Fourth tranche is here. Reform still to come

Romania has finally applied the reform measures needed to get a new tranche of the stand-by loan agreement concluded with the International Monetary Fund (IMF).
Among the most significant measures – downsizing in loss-making state-owned companies. Although last year’s economic results were enough for the $76m instalment to be disbursed, the IMF is still concerned with certain risks.
“The uncertainties surrounding macroeconomic developments increased somewhat in early 2003, owing to the large increase in the minimum wage in January and a more unfavorable external environment,” said Anne Krueger, IMF First Deputy Managing Director and Acting Chair.
According to the IMF officials, unexpected pressures on prices or the current account could develop because of the minimum wage hike, in which case macroeconomic policies will need to be tightened.
“Against this background, full and firm implementation of cautious wage policies will be vital to preserve macroeconomic stability and avoid a significant deterioration in Romania’s external competitiveness in the medium term,” Krueger says.
National Bank of Romania Governor Mugur Isarescu says the increase in the minimum wage is not felt so fast in the real salaries, and is expected to result in higher consumption only in the second half of the year.
Tighter wages policies, further reduction in state-owned enterprise losses, privatisation – these are the key reform elements that the International Monetary Fund is still repeating to the Romanian authorities. Why do these issues need to be reiterated, 18 months after the stand-by agreement with the IMF was signed? The Fund officials state it plainly – because financial discipline has not been thoroughly implemented in the state-owned enterprises and because of the privatisation delays.

Key elements of the reform effort, as seen by the IMF
– full and firm implementation of cautious wage policies
– further reduction in state-owned enterprise losses
– progress in energy sector privatisation
– close monitoring of the rapid growth of credit, particularly that in foreign-currency
– strengthened revenue collection
– perseverance in improving energy utilities’ collection rates
– complete the BCR privatisation as soon as market conditions improve