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January 27, 2023

IMF and EC planning to sabotage Romania’s economic growth in 2015?

* Business environment asked to express its point of view  * Traian Basescu suggests IMF and EC knew and tolerated Romanian Government’s “fiscal adventures” * PM Ponta: We will not accept lower-than-1.4 pct deficit in any way


An unusual event in the history of the IMF and EC: the representatives of the two institutions, present in Bucharest for almost a week now, do not plan to consent to Romania’s consolidated budget for 2015 because of a bureaucratic issue. The European Commission tasked Istvan Szekely to insist on there being no difference between cash procedures and European Standard Audit (ESA) procedures when calculating the budget deficit. The latter is the accounting methodology of establishing the GDP’s deficit. What is ironic is that not even the two institutions agree on the two procedures. While the IMF, which is a global lender since 1945, is the fan of the cash methodology (the deficit takes into account the actual spending of money), when calculating the deficit the EC takes into account, through the ESA procedures adopted in 2010, the committed funds too, funds that could be unspent at a certain moment.

We will not insist on these aspects, because they do not bring any result. Irrespective of how dogmatic or generous the one analyzing them is. The important thing is that the representatives of the two international institutions and those of the Romanian Government have run aground in these accounting procedures.

We do not believe that the role of the IMF and more so that of the EC is to consider the accounting procedure that a state such as Romania uses for its budget projection for 2015. Why? Because in 2014 Romania had an intolerably small deficit because of the restrictions imposed in 2013 by the same institutions (IMF and EC). Namely an unbelievable low deficit of 2.2 per cent of GDP, against the backdrop in which the European Union has a struggling economy that has not recovered from the crisis. Added to this aforementioned restriction was the government’s lack of skill in earmarking large funds for sectors that needed them, so that we would not have ended up now at the end of the year with a deficit of 0.3 – 0.4 per cent of GDP. Romania needs development, making up the gap that separates it from developed EU states and that is why it has to have a deficit as big as allowed by EU regulations, namely a maximum of 3 per cent. Paradoxically, through the precautionary loan agreement signed in 2013 the IMF, EC and WB imposed on Romania a deficit of 2.2 per cent for 2014 and of 1.4 per cent for 2015. How could an emerging country like Romania make up for development gaps if it is not allowed to spend by borrowing. Because it does not have sufficient money in its own coffers. Just like France, Italy and Greece do. Such states are not pushed against the wall like the EC is trying to do now to Romania. Poland, which is still under the EC’s infringement clause, plans to have in 2015 a deficit almost twice the one registered in 2014 (in its national currency).

Is the two-tier Europe theory really working? Apparently so. The government, this one or a different one, should not give in to inappropriate pressures, not to call them even unfriendly pressures.

The business environment should join the government. We do not understand why the representatives of NGOs such as the Businessmen’s Association of Romania (AOAR) or the Coalition for the Development of Romania are not taking a stand toward the EC’s lack of flexibility in what concerns the 2015 deficit. Does the business environment want tax hikes in order to cover a possible budget deficit? Or does it plan to support the unspeakable theory of a two-tier Europe?

Did Traian Basescu render the Government’s negotiations with IMF and EC rigid or not?

The day after the talks between the two sides, acting President Traian Basescu came out publicly in order to slap the government. Among other things, Traian Basescu harshly criticized the government’s measure to lower social insurance contributions by 5 per cent. This was a measure applauded by the business environment, and one that is proving its viability, as considered by most companies in Romania. Traian Basescu is not pleased with the government’s action because… he was not consulted. It is customary for the two Palaces (Cotroceni and Victoria) to tease each other. The main thing is that their arguments should not damage the country’s economic stability. But in his December 4 speech Basescu “warned” not just the government but also the IMF and EC, asking them to be intransigent. “Romania has entered the third consecutive agreement with the Fund in a good condition, has entered it at her request and it would be a big disappointment, but also a slap for the Fund and for the European Commission, for Romania to leave the agreement with the Fund in a condition less stable than it was in when entering the agreement, because the Fund and the Commission sat and watched from a distance the fiscal adventures that took place in Romania in the last eight months, in view of the presidential elections. So the Fund, the European Commission, the Commission’s delegate and the World Bank will have great responsibility if Romania does not finalize this agreement. They knew very well what was going on in Romania,” Traian Basescu added.

Two things have to be clarified. If it were to give up on its agreement with the IMF, would Romania be in a less economically consolidated situation than the one it was in when it entered the agreement? Categorically not. Secondly, the current representatives of the IMF and EC have the duty to show that they knew “very well what is going on in Romania.” What did they know? What is this about? We are waiting for a point of view from Mrs. Andrea Schaechter and/or Mr. Istvan Szekely.

PM Ponta: We will not accept lower-than-1.4 pct deficit in any way


Prime Minister Victor Ponta reiterated on Saturday that his Government will in no way accept a budget deficit lower than 1.4 percent in the ongoing talks with the International Monetary Fund, the European Commission and the World Bank.
He insisted ‘the IMF is venting its spite on the pupil sitting at the last desk.’ ‘They always do it, if they find us, those smaller ones, you know how it is done with the pupil sitting at the back of the classroom, at the last desk, many things are vented on that pupil. No, we will not accept any kind of deficit lower than 1.4 (percent), but even this 1.4 percent signed by (outgoing President Traian) Basescu in 2011 was a great mistake, in my opinion,’ Ponta told Antena 3 private news channel.
He underscored that ‘absolutely no tax or charge will be hiked, even at 1.4 (percent budget deficit). Also, about the fact we index-linked the pensions and child benefits in the electoral campaign having been electoral hand-outs. They are all included in the budget’.
The prime minister explained that ‘the issue of accepting lower-than-1.4 percent deficit is out of question, from our viewpoint, for the following reasons: we are confirmed by Eurostat as the country having had the largest growth in the third quarter in the whole European Union. This thing must be sustained by the measures we’ve taken for economic stimulation and by investments. Secondly, everybody congratulated us… because from 7 percent rate of absorption of the European funds we got to 50 percent and next year we’ll probably be at around 75-80 percent’.



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