ECONOMY

Romania confident of meeting IMF, World Bank conditions for more funds

BUCHAREST (Reuters) – Romania should meet the conditions for fresh IMF funding after an embarrassing setback just ahead of a showcase investment meeting pushed the Cabinet into action to rescue the loan deal, the finance minister said. The International Monetary Fund and World Bank were now likely to approve separate, delayed loan deals in June, said Mihai Tanasescu, after the government decided to accelerate job losses and other reforms in the debt-laden, state-owned energy sector. The World Bank dropped a bombshell 10 days ago when it delayed a $300 million loan because of disputes over how many workers had been made redundant at state refiner Petrom. The dispute also led the IMF to delay a decision on two tranches of a $383 million loan vital for the country’s economic credibility. A tentative May 24 target for agreeing the loan will not be met. The delay came at an awkward time for Romania, eager to display its commitment to reform at this weekend’s annual meeting of the European Bank for Reconstruction and Development. «It’s not that Romania doesn’t want to move forward. It’s about our lack of credibility with the IMF. As you know we failed so far to complete five IMF programs,» Tanasescu told Reuters yesterday on the sidelines of the EBRD meeting. Layoffs at state firms and wage restraint are sensitive issues in Romania, where living standards for many have barely risen since communism collapsed in bloody revolt in 1989. It remains among the poorest countries in Europe. The IMF is insisting the government push forward with reform of the inefficient power sector by upping energy prices, cutting employment levels and improving payment collection to cut losses fueling the black-hole problem of arrears in the economy. It has not commented publicly on when the next tranche of loans should be approved, but is believed to want further evidence of compliance with conditions before releasing funds. Government praised Romania’s leftist government has won praise for sticking to reforms more consistently than its predecessors, with EBRD chief Jean Lemierre telling investors there had been a decisive break with the muddled approach of the past in the Balkan state. Tanasescu said the EBRD meeting should help Romania make the case that it is now an attractive investment destination. Further state sell-offs and legal and structural reforms would begin to answer popular frustration over low living standards. «We need to speed up change so the population has some vision of a better life. After 12 years of reform they are still living on $100 a month. It’s normal to ask when things will improve,» he said. United States Treasury Secretary Paul O’Neill, paying the EBRD annual meeting the highest level visit by a US official in a decade, also praised Romania for its recent achievements. «For Romania this is a critical year. It has the attention of the international community… By embracing further reform, this could be the year that Romania launches itself on the path of sustained growth,» O’Neill told the EBRD meeting. Tanasescu insisted the macroeconomic targets for this year agreed with the IMF were on track to be met. Growth should be 4.5 percent, inflation will fall to below 20 percent from 30 percent in 2001 and hit single digits by 2004, he said. Talks with the IMF on raising the budget deficit to 3.2 percent of gross domestic product from the currently agreed 3.0 percent would resume in July after the Washington-based lender refused to agree to the change earlier in the year. The extra funds would be entirely dedicated to investment, said Tanasescu. He confirmed that Romania would not be returning to the international debt markets this year after a successful 750 million euro Eurobond issue in April. A roadshow in the US was planned this year as a precursor to a likely Yankee bond next year. Curb graft, get money At the EBRD meeting yesterday, O’Neill said Eastern Europe must develop more efficient governments that curb corruption in order to attract the investment needed to complete the transition from communism to a free market. O’Neill praised the bank’s efforts to create a more attractive investment climate but said the region must do more to draw in the private capital it needs. O’Neill said the development bank, created in 1991, had proved itself «an exceptionally effective tool» by tailoring its lending to encourage better corporate governance and to highlight investment opportunities. «We view these activities as among the most effective that international financial institutions can undertake in raising productivity and spurring growth and higher living standards,» O’Neill said. The Bush administration has especially stressed the need for international financial institutions and development banks to come up with measurable results and O’Neill has been making the rounds of the banks to press home his pro-business approach. O’Neill urged that EBRD members «seize this moment and redouble their efforts to improve investment climates» by reducing risks that investors face. In particular, he said the Balkan countries needed to undertake basic reforms «such as simpler tax systems, clear and efficient regulatory frameworks, contract and property rights enforcement and comprehensive efforts to root out corruption.» Speaking to reporters later, O’Neill declined to compare the activities of the EBRD directly with those of other development banks like the World Bank, which he has criticized regarding its effectiveness in fostering development in the past. But he said the EBRD clearly was effectively promoting small and medium-sized business development in the areas in which it operates. «The best projects that I’ve personally seen have been the EBRD projects,» O’Neill said. «The ones I’ve seen I’ve been very impressed at the selection of the loan and the entrepreneurs.»