IMF assesses observance of agreement with financial bodies

The representatives of the international institutions with have a precautionary agreement with Romania have come to Bucharest to assess the way Romanian authorities are complying with the commitments made under the arrangement with the IMF, the World Bank and the European Commission.

Some of the commitments made by the Romanian Government are: reorganising and improving the efficiency of state-owned enterprises, the disbursement of overdue debts and new lay-offs in the public sector.

The IMF mission will discuss with Romanian authorities issues related to the fiscal and budgetary performance of the country during the first half of the year, the prospects for the second half of 2011, the upcoming budget adjustment, and also the main parameters for the 2012 budget.

Sources close to the talks state that the IMF representatives are open to any suggestions from the Government, including a cut in Social Security Contributions, provided that Romanian authorities can prove that these measures will not affect the deficit and the other agreed upon budget targets.

Basically, the IMF is asking the Government to set its priorities and redistribute the budget accordingly.

The representatives of the IMF say that the macroeconomics forecasts on which the precautionary agreement is based will probably undergo some minor changes, but the potential consequences of recent developments in the euro zone will be discussed in detail.

The IMF experts are concerned about inflation and are waiting for details from the National Bank of Romania (BNR) about the evolution of inflation trends over the medium term, so as to decide if new actions in currency politics are needed in order to reduce it within the time span set by the Central Bank.

Arrears Reduction, a key point of the discussions

Another key point of the discussions is related to arrears reduction, this time with a focus on local budgets and especially on those belonging to state-owned companies.
The latter are currently estimated at 5 percent of GDP, which amounts to more than RON 25 billion.

Improvements to the performance of state-owned enterprises will also be on the agenda.

Depending on the situation, the measures will vary between total or partial privatisation, restructuring, management privatisation and even closing down the least efficient companies.

Other issues to be discussed will involve the continuation of the reforms in the health care sector.

According to close sources, the IMF representatives are displeased with the slow proceedings in the field of arrears and are also dissatisfied with the fact that, despite the efforts made, the EU funds absorption is not improving. They ascribe this to a lack of technical abilities.

As for the evolution of Romanian economy, the data available for April and May are contradictory, so the data for the month of July are expected to clarify the situation.

The IMF experts consider that the most significant risk which might have a negative impact on economic growth in Romania would be the outburst of a major crisis Europe, which could have a spillover effect on our country.

The IMF mission had a meeting with the head of the Finance Ministry, as well as with BNR representatives, on Thursday, as it usually does during the first days after arrival.

Translated by: Ruxandra Câmpeanu
MA Student, MTTLC, Bucharest University