Download 53 - WTO Documents Online - World Trade Organization

RESTRICTED
WORLD TRADE
WT/BOP/R/53
9 October 2000
ORGANIZATION
(00-4132)
Committee on Balance-of-Payments Restrictions
REPORT ON THE CONSULTATIONS WITH ROMANIA
1.
The Committee met on 18 September 2000 to hold consultations with Romania. The
Consultations were held under the Chairmanship of Mr. Milán Hovorka (Czech Republic) in
accordance with the Committee's terms of reference, pursuant to Article XII:4(b) and the
Understanding on the Balance-of-Payments Provisions of the GATT 1994. The International
Monetary Fund was invited to participate in accordance with Article XV:2 of GATT 1994.
2.
The Committee had before it the following document:1
WT/BOP/N/50
Notification from Romania
A.
OPENING STATEMENT BY THE REPRESENTATIVE OF ROMANIA
3.
The opening statement is attached as Annex 1.
B.
STATEMENT BY THE REPRESENTATIVE OF THE INTERNATIONAL MONETARY FUND
4.
The statement by the representative of the International Monetary Fund is attached as
Annex 2.
C.
CONCLUSIONS OF THE COMMITTEE
5.
The Committee commended Romania for its macroeconomic performance and encouraged it
to continue with its stabilization program. Members welcomed Romania's adherence to the phase-out
schedule and appreciated that, in spite of existing conditions, it would terminate the import surcharge
by the end of the year. The Committee agreed that Romania was in full conformity with its
obligations under Article XII of GATT 1994.
1
It had been agreed in May that the consultations would be held without producing the normal set of
documentation, but the Committee would rely on a background paper by the IMF, as well as the Fund statement.
(WT/BOP/R/49).
WT/BOP/R/53
Page 2
ANNEX I
Opening statement by the representative of Romania
1.
The Government of Romania introduced in October 1998 an import surcharge of 6 per cent
(WT/BOP/41). Consultations in the Committee on Balance-of-Payments regarding this measure have
been held in February 1999 (WT/BOP/S/8 and WT/BOP/G/7). The Report of these consultations
(WT/BOP/R/45) concluded that the measure was justified by the serious economic problems faced by
Romania and, it has been introduced by Romanian Government in accordance with the relevant
multilateral provisions.
2.
In accordance with its commitment expressed in the timetable for phasing out the import
surcharge, the Government of Romania has reduced the rate of import surcharge from 6 per cent to
4 per cent as from 1 January 1999 (WT/BOP/42), and from 4 per cent to 2 per cent as from
1 January 2000.
3.
In May 2000, Romania circulated a document (WT/BOP/50) arguing the lack of necessity for
another BOP Committee consultation this year, as it is foreseen under paragraph 4 of Article XII, and
underlined its commitment to eliminate the measure at the end of year 2000.
4.
The Committee decided that, in order to not set a wrong precedent, the preference was to held
a consultation without producing the normal set of documentation, but the Committee rely on a
background paper by the IMF and the IMF statement.
5.
Having in view all above-mentioned, Romania likes to briefly present a number of internal
economic developments since the last consultations.
6.
In March 2000, the Romanian Government approved and submitted to the European Union
Commission the Medium Term Economic Strategy and Action Plan together with a macro-economic
framework. The Action Plan lists the concrete measures to be implemented over the next four years in
order to meet the objectives set out in the MTES. The Action Plan incorporates policy measures
essential for Romania’s future development and for its accession to the European Union. The
document also reflects commitments taken by Romania in the context of the Stand-by Agreement
with the IMF and the World Bank’s structural adjustment loans.
7.
The European Commission appreciated the adoption of these documents and their content
especially of the Action Plan, which addresses the difficult and pressing issues of economic reform in
a realistic and constructive manner.
8.
On 16 May 2000 the Romanian Government submitted to the IMF a Letter of Intent
(including a Memorandum of the GoR on Economic Policies) which describes the policies that
Romania intends to implement in the context of its request for financial support from the IMF.
9.
This document underlines that the main policy efforts of the Romanian Government in 2000
will concentrate on improving the inflation and output performance of the Romanian economy, while
consolidating 1999’s sizable external adjustment, and will encompass prudent macro-economic
policies as well as an acceleration of the structural reform effort.
10.
In July, this year, the IMF appreciated the efforts made by Romania in the last time, stating: “
There has been a significant improvement in Romania’s external position since mid-1999, in response
to the strengthened policies that were introduced in order to avert a financial crisis. As a result, there
WT/BOP/R/53
Page 3
was a large reduction in the current account deficit, a strong rebound in exports, and a steady recovery
of foreign exchange reserves. The strengthened policies that generated this adjustment are lying the
basis for renewed growth and declining inflation”.
11.
The economic indicators for the first part of 2000 confirmed some of these appreciations, as
follows:
-
Despite the fact that the GDP continued in 1999 its decline, for the third consecutive year, in the
first quarter of 2000 it increased in real terms by 0.9 per cent against the same period of 1999;
-
The consolidated state budget deficit for the first 5 months of 2000 is estimated to 1.1 per cent of
GDP against an 3.5 per cent estimated deficit for the whole year;
-
The inflation rate in the first 6 months of 2000 was 19 per cent, while the depreciation of the
national currency stood at 16.9 per cent. This evolution induced an appreciation of the national
currency by 2.1 per cent; However, in July and August as a result of different internal and
external conditions, a rapid depreciation of the national currency has been registered, this
phenomenon negatively influenced the inflation indicator;
-
In the first 5 months of this year the industrial production increased, in absolute volume, by
3.4 per cent compared with the similar period of the previous year;
-
The unemployment rate registered in July 2000 was 10.2 per cent;
-
The foreign debt service, which surpassed USD3 billion in 1998, was reduced in 1999 to
1.3 billion. The current account deficit significantly compressed in the first half of 2000, as a
consequence of a higher increase of exports comparing with the increase of imports; In the first
6 months of 2000 the total export (FOB) increased by 27.4 per cent against the same period of
1999; in the same period imports (CIF) increased only by 19.8 per cent;
-
The foreign currency reserve of the Central Bank, in July 2000, registered USD3.0 billion,
representing the equivalent of about 3 months of imports.
12.
However, despite the good results registered by Romanian economy, Romania was adversely
affected by some external factors that produced or will produce in the last part of the year negative
effects on the economy. We have in view the terrible drought in this summer (the more devastating
one registered in the last 50 years), which partially damaged the autumn crops and will generate the
necessity of foodstuff and agriculture imports in the last quarter of 2000. Another external factor was
represented by the increase in international oil prices; this crisis will manifest its effects in the last part
of 2000 when Romania should make the winter fuel stocks.
13.
Despite all these, the Romanian authorities are committed to observe the timetable for
phasing out the import surcharge and to eliminate this measure at the end of this year.
WT/BOP/R/53
Page 4
ANNEX 2
Statement by the representative from the International Monetary Fund
1.
Romania has made significant progress in stabilization and reform over the past two years,
but still lags considerably behind most other transition economies in Central and Eastern Europe.
Large corrections of the fiscal accounts and the exchange rate in 1999 lowered the external current
account deficit to a sustainable level, averted a financial crisis, and set the basis for lower inflation
and an export-led recovery of output this year. Meanwhile, important bank restructuring measures
addressed systemic weaknesses that had posed an immediate threat to financial stability, and the
privatization process accelerated significantly. Despite these achievements, Romania’s
macroeconomic performance, notably with regard to inflation, and its cumulative progress in
structural reform remain among the weakest of transition economies, especially those that are
candidates for accession to the EU.
2.
Recent economic performance has been characterized by an export-led economic recovery
and a further buildup in foreign reserves, but limited progress in reducing inflation. After having
declined by around 15 per cent during 1997–99, real GDP grew by an estimated 1–1½ per cent in the
first half of 2000 (year on year), thanks to buoyant exports and stock-building; final domestic demand
remained weak. Meanwhile, the unemployment rate eased to 10½ per cent in mid-2000, after having
climbed from 7¾ per cent in 1996 to 11½ per cent in 1999. The external current account deficit in
the first half of 2000 amounted to US$0.4 billion (1.2 per cent of annual GDP) or about one half of its
level in the corresponding period of the previous year. Exports in the first half of 2000 rose by
27 per cent in US dollar terms (year-on-year), reflecting strong growth in foreign demand, weak
domestic demand, and the lagged effects of last year’s improvement in cost competitiveness.2 Imports
also picked up, rising by 20 per cent in US dollar terms over the same period; with no sign of a
significant recovery of final domestic demand, this is probably explained by higher fuel prices as well
as increased demand for stocks and imported inputs for exports. Gross official foreign reserves
reached US$3.1 billion at end-July 2000 (2.7 months of total imports or 130 per cent of short-term
debt by remaining maturity, compared with US$2.5 billion at end-1999), their highest level since
September 1998. The 12-month CPI inflation rate declined from 55 per cent at end-1999 to 44½
per cent in July, but remained above targeted levels, owing in part to higher fuel prices and the effects
of a drought on food prices.
3.
Macroeconomic policies have been broadly on track so far this year, except in the area of
domestic arrears reduction. The fiscal deficit in January–June 2000 was contained at 1 per cent of
annual GDP, in line with the deficit target of 3½ per cent of GDP for the whole year. On the
expenditure side, under-spending on interest payments made room for higher primary spending. On
the revenue side, notwithstanding uncertainties stemming from a wide-ranging tax reform
implemented at the beginning of this year, overall performance was broadly on target, with direct
taxes generally compensating for shortfalls in consumption-based taxes and collections of social
security contributions. Monetary policy has been broadly supportive of the stabilization effort, even
though unexpectedly high foreign exchange inflows appear to have allowed some easing of liquidity
conditions in recent months. State sector wages have continued to rise rapidly—reflecting mainly
large wage increases in the defense and education sectors provided for in the budget—but economywide unit labor costs appear to have decelerated somewhat, owing to large productivity gains in
2
External competitiveness improved strongly in the year to mid-1999, owing to a large depreciation of
the leu in late 1998 and early 1999. Since then, a substantial real appreciation of the leu on the basis of the CPIbased REER index has been associated with a broadly unchanged Unit Labor Cost-based index, reflecting large
productivity gains in the monitored industrial sector.
WT/BOP/R/53
Page 5
industry. Meanwhile, domestic arrears to the three major utilities have continued to increase, in part
because of the delayed implementation of measures envisaged under the IMF-supported program.
(The delays were largely explained by a legal challenge to, and subsequent renegotiation of, the
original controversial ordinance.)
4.
On the structural reform front—where progress has been very limited as indicated by the
state’s pervasive role in the economy and a weak banking system—key decisions on the
privatization/resolution of banks and enterprises are pending in the coming months, amidst concerns
that they may be delayed owing to the proximity of the elections. Under the World Bank’s Private
Sector Adjustment Loan (PSAL), the authorities have initiated privatization projects for 63 of the
largest commercial enterprises, with the assistance of reputable investment banks and the use of
international tenders; most of these enterprises are to be offered for sale by end-September. This will
involve tough political decisions on plant closures and employment cuts in many instances. In the area
of banking reform, critical decisions are also pending with regard to the resolution/privatization of
Banca Agricola (BA) and the privatization of Romanian Commercial Bank (BCR).
5.
The short-term outlook is for continuation of recent trends, provided that policies remain on
track in the run-up to the elections in late November. On this basis, it is expected that real GDP will
grow by about 1.3 per cent in 2000; the current account deficit will be contained to US$1.4 billion
or 4 per cent of GDP in 2000 (broadly unchanged from the previous year); and official gross foreign
reserves will rise by around US$1 billion during this year (to the equivalent of about 3 months of
imports), broadly in line with the authorities’ objectives under a program supported by a stand-by
arrangement. Inflation is expected to decelerate further in the remainder of the year, while remaining
significantly above the official target of 27 per cent by end-year. Meanwhile, the authorities and the
Fund staff have recently initiated discussions on policies required to complete the second review
under the stand-by arrangement. Against the background of continued difficulties in the
administration of excise taxes and social security contributions, as well as social and political
pressures to raise government spending on wages, pensions, agriculture, and defense, and to postpone
the implementation of some key structural measures, these discussions have focused on budget, wage,
arrears, and bank reform policies with a view to ensuring that the policy targets for 2000 are adhered
to.
6.
Romania has made significant progress toward liberalizing its exchange and trade system in
recent years. In 1997, all remaining quantitative restrictions on exports were eliminated and replaced
with automatic licensing for statistical purposes, and all quantitative restrictions on imports were
removed. Based on the index of trade restrictiveness prepared by the Fund staff, Romania is currently
rated as “moderately restrictive” (4 on a 10-point scale, with 10 being the most restrictive). Moreover,
Romania has accepted the obligations of Article VIII of the IMF’s Articles of agreement as of March
1998.
7.
On 10 October 1998, the Romanian authorities imposed a 6 per cent import surcharge, which
was lowered to 4 per cent at the beginning of 1999 and to 2 per cent at the beginning of 2000. In the
context of undertakings under the Fund-supported program, the authorities have confirmed their
intention to eliminate the import surcharge at the beginning of 2001, in line with an originally
established schedule. The surcharge is projected to yield fiscal revenue of about 0.2 per cent of GDP
in 2000.
__________