Jeffrey Franks, IMF: The government still has a lot of work to do to get the country out of the crisis

Reporter: Do you think next year we will be able to raise money from the foreign markets more easily?

Jeffrey Franks: Yes. I am sure of it. I think that if the austerity measures for the reformation of the public healthcare system will continue, Romania will enter 2011 in better fiscal shape, with important structural reforms, which have already been implemented, as well as other reforms on the way, (which are nearly completed), and this will turn Romania into an attractive place for investors.

Reporter: Under these circumstances we could see an economic recovery. You are predicting the economy would grow 1.5% next year. Isn"t this estimate a little bit optimistic?

Jeffrey Franks: A 1.5% increase is not too big, if we consider prior economic data.

Reporter: Do you think raising taxes was good for the Romanian economy?

Jeffrey Franks: As I said the last time I was in Bucharest, a very strong adjustment needs to take place, and choosing the methods to accomplish it isn"t easy. We have discussed various alternatives with the authorities and we initially decided to focus exclusively on cutting spending. We have supported the authorities concerning this measure, but we did have a few concerns over the effects it might have on certain groups or companies in terms of distributing expenses. In the end, the Constitutional Court invalidated some of these measures and they needed to be replaced by the raise of the VAT. VAT has the benefit of being a relatively guaranteed and efficient tax. I think the Government viewed it that there is an adequate balance between the decisions of cutting wages in the public sector and the raise of the VAT.

Reporter: What aspects you don"t like about the Romanian economy? What are the immediate challenges?

Jeffrey Franks: I wish the return to economic growth had happened sooner, and that it had been stronger. That being said, many factors that have led to this continued weakening are outside the authorities" control. Such things are happening everywhere, we are living in difficult times, we are in the midst of the largest economic crisis of the last 60 years, and it"s unavoidable that things would be difficult for all of us.

Jeffrey Franks: If we look at the future, I"d like to see an improvement in the absorption of European funds, which have a huge potential for economic growth, a potential which needs to be exploited.

I also see a clear need for increased economic efficiency, and this will require higher investments in human and physical resources. This involves better roads, safer bridges, a good domestic infrastructure, and all this will contribute to the future economic growth.

The third thing I need to stress is the continued improvement of the investment environment in Romania. I am referring here to the fight against inefficiency, bureaucracy and corruption, both in the public and in the private sectors. We need to tackle the legal hurdles that cause inefficiencies in the legal system.

Reporter: You spoke of a weak absorption of European funds in Romania. How did the authorities explain their failure to attract European funds?

Jeffrey Franks: We have identified a large number of obstacles that impede the absorption of European funds, and the people of the European Commission will try to provide Romania with a helping hand in overcoming them as soon as possible.

Reporter: Can you give us with clear examples of such hurdles?

Jeffrey Franks: The process of drawing up projects needs to be improved. The quality of projects that are brought before the European Commission needs to be improved as well, as does the speed of their implementation, which is very low at a time like this, due to legislative hurdles, which cause the contracting process to last at least three to six months. That is why we need to significantly improve the speed of this process. We need better people to draw up these projects faster and better.

Also needed are mechanisms for prioritizing the allocated budgets as investments in European projects.

The amounts that have been allocated to Romania are significant, but if the money isn"t used for EU projects, instead going to other projects, than that capital won"t go any further. In the projects financed by the European Union, the authorities need to come up with just 30%, with the rest coming from the EU.

So if the authorities will move the money from these investment projects which require 100% local resources into projects funded using European funds, you will have a better process.

Reporter: Who else do you think can help simplify the process for the absorption of European funds?

Jeffrey Franks: I think there"s room for improvement by involving several banks in the process of absorbing European funds. Banks can provide the technical expertise needed for evaluating the projects in question, but they can also provide the necessary funding.

Reporter: Did you already discuss this aspect with bankers during the visit to Romania?

Jeffrey Franks: Yes, I already talked to several banks about this matter, and, as already mentioned by M. Laurent Moulin, the head of the delegation of the European Commission in Romania, the meeting between the IMF and the banks concerning this subject took place yesterday.

Reporter: What are, in your opinion, the strengths and the weaknesses of the Romanian economy?

Jeffrey Franks: Obviously, the largest weakness is the fact that the situation of the economy was affected by the imbalances in the beginning of the crisis, which caused the recession to be so severe. So I think the largest drawback that needs to be eliminated is the fiscal issue.

The biggest that I think Romania has is its bright future over the medium-long term.

You have a relatively highly educated population, low labor costs, you are a member of the European Union. Any of you can supply essential industrial commodities to many multinational companies that want to sell on the European markets. This is a huge benefit for that area.

Further drawbacks include the state owned companies, which need to be restructured as soon as possible, which have major arrears and are holding the Romanian economy back. If you won"t have efficient energy and public transportation companies, it will be hard for the rest of the players to grow, because they need infrastructure and energy to do so.

Reporter: Does this mean that you are suggesting that the authorities begin privatizing inefficient state owned companies?

Jeffrey Franks: We have already outlined in the letter of intent the steps that need to be taken by the authorities to restructure state owned enterprises, and to privatize others.

My advice would be that, as the economy recovers, the authorities begin focusing increasingly on the privatization of certain companies. During the crisis, the time was not right for privatizations and this is why we did not see many privatizations take place. No one was interested in buying companies, not even international companies, which had their own problems.

But now I think the time is right for the authorities to focus on this subject.

Reporter: For instance, in the case of CFR Marfă, do you think it would be better to privatize it or to reorganize it?

Jeffrey Franks: There is no doubt that restrict is absolutely needed. However, it remains to be seen if privatizing it or simply restructuring it is a good measure.

Reporter: And what about the other public sectors, the medical system for instance, do you think they should be privatized?

Jeffrey Franks: I don"t think so, some European countries, have a public healthcare system, just like Romania does, others have a private healthcare sector, financed using public funds, so there several models that can work here. I don"t think there is any question of privatizing the Romania"s public healthcare system.

When I said privatization, I was referring strictly to public companies, not public services, even though in certain segments, such as highways for instance, public-private partnerships would work very well, meaning that both the public and the private system would get involved directly in the modernization of the national highway system. And that is just one example.

Reporter: Thank you!