THE GOVERNMENT TO THE IMF We are still vulnerable to the evolution of the international financial markets

• Far-reaching reform in energy and transportation

The government has pledged to reform from the ground up the state owned companies that have increased the fiscal burden. The debts of some of those companies have become so big that they amount to over 4% of the GDP, as the state allocates huge amounts to subsidize their operations and to allow them to continue.

Thus, the authorities have promised to the IMF that they will prepare the plans of action for their improvement by July 2011. The plans will include the lists of companies that will be sold, restructured and privatized.

Concerning the regulated prices, the Government has pledged to present by September a strategy for the liberalization of the market for gas and electricity, to ensure the independence of the ANRE (the energy market regulator). By year end, the authorities will define the categories of vulnerable consumers, including the means for protecting/subsidizing their energy bill.

The Executive has stressed that the new contracts for the sale of energy will be performed exclusively through the OPCOM, in a transparent and non-discriminating manner.

The contribution of capital needed to state owned energy companies will be made by selling minority stakes on the stock exchange: 10% of Petrom which is currently under way, 15% of Transelectrica by the end of the year, 15% of Transgaz by the end of the year and 15% of Romgaz by the spring of 2012.

"if we are going to succeed in the strategy for implementing the two national energy champions, we will immediately introduce mechanisms that will prevent cross-subsidies, according to the recommendations of the Competition Council. If we fail to set up these companies by the end of the year, we will look for other solutions, including the sale of majority stakes in certain energy companies", the Letter of Intent adds.

For the National Coal Company, the government is considering insolvency, in order to rescue it, and perhaps sell it. Some of the mines will be closed according to the EU rules. Termoelectrica will be shut down after the spin-off of its profitable assets.

The National Highway Company (CNADNR) will increase its revenues by terminating or renegotiating its unfavorable contracts.

The divisions of the Romanian Railway Company will also continue their restructuring and streamlining program. A minority stake in CFR Marfă will be put up for sale by the end of the year in an attempt to find a strategic investor. In the case of CFR Marfă the authorities will propose a 15% reduction of the losses and no new debts will be taken on. In the case of CFR Infrastructure, the Ministry of Transports proposes the shutting down of 1000 km of railroads by the end of August and the auctioning off to private operators of another 20% of the railroad network.

The company will need to reduce its losses by 25% and to stop taking on further debt.

In the case of Tarom, the Executive is proposing a complete review by the end of April in order to determine the method for attracting strategic investors.

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Businesspeople consider that the macroeconomic targets that the Government has pledged to reach under the Letter of Intent sent to the IMF, can be accomplished, but subject to specific circumstances. Cristian Pîrvan, the secretary general of the Romanian Association of Businesspeople (AOAR), explained: "The targets aren"t unrealistic. An economic growth of 1.5% in 2011 and of 4% in 2012 is possible due to the increase in industrial output. The constant growth of the industry over these past few months is a good sign and it shows that economic growth has resumed in the Eurozone, which is where the bulk our exports goes. As for domestic consumption, I think it may contribute to economic growth as long as the public spending will be increased and more private investments will be drawn".

He emphasized that the government does not explicitly mention any major privatization or private-public partnerships it may have. Thus, it is not clear under which circumstances domestic consumption will increase. It also isn"t clear what measures to increase absorption of European grants will be taken. (A.T.)

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The increase in the ratio of non-performing loans has slowed down, and the IMF experts estimate that the peak will be reached by mid-2011, a report on Romania"s situation quoted by Agerpres states. The repayment by Romania of the loan to the IMF will reach its peak in 2013-2014, when the service of the debt will represent 11.9%, and 12.2% respectively of the total reserves and approximately 9%, and 8.4% respectively of the value of exported goods and services.

"Even though this exposure remains big, the risks are mitigated by the relatively low level of the direct public debt (37% of the GDP), and the public foreign debt will amount to a maximum of 16% in 2011, the total foreign debt will amount to 83% of the GDP by end-2012", the experts of the IMF state, who also consider that Romania will meet its "financial commitments to the IMF".

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The inflation target for the next two years is very ambitious, considers Daniel Dăianu, an economics professor. He said: "It is indeed true that the following months and the second half of 2011 will bring with it a drop in inflation, barring further shocks, but the target nevertheless ambitious. The condition for coming very close to meeting the inflation target would be to have no more price increases for fuel, energy or further depreciation of the Romanian currency. It is indeed true that the frail economic recovery is vulnerable to the evolution of the foreign markets, namely of the financial and consumer markets".

He added that the inflation and economic growth targets are not impossible nor unrealistic, subject to the existence of the private and public investments that would spur a recovery in domestic consumption, beside the one we are seeing in exports. There is also uncertainty when it comes to the promised growth in the area for the increased absorption of European grants, which could ensure a boost of domestic demand. (A.T.)

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• The IMF has forced the Government to include in the budget deficit the losses of 30 companies and the shares of the Proprietatea Fund

FMI has forced the Government to include the losses of 30 state owned central and regional companies as well as the shares of Fondul Proprietatea, as the companies were required to periodically notify to the Ministry of Finances their financial ratios and the operations performed. The list of unprofitable companies whose losses will be included when calculating the consolidated budget deficit The National Coal Company, the Romanian National Road and Highways Company, Metrorex, the River Administration of the Lower Delta Galaţi, The National Coal Company, CFR Călători, Radiocomunicaţii Navale Radio Constanţa, CFR Infrastructură, Termoelectrica, Acvavalor, The Airports of Arad, Satu Mare, Tulcea, Iaşi, the International Airport of Baia Mare, the Ştefan Cel Mare airport of Suceava, the Transilvania airport of Târgu Mureş, the thermal plants Aqua Calor, CET Braşov, Citadin Hunedoara, Dalkia Romania, Edil Therma Hunedoara, Goscomloc, Gospodărie Orăşenească, Rominservices Therm, the International Airport Mihail Kogălniceanu, Ecoterm, Termica, Termloc, the Thermal Plant of Comăneşti.

The list also features the Proprietatea Fund. The consolidated budget deficit will continue to be monitored on a quarterly basis, though the cash balance of the consolidated budget, and the authorities will be required to consult with the IMF concerning any corrective measures in the event of any fall in revenues and of government borrowing.

• The arrears of the administration will need to fall this year from 1.1 billion lei to 900 million lei

At the end of 2010, the arrears of the Central Administration, of the social security budget, and of the local authorities amounted to 1.1 billion lei and will need to fall to 900 million lei by the end of this year, according to the technical memorandum with the IMF, quoted by Mediafax. At the end of 2010, the local authorities had debts of over 910 million lei to pay and they will be required to lower that figure to 800 million lei by December 2011. Still, the arrears of the local administrations will increase to 950 million lei in march 2011, and they will later begin shrinking gradually, by 50 million lei each quarter. "The indicative target set for the arrears of the local administration provides that there will be no further arrears and the current ones will be paid throughout the program.", the memorandum states.

Thus, the arrears of the central Administration, of the social security budget and of the local authorities will increase to 1.15 billion lei by the end of March, according to the indicative targets set in the memorandum.

"The performance criteria set concerning the stock of arrears of the central administration and of the social security budget provides its elimination throughout the program. (...)f needed, the government will adopt the corrective measures needed for preventing the accumulation of further arrears", according to the memorandum.

At the end of 2010, the arrears of the central administration and of the social security budget amounted to 190 million lei and will reach 200 million lei at the end of march 31st and June 30th, and they will then fall to 150 million lei in September and 100 million lei at the end of 2011.

• The list of companies monitored by the IMF has been expanded to 18 companies

The list of companies monitored by the IMF has been expanded to include nine more companies, including Tarom, the Post Office, Oltchim, SNLO, Electrica Transilvania Nord, Complexul Energetic Turceni and several other railroad companies, while the Land Improvement Administration (ANIF)was removed from the list. The list of companies whose financial and staff policies are monitored by the IMF, continues to include CFR, CFR Călători, The National Highway Company (CNADNR), The National Coal Company, Termoelectrica, Metrorex, CFR Marfă, Electrocentrale Bucureşti and Societatea Comercială Electrificare CFR.

The ANIF has been removed from the list of monitored companies as its debts to the state budget have decreased significantly last year, from 65.7 million lei to 1.9 million lei.

At the same time, the list of monitored companies now also includes the Romanian Post Office, Tarom, Complexul Energetic Turceni, Filiala de Intreţinere şi Servicii Energetice "Electrica Serv", Electrica Furnizare Transilvania Nord, Oltchim, The National Lignite Company of Oltenia, as well as the Companies for Railway Maintenance and Telecommunications of the RRC.

The Romanian Postal Office has also been included on the list of companies monitored by the IMF, but the government removed it in 2007, after the end of the loan agreement with the IMF, as the unions threatened at the time that they would block the company"s operations if they were not allowed to greenlight the hiring of more employees and to raise wages.

SNLO, Oltchim and Tarom return to the list of monitored companies, after being on the list until 2005.

The IMF and the government expect the arrears of these companies to increase from 18.8 billion lei, at the end of 2010, to 19.5 billion lei in Q1 2011, to later fall to 19 billion lei, at t he end of September and to 18 billion lei, at the end of 2011.

The government and the IMF have also agreed on the schedule for limiting the losses without subsidies, taxes and interests of 2011, for the companied monitored by the state, which entail capping losses at 1.7 billion lei at the end of March, to 2.7 billion lei at the end of June, to 3.6 billion lei at the end of September and to 4 billion lei at the end of December.