Romania’s third successive agreement with the IMF, agreed at the end of July, will be based on structural reforms and privatizations, but analysts are skeptical that significant progress will be made, considering that 2014 is an election year. They believe the Romanian authorities will continue to “promise to do things the IMF way, but instead do things their own way.”
A set of commitments not met in the previous agreement – structural reforms, privatizations and listings – feature in the letter of intent which will be sent by the Romanian Government to the IMF for the third consecutive stand-by arrangement, analysts note.
The Romanian authorities agreed at the end of July on a two-year precautionary arrangement with the IMF and the European Commission, which will total EUR4 billion. The amount will be evenly split between the two international financial institutions. The precautionary stand-by arrangement will be discussed in the IMF board in autumn.
Economic analyst Dragos Cabat says he is skeptical the Romanian authorities will keep their promise and meet the commitments included in the letter of intent signed with the IMF.
“I don’t think the Romanian authorities will keep their promises in the arrangement with the IMF. So far they have promised to do things the IMF way but instead did things their own way,” Cabat says. He expects the third successive arrangement to be similar. “The authorities might start a few projects to give the impression they are doing something.” He says while the IMF has so far been flexible, it could be more drastic this time. “It will probably put more pressure on meeting the criteria,” Cabat says.
Economic analyst Aurelian Dochia agrees that the Romanian authorities will say one thing and do as they please in the third arrangement, as well.
“One cannot have a lot of confidence that structural reforms will be carried through this time. 2014 is an election year, and this will count a lot, but in a negative way. If the measures are not successful politically, they will surely be delayed again.”
The Romanian authorities agreed a third successive arrangement with the IMF after finalizing the second precautionary arrangement with several waivers for not meeting certain commitments.
The IMF has been rather flexible in its negotiations with the Romanian authorities in the arrangements of the past few years, and has been willing to grant waivers on a steady basis. It remains to be seen if the Fund will continue to be as flexible.
Dochia does not believe the IMF will be “tougher” over the course of the third arrangement with Romania.
“The letter for the third arrangement with the IMF includes commitments not met in the previous arrangement, especially on structural reforms. Things are more complicated because 2014 is an election year. In terms of structural reforms, things are running significantly behind, especially in the healthcare sector,” says Ionut Dumitru, chief economist of Raiffeisen Bank.
(English version by Daniela Stoican)