[stop-imf] IMF: Romania needs neoliberalism

[Robert Weissman]

  *http://www.reporter.gr/fulltext_eng.cfm?id=60221120252
Reporter.Gr

IMF: Structural Reforms Are Necessary for *Romania's* EU Accession*
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* 12:02 - 21 February 2006 * - IMF stated that in order for Romania to
reach EU living standards, it is necessary to go on with structural
reforms following the discussions regarding Article IV Consultations.


According to the IMF report, there should be a public announcement on
the calendar regarding the increase of prices of natural gas (domestic
production) to the price of imported natural gas on medium-term, to
allow for enough time for companies to adapt to the new prices.

As Romania has different employment and dismissal costs as compared to
Central and Eastern Europe,the amendment of the Code of Work is a
necessity, including the withdrawal of the regulations regarding the
obligation of collective working contracts at the level of the parties
who did not sign them.

Finally, the same rhythm of privatizations should be kept, through the
CEC privatization.

IMF supports the reform of justice, the improvement of judicial system
efficiency, especially in the case of bankruptcy procedures against
important debtors to the state budget, the reduction of corruption and
the improvement of financial discipline and business environment.

With appropriate policies, the IMF staff sees sustainable economic
growth at 5-6 percent.

According to the same conclusions, an increase in investment, aided by
EU transfers, will increase capital's contribution to output growth,
while privatisation and industry restructuring will help sustain strong
productivity gains.

IMF stated that additional measures will be needed to balance the 2006
budget and make it consistent with achieving macroeconomic stability,
warning that the envisaged sharp reduction in the allocation for goods
and services is not sustainable and will lead to the accumulation of new
arrears.

This consideration, combined with pressures stemming from recent wage
increases, the IMF argues, points to an underlying deficit of over 1
percent of GDP. Tight fiscal policy, the IMF further argue, should
remain the centerpiece of Romania's macroeconomic strategy, especially
given the likelihood of continued capital inflows and strong private
sector growth.

Such policy should aim at stemming excess demand and putting public
finances on a sustainable medium-term path, read the IMF conclusions.
The IMF also recommends Romania an increase in the VAT, revisiting the
rate of the flat tax, broadening the tax base, increasing administrative
fees, increasing property taxes, and improving revenue administration.

Likewise, the IMF says a strict wage policy is essential for successful
disinflation.

To anchor inflation expectations in single digits, public sector wages
should increase once a year and be incorporated in the budget process.
Moreover, wages need to better reflect skill needs, otherwise a
ballooning wage bill will only undermine the aim of establishing a
modern civil service and the ability to absorb EU funds.

Following substantial wage increases, the government's wage policy needs
to be recalibrated to the needs of a low inflation economy. Romania's
GDP increases four percent in 2005, according to IMF estimates Romania's
Gross Domestic Product increased by four percent in 2005 as against
2004, according to the preliminary conclusions of the of the
International Monetary Fund (FMI) mission for Article IV Consultation
Discussions.

As far as the real economy is concerned, the domestic demand advanced
9.3 percent, and prices went up 8.6 percent, according to the IMF
estimates. Unemployment increased by 6.1 percent, as compared with 6.2
percent, in 2004.

Net domestic investment grew 22.4 percent.

Public finance revenues recorded a 31.2-percent growth in 2005, while
the expenditure increased by 32 percent.

The level of the public debt rose by 19.2 percent.

Domestic credit increased by 41.9 percent in 2005, and the money supply
widened by 33.8 percent.

The interest rate charged by the National Bank of Romania (BNR) recorded
a 6.7-percent growth, whereas the treasury bill rates went up an
estimated 5.5 percent.

The current account balance decreased by 9.4 percent of GDP, and
external debt rose by 34.5 percent.

The 2005 official reserves are estimated at $21,729 million.The exchange
rate of the local currency, the leu, (RON) was 3.68 RON to the euro and
3.11 to the US dollar, read the IMF estimates.