Romanian politics and relations with the IMF

The lack of political consensus in Romania is affecting our countrys agreement with its international lenders.

Florentin Căpitănescu, 03.12.2013, 13:20

The history of disputes between the ruling center-left Social-Liberal Union and President Traian Basescu has added another chapter. This time the bone of contention between the two parties is economy, one area where Romanian officials of any political affiliation have performed below par in the last four years.

Unfortunately, Romania’s three international lenders, the IMF, the World Bank and the European Commission were dragged in the middle of this conflict. President Basescu’s announcement that he would not sign the Memorandum with the IMF was what sparked the scandal in the first place. President Basescu explained his decision, arguing that the 7 eurocents increase in excise duties levied on fuel, that the Government wants to introduce as of January 1, 2014, would be counterproductive and followed by a wave of price hikes. In addition, the head of state said that under the current stand-by agreement, which still stands, Romania does not in fact depend on the financial assistance of international lending institutions, which would allow the Government to easily renegotiate the terms of the agreement.

The Government was quick to respond to Basescu’s announcement. The most vocal and harsh reaction was that of Prime Minister Victor Ponta himself. The head of state has no acumen and his gesture is clear evidence of irresponsibility, the Prime Minister said, who added that “Romania no longer has an agreement with the IMF”. Following this alarmist statement, things were subsequently toned down and clarified. Minister Delegate for Budget Liviu Voinea said the agreement with the IMF was still valid, although it has not yet come into force.

Minister Voinea recalled that the IMF board was to validate the results of negotiations on December 18, after which point Romania was to be disbursed the first installment in the aid package, worth 170 billions. Economic pundits believe that in the absence of a sound with the IMF, Romania risks no longer being able to secure loans at low interest rates on the already-shaken international financial markets. This is Romania’s fourth agreement with its international lenders in the last four years, over the 2013-2015 period, worth 5 billion euros. The money can be accessed only in cases of extreme emergency.