Well the unsleeping eye picked up a new report (PDF) about just how Romania is doing in terms of making the IMF happy. You can certainly click on the link and read the entire thing, acronym and jargon-filled as it is, but if you want to save yourself some time I’ll sum it up for you in one sentence: “Damn we’re so awesome for lending Romania money in 2009.”
The whole thing is in English, as 99% of the IMF’s reports about Romania are, which is intimidating enough for most folks. On top of that it’s filled with all kinds of technical babble so that it is sufficiently confusing. And yet if you can piece it together, it’s almost humorous. Well let’s just say that if Romania wasn’t so deeply in debt to these con artists, it truly would be funny.
Let’s see if I can’t “translate” some of it into Little People words:
Romania’s economic boom associated with its EU accession in 2007, alongside loose income and fiscal policies, generated overheating and significant vulnerabilities. The boom—fueled by external borrowing—created external and domestic imbalances, including a rapid increase in domestic private credit and associated asset bubbles.
Over half of the private credit was in foreign currency (FX) to unhedged households and corporate sector, with financing for the bank lending supported by the parents of foreign-owned banks, increasing banks’ vulnerability to liquidity and exchange rate risks.
Translation: Romania joined the EU in 2007 and a shitload of foreign banks began handing out money to anyone and their brother because being in the EU is so awesome and magical. Now we’re saying it was bad (“overheating”) but at the time we loved it. But then it turned out that our fellow bankers blew up the planet’s economy so it ended up being a bad decision as a lot of Romanians couldn’t pay us back.
With the onset of the 2008 global financial crisis, the domestic economy came under severe stress. Asset and financial markets were hit hard—the Bucharest stock market lost 65 percent of its value since August 2008 and the leu depreciated over 15 percent. Concerns about Romania’s external and fiscal sustainability triggered significant increase in external borrowing costs as sovereign yields jumped to 9 percent. Banks too came under increasing pressure, with liquidity drying up from the interbank market.
Translation: After our fellow bankers blew up the world economy due to their stupidity and greed, Romania really got hammered and tons of Romanians lost all their money. Jeez and the banks almost suffered too!
Given the severity of the problems, Romania requested a Stand-By Arrangement (SBA) to restore market confidence by addressing the economic imbalances, along with reforms to achieve medium-term fiscal sustainability. The SBA was approved in May 2009, with an exceptional access of SDR 11.443 billion, equivalent to 1,110.8 percent of quota—one of the largest in Fund history at the time, with co-financing from the EU. The program sought to stabilize the economy by a significant reduction in the fiscal and external imbalances, as well as stabilize and strengthen the financial sector. The strong fiscal structural component aimed to improve long-term fiscal and external sustainability.
Translation: Romania came to us, begging on their knees and luckily we were so generous that we lent them billions of special money that doesn’t exist, which totally saved everyone in Romania’s ass so really they should be thanking us forever and ever.
Parliamentary elections in late 2008 also contributed to pre-crisis fiscal vulnerabilities from large pre-electoral spending. Spending on public wages and pensions increased by 35 and 46 percent, respectively, in 2008 compared to the previous year.
Translation: the idiots in Romania held one of their foolish “democratic” elections, which fucked everything up because politicians gave a lot of people a modest pay raise to get more votes.
In May 2009, the Fund approved a front-loaded and exceptional access SBA of SDR 11.4 billion (1,111 percent of quota). Upon approval of the 24-month arrangement, SDR 4.37 billion (424 percent of quota) was available immediately. The total financing package was €20 billion, which, in keeping with other Fund-supported programs in EU countries, included co-financing from the EU of €5 billion (via their balance of payments facility), and the remaining €2 billion from the World Bank, EBRD, and EIB. Potential Fund exposure to Romania, as a percent of quota, was to be one of the highest among SBA- supported programs at that time, with debt service to the Fund peaking at higher levels than those reached in most exceptional access cases. Nevertheless, the low public debt level and Romania’s excellent track record in external debt servicing mitigated risks to the Fund.
Translation: We took a hell of a “risk” in loaning Romania so much money but since they’ve proven that they’ll starve their own people in order to pay us back, we figured it was worth it to get them in debt again. And guess what? We were right! Aren’t we so awesome?
The member’s policy program provides a reasonably strong prospect of success, including not only the member’s adjustment plans but also its institutional and political capacity to deliver that adjustment. While Romania’s past track record of adherence to Fund-supported programs was mixed, staff noted the economic reforms under the 2009 SBA as having support at the highest political level and by both parties in a coalition that had an ample majority in parliament. Risks were recognized from the presidential elections in November 2009, but considered sufficiently ring-fenced by the relatively conservative program scenario.
However, the governing coalition in place at the time of program negotiation broke down in September 2009, resulting in several months of a caretaker regime before a different coalition was formed in early 2010. Since then, as the President was re-elected and the Prime Minister reappointed, the high level of program commitment remained.
Translation: Oh my God we almost shit in our pants when Basescu got suspended because we were frightened to death that a different government might not agree to all of our terms. Luckily, he won the special election and now we are so super happy because he services us just the way we like it.
The initial growth projection for 2009 substantially underestimated the severity of the recession which led to a swift external adjustment (Figure 2). Romania was among the first European countries seeking an SBA in early 2009, when the crisis had not yet fully unfolded. The program was quick to adjust its growth forecast in the first review. The 2009 real GDP growth forecast was revised down from -4.1 percent at program approval to -8.5 percent at the first review as domestic demand, especially consumption, dropped sharply.
Translation: Luckily, absolutely nobody remembers how badly we fucked up our predictions for Romania in 2008. Thank goodness we had the foresight to get Romania deeply in debt and what do you know? Turns out that they needed our money even more than we had guessed! We’re so awesome.
For 2010, the government introduced radical fiscal measures to offset the effects of the deeper downturn, which may have contributed to greater output loss. The measures—mostly on spending, aiming to restore the wage bill back to 2007 levels— included a 25 percent cut in public wages, 15 percent cut in social transfers and other reductions in goods and services spending, and over 8 percent reduction in public employment.9 A VAT increase of 5 percentage points to 24 percent was also introduced in July 2010.10 These measures ensured the achievement of the program targets, and the authorities’ firm commitment to undertake such tough measures sent a strong signal to markets on the credibility of the reform agenda. The measures, however, led to a sharply procyclical stance, effectively delaying the economic recovery.
Translation: Turns out that when the government did exactly what we told them to do and slashed pensions (stupid old people) and government employee salaries (lazy bums) and raised taxes, this fucked over Romania’s economy. Oh well what can you do? At least it’s good for a laugh.
Strong efforts were made to strengthen the public compensation system and health care sector, although these initiatives fell somewhat short of program objectives.
More generally, multiple legal setbacks such as the partial reversal of the wage cut in 2011 and the overruling by the Constitutional Court of a proposed pension cut in 2010, made implementation of reforms particularly challenging.
Translation: Unfortunately Romania has these pesky things called “laws” which made slashing pensions and salaries not as successful as we would like. Damn, can’t those old people just go ahead and die already? They’re so expensive!
The banking sector’s loan quality, however, deteriorated during the program period. The NPLs more than doubled during 2009 and continued to increase in 2010 and 2011, driven by the sharp economic downturn, as well as the difficulty to write off NPLs. For example, NPLs can only be written off after all channels for recovering the loans have been exhausted by the banks, which could take many years in Romania.
Risks to the banking sector, however, were mitigated by the very high (98 percent) loan-loss provisioning requirement. The high provisions, on the other hand, compressed banks’ profits, preventing a decline in lending rates in line with the monetary easing.
Translation: Turns out our fellow banks truly and honestly lent money to waaaay too many people and are having a devil of a time getting their money back. It’s taking forever! Don’t you know this “compresses” (reduces) the gargantuan profits they are accustomed to? Have mercy! Hey, bankers got to live too, you know.
Several broad lessons could be drawn from the Romanian program experience:
Strong program ownership by the authorities, including taking difficult, sizeable, and sometimes unpopular measures, to restore medium-term sustainability, was indispensable to the program success. Notwithstanding the sharper than expected downturn, difficult measures were completed, instilling market confidence.
Translation: Even though the vast majority of the people hate the government for all the “austerity measures” they had to do, which made life in Romania suck even more than usual, we just think the government is pure awesome sauce and we hereby pat them on the head and give them a bone.
And so on and so forth. You can certainly read the rest for yourself, including pages of falsified tables and charts full of statistics. On excuse me, not falsified, just “adjusted for the effects of the business cycle”, which basically means “these numbers we made up are far better than the real numbers because we’re Big People and We Know How Things Work so the real numbers are stupid and so are you if you pay any attention to them.”
Good stuff, a real nice read before bed if you like, fun for the whole family.
AND NOW YOU KNOW!