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Romania: Miners' Pact Makes IMF Loan More Difficult

Washington, 26 January 1999 (RFE/RL) -- The Romanian government's agreement to give coal miners pay raises and keep open at least two unprofitable mines will only make it more difficult for Bucharest to meet the conditions the International Monetary Fund (IMF) has set for a new loan.

IMF officials in Washington would not comment directly on the settlement worked out by the government, but noted that there is "no change" in the fund's demand that Romania adopt a budget with a deficit of no more than 2.5 percent of GDP (gross domestic product).

An IMF review team, originally scheduled to return to Romania two weeks ago, is now waiting for agreement on a new date. One IMF official says the whole "issue needs a little more discussion" before the team will be ready to go back to Bucharest.

While full details of the government's agreed package for the miners, including its expected impact on the budget, has not been released, experts at the IMF and the World Bank say it can only cost the Romanian government money it does not currently have.

Romania knew last year that it would need a new loan from the IMF, along with credits from the European Union (EU) and others, to avoid a default on its external debt.

The cost to service or repay that debt and its interest rises to about $2.8 billion this year, a figure in excess of the Romanian National Bank's current reserves.

The global financial firm ING Barings, in an analysis prepared last November, said default could only be avoided with an IMF loan, and noted that Romania's failure to push ahead on needed reforms has been eroding international confidence for more than a year.

The frequently violent miner's march toward Bucharest can only further erode that confidence, say IMF and World Bank officials.

A World Bank team is currently in Bucharest discussing several possible loans, including one to help restructure the coal industry.

The bank has not been directly involved in Romania's program of trying to modernize the coal industry, although a World Bank official who works on similar programs with Russia, Ukraine and Poland says Bucharest did many of the right things.

However, says the official speaking on condition of not being identified, Romania failed to provide the necessary social program underpinnings -- unemployment insurance, job retraining and new job creation programs.

When the Romanian government offered severance payments to get miners to leave unprofitable and inefficient coal pits a couple of years ago, nearly 50 percent accepted the package and left.

But, he says, there was no law prohibiting the miners from returning to their old jobs once they'd spent the severance payments and many have done just that.

With no new jobs or prospects and no government support, a large percentage of the miners simply went back to the mines, says the official, making the situation far more volatile. If the World Bank had been helping Romania, says the official, it would have insisted on "a lot of other government expenditures" to support the severance payments.

However the Romanian situation works itself out, says the official, it will serve to help the World Bank in convincing Russia and Ukraine especially of the importance of a severance payments program closely tied to broad social support programs in trying to commercialize their coal industries.

Without that, says the bank official, "this is what can happen."