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March 29, 2023

Self-imposed conditionalities

Prior to 1989, the Romanian citizen was supposed to have a political thinking. That is, he was supposed to interpret evolutions, changes and everything related to everyday life through the communist party policy, in order to be able to understand the innermost drives of the becoming of the Socialist society that wanted itself to be multilaterally developed. Now, over 21 years after the curtain fell over the Ceausescu regime, in full capitalism, we are again required to have a political understanding of things. Of course, not the way it used to be, but in today’s Romania nothing or almost nothing has meaning or comes to life disconnected from the electoral interest of the various political forces, institutions and officials.

The seventh review mission of the IMF, WB and EC ending yesterday in Bucharest cannot therefore be removed for the general context, although the representatives of all three international institutions seem to be very minded about the political side of things.

They, too, no doubt, are pursuing the policy of their respective institutions and look at the government’s policies in the areas of interest.

After the long news conference held yesterday, marking the end of the mission, last night, on the public television, President Traian Basescu detailed on the current relations with the IMF and on the new, RON 3.6 bn (precautionary) agreement amounting to a total of EUR 5 bn, EC money included. TV viewers will thus be more informed on things than we are at this point. IMF mission chief Jeffrey Franks will go live also on public television tonight, to offer the details deemed necessary.

Faced with this avalanche of information on relations with the IMF (especially), WB and EC, a question arises: what is it that is so special about this particular review mission that it has to be so well covered by the media?

A majority of analysis would probably answer: nothing really. Because the future agreement is one that (at least in theory) does not include the loan as such, and the current stand-by agreement is practically over, with Romania now having to repay the not at all small debt. In addition, IMF, WB and EC representatives already stated their positions during Tuesday’s press conference.

The only problem is that officials in Bucharest see things differently. After two years of crisis, after austerity measures, wage cuts, tax and VAT hikes, so on and so forth, the achievements of the Emil Boc Government are naturally difficult to highlight. Or, the completion with the stand-by agreement with the IMF and the other international institutions is a perfect opportunity to evince the success. This explains the president’s public appearance Sunday night, when he insisted to tell the citizens that, ‘considering the macroeconomic situation in Romania, the last instalment of the loan from the IMF would not be drawn after all, as it was no longer necessary’ with the EC instalment being the only one actually disbursed. As usually, the head of state is the herald, trying to give the impression that the government is busy dealing with the real and serious matters of the country.

Presented intempestively, the information is given the shape of some big achievement, although, analysed with a cold mind, it says nothing special whatsoever. BNR’s reserves are quite high, meaning that the last instalment worth EUR 900 M wouldn’t make a difference. On the other hand, the fact that we do draw the money from the EC (to finance the sate budget deficit) tells us the problems are not over. The deficit issue persists, and the state will continue to borrow in 2011 either to pay older debts or to finance budget deficits.

But the citizen, besieged by the avalanche of debates on the IMF subject, could be tempted to read some major achievement and not so much an indebtedness of the country into the successful completion of the agreement. More than that, he may think that the crisis is drawing to an end because the officials tell him we no longer need the money of the loan. Well, at least half of the statement is false. The same citizen learns from IMF official Jeffrey Franks that ‘the Romanian authorities have met the conditionalities applicable until the end of 2010, and met the deficit target “with substantial margin”. In other words, the Executive did its job, did its homework and now is moving on.

A few days before, PM Emil Boc was saying that his party had saved the country from collapse and default. However, one can see with the bare eye that the economy is not generating new jobs, bigger revenue or better living standards. After two years of drastic economic decrease, it is hard to spot the success as soon as the recession has stopped. The budget may have been saved from collapse with IMF’s help, but for the citizen, at the mirco level, things are completely different. The lay-offs, expenditure cuts, new taxes, the taxation of pensions, restructuring of the healthcare sector could be reforms for the PM, but for regular Romanians they are just painful cuts, having no positive results, but on the contrary. As for increasing VAT, it may have saved the budget deficit figure, but any extra money coming from it was still spent on paying public sector salaries and pensions.

However, apart from the good news brought by the international financial institutions, bad news is also coming to those who can read between the lines. We have spent only 2 per cent of the EUR 19 bln sitting in Brussels and waiting for us. It indicates a chronic incapacity of the administration to attract EU funds and, whoever thinks the situation will change overnight, is in for a big disappointment. Gas and energy prices are going to be liberalized and the IMF tells us not to expect new price rises. But we are in Romania, and even if the liberalization is scheduled to go on until 2015, past experience shows that this is exactly what will happen: prices will go up. We are told that vulnerable consumers will be protected. This has been said before, but industrial consumers, those ‘smart guys’ in industry Traian Basescu was mentioning were still the only ones who benefited from smaller rates. We are told that social welfare will continue, but the child rearing leave, benefits, welfare payments have just been cut, so the optimism should be moderate. The professional re-training of laid-off workers will be supported. The truth is that it has always been supported, with the only difference being that very few can actually cover all the stages successfully. In addition, the president has just informed that lay-offs would go on in the public sector. Taxes will drop – IMF says – but only if collection rates improve. We should not forget that the improvement of collection has been on the agenda ever since 1990. As for arrears, they have come to represent 5 per cent of the GDP only for state-owned companies. And the conclusion is that the economy is recovering?

The new, precautionary agreement will be valid for two years. President Traian Basescu tells us the period has been agreed as such in order to go beyond the election year 2012 and, by that, to prevent political parties from adopting populist measures in the election campaign, in order for education and healthcare reforms to be consolidated and pension, as well as wage laws to be implemented. The concern about preventing political interference with economic development is touching. Now, we are talking about self-imposed conditionalities. We should not even try to remember who was making populist promises in the election years 2008 and 2009.

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