However, one of the unknown constituent is how the IMF would adjust its economic policies to the countries’ needs, plagued by the global economic downturn, NewsIn informs.


The widely used notions of “control” and “discipline” voiced in the negotiations with the IMF bear positive meanings too.

After an election year in 2008 the budget deficit reached 5 percent of the gross domestic product (GDP) at yearend. Now the country has to drastically cut spending and find solutions to limit the income drop considering the slight chance of an economic advance this year.

The European Commission’s prognosis pinned the budget gap at 7.5 percent of the GDP this year, without including the spending cut measures. The government has targeted a 2 percent budget deficit this year but in a scenario of a 2.5% economic increase.

The finance minister recently said that Romania could see a negative economic growth this year, so the budget gap could be wider.

At the end of last week people from the Cabinet told NewsIn that one of the options Romania was negotiating with the IMF included a budget gap of 3-3.5 percent in the event of a new phase of recession this year.

Romania’s mistake

The economic crisis has laid bare serious weaknesses in recent economic policies of Romania, namely the focus on a pro cyclic tax policy wherein the country did the opposite than it should have.

Instead of focusing on narrowing the budget deficit over the years of economic growth, the government spent massively. The budget deficit should have been widened only during a crisis when tax measures are required to fuel up the economy.

IMF obligations

The negotiations started last week with representatives of IMF, the European Central Bank (ECB) and the World Bank (WB) sparked tensed debates in Romania and speculations over the measures forced on authorities once a loan is contracted.

One sure thing is the government pledged to limit public spending and to also come up with solutions to ensure a decent level of budget incomes.

Fencing public spending could mean nothing but cutting public salaries and reforming the public institutions, but also raising taxes. The consumption boom of the past years led to the habit of expecting annual growths of 20-30 percent of salaries, above the labor productivity.

The so-called social costs could mirror into the hiking of unemployment in some economic fields.

However, some of the unanswered questions are those on the new sell-offs and whether these will be continued in strategic fields, such as the power sector.

Measures taken by other EU members which borrowed money

Hungary hiked the tax on profit from 16 to 19 percent and increased the value added tax (VAT) from 20 to 23 percent, next to the taxes on tobacco, alcohol and fuels. However, it cut by 5 percent taxes for small and medium-sized companies in a bid to control unemployment. The country also reduced taxes on salaries by 2 percentage points, to 27 percent.

By taking such measures, Hungary got 20 billion euros from IMF, the World Bank and the EU, out of which 12 billion euros only from the Fund.

The agreement between IMF and Hungary paved the way to a 2.3 billion euro plan to sustain the banking sector, but the Hungarian government promised to freeze the salaries in the budgetary field and to drop out the 13th wage which is normally received by 700,000 people annually. The budget gap was established near the threshold accepted by IMF, at 2.6 percent of the GDP this year.

In Latvia, the anti-crisis measures cut by 15 percent the salaries in the public sector, hiking the VAT from 18 to 21 percent and also increasing some taxes. The country received 10.4 billion dollars from the IMF.