Romania and the IMF: unnecessary confusions

Romania needs foreign financial assistance due to the global recession, to the decreasing capital in emerging economies, to the short-term obligations of the private sector and, last but not least, to the lack in protection from the euro area in cases of high volatility in the currency market.

The NBR and the Government are negotiating with the European Commission and the IMF for an assistance package aimed to protect the financial stability, primarily. I have to return to some aspects of this assistance package, given the comments made in the public debates regarding the involvement of the IMF.

The most important parts are the contents of the assistance and the attached conditions. Being skeptical about the IMF's traditional approach does not mean dismissing this institute. It is as if those who criticized the Bush administration measures in various areas are automatically qualified as anti-Americans. Even the IMF admitted the errors committed. Even in the relation with Romania, the IMF proved very inflexible between 1998 and 1999, when Romania had to handle things on its own when it came to certain deadlines (see the statements of Joseph Stiglitz, Nobel prize laureate in economics, who was the chief economist at the World Bank at that time). Therefore, we must negotiate carefully and based on solid arguments (which exist!) for an agreement that should help us get over the next period of time.

The information that got to the press in the recent days (e.g. scenarios on the evolution of economy and different budget deficits) support the plea, which I agree with completely, according to which it is meaningless to hold onto a budget deficit of 2% of the GDP in the conditions of the current international recession. When the private economy compresses and the external markets get smaller, the public budget must not be in the way of the economy, even if it has a very limited action margin. I agree that we cannot afford to use the strong budget incentive. If the budget revenues decrease, a smaller deficit would mean certain recession. A deficit over 3.5% of the GDP is desirable now. The help from a good agricultural year is also illusory, since there are no fiscal rules in agriculture. The budget revenues depend on the urban economy.

We have to proceed in such a way that the EC, the IMF and other external funders (if any) would support the Romanian Government in its negotiations with the foreign banks, so that we would not witness a decrease in lines of financing. The commitment of certain foreign banks not to transfer their own funds abroad is welcomed. We would have to deal with a restriction in the capital account. Again, life shows that the administrative interventions are welcomed when the financial markets work as they shouldn't. The EC and the IMF must also think about ways to discourage the attacks against the Romanian currency.
Romania needs a safety belt, like any other country in the euro area. The way this belt is made is very important and the EU should come up with collective answers to the effects of the crisis.