How the state took over the private foreign debtPublish date: 02-12-2009
Only a few months have passed since the first tranche of financial resources that are part of the mammoth-loan contracted by the Romanian state from the IMF-EU-World Bank entered the country and the effects that emphasize and even quantify the real purpose of this loan have already appeared.
The ones that avoided falling in the trap of disinformation and of deceptions of various types and with various nuances have stated from the beginning that Romania was forced from the outside to contract this loan, especially the bulk of it that came from the IMF, not for the needs of the Romanian state or the Romanian business environment but for the foreign companies active in the banking and non-banking sectors in Romania, companies that were left in the context of the crisis without financing from their mother-companies in the West. That does not mean at all that the Romanian state or business environment did not need financing.
But the IMF loan was not meant for these needs. These needs, such as backing the RON or indirectly resuming crediting, were only invoked as a justification but the loan had a precise destination: the foreign companies in Romania, both in the banking and non-banking sector.
The proof: from the start of 2009 the Romanian state borrowed a net sum of EUR 15 bln. It used that to cover a budget deficit of EUR 6 bln at most! Where is the bulk of the loan? It went to the foreign companies, precisely the companies for which the loan was contracted, because the bulk of that sum did not go into highways, railways or other public constructions that do not exist!
We do not know whether the authorities were aware of that or - since they were already forced from the outside to contract the loan - whether they were looking to give it various functions and purposes just for the looks of it! Unfortunately a chorus of minstrels danced to the tune of the functions and purposes invented for this loan. We say 'unfortunately' because many of those that became the proponents of the loan were professionals and it was impossible for them not to understand how things really stood.
That is the more serious as they had no way of not noticing that the authorities had found in this loan a political comfort ahead of the elections that followed. More to the point and to be completely clear, the IMF money could be used to postpone the restructuring that the crisis imposed in the public sector. That amounted to a disaster because that postponement did not solve the problem; it only made the inevitable restructuring more expensive and painful.
That is how we ended up paying pensions and salaries out of the IMF loan. An electoral piece of extravagance that will be paid dearly, not by those that came up with it but by those that allowed themselves to be deceived into believing that the IMF loan will save their earnings. But what will happen when the IMF money will have to be paid back along with the interest? Will the foreign companies in the hands of which that money ended up pay?! Not at all! On the contrary, the Romanian population and business environment will pay through the inflation rate, through the RON depreciation and through tax hikes! The rest is political rubbish! It's impossible for the minstrels of the IMF agreement not to have figured out these consequences and particularly the fact that the agreement allowed the Romanian authorities to avoid, out of electoral reasons, what had to be done within the public sector.
However, irrespective of the way in which the IMF loan is interpreted, one could not refuse acknowledging its 'technical' impact, namely the fact that it changed the short-term debt into medium and long-term debt! Something that wouldn't be bad 'technically'! It's just that the short-term debt belonged to foreign companies in Romania, while the medium and long-term debt is now the Romanian state's debt! Now the issue is a thing of the past irrespective of whether this 'technical' characteristic is recognized or not.
The National Bank figures are clear. Compared to its level at the end of last year, early this autumn the short-term external debt fell to EUR 5.3 bln, representing less than 22 per cent (down from 32 per cent) of the total debt, while the medium and long-term debt rose by more than 17 per cent to EUR 60 bln. In other words, the foreign companies solved their constraining financing problems by dumping them on the shoulders of the Romanian state for who knows how many years!
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