All day I’ve been wracking my brain, trying to see if there was any way to prove if what Ion Stan said was right or wrong. Essentially he is stating that the IMF is deliberately undervaluing Romania’s GDP by 20% in order to induce politicians (and economic “experts”) to take on IMF loans.
Well there’s no way to prove something definitively, especially as I sure as heck do not have access to raw numbers on Romania’s economy. But it turns out there are some things you can do to check out his claims. I’ll go ahead and tell you that it looks like Mr. Stan was largely quite wrong. Nonetheless, some interesting things turned up.
One of the few benefits to membership in the European Union is that there is a whole horde of bureaucrats in Brussels who keep track of just about everything and provide reams of data online. There is a wonderful website called Eurostat which allows you to access all sorts of data, including economic data.
I ran into a couple of problems. The first is that the data is self-reported, that is to say, the figures are provided to Brussels from Romania’s national organizations. Therefore if Mr. Stan were correct, these numbers are false to begin with. The second problem I ran into was that some very key information is missing from the Eurostat website, particularly of interest for me was that the M3 data was missing as well as other valuable data on the money supply. There’s nothing I could do about this, sadly.
But I thought to myself that it would be interesting to compare the self-reported GDPs of various other countries and compare and contrast them to Romania’s. Unless the IMF was secretly corrupting the national data figures on all other countries, this might be a useful way to compare what’s going on and see if there is evidence of fraudulent manipulation of the figures.
Here’s what I found:
I didn’t include Germany here because it skews the Y axis and makes the numbers hard to see for Romania (i.e. Romania’s economy is so much smaller than Germany’s that the bars are hard to differentiate due to scale) but it tracks virtually the same as Romania and Hungary.
Basically you can see that at the end of 2008 the economy took a hit (no surprise there) and then has been chugging away more or less just fine. If Mr. Stan were correct and Romania’s GDP were 20% undervalued then Romania’s chart would look far different than the other EU countries (again, most of which not shown here on the graph but you can check them out yourself on the Eurostat website) and Romania would secretly be performing way above other EU countries in terms of growth percentage.
I think therefore it’s fairly safe to say that Mr. Ion Stan is blowing some patriotic conspiracy smoke up our asses.
Nonetheless, as I’ve stated on multiple occasions, Romania is deeply in debt to the IMF. Instead of relying on newspaper accounts about it, I thought I’d delve into the statistics straight from the horse’s mouth (the IMF website itself).
And what to my wondering my eyes should appear but this fun little chart:
Quite obviously you can see that Romania has an outstanding payment obligation of 1,589 billion SDRs in 2012 alone. What is an SDR? Well it’s a little complicated to explain but for now we’ll just say that it’s a kind of “currency”.
And how much is one SDR? At the moment 1 SDR = 1.17 Euros. Therefore 1,589 billion SDRs equals 1,8 billion Euros. And that is in 2012 alone. However you can see that Romania is scheduled to pay the IMF some 4,29 billion SDRs or just over 5 billion Euros in 2013. Now we’re talking some real money eh?
What makes this even worse is you can see by this chart that Romania hasn’t paid back the IMF one single ban for the last three years (all it has been paying is the vig). Instead it’s just been continuing to borrow and borrow like a drunken sailor with a credit card.
As I’ve noted before, you can see that in the last five years of Ceausescu’s reign, his government was busy paying back the IMF but had ceased to borrow money. However starting in 2009 (2008 is curiously missing from this chart) you can see just over 10 billion SDRs (about 11.7 billion Euros) have been borrowed which must be paid back in some form or another.
It looks like the Romanian government’s entire annual income for 2012 is projected (PDF) to be around 95 billion lei (about 21 billion Euros) so 1,8 billion Euros of that going to the IMF is a sizable chunk (roughly 8% or 1/12th). Think of how many ambulances and roads and healthcare and university classes and teachers and doctor’s salaries that could pay for instead, eh?
What can I say? If I were a political strategist for the PDL I’d go ahead and let those goofballs in the USL win this year’s general elections and let them bite the bullet when that gigantic series of repayments to the IMF hits in 2013 and 2014. You think things are bad now? Wait until you see what the government is going to to do to find the money to pay back these bankers in the next two years.
Hang onto your hats because it’s going to be mighty interesting how this plays out.
UPDATE – Well it looks like how the government plans to raise the cash to pay back these IMF bankers is detailed at length (PDF) in a letter that our dear friend and benevolent father Mugur Isarescu wrote at the end of 2011.
If you scroll down to page 12, you can find this fun nugget:
Our privatization efforts have not progressed as quickly as we had anticipated, but we remain committed to offering minority and majority stakes in a series of companies over the coming months. The structural benchmark on the appointment of privatization advisers was not met, but we intend to rectify this by the time of the IMF Board meeting (prior action). Privatization of these companies will be done in a market-friendly process and we will consult closely with IMF and EC staff. The transaction consultants will have the task of drafting evaluation reports, and recommending and justifying the offer price of the shares in view of a successful closing transaction. Our planned privatization actions are as follows:
• The first group of companies to be offered by end-April 2012 includes: i) Oltchim (sale of remaining public shares to strategic investor), ii) Tarom (IPO of 20 percent), iii) Transelectrica (SPO of a 15 percent stake plus a later capital increase of about 12 percent), iv) Transgaz (SPO of a 15 percent stake); and v) Posta Romana (minority stake). In addition, the copper mining company, Cuprumin, will be privatized by mid- February and the IPO of a 15 percent stake in Romgaz will be undertaken by end-June.
• The second group of companies includes i) Hidroelectrica (IPO of 10 percent to increase capital) and ii) Petrom (SPO of 9.84 percent stake will be re-launched), iii) CFR Marfa (majority privatization, possibly with the support of the EBRD and IFC). Appointment of transaction advisers for this group will be completed by mid-February 2012 (structural benchmark).
• The third group comprises i) Electrica Serv (majority privatization of all regional companies currently under creation); ii) Nuclearelectrica (at least 10 percent via capital increase); iii) S.C. Electrica Furnizare S.A. (including the supply activity transferred from SC Electrica SA, majority privatization); iv) the three remaining Electrica distribution subsidiaries (minority privatization). Appointment of legal advisers for this group will be concluded by mid-February (structural benchmark).
I’ve said it before and I’ll say it again – this is economic strip mining. First you hike taxes then you cut salaries then you cut government services (especially healthcare, which is detailed in this 2011 letter and presages exactly what the Basescu/Boc government did in January 2012, which caused all the protests) and then you sell off state-owned companies.
And long after these IMF loans are paid back, those companies will be in private (mostly foreign) hands and the Romanian people will never, ever get them back.