The precautionary agreement with the IMF, the European Commission and the World Bank was set to focus on stimulating the economy, structural reforms, attracting strategic investors for state-run companies and reducing arrears, but it can only boast a continuation of fiscal adjustments, which in fact delayed an economic rebound.
So, after almost two years of precautionary arrangement with the IMF, results are more negative than positive.
The IMF ends its mission on Tuesday.
While Prime Minister Victor Ponta remains a “supporter” of the IMF agreement, criticism of the IMF came from the liberal side of the social liberal government coalition. Dan Radu Rusanu, president of the Chamber of Deputies’ budget committee, one of the most influential PNL leaders in Parliament, levelled tough criticism at the IMF for the privatization measures proposed and for how the preceding arrangement signed in 2009 was conducted. This is the first time that someone “in power” dares to criticize the Fund.
He said at the beginning of talks with the IMF delegation that hiking taxes in 2010 was a “huge mistake”. “Any economics student knows in a time of crisis you don’t hike taxes. The VAT hike to 24% and the [public sector] wage cuts by 25% could not bring economic growth. These measures were not imposed by the IMF, but they were ‘accepted by us’, said Rusanu, according to Mediafax. The head of the IMF mission Erik de Vrijer, retorted that the accusations were groundless and asked the press to leave the talks. The liberals governed between 2005 and 2008 without any guidance from the IMF. Although they made progress as far as privatizations are concerned, the 2008 fiscal slippage turned Romania into a certain victim of the international crisis.
Over the course of the IMF agreement signed in 2009, the economy did not manage to get out of recession, with Romania going through two years of dramatic adjustments – layoffs, cuts to public sector workers’ wages and a VAT hike. And state-run companies continued to record huge losses and accumulate arrears.
After the two-year stand-by arrangement sealed in the spring of 2009, based on the huge, almost EUR20 billion loan, the major disappointment of the IMF was that the economy did not manage to return to growth, the then head of the Fund’s mission in Bucharest, Jeffrey Franks said. Now the list of disappointments is much longer.
The economy remains on the brink of recession, the budget deficit is above expectations, at 2.5% of GDP, privatizations did not progress, the project of private management for state-run companies is a failure, EU fund absorption is a catastrophe as many programs are frozen, inflation has exceeded the interval targeted by the central bank, arrears are still there, the state is not able to raise more money.
As targets for 2012 have been missed, the arrangement with the IMF has been extended, with the IMF agreeing “in principle” to a two-month extension.
The opposition talks about a potential termination of the arrangement.
PDL deputy Gheorghe Ialomitianu, former Finance Minister, said at the end of talks with the experts of the IMF, the EC and the World Bank, that the arrangement “could be suspended or even terminated unless significant progress is made with reforms over the next two months.”
(English version by Daniela Stoican)