Banca Naţională a României

There has been some misunderstanding in the media regarding the status of the IMF Stand-by arrangement. The recent IMF mission to Romania determined that the arrangement is "off-track". This means that the policies being pursued by the government are not in line with the objectives of the Stand-by arrangement to reduce inflation, contain external imbalances and promote growth. The second and third reviews therefore cannot be completed at this time. This does not mean the arrangement is cancelled. The current arrangement remains in place until July 2006. The IMF staff remain open to further consultations should the government decide to shift the current fiscal and monetary policy mix from one that in our view encourages excessive consumption, worsens external balances and damages competitiveness to one that promotes macroeconomic stability and encourages growth.

There have also been misleading statements that the IMF has recommended a wage freeze and the use of privatization proceeds for repayment of debt rather than infrastructure. We have noted that in a modern, low-inflation European economy pay awards are given once a year and pay increases should be differentiated according to the skill needs of the civil service. In the last year, the authorities have given multiple and excessive wage increases with little relation to productivity or the skill requirements of a modern civil service. Such practices are short-sighted and undermine any attempts at managing inflation. They also bloat the budget in favor of wages and consumption and away from efficient investments to improve education, health and infrastructure. By inefficient allocation of resources for civil service pay they also undermine the task of building an efficient civil service capable of utilizing European Commission and other funds efficiently. On privatization proceeds, we have said that these should be properly budgeted within a clear medium-term fiscal framework, and the authorities should avoid one-off schemes that undermine good budgetary planning, weaken the capacity of the line ministries, and diminish the transparent allocation of resources.