[stop-imf] Romania rebuffs IMF; standby agreement off

[Robert Weissman]

SETimes
Published on SETimes (http://www.setimes.com)
http://www.setimes.com/cocoon/setimes/xhtml/en_GB/features/setimes/features=
/2005/11/04/feature-01


  Romania rebuffs IMF; standby agreement off

04/11/2005

    Romania's centre-right government and the IMF are at odds over the
    country's economic policy. So far, despite pointed warnings from the
    Fund, the government of Calin Popescu Tariceanu is sticking to its guns=
.

By Razvan Amariei
for Southeast European Times in Bucharest =96 04/11/05

Talks between the Romanian government and IMF experts concluded earlier
this week with the two sides unable to reach agreement on a number of
key issues. As a result, a standby agreement sealed in July 2004 is
being terminated. The main sticking points were Romania's budget
deficit, its macroeconomic policy, and the use of funds obtained through
privatisation.

"With the current policy stance, Romania risks entering the EU with its
competitiveness weakened, growing macroeconomic imbalances,
deteriorating education and health services, and important gaps in
physical infrastructure. The 2006 projected state budget is unrealistic,
and the salary policy should be recalibrated," IMF Mission chief Emanule
Van der Mensbrugghe said.

Despite the pointed warnings coming from the IMF, the centre-right
government of Calin Popescu Tariceanu -- which already created shock
waves by introducing a flat tax not long after taking office -- is
sticking to its guns. Arguing that the Fund's demands were unreasonable,
officials insist Romania has other priorities to address.

"Their conditions were unacceptable," Tariceanu said. "They wanted us to
use all the money coming from privatisation for paying the external
debts. But our debts =85 are the smallest compared to the 25 members of
the EU," he said, arguing that the privatisation funds should be used
for motorway construction and other infrastructure improvements.
Currently Romania has only about 225km of motorways -- hardly enough to
accommodate the country's growing level of traffic.

"Some countries in the EU have budgetary deficits of 3 [per cent], 4
[per cent] or even 6 per cent of GDP," one of the leaders of the
centre-right ruling coalition, Emil Boc, told journalists. "Raising the
deficit from 0.5 per cent to 0.75 per cent or even 1 per cent would be a
positive solution to modernise Romania," he added.

Romania and the IMF are at fundamental odds over the flat tax, which
Tariceanu's administration has made a keystone of its economic policy.

"They said we lost 1 billion euros from introducing the 16 per cent flat
tax on revenues and profits. But they simply calculated what money the
budget would have obtained on the present day data, without considering
that the flat tax brought up to light from the black economy 150,000
jobs and revenues of billions of euros," said Finance Minister Sebastian
Vladescu.

The main opposition Social Democrats, meanwhile, are seizing on the
issue, arguing that Romania is in the hands of a reckless group of
ideologues. For party President Mircea Geoana, the end of the agreement
is "proof of irresponsibility" demonstrated by the current cabinet.

Many domestic economists, however, are downplaying the significance of
the latest developments. Until now, such an agreement was important
because it made the country more credible abroad. But because Romania is
well perceived by major rating agencies, the agreement with the IMF
becomes a secondary issue," the daily /Gondul /quoted analyst Aurelian
Dochia as saying.

The European Commission delegation has also dampened suggestions that
the end of the standby agreement could have a direct impact on Romania's
entry into the bloc. "There isn't and can't be an official connection
between Romania's agreements with the IMF and its accession into EU," it
said.

Other commentators say it is more important to look at the IMF's overall
role in Romania's recent history. "The government sees this separation
as a proof of maturity; since now, we will be able to come home no
matter how late, nobody will scold us anymore. But we should be
convinced that we are parting from a friend and not from a dogmatic and
unbearable teacher," wrote /Capital /columnist and former Finance
Minister Ionut Popescu.