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January 27, 2023

IMF and Romania: relations of partnership and collaboration

IMF and EC representatives will be in Bucharest on December 2-10

The meetings between the representatives of the Romanian state and those of the International Monetary Fund (IMF) have always been “big events.” Unfortunately! Because following the not at all timely shock therapy that the IMF proposed to the states that found themselves in financial difficulty as a result of the 2007-2009 crisis the international financial organization has eased its “directions” of radical constraining of the monetary, financial and economic measures in countries with which it has agreements.
That is the case of Romania too which, after the disastrous EUR 20 bln loan agreement contracted in 2009 at the pressure of President Basescu, has ended up in the stage of normalcy with the IMF, a stage in which most emerging states find themselves, including Poland. Since 2013 Romania has a precautionary and stand-by agreement with the IMF. The agreement stipulates that Romania has almost EUR 2 bln at its disposal, a sum that the government has not touched yet.
Although “at fault” for not drafting and subjecting to approval the 2015 budget, the Romanian Government is waiting, apparently with serenity, the upcoming visit of a IMF and EC delegation.
A communiqué issued by the Finance Ministry offers more clarifications in this context: “A joint mission of experts belonging to the International Monetary Fund (IMF) and the European Commission (EC) will be in Bucharest on December 2-10 in order to discuss with the Romanian authorities the draft budget law for 2015,” the communiqué reads.
The mission will be led by IMF’s Andrea Schaechter and EC’s Istvan Szekely. These are the same persons that were present in September in Brussels at an informal meeting with the representatives of the Romanian Government and the National Bank of Romania (BNR).
“The mission is dedicated strictly to the draft budget law, it doesn’t represent a mission of assessment of the commitments that our country has taken before the IMF as part of the precautionary agreement signed by the Romanian side and the representatives of external lenders. After the talks with the representatives of the international financial institutions the draft law of next year’s budget will be put up for public debate and sent to the government for approval,” the aforementioned communiqué reads. Hence, nothing spectacular. Nevertheless, there have been voices that have dramatized the moment. One voice was that of incumbent Romanian President Traian Basescu. As usual, he intervenes in the government’s affairs despite the fact that now he can no longer force the government to ask for money from the IMF.
Another voice, in our opinion uninspired, was that of a representative of the Property Fund. We have the right to state that the relevant Romanian authorities know better than the aforementioned gentleman what should be regulated with the IMF and EC.
So, let us allow the Romanian government to analyze the budget and other agreements with the IMF and EC. Afterwards we can comment, criticize or praise them.
MADR to back lowering of VAT for foodstuffs
The lowering of VAT for other categories of foodstuffs will be on the agenda of the talks that will take place in December with International Monetary Fund (IMF) representatives, Daniel Botanoiu, secretary of state within the Agriculture Ministry (MADR), stated on Thursday at a special seminar.
“A new round of negotiations with the IMF will take place in December, and we are also including on the agenda of the talks this project concerning the lowering of VAT for other foodstuff products, because it is one that brings added value to the Romanian consumer and places us on the same wavelength with the other member states. First of all, we will bring up for discussion the positive effects of lowering the VAT for bread and we will present the studies we have made for meat, vegetables, fruits and milk. We hope we will be successful too. It would be good to persuade them that such a measure will boost competitiveness in the food industry and bring about better consumption while helping secure jobs at the same time,” Botanoiu stated.
He did not offer details about the studies and reports made in this sense, since the Finance Ministry will start negotiations with international partners and they will establish the exact procedure, however he pointed out that by December 3, the date when the negotiations will effectively start, MADR and Finance Ministry representatives will have another meeting in order to establish their final position towards the external lenders.
Fiscal Council President: Gov’t will have to cover revenue deficit of RON 15-17 bln next year
The government will have to prove to the IMF that it has resources to cover a revenue deficit of RON 15-17 bln next year, a deficit that stems from the lowering of the budget deficit and from the legislative measures adopted in recent months, Fiscal Council President Ionut Dumitru stated on Thursday. “Unfortunately, the government will have a problem covering this deficit. The authorities will either negotiate new targets with the IMF, or they will resort to other measures and, unfortunately, they are taking into account raising taxes next year in order to cover the hole in the budget,” Dumitru stated at a conference organized by the Property Fund.  According to the head of the Fiscal Council, public investments have dropped to their lowest level in the last five years. Dumitru has confirmed the hypothesis that the fight against corruption has led to a slowdown in investments, a hypothesis launched two weeks ago by BNR Governor Mugur Isarescu, pointing out that public authorities are not starting new investments because they fear the National Anticorruption Directorate (DNA).

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