As the IMF proposes a fiscal squeeze, we ask if austerity is the correct prescription for Romania’s troubled economy.
An International Monetary Fund (IMF) mission is visiting Romania to review its loan deal. The visit is taking place amid anti-government protests over economic conditions, as Romanians become the latest European citizens to feel the pinch of austerity measures.
“The bottom line is the IMF is counter-productive in its involvement in these countries …. The costs associated with implementing the programme are so enormous in the medium- and long-term that they far outweigh any short-term economic benefits.”
– Sam Vaknin, the editor of Global Politician
Clashes between protesters and riot police for the fifth day in the capital Bucharest have left 59 people injured.
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Romania had, until now, avoided the type of violent street protests that have shaken Greece and other indebted European states despite state job and wage cuts and a value-added tax hike imposed to maintain a vital bailout led by the IMF.
Emil Boc, the Romanian prime minister, has warned anti-government protesters that violence will not be tolerated.
Before the recession, Romania enjoyed a decade of steady economic growth.
Strong demand from European Union markets and domestic consumption and investments fuelled GDP growth, but it also led to a widening account deficit.
In the last quarter of 2008, Romania began to feel the effects of the global downturn.
In 2009, its GDP fell by more than seven per cent, prompting the government to ask for an emergency loan from international lenders.
“The IMF is not perceived as being the one to blame for what’s happening in the country. The fear of corruption is always one of the first words when discussing the state. I don’t think the protesters are against the IMF, they are against the government.”
– Adrian Ion, the publisher of The Diplomat Bucharest
In 2010, the IMF, the European Commission and the World Bank granted Romania – which was on the verge of bankruptcy – a loan of about $26bn, with drastic austerity measures as part of the agreement.
The IMF has been the subject of controversy before because of the harsh conditions and austerity measures it demands in exchange for acting as a lender of last resort.
A report released in 2011, however, showed that countries that entered into the IMF-supported programmes after the financial crisis began have generally been successful in stabilising their economies.
There were two waves of IMF lending following the start of the global financial crisis in 2007. The first wave sought assistance between 2008 and mid-2009, and included Latvia, Romania and Iceland.
In a recent report on the challenges and lessons of Iceland’s recovery, the IMF found that its programme was successful in providing much-needed funds and producing fiscal discipline but also found that there was a lack of growth strategy.
As the crisis continued to deepen, a second wave of countries sought IMF support. These included Greece and Ireland.
Given that Romania’s fiscal squeeze is also largely being driven by the IMF, is economic austerity the correct prescription? And should the IMF have the power to impose it?
Inside Story, with presenter Teymoor Nabili, discusses with guests: Sam Vaknin, the editor-in-chief of online news service Global Politician and a former economic advisor to several Eastern European governments; Piotr Kaczynski, a research fellow at the Centre for European Policy Studies; and Adrian Ion, the publisher of The Diplomat Bucharest.
“The IMF’s conditionality will work only if it is done together with the Romanian government. It won’t work properly if the IMF tells them what to do. It’s the responsibility of the political class to make sure they know what they really want from the IMF, not just the money, but also the type of austerity measures they can and cannot take.”
Piotr Kaczynski from the Centre for European Policy Studies