BUSINESS

IMF doesn’t impose unpopular measures, they are needed nevertheless

IMF Managing Director Dominique Strauss-Kahn seems certain Romania will overcome crisis but not so fast. While greeting Strauss-Kahn at Cotroceni, Traian Basescu admitted he considers signing new stand-by assistance deal, or taking flexible credit line in the future.

The International Monetary Fund (IMF) enforces constraint policies to discipline the states that cannot do so themselves. The IMF was and is for real, and it continues to support states like Romania or Hungary. The Fund focuses on fighting the crisis, though in the past it wished to save the world.


“Now, we are humble and focus on particular matters. We imposed our conditions and moved forward. We are a new IMF. We are a good doctor for ill states. Not only do we give them medicines, but also teach them how to behave, to avoid getting sick again. We set constraints on each state that comes to us, not because we are <> but because the country resorting to us is in trouble,” IMF Managing Director Dominique Strauss-Kahn told students of the Bucharest Economic Academy, during his first one-day visit to Romania. The IMF head then invited politicians and the government to assume half of responsibility for the hardships caused by austerity measures and stop blaming everything on the IMF. Kahn also stressed that the measures must be effective, though unpopular.


Does IMF impose the laws?


During a meeting between the IMF chief and PM Boc at Victoria Palace, the Romanian premier stressed that Romania needs the laws that were decided jointly with the IMF, such as the Blanket Salary Law and the Pensions Law, which are not necessarily imposed by the financing agreement. “The Pensions Law, the Salary Law or the Law of Fiscal Liability – they are all necessary to enforce the rule of law,” Boc said at the beginning of talks. Late last year, however, after signing the deal with the IMF, authorities claimed it was the Fund that imposed the laws. In the same line of action, the Chamber of Deputies yesterday passed the Law of Fiscal Liability and sent it to be promulgated by the President.


The premier also said that Romania fulfilled its international commitments in 2009 and Bucharest authorities did not “give in” to public pressure put by the election campaign.


Unemployment and fiscal problems – top priorities


According to the IMF official, rising unemployment is the main challenge of the moment. However, the French economist believes Romania’s economy will start recovering this year and added that forecasts for 2010 speak about 1 pc economic growth. Yet, the head of IMF’s mission to Romania, Jeffrey Franks yesterday stressed that the Fund might move down its GDP forecast, because the latest economic data are below expectations.


“Some Romanians will lose their jobs during April and May, but authorities must find a balance in solving this situation,” Strauss-Kahn (photo) said. Romania’s jobless figure reached a maximum in February this year, since March 2003, at 762,375, accounting for an unemployment rate of 8.3 pc.


Kahn explained that the Fund is not worried about Romanian inflation and the really serious matters are the fiscal ones. “To bring Romania to fiscal sustainability, you need measures that will be painful for the population, but that’s crisis. It is important to bring the country back on its feet, while protecting the most vulnerable,” Strauss-Kahn said. To curb the budget deficit, “one must either spend less or increase the taxes, or even do both of them,” Dominique Strauss-Kahn added.


It is up to national governments to make decisions, and the IMF cannot replace them. The IMF head believes that Romania is on track and will overcome the crisis, though not at the shortest, and he gave assurance that the IMF will always stand by Romania.


At the beginning of talks with Strauss-Kahn at Cotroceni Palace, President Basescu said he very much enjoys his presence in Bucharest, and the very clear signal thus sent by the Fund. “Let me thank you for supporting us at a very difficult time and for what you will do in the future,” Basescu said. President Basescu told the IMF Managing Director that Romania wants to have a long-term cooperation with the IMF, after the conclusion of the acting agreement, that will materialize into a new stand-by assistance deal, or a flexible credit line in the future. “(…) We’ll see together what solution suits Romania best, because it is clear to us that we are more credible as long as we are into a deal with you,” the head of state pointed out. In his turn, in an address to the Parliament, the Fund official stated: “You were very wise to resort to this accord so early.”


Senate Speaker: The speech does not replace solid dialogue between Gov’t and MPs


Senate Speaker Mircea Geoana said yesterday, in a plenary Parliament session, that the speech of IMF Managing Director Strauss-Kahn does not replace a solid dialogue between the Romanian government and Parliament, on economic policy and the road ahead. “I am convinced this was a presence that will leave marks and will make everybody reflect on the need for change and the lessons we learned,” the Senate president said.


PSD leader: IMF official was polite and avoided mentioning thorny issues


PSD leader Victor Ponta told Mediafax that the address delivered in Parliament by Strauss-Kahn was a just a polite move, as he avoided mentioning the really thorny issues. He went on saying that the IMF chief did not plainly tell the legislators that they will have no control on how the government spends the money taken from the IMF, despite all insistences.


Former FM: IMF chief visit – a good sign, but also an alarm signal


Former Finance Minister Varujan Vosganian said, at the conclusion of the speech delivered by Strauss-Kahn in Parliament, that his visit to Romania is a good sign, but also an alarm signal, because it comes at a moment when budget indices are deteriorating. According to the former minister, Strauss-Kahn mentioned in his address something “apparently ignored by the government,” i.e. that the “IMF believes fiscal incentives, rather than higher taxes to be the way out of crisis.”


The fund appreciates the delay in adopting the euro


Romania’s decision to push back the adoption of the European single currency is not necessarily bad, because it is more important for the country to be fully prepared when the time comes, the IMF Managing Director said. “The accord with the IMF, EU and other institutions is not aimed at restraining Romania’s process of adopting the Euro. On the contrary, its purpose is to have Romania prepared for the adoption of the Euro,” Strauss-Kahn explained. “Probably it won’t be such a bad thing to delay the calendar of joining ERM 2 in 2012 and adopting the Euro in 2015. The road to it and compliance with criteria are more important for Romania,” he went on. According to the IMF head, it is important for Romania to do “its homework” in view of adopting the Euro, either at term or later. Romania plans to adopt the European currency on January 1st 2015, which would imply that it joins the Exchange Rate Mechanism ERM 2 – preliminary to adopting the Euro – in 2012. In order to do this, Romania must meet certain criteria, such as cutting inflation, curbing the budget deficit under 3 pc of the GDP, and maintaining its public debt under 60 pc of the GDP. Strauss-Kahn said the countries of the European Union are not forced to adopt the Euro at the earliest, “but they still have to adopt the Euro.”

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