Martin Harris

Martin Harris

Minister and Deputy Head of Mission to Russia

Part of UK in Romania

1st February 2013

CVM + IMF = 4%

There are two fundamental planks of reform in Romania, on which the Romanian authorities are engaged in commitments to the International Financial Institutions and to their EU partners – the Stand-By Agreement with the IMF (plus the World Bank and EU) and the Cooperation and Verification Mechanism for tackling corruption and judicial reform with the EU. This week has seen a stock-take of both programmes.

The IMF’s mission recorded important progress on fiscal consolidation in Romania in 2012 bringing down public debt and managing the budget deficit. Romania now has figures on public debt that would be the envy of many other EU Member States. This is particularly impressive in what was an election year. The IMF also pointed to the need for more progress in reforming state-owned enterprises. These are present in some of the most promising areas of the economy like energy and chemicals, but they are a drag on economic growth when they should be a driver. Putting them under private management, and bringing in new investment from the City of London through public offerings on the stock exchange should be a priority for the first half of this year.

Similarly on the CVM, the European Commission records important progress in a difficult year. The High Court continued to finalise long-standing high-level corruption cases. The Constitutional Court’s rulings were implemented, and the National Integrity Agency continued its work to strengthen ethics in public life. There’s been good news too at the start of this year, with legislation on the distribution of work in the courts clearing the way for the Civil Procedural Code to enter into force.

Looking ahead, the new Parliament needs to lead in taking forward Romania’s Anti-Corruption Strategy. The new law on the Status of Deputies and proposed Code of Conduct offer an opportunity to ensure that requests to lift immunity are addressed in a timely and transparent fashion, and for the Parliament to demonstrate unequivocally that law makers are not above the law. I also hope that the various actors involved in the process can come together to ensure the appointment of strong, independent professionals at the helm of the General Procuracy and the DNA.

We will continue to help where we can, under the ‘Cooperation’ part of the CVM. We’ve been building expertise in the procuracy on asset recovery, capacity in the Ministry of Health on integrity issues and hosted a visit by Romania’s parliament to Westminster last November which allowed for an exchange on Codes of Conduct.

Why should we Care Very Much about the CVM? De ce trebuie sa avem un Foarte Mare Interes în succesul FMI? Because these two programmes can make all the difference to Romania’s future economic growth. In a couple of years’ time Romania could be growing at 4% a year and catching up with the rest of Europe. Or not. These programmes can release Romania’s economic potential, attract investors from the UK and elsewhere and reverse the decline in Romania’s competitiveness. CVM + IMF = 4%

14 comments on “CVM + IMF = 4%

    1. Dear Radu,
      I appreciate your analysis. Let me say that I too am against wishful thinking. My concern is that there has been too much wishful thinking, by economists, politicians, diplomats and businessmen, about long-term growth rates in Central and Eastern Europe. There is an assumption that simply because they have joined the EU these countries are on a path to ‘catch up’ with the EU average. And that the current economic crisis is only a temporary interruption in that process. I don’t think we can take that for granted.

      Until recently the IMF forecast annual growth for Romania of 4% through to 2018. It revised that down to 3.5% and then to 2.9%, in part because of the ‘output gap’ – the reduction in Romania’s production capacity caused by the crisis – but also the fact that the drivers of economic growth that were anticipated in 2011 (such as EU funds) have not materialised. Romania needs to get those drivers back. My point is that pursuing the structural reforms in the IMF programme and the judicial reforms in the CVM will help do just that, both directly in their impact on key economic sectors and the business environment, and indirectly in generating the confidence that will attract investors back to the market. (‘Romania: selected issues paper’ http://www.imf.org/external/pubs/ft/scr/2012/cr12291.pdf)

      Economics is about emotions as well as science, about perceptions as well as reality. A perception that the business climate has been transformed, that public finances are well managed (and here it was the reduction in the budget deficit I was referring to) and that Romania is a country that is really moving forward, whose growth has momentum, is what is needed. Success breeds success. 4% growth may not be achievable this year, but ‘in a few years time’ why not?

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  2. Good work, but this is about Romania. Few words in Romanian language here isn’t enough 🙂
    “Why should we Care Very Much about the CVM? De ce trebuie sa avem un Foarte Mare Interes în succesul FMI? ”

    Why not this post also in your Romanian version of the blog?

    Thank you!

  3. Nice article about Romania. I enjoyed reading it and have to agree with your views. I’d like to be optimistic and see that 4% economic growth kicking off soon. What surprises me is that I don’t see any other comments here yet ^_^.

  4. It is not a magic formula… In fact, for the ordinary people of Romania the IMF “mission” has been a disaster. From the beginning, even if in Romania the annual inflation rate has been under 20% they considered the Romanian economy as an hiperinflationist one and everything they imposed as tax legislation and fiscal norms in this country was based on this assumption. Yearly, the prices of commodities and utilities have been raised, because they have been inflated, and even so the annual inflation rate was under 5%. The IAS 29 is largely applied in building the public budget, they seem not to care very much that the IAS29 does not longer exist and as much as I remember is strictly forbidden to use it unless it is about hyperinflation. They still apply this old standard for setting up tax and prices of commodities, utilities and services. They did not raise the monetary volume of the coins existing on the market in order to stimulate the growth of the demand, they simply inflated the tax and prices, based on the consumption prices index, a non-monetary item, resulting in a higher prices and tax and a weaker consumption power. The simpliest measure to stimulate the growth of the economy was to raise the monetary volume of the coins on the market in order to have an excedent of money that need to be spent. They did not do it.

  5. Dear Sir,

    What you are basically saying is:

    a) Romania is not capable to do anything by itself, Romanians are retarded
    b) Without the benevolent care of the smarter nations, Romania (and probably all Eastern Europe) will fail.

    With all due respect, you come from a country so clueless about Eastern Europe it actually believes that Romanians (filthy nomads that don’t know how to read) will invade it at the end of 2013. Your view will carry more weight only when (and if) the UK will prove it understands the realities of this history-rich and proud part of Europe.

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About Martin Harris

I am the Minister and Deputy Head of Mission at the British Embassy in Moscow. In my last job I was the Ambassador at the British Embassy in Bucharest. Previously I…

I am the Minister and Deputy Head of Mission at the British Embassy
in Moscow. In my last job I was the Ambassador at the British Embassy in
Bucharest. Previously I have served at the British Embassies in Kyiv
and Moscow as well as at the UK Delegation to the OSCE in Vienna.
I love music, especially opera, chamber and sacred music. I am
married to Linda MacLachlan. We have three daughters, Catriona, Tabitha
and Flora – and they have one dog Timur and two cats, Pushkin and Tolstoi.