life is short" and they should not "endanger their health by launching stressful debates." Faced with a storm of protest, a Defense Ministry official, George Christian Maior, dubbed the intimidating passages "satirical."


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