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May 17, 2022

Their ideas, our mistakes

What is a subordinate’s relationship with his supervisor in Romania? There is a very well-known adage that one goes to see his boss with his own ideas but leaves with his ideas. It pretty much describes the relationship of the Romanian government with the IMF: they come here to analyse us, we come up with our own ideas and, after they leave, we remain with their ideas.

The recent review visit headed by the already famous Jeffrey Franks has a trailing end. Anyone who reads the Romanian press will see that everybody has more or less understood the direction in which the talks went, but no one is quite clear about the actual agreement made. In his news conference on Monday, Mr. Franks talked about what the government should do in order for everything to be sorted out in good conditions. We will therefore wait until mid-January to know if we receive the next instalment of the IMF loan worth EUR 900 M.

Mr. Franks suggests that, in order for the Fund to consent to the disbursement, the Boc Government or any government that may be in office, would need to fulfil a set of conditions. ‘We will see in January’ was the gentleman’s message. But the Bucharest authorities are very self-contained, as always. President Traian Basescu felt an urge to bring some clarifications (and directions) himself, in an interview with the public television channel TVR 1, Monday evening, while PM Emil Boc had already answered his curtain call on Radio Romania, earlier that afternoon. Although they both focused on relations with the IMF, but their respective approaches were different. President Basescu warns that, unless the ruling coalition works properly, he will appoint a prime-minister who knows how to correctly manage the relationship with the Fund. On the other hand, the PM praises the president’s intervention, thanks to whom (sources say) an agreement was reached that the IMF would accept a bigger budget deficit in H2 of 2011, to allow for investments meant to restart the economy.

It may well be, but a successful endeavour per se is doubtful, especially because, in order to come to that point, a multitude of conditions will need to be met first. In addition, there should be social peace which, as anyone can see lately, becomes quite a rarity.

According to the two officials, the termination of the stand-by agreement is not at issue and, more than that, a new agreement is contemplated, this time one of a precautionary type. However, much is still to be done in the meantime. PM Boc reassures us that his government is on schedule in its arrangements with the IMF. Yet, reality points otherwise. In fact, the government will have to put in a lot of effort from now on, because many of the commitments made have remained pure promises or have been fulfilled only in part. This is not something we are saying, this is the conclusion stemming from the ‘to do list’ left behind by the IMF delegation.

But let us see what the government needs to do: adopt the pension law and the unified wage law, amend ordinance no. 50 of 2010 on retail loans, reduce arrears (amounting to RON 1 bln only in the healthcare system, despite the RON 2 bln being already paid in September) and mostly the adoption of the budget law on time. The budget deficit should reach 4.4 per cent of GDP in 2011 compared to 6.8 per cent of GDP in 2010. ‘The final decision on setting the minimum wage will be made after the government discusses it with the social partners – employers and unions,’ Jeffrey Franks was saying on Monday. ‘The Government wants to conduct a social dialogue with its partners before making a final decision on the minimum wage and this is something we respect. When they reach an agreement, they will discuss it with us and then we will make a decision on the minimum wage together’, Franks said. We dare say that any such dialogue would be completely useless as long as the message from the Washington-based financial institution is to keep expenditures low and even keep cutting wage expenditures. As for the monitored state-owned companies, they need to be restructured, privatised or shut down – exactly what the IMF was recommending in the 1990s. It seems that not a lot has been done in this field since those years, as long as requirements are still the same… and the IMF officials are warning that those companies keep making losses. ‘Another area where developments are disappointing is the one in connection with the improvement of state-opened performance. Many such companies are still making very big losses and accumulate arrears, with slim prospects of a remedy,’ Mr. Franks tells us.

‘We provide advice, economic support, we are not governing the country and we don’t want to do this either,’ the head of the IMF delegation, Jeffrey Franks, also said before the end of his visit. It all sounds nice, but few are actually convinced if that. When the government expressed its intention to raise wages in the public sector by 18 per cent, as PDL Vice-President Theodor Stolojan said, Jeffrey Franks immediately cut its wings, making it clear such thing can only happen if even more employed are laid off. When the government mentioned cutting the flat tax from 16 to 12 per cent, the IMF’s recommendation was not to change the current tax system for another two years. In a more or less populist way, the government would support the enforcement of the retail credit ordinance, but Mr. Franks and the European Commission immediately pull it by the ears and say the act needs to be reconsidered not to hurt the banks… And the list could go on. The result of that is that, just as a boss does with his subordinate, the IMF people leave and we are left behind with their ideas. And, very likely, with our mistakes.

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