On March 14 the Romanian Academic Society (SAR) released its annual Analysis and Forecast Report at the Representation of the European Commission in Romania. The presentation of the report was attended by SAR experts, politicians and press representatives who have gathered to participate at the round table entitled “How do we re-launch Romania?”
The event was attended by: Liviu Dragnea, Vice-Prime Minister of Romania; Liviu Voinea, Delegate Minister for Public Finances; Eugen Nicolăescu, the Minister of Health; Eugen Teodorovici, the Minister of European Funds; Călin Popescu Tăriceanu, Senator (National Liberal Party); Mircea Geoană, Senator (Social-Democratic Party), and others.
The report focused on topic such as good governance, Romania’s agreement with the IMF, regionalization, privatization and health policies.
With regard to Romania’s agreement with the IMF, SAR experts consider that a new agreement is actually detrimental. It would have the same role that the Euro Zone had for Greece, Spain, Italy, Portugal. Romania would benefit from better loan conditions, both in volume and in loan costs, than it would have outside the agreement. Without a reform the money will be used only to deepen the macroeconomic imbalances. The inclusion of the term “reform” into the report – understood as the privatization of state companies and the reconfiguration of the social security system – has been much debated. There is a little indication of economic recovery, taking into account macro indicators such as pessimistic inflation forecast or a vulnerable exchange rate. In addition, Florin Cîţu one of the authors of the report, states that past structural reforms and commitments were not accomplished. He explains that “Romania has barely implemented some of IMF suggestions and only mimicked economic reform during the 2009-2012 period, while the public debt increased from 13% of GDP to 40% of GDP and the potential GDP has dropped close to 0”.
This raised the question of whether or not Romania needs to sign a new agreement with the IMF. SAR experts are divided relating to this issue, half of them stating that Romania is incapable of independently governing itself decently and the others arguing that the state’s imagine aboard would not have much to gain from a new agreement that ultimately would diminish the number of investors without leading to an increased number of jobs. However, the report states that “the relationship with the IMF was useful in calming foreign investors, but the price paid, from the high interest paid to the lack of reforms, might prove too high in the end, as Romania tripled its public debt and raised taxes while monitored by the IMF. […] Thus, a third stand-by agreement in similar conditions would not bring anything new other than a delay of reforms, endorsed as before by the relationship with the IMF” and therefore questions its necessity.
Yet, how can economic recovery be achieved? Alina Mungiu Pippidi, SAR president, argues in the report that the fundamental instrument for reaching economic recovery is good governance. Statistical evidence shows that good governance indicators, red tape indicators, e.g. time to pay taxes, time to import and government budget balance as % of deficit correlate with corruption and GDP. The report argues that “the government’s investment money earmarked for projects are a major source of corruption and feed rent-seeking behaviour, thus depleting the budget of the resources which are needed mostly in the health and education sectors.”
The report also raises the question of regionalization, as one of the most prominent topics in the media nowadays. The report argues that the process of regionalization is much more likely to increase clientelism and favouritism, rather than social inclusion. The arguments that fundament this statement are the following: “poor institutional management of EU funds combined with the Regional Development Agencies’ limited authority threatens to curb any positive influence the EU funds might have on the economic development of the eight Romanian regions”. “Even the Regional Operational Programme falls short of achieving its strategic goal of eliminating the economic and developmental discrepancies between the regions”, Moreover, “the existing level of clientelism and bad governance, a political regionalization in Romania would actually increase the risk of poverty and inequality.” Therefore, SAR experts are sceptical when it comes to employing regionalization as the main political instrument for development.
The privatization process is yet another sensitive subject that the report tackles, as for 2013 three privatization domains have already been announced: railways, energy and air transport. SAR expert Razvan Orăşanu argues that “putting all these state entities under one governing body is suggested with, in addition, an internal inventory of assets.” Other potential solutions include: a simplified and more coherent legislation, a public calendar of the privatization teams for each company, followed by a clear marketing strategy, the use of the capital markets and an increased regulatory capacity of the state in privatized industries.
Finally, the report also approached the topic of the private and public providers of health services in Romania. SAR expert, dr. Sorin Paveliu explains that “Romania relies on a public health insurance system which claims to offer universal coverage despite being financed by individual contributions for which only a minority contributes (because of the substantial size of the informal economy and of the rural sector, as well as the large number of pensioners which is beyond the contribution threshold).” Therefore, the report concludes that the current situation is the result of a policy failure and includes potential solutions. The main recommendations are: clearly separating public and private budgets, including both “private” and public beds in private hospitals; adopting new methods of accreditation and the introduction of a Drug Related Groups (DRG) reimbursement system; the calibration of prices with an adjustment of DRG prices for serious illness needing long time care; granting all medical practitioners the chance to earn more within the public system first and foremost by excepting this category of employees from the regulations regarding the unitary public wage system. This would allow physicians to enter private contractor agreements with other public hospitals, and permit patients of public hospitals to be covered by private insurance.
Read the executive summary of the report.