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Romania: Central Banker Says Government Committed To Reforms

Romania's central bank governor, Mugur Isarescu, who was the country's previous prime minister, says he is impressed by the commitment to economic reforms shown by the country's new left government. Isarescu told a gathering of business leaders in New York that if reforms stay on track he foresees another year of growth for the Romanian economy, a forecast cautiously supported by one key monitor.

New York, 3 May 2001 (RFE/RL) -- The governor of Romania's Central Bank, Mugur Isarescu, has defended the performance of Bucharest's new government, saying it appears clearly committed to the reforms begun under his own administration.

Isarescu told a group of Western business leaders yesterday that the leftist government of the Party of Social Democracy, or PDSR, which took office five months ago, has gained an undeserved reputation of opposing reforms. He said the government has taken a number of important steps so far this year -- such as the recent sale of the state-owned Banca Agricola -- which show it is serious about economic restructuring.

"In the first four months they [the government] did well, in my view. Perhaps it was slower than some expected but it was the starting of a new government and anyway they privatized the Bank Agricola. Knowing how long I tried to privatize this -- for two years -- this was a good record."

The privatization Isarescu referred to occurred last month when Austria's Raiffeisen Zentralbank and the Romanian-American Enterprise Fund purchased the troubled bank for $52 million. The International Monetary Fund and World Bank had made the sale of Banca Agricola a condition for granting badly needed loans.

Isarescu met with IMF officials in Washington to discuss Romania's economic progress before coming to New York this week. He spoke yesterday at a session sponsored by the Eurasia Group, a U.S.-based organization that promotes business ties with many states of the former Soviet Union and Eastern Europe.

The bank governor, a right-of-center technocrat, served as prime minister for a year until last December, when the PDSR took power.

Isarescu said during his meetings in Washington he had heard repeated concerns about the intentions of the left government. But he urged investors to take confidence from the government's actions so far.

"Because it was a concern that there would be no continuation of the reforms, I have to tell you very frankly that this is not real. There is a clear continuation of the reforms and please [don't] monitor [that is, judge] this government on general ideas. Monitor on very clear facts."

Romania is the poorest of the countries listed as candidates to join the European Union, with an average monthly per capita income of $100. Late last year, the European Commission -- the EU's executive body -- ranked Romania last among the 12 candidate states due to its slowness in carrying out economic and institutional reforms.

The electoral victory in November of the Social Democracy Party and the victory of Ion Iliescu in a presidential runoff a few weeks later caused further concerns. The left's victory was a result of mounting popular discontent over corruption and the poorly handled reform process. During his campaign, Iliescu criticized the pace of reforms linked to EU membership as too rapid.

But there are signs that the new government is serious about enacting meaningful reforms.

Helena Hessel is director of the Eastern and Central Europe division of Standard and Poor's, the world's leading authority on rating the ability of countries to repay their debts. She tells RFE/RL that Standard and Poor's upgraded the rating for Romanian government bonds from "stable" to "positive" in March, based on some of the early actions of the new government.

"It mostly reflects the new government's commitment to European Union integration and stepped-up reforms. I mean stepped-up reforms in the sense that, of course, not more than the previous government, but because of the elections there was some, obviously, stalemate and they started picking up."

Among the positive signs cited by Hessel was the government's move to increase electricity prices last month. This is necessary, she says, to help open up the country's energy sector for restructuring and privatization.

Hessel said another important, and unpopular, step was taken at the end of last year when the government raised the value-added tax on food items, making them the same as on other products.

The analyst also spoke favorably about the budget passed last month, which forecasts a 4.1 percent economic growth and targets a rate of inflation of 25 percent, down from the 40 percent registered last year.

"Those are necessary conditions for any kind of reform and I think that obviously the hope is that they will continue with strengthening of the banking sector."

Banking reforms are seen as especially critical to the revival of Romania's private sector. Experts say such reforms would raise public confidence in the market system by providing the foundation needed for a successful market economy to function.

During a visit to Bucharest last week (April 26), EU Enlargement Commission Guenter Verheugen said that Romania must also press ahead with the sale of its largest state-owned industries -- including the country's largest firm, the Sidex steel mill.

Despite the growth level of some 4 percent projected in the Romanian budget, the European Commission foresees more modest growth, equal to last year's rate of 1.6 percent. The European Bank for Reconstruction and Development forecasts Romania's economy will grow 2.5 percent this year.