Romania and the IMF
Country's Policy Intentions Documents
Free Email Notification
of Intent, Supplementary Memorandum of Economic and Financial Policies,
and Technical Memorandum of Understanding
Mr. Horst Köhler
Since the approval of the Stand-By Arrangement by the IMF Board on October 31, 2001, macroeconomic developments have been in line with the program. After strong GDP growth of 5.3 percent in 2001, we expect only a moderately weaker performance in 2002, owing to a lower contribution of agriculture. We brought inflation down to 31 percent at end-2001, and to 24 percent in June 2002, fully in line with our 22 percent target for end-2002. The current account deficit was contained below 6 percent in 2001, and we expect it to decline to 5 percent of GDP in 2002. The increase in foreign reserves was significantly stronger than envisaged under the program. Over the last 12 months, two major rating agencies have twice upgraded Romania's sovereign risk.
The attached Supplementary Memorandum on Economic and Financial Policies (SMEFP) specifies understandings reached with the staff in the context of discussions on the completion of the first and second reviews. In particular, the SMEFP specifies the corrective actions needed to address the nonobservance of three quantitative and three structural performance criteria, for which we request waivers. To ensure optimal conditions for the privatization of BCR, the largest state-owned bank, we are also requesting the modification of the structural performance criterion on its completion by postponing the date from end-December 2002 to end-February 2003.
On the strength of the corrective measures specified in the SMEFP, most of which have already been implemented, we are requesting the completion of the first and second reviews under the arrangement. We are also requesting that the arrangement be rephased, and the fourth purchase be proportionally redistributed across the remaining purchases under the arrangement.
We remain determined to meet all our commitments under the program. We believe that the policies and measures described in the attached memorandum are sufficient to achieve the objectives of the program, but we stand ready to take additional measures and seek new understandings with the IMF if necessary to keep the program on track. The Government of Romania will remain in close consultation with the IMF in accordance with the IMF's policies on such consultations, and it will provide the IMF with all the information that it requests to assess the implementation of the program.
1. Since the approval of the Stand-By Arrangement by the IMF Board on October 31, 2001, we have made significant progress toward realizing the main macroeconomic objectives of our program. However, a number of hurdles have arisen in the quasi-fiscal and structural areas, which we have addressed through additional measures. This memorandum, prepared in the context of the first and second reviews under the arrangement, supplements the original Memorandum on Economic and Financial Policies (MEFP) and specifies these additional measures, which aim at sustaining progress on macroeconomic stabilization and accelerating structural reforms.
II. Background And Request for Waivers
2. Macroeconomic developments since October 2001 have been broadly in line with the program. GDP grew by 5.3 percent in 2001 on account of a strong recovery in agriculture. Industrial production, however, slowed in the second half of 2001, owing in part to weaker import demand of our trading partners. As this carried over to early 2002, GDP growth declined to 3.1 percent in the first quarter, but we expect that it will soon accelerate, in line with the strengthening in economic activity in Europe. The 12-months headline inflation rate fell to 24 percent in June, in spite of the continuing adjustment in administered prices. The current account deficit was close to the program target of 6 percent of GDP in 2001, and it declined further in early 2002. With returning confidence, foreign reserves strengthened more than programmed, and have now reached a comfortable level of 3.8 months of imports of goods and services.
3. Monetary and budget policies have been on track. The end-December and end-March performance criteria and the end-June indicative targets on monetary policy (NDA and NFA of the NBR) were met with comfortable margins (see Table 1). The deficit targets for the general government in 2001, and Q1 and Q2 of 2002 were also met, despite an unanticipated revenue shortfall.
4. We implemented all adjustments in energy prices envisaged under the program, except for a small modification. A somewhat lower effective increase in electricity prices in March 2002, owing to two socially motivated measures (reduction in fixed charges for households and an increase in quantities delivered at social tariffs), was corrected by adjustments in other electricity prices. We therefore request a waiver for the nonobservance of the corresponding March 2002 structural PC.
5. Progress in improving the collection rates of the main utilities was uneven. In Q4 of 2001 and Q1 of 2002, the collection rates of the two gas distribution companies and Termoelectrica's rate for heating deteriorated, while improvement in collections for electricity was much lower than targeted under the program. As a result, the corresponding end-March quantitative PCs on the collection rates were missed by a substantial margin. We request waivers for the nonobservance of these PCs on the basis of the corrective actions described in ¶22 and ¶23 below, and somewhat improved performance in Q2 of 2002.
6. To strengthen our wage policy, we approved most of the state-owned companies' 2002 budgets already in December 2001. Only a few budgets were not approved until January 2002. As this has not put at risk the implementation of our wage policy in 2002, we request a waiver for the nonobservance of the corresponding structural PC.
7. However, we have had some difficulties in meeting our wage policy targets. As a result of higher-than-expected wage payments in Q3 of 2001, the end-December target for wage bills in state-owned enterprises was exceeded by 2.3 percent, despite our efforts to contain wage growth in the last quarter by reducing or postponing bonuses. The carry-over effect and the delayed payment of December bonuses also resulted in the nonobservance of the end-March 2002 quantitative PC, for which we request a waiver, based on corrective measures described in ¶17 and ¶18.
8. We completed the privatization of the largest steel company Sidex, but our progress has been somewhat slower with other privatization projects. We privatized five large companies in January–June, compared with eight set as a benchmark, but we are strongly determined to accelerate privatization in the months ahead. Corrective actions for this purpose are described below in ¶25–29. We issued a preliminary announcement of the privatization of the largest state-owned bank, BCR, on March 1, given some delays in hiring a privatization advisor, our full-fledged invitation for the expression of interest was not issued until June 24, resulting in the nonobservance of the end-February structural PC, for which we request a waiver.
III. Policy Measures Implemented in the Context of the First and Second Reviews
9. We are committed to achieving our main macroeconomic objectives for 2002 and 2003: (i) reduce inflation to 22 percent by end-2002 and to 15 percent by end-2003; (ii) contain the current account deficit close to 5 percent of GDP in 2002 and reduce it further in the following year, and (iii) raise official reserves to 4 months of imports by end-2003. We expect that GDP growth will be about 4–4½ percent in 2002 (compared with the original program projection of 5 percent), and that it will return closer to our capacity growth rate of about 5 percent in 2003. We are aware that this performance is possible, but that we must continue with the program of structural reforms and improve the business climate. Our policies, described below, are designed to achieve these objectives. Moreover, we are requesting that the review based on end-June 2002 data be eliminated and the arrangement be rephased, with the fourth purchase being proportionally redistributed across the remaining purchases under the arrangement. Quarterly performance criteria under the program for end-September and end-December 2002 are presented in Table 1.
A. Fiscal Policy
10. Due to the weaker-than-expected revenue performance since the approval of the 2002 budget and a downward revision of GDP growth, we have implemented additional measures to achieve our 2002 budget deficit target of lei 43.2 trillion:
11. In line with the original MEFP, we have implemented the following measures to reform our tax system:
12. In spite of all these measures, a significant risk remains that revenues could fall short of the budget target by 5 trillion lei (0.3 percent of GDP). On the expenditure side, we expect savings of lei 6.3 trillion on interest payments, lower cofinancing for EU grants (lei 1 trillion), and lower nonpension-related expenditures of the pension fund (lei 1 trillion). In addition, through the ordinance on the budget rectification, we will block lei 2 trillion of the expenditure entitlements of the road fund. This amount can only be released if the cumulative end-September revenue target agreed with Fund staff has been met (see TMU; Section III). Moreover, a decision on a potential further budget rectification in the fourth quarter of 2002 will be made only after consultation with Fund staff. Based on these savings, we will under the first budget rectification increase spending in other expenditure categories (costs of military operations in Afghanistan, transfers to local governments, and others) by at most lei 4.5 trillion.
13. While we have not yet finalized the preparations for the 2003 budget, we have already decided the following:
14. We will approve a social program for 2002–03 to soften the impact of the increase in utility prices on low-income households and further improve our social safety net:
15. We will continue reforming tax administration based on the recommendations of the Technical Assistance mission of the IMF's Fiscal Affairs Department. Specifically, we will (a) immediately subordinate all tax administration functions under one Secretary of State in the Ministry of Finance; (b) establish a large taxpayer directorate in Bucharest by January 1, 2003, at the latest; and (c) create a unified and separate tax administration department reporting directly to the Minister of Finance by end-June 2003, at the latest. Furthermore, we will integrate the three existing administrations for the collection, audit and enforcement of social security contributions into a single new administration under the Ministry of Public Finance on January 1, 2004, at the latest. To achieve this objective, we will appoint the project manager by mid-September 2002, the full project implementation team by end-September 2002 and will approve the new legislation by end-September 2002.
16. We have requested an increase in the ceiling on off-budget guarantees by US$200 million in 2002, to facilitate investment in the broadcasting system and the second phase of the nuclear power plant Cernavoda. We consider the completion of the second phase, which is already in an advanced stage, as crucial for our strategy to modernize Romania's energy sector and estimate that total borrowing for this purpose over a period of five years would amount to US$750 million, which would not adversely affect our external position. As both projects will generate resources for the repayment of loans, the guarantee will not impose a burden on the budget.
B. Wage Policy
17. We remain committed to keep wage costs in state-owned enterprises below the program ceilings. The Program to Contain Wages and Reduce Employment (October 2001) for about 80 monitored companies, and a subsequent government decision on quarterly ceilings (prior action) limited the growth in aggregate wage bills to 22 percent in 2002, and envisaged a total net reduction in employment of 20,340 positions (excluding all forms of outsourcing). The total employment reduction will include at least 14,500 layoffs, out of which more than 8,000 have already been implemented. The latter include 4,200 layoffs in companies under the Ministry of Industry (prior action), to compensate for the shortfall in employment reduction in the fourth quarter of 2001.
18. We also adopted further safeguards. At most 65 percent of the total bonuses will be paid during the first three quarters. Furthermore, 4 percent of the quarterly wage bill can be paid only with the permission of the respective minister. As the wages in state-owned enterprises continue to outpace economy-wide wages, and the end-June target for the wage bill was likely missed, we have activated this buffer for the Q3 wage bill through Ministerial Orders of the Minister of Industry, the Minister of Transportation, the Minister for Privatization, and the Minister for Communication instructing managers to reduce or eliminate bonuses (prior action).
19. We will prevent a translation of the minimum wage increase, which we consider as important to help lessen the impact of the energy price adjustments on low-income households, into a rise of the overall wage level in state-owned enterprises. We believe that the secondary effects of the minimum wage hike on the overall wage level are limited, as most collective contracts at the enterprise level no longer include an automatic adjustment in the wage scale due to increases in the statutory minimum wage. Nevertheless, to ensure that the minimum wage increase will not affect the overall wage level in the public sector, we will instruct managers of all state-owned companies to raise wages only for those employees whose wage earnings (base wage plus all mark-ups) are below the minimum wage level on January 1, 2003. We will strictly require that wage payments in these companies observe the established quarterly ceilings, and we will reduce the salaries of the managers who do not observe them. Moreover, the new minimum wage will not be increased again during 2003, and not be indexed either to the CPI or foreign currencies.
20. In 2003, we will implement the same wage-control mechanism for public enterprises as in 2002. Specifically, we will approve by mid-November 2002, after consultation with Fund staff, a government decision establishing quarterly ceilings for wage bills and employment of the monitored companies. On this basis, we will approve in December 2002 the annual budgets of these companies for 2003, ensuring that growth in their aggregate gross wage bill is limited to 14 percent compared with 2002 (a structural performance criterion), adjusted for any kind of outsourcing. To achieve this target, and to accelerate restructuring, we will continue reducing employment in these companies. In addition to layoffs, the government will impose a hiring freeze in at least 90 percent of the monitored state-owned companies (as measured by employment), which will limit hiring to no more than 30 percent of the vacancies in each company. Companies will only be excluded from the set of monitored state-owned companies, with the corresponding adjustment of the aggregate wage bill ceiling, (a) after their privatization has been finalized; or (b) when they have not registered losses or arrears for three consecutive years.
C. Energy Sector Reforms
21. As envisaged in our program, we have continued with the adjustment of administered prices. As of April 10, 2002, all end-user electricity prices were raised by 14 percent, and Termoelectrica's producer price was raised to US$39 per MWh, a level that would assure full cost recovery. (A somewhat lower than originally targeted adjustment in the latter reflected a revised estimate of production costs realized in 2001.) As of July 1, 2002, Termoelectrica's heating producer price has been raised to US$20 per Gcal and on July 9, 2002 we issued a government decision to raise the National Reference Heating price to lei 800,000 per Gcal as of August 1, 2002, which implies a price of US$20 per Gcal net of VAT. We will also adjust electricity and gas prices every quarter to keep them constant in U.S. dollar terms (see Table 3).
22. We will continue to implement the policies for enforcing payments to utilities and discontinuing supplies to industrial energy users with a weak payment record. As of April 20, we have started to disconnect the 20 largest nonpayers to each of the three utilities (DGN, DGS, and Electrica) that had not paid their outstanding bills (prior action; see TMU, Section VI). The remainder of their arrears on January 31, 2002 has been denominated in euro and rescheduled over a maximum period of 24 months. We will now extend this measure to all other companies—whether public, in the process of privatization or private.
23. We have implemented the following measures to improve the collection performance in the local district heating sector:
24. After some delays, we are now proceeding with the privatization of the two gas and two electricity distribution companies. We will sign the contract with the privatization advisors for the two gas companies by end-December 2002, approve the privatization strategy by end-March 2003, and announce the privatization tender by end-May 2003. After a delay, we also will announce the privatization tenders for two electricity distribution companies by mid-September 2002. We will instruct the privatization advisor to search for the optimal privatization strategy, with preference being given to selling a majority share of these companies to strategic investors.
25. Privatization is crucially important to keep our economy on a rapid growth path. To address the problem of over-indebtedness of state-owned enterprises scheduled for privatization, we have passed a law that will allow a partial or full write-off of outstanding arrears to the budget when the company has in fact been effectively privatized. The law also provides for shorter procedural deadlines. As for the criteria for selecting winners in privatization tenders, the Ministry of Privatization notified the privatization advisors in April to increase the weight attached to the purchase price offered by the investor, to at least 50 percent. In addition, the tender documents will indicate that the targets for investment and employment are not mandatory. In amending Law 51/1998 (after consultations with World Bank and Fund staff), to provide an opportunity for potential buyers to present their business plans to trade unions before completing the sale, we will ensure that an agreement with the unions will not be a precondition for the sale.
26. Following the privatization of five companies with more than 1,000 employees between January 2002 and June 2002, out of which three were privatized as a prior action, we will privatize another eight such companies by end-September 2002. We will also sign the contract with a privatization advisor for Petrom by mid-October 2002 and will approve the privatization strategy by end-December.
27. We have decided to proceed with the privatization of several large loss-making enterprises, which are also responsible for large arrears to energy suppliers. To facilitate their privatization, we have reduced employment by 950 positions in the four companies (Nitramonia, Tractorul, Roman, and Siderurgica), of which 750 have been reduced as a prior action.
28. We will make every effort to proceed rapidly with the privatization of BCR. After signing the contract with the new privatization advisor in May (prior action) and issuing an invitation for the expression of interest in June, we will pre-select investors and launch the bidding process by September 15, and expect to obtain firm bids from strategic investors, as evidenced by "bid bonds," by October 31 (structural benchmark). Progress in the privatization of BCR will be subject to special attention in the context of the third review. We expect to complete the privatization of BCR (i.e., sign the contract with a strategic investor) by end-February 2003, instead of by end-December 2002. We request, therefore, a modification in this structural performance criterion.
29. We will continue our liquidation program for smaller unviable companies, to prevent accumulation of losses and release productive resources. In addition to the 21 companies already liquidated or privatized since October 2001, APAPS will commence liquidation procedures for 20 such companies with assets exceeding lei 10 billion by end-September, and for another 10 companies by end-December.
E. Monetary Policy and Banking Issues
30. Monetary policy will continue to be conducted in a managed float framework. Aided by the tight fiscal, quasi-fiscal, and wage policy stances, the NBR will gear its policies toward reaching the inflation objective, subject to preserving external viability by preventing unwarranted real appreciation. The current policy of less frequent interventions, allowing for wider exchange rate fluctuations, will continue, and the NBR will consider exchange rate movements of the leu against both the euro and the U.S. dollar. The interest rates on NBR's sterilization instruments are expected to continue declining gradually, in light of falling inflation, a strong demand for lei-denominated assets and the excess supply in the foreign exchange market.
31. The rapid growth in foreign-currency-denominated credit poses risks for maintaining financial soundness. As one measure to address these risks, on April 1, 2002, the NBR has unified its reserve requirements for lei and foreign currency deposits at 22 percent (from 25 percent and 20 percent, respectively), thus alleviating supply pressures to lend in foreign exchange. In addition, the NBR will exercise closer supervision of the most active lenders, in order to ensure their adequate assessment of credit risk. The tightening of loan provisioning (see below) should also help moderate credit growth. Finally, the NBR will extend the maturity of banks' liabilities in foreign currencies subject to the reserve requirement from one to two years by amending the respective regulation by August 1, 2002.
32. We are implementing the plans envisaged in the MEFP to strengthen the legal and regulatory framework of the financial sector. Following intensive discussions with commercial banks on the draft regulation on loan provisioning, we have decided to rely to a greater extent on banks' internal norms for evaluation of borrowers' financial performance, provided the norms have been approved by the NBR. At the request of the Association of Commercial Banks, the value of real estate collateral, appropriately adjusted, will be deducted from the value of the loan before provisioning, but only if the loan is not more than 90 days overdue and no legal proceedings against the borrower have been initiated. To obtain the support of all affected parties, the new regulation will be effective on January 1, 2003, six months later than planned. The Ministry of Finance will ensure that the mandatory provisions formed in line with the new NBR regulations will be tax deductible, effective as of January 1, 2003 (the respective NBR regulation and the concomitant government decision on the tax deductibility of provisions were approved as a prior action).
33. The NBR has adopted a new regulation introducing the "know-your-customer" principle, promoting high professional standards and fighting money laundering. The regulation incorporated comments received from commercial banks and the IMF's Monetary and Exchange Affairs Department.
34. We are committed to implementing the measures recommended in the safeguards assessment report. In line with the safeguards assessment report on the NBR, we will provide the Fund with information on improvements in the NBR's foreign reserve management function by the end of 2002, and submit, on a quarterly basis, reconciliations of NBR's accounting data with those reported to the Fund under the Stand-By Arrangement. We are also committed to making progress in implementing the other measures outlined in the safeguards assessment report.
F. Governance Issues
35. We are determined to improve the business climate and eliminate corruption. In particular, as agreed with the EU, we intend to ensure the operational independence of the anti-corruption agencies, provide sufficient resources for this purpose, and seek to improve their coordination. We will conduct all privatizations in an open and transparent manner. Public procurement will also be conducted in this manner, as spelled out in the ordinance on public procurement procedures. We will also review the existing regulation so as to strengthen the right to appeal against the award of public contracts. We will also intensify our efforts to prosecute individuals involved in financial wrongdoings, including FNI, Banca Romana de Scont, and other recent cases.
1The revised targets for improving the efficiency in collections are set out in Table 1 and the revised method of calculating the collection rates is specified in the TMU, Section VI.
I. Ceilings on the Average Net Domestic Assets of the National Bank of Romania
The average net domestic assets of the National Bank of Romania (NBR) are defined as the difference between average reserve money (as defined in Section IX of this attachment) and average of net foreign assets (as defined in Section II of this attachment for the indicated month, excluding the adjustment for foreign currency denominated treasury bills), both expressed in local currency. Average net foreign asset stocks will be converted into lei for the purposes of calculating average net domestic assets at the average monthly lei/U.S. dollar rates specified in consultation with Fund staff. The average stock of NFA is defined as the average of the daily NFA as defined in Section II. The limits will be monitored from daily data on the accounts of the NBR supplied weekly to the IMF by the NBR. The average NDA as of September 2001 was lei 39,559 billion.
The ceiling on average net domestic assets of the NBR will be adjusted under the following circumstances:
(1) Downwards (upwards) in a proportional fashion, for the fraction of the month that gross foreign financing exceeds (falls short of) programmed levels, specified in Section II.
(2) For any change in reserve requirements as described in Section IX. Before undertaking any such changes, the NBR will consult IMF staff.
(3) Upwards (downwards) in a proportional fashion, by the lei equivalent of the decrease (increase) in the stock of foreign currency denominated Treasury bills (cumulative from end-September 2001).
(4) Downwards in a proportional fashion by the lei equivalent of the increase in foreign currency receipts from large privatizations (sale price above $10 million) (cumulative from end-December 2001)(5) Downwards by the shortfall in actual reserves from required reserves for any individual bank.
II. Targets for Floor on Net Foreign Assets of the National Bank of Romania
Net foreign assets of the NBR consist of reserve assets minus foreign liabilities. For the purposes of the program, reserve assets shall be defined as monetary gold, holdings of SDRs, any reserve position in the IMF, and holdings of foreign exchange in convertible currencies by the NBR. Excluded from gross reserves are long-term assets, NBR redeposits at the commercial banks, any assets in nonconvertible currencies, encumbered reserve assets, reserve assets pledged as collateral for foreign loans, reserve assets pledged through forward contracts, and precious metals other than gold. Monetary gold shall be valued at an accounting price of US$280.4 per ounce and SDRs at US$1.355109 per SDR. NFA stocks are measured at the last working day of the respective month.
For the purposes of the program, foreign liabilities shall be defined as loan, deposit, swap (including any portion of the NBR gold that is collateralized), and forward liabilities of the NBR in convertible currencies including, foreign currency deposits of resident commercial banks at the NBR; IMF purchases; borrowing from international capital markets; and bridge loans from the BIS, foreign banks, foreign governments, or other financial institutions, irrespective of their maturity.
All assets and liabilities denominated in convertible currencies, other than the U.S. dollar, shall be converted at their respective exchange rates against the U.S. dollar on December 31, 1999. All changes of definition or valuation of assets or liabilities as well as details of operations concerning sales, purchases, or swap operations of gold shall also be communicated to the IMF staff.
The NFA of the NBR will be adjusted:
(i) upwards/downwards by 100 percent of the excess/shortfall of gross foreign financing1 from the programmed levels (on a cumulative basis from end-September 2001).
(ii) by the change in the stock of foreign currency denominated Ministry of Finance Treasury Bills including those issued for bank restructuring (on a cumulative basis from end-September 2001). The outstanding stock on September 30, 2001 was $423.7 million evaluated at the program exchange rates.
(iii) upwards by the amount of foreign currency receipts from large privatizations (sale price above $10 million) (cumulative from end-December 2001).
The NFA will be monitored on the basis of daily operational data through to end-March 2002, after which monetary survey data will be used. Daily data will still be used to calculate average NFA. All data is provided by the NBR. The NFA on September 30, 2001 was US$ 3,311 million.
III. Ceilings on the Cumulative Deficit of the Consolidated General Government
The consolidated general government includes the state budget; the budgets of the local authorities; the social protection funds;2 the "Special Fund for Modernizing Roads", the "Special Fund for the Development of the Energetic System", the "Special Reinsurance Fund", the "Authority for Privatization" (APAPS), the "Fund for the Development of Romanian Agriculture", other extra-budgetary funds managed by the Ministry of Finance or other Ministries and agencies outside the budgetary framework; other extra-budgetary operations of ministries financed by foreign loans; and the counterpart funds created from the proceeds of foreign loans. Any new funds created during the program period to undertake operations of a fiscal nature as defined in the IMF's Manual on Government Finance Statistics will be incorporated within the definition of consolidated general government.
Under the program, the deficit of the consolidated general government will be measured based on revenue and expenditure data provided by the Ministry of Finance, and also based on "below the line" data, that is, by the sum of domestic and external financing of the budget as well as privatization proceeds received by all entities of the consolidated general government and proceeds from the recovery of bank asset by AVAB. All efforts will be made to reconcile the measurement of the deficit from "below" and from "above the line". However, should these efforts not succeed in eliminating the discrepancies, the respectively higher deficit number will be used for program purposes.
For program purposes, net credit of the banking system to the consolidated general government is defined as all claims of the banking system on the consolidated general government less all deposits of the consolidated general government with the banking system. Foreign-currency denominated credit to government outstanding at December 31, 2001 will be converted in U.S. dollars at the end-December 1999 exchange rate and from dollars into lei using the rates specified in consultation with Fund staff. Foreign-currency denominated credit newly issued in 2001 and 2002 will be valued at the exchange rates specified in consultation with Fund staff. Government loans to banks at an interest rate less than the reference rate of the NBR to finance on lending to economic agents are excluded from government deposits; an agreed listing of the accounts to be treated as government deposits for program purposes is contained in the FAD aide memoire "Romania: Measuring the Fiscal Deficit", Part II, Appendix 11, February 1994.
For program purposes, the ceilings on the quarterly cumulative deficit of the consolidated general government in 2002 will be adjusted downwards by a shortfall of the cumulative quarterly privatization proceeds received by the consolidated general government. Privatization receipts denominated in foreign currency will be converted into U.S. dollars using the exchange rates on December 31, 1999, and from dollars into lei using the rates specified in consultation with Fund staff. The floor for these proceeds is as follows:
As a contingency measure to achieve the deficit target of lei 43,200 billion in 2002, the government ordinance on the first budget rectification in 2002 will include a stipulation according to which lei 2 trillion of the expenditure entitlements of the special fund for roads will be blocked. The blocked expenditure can be released at the earliest as of November 1, 2002, provided that the end-September revenue target has been met. The revenue target refers to the estimate of total cumulative revenue agreed between the Ministry of Public Finance and IMF staff for the general consolidated budget for the first three quarters of 2001 (see below).
IV. Ceiling on Aggregate Wage Bill of Monitored State-Owned Enterprises and Approval of the 2003 Budgets of the Monitored State-Owned Enterprises
A. Ceiling on Aggregate Wage Bill of Monitored State-Owned Enterprises.
The set of 82 monitored state-owned enterprises, whose wages are to be monitored under Emergency Ordinance 79/2001, is specified in Government Decision 866/2001.The wage bill of this set of state-owned enterprises has been adjusted for the decrease in the number of enterprises from 86 in 2001.
The wage bill will be adjusted as follows:
(i) downwards by the amount of savings due to "externalization" (defined as the spinning off of a unit or its transfer to another entity) in excess of lei 400 billion (1 percent of the 2001 targeted wage bill of the 82 companies, distributed proportionally among the four quarters of 2002). In each month, savings from externalization will be calculated on a company by company basis as the product of the number of externalized employees so far and the company's average wage.
(ii) if a company is privatized, downwards by the budgeted wage bill of the privatized company.
(iii) if a company is excluded from the list after not having registered losses or arrears for three consecutive years, downwards by the budgeted wage bill of the excluded company.
The wage bills will be measured on a cumulative basis across the different sectors, on a monthly basis. The Ministry of Labor and Social Protection will undertake the responsibility of collecting data from the various line ministries (RAs and national companies) and APAPS (commercial companies), and will report the wage bills and employment figures for each of the monitored enterprises (including aggregate figures for each ministry and for the overall total) to the IMF on a monthly basis. Employment reduction resulting from all forms of outsourcing will be reported in the "externalization" column of the respective tables, with a footnote, if necessary.
B. Approval of the 2003 Budgets of the Monitored State-Owned Enterprises.
The structural performance criterion on the approval of the 2003 budgets of the monitored state-owned enterprises (see paragraph 20 of the SMEFP and Table 2) refers to the set of companies specified under Emergency Ordinance 79/2001, which continue to be state-owned as of December 15, 2002.
V. Indicative Target for Ceilings on Arrears of Monitored State-owned Enterprises to the Consolidated General Government
The ceiling applies to the outstanding stock of arrears of the set of 82 monitored state-owned enterprises, whose arrears are to be monitored under Emergency Ordinance 79/2001 and Government Decision 866/2001. Under the ordinance, arrears are defined as accounts payable past the due date stipulated explicitly in the contracts, or if no such explicit date exist, 30 days after services/products are provided. The reporting on total arrears will have the following subcategories: to the state budget, to the social security budget; to the local budget; to special funds; and to other creditors. Arrears to the consolidated general government are defined as the sum of the first four categories. Amounts reflecting tax arrears exclusive of penalties will be reported separately. For arrears which have been rescheduled/canceled, the rescheduled/canceled amounts (including penalties) will not be counted as arrears reduction, and has to be reported. The report will include a breakdown of arrears to the ten largest creditors for each company. The report will also include data on overdue claims of each of the monitored companies, as reported under Emergency Ordinance 79/2001. For changes to the set of monitored companies, the targets will be adjusted downwards/upwards by the amount of arrears of the companies removed/added to the set. Data for monitoring purposes shall be supplied monthly to the IMF by the Ministry of Finance. The stock of arrears at end-December 2000 was lei 47.2 trillion.
VI. Floors on Cumulative Aggregate Collection Rates of Distrigaz Sud, Distrigaz Nord, and Termoelectrica
Floors will be set on the cumulative collection rates of the following companies: the combined rate (performance criterion) of Distrigaz Nord and Distrigaz Sud (indicative targets on the individual company collection rates); on Termoelectrica's (including the production units transferred to local authorities) combined collection rate (performance criterion) for both heating and electricity (indicative targets on the separate collection rates); on Electrica's collection rate (indicative target); and on the aggregate collection rate of the Termoelectrica production units transferred to local authorities (indicative target). The floors and outcomes for end-September, end-December 2001, and end-March 2002 are measured using cumulative collection rates defined as the ratio of collections to billings, measured from the start of the year to the specified date. For the remaining test dates floors on collection rates are defined as follows:
(i) Termoelectrica and local authority units (Heating sector), Distrigaz Nord and Sud: Heating and gas bills are lagged by one month. Definition of 12-month moving collection rate c(m) for the month m=1,2..12.:
(ii) Termoelectrica and local authority units (Electricity sector); Electrica; Definition of 12-month moving collection rate c(m) for the month m=1,2..12:
Using these definitions the collection rate of Termoelectrica at end-December 2001 was 85.5, and of the two gas companies, 85.5.
Data for these companies will be collected by the Ministry of Industry and reported to the IMF on a monthly basis. The Ministry of Industry will include in this report data on billings and collections registered by Distrigaz Nord, Distrigaz Sud, Electrica and Termoelectrica, as well as information on possible dis- and reconnections for the following industrial (a) and heating (b) companies.
a) SC Siderurgica, COS Targoviste, Minvest SM-Rosia Poieni, Moldomin, Minvest-SM, Balan, Snif, SC Industria Sarmei, Gavazzi Steel, Minvest-SM Baia de Aries, SC Turnu, CUG Cluj, SC Apaterm Galati, SC Tractorul UTB, SC Chimcomplex, Minvest- SM Brad, Apa Nova (RGAB), Minvest -SM Coranda Certej, Minvest -SM Poiana Rusca Teliuc, Siderca, SC Electrocarbon, Nitramonia, Viromet, Amonil, Oltchim, Sere Codlea, US Govora, Republica, Zahar Bod, Stirom Bucuresti, Danubiana, Gerom Buzau, Colorom Codlea, Roman Brasov, Metrom Brasov, Carfil Brasov, Stiaz Azuga, Faur Bucuresti, UPSOM SA Ocna Mureş, Bicapa SA Târnăveni, SC Ind.Sârmei C.Turzii, SC Stipo SA Dorohoi, Ampellum SA Zlatna, SC Cugir SA, SC Melana Săvineşti, Letea Bacau, Rafo SA Oneşti, SC Fortus SA Iaşi, Ambro SA Suceava, Stratusmob SA Blaj, SC Sticla Turda, Iris SA Cluj, Metalurgica Aiud.
b) Radet Bucuresti,Radet Constanta, Apaterm Galati, RA Termoficare Craiova, SC Apaterm, SA Deva, Termica SA Targoviste, Termoficare Petrosani, Dalkia Ploiesti, SC Termoficare Petrosani, SC Universal Lupeni, Aptercol Braila, SC Citadin Aninoasa, RA Termoficare Cluj, SC Aqua Calor P. Neamt, RA Energomur Tg Mures, SC Energ. Temica Sibiu, Termoloc Populatie Bacau, RA Goscom Roman, Proditerm Bistrita, Rail Hunedoara, Comunala RA Satu Mare, Termica SA Botosani, Radet Bucuresti, Enet Focsani, Cet Braila, Cet Govora, RA Termo Craiova, Ram Buzau, RA Termo Brasov, Aquaterm Tg. Jiu, Aquaterm 98 Pitesti.
VII. Ceilings on the Assumption of Enterprise Debt to Banks by the Consolidated General Government and on the Issuance of Domestic Government Guarantees on Bank Lending to Enterprises
The ceilings apply to the cumulative stock from end-September 2001 of newly guaranteed or assumed domestic debt by the consolidated general government. For program purposes, the assumption of enterprise debt to banks by the consolidated general government and the issuing of a guarantee to assume enterprise debt to banks are treated as being equivalent. This limit includes any loan on which the government pays or guarantees interest, even if the principal is not guaranteed. The consolidated general government is defined in Section III of this attachment. The criterion also applies to the use of APAPS resources for recapitalizing enterprises or as collateral for bank loans. Foreign currency denominated loans will be converted at accounting exchange rates specified in consultation with Fund staff. These limits exclude:
Data for monitoring purposes shall be supplied monthly to the IMF by the Ministry of Finance. The stock of guarantees and debt assumed as described in this section was lei 469 billion as of end-September 2001.
VIII. Ceilings on Contracting or Guaranteeing of External Debt
The ceilings apply to the cumulative stock for each year of newly contracted or guaranteed external debt by the consolidated general government. The consolidated general government is defined in Section III of this attachment. This performance criterion applies not only to debt as defined in point No. 9 of the IMF Guidelines on Performance Criteria with Respect to Foreign debt adopted on August 24, 2000 (Executive Board Decision No. 12274-(00/85)) but also to commitments contracted or guaranteed for which value has not been received. The ceilings also apply to any assumption of loans for debt outstanding which were not previously contracted or guaranteed by the consolidated general government. Excluded from the ceilings are liabilities to the IMF and bridge loans from the BIS, foreign banks, foreign governments, or any other financial institution. Debt falling within the ceilings shall be valued in U.S. dollars at the exchange rate prevailing at the time the contract or guarantee becomes effective. Loans considered concessional are also excluded from the ceilings. Off-budget debt includes all debt to non-budget entities from private sector creditors guaranteed by the Ministry of Finance. Loans for fuel imports for Distrigaz, Termoelectrica, and the 16 heat-producing units which were transferred from Termoelectrica to local authorities are included in the overall ceilings, while being excluded from the off-budget guaranteed debt ceilings. With respect to new loans contracted to ensure fuel imports for the heating period 2002/2003, they are excluded from the off-budget guaranteed debt ceilings up to an amount of US$200 million for Termoelectrica and US$120 million for the transferred heating units. Fuel import loans contracted by Termoelectrica and the transferred heating units are excluded from the ceilings on debt with maturities between one and three years.
Concessional loans are defined as those with a grant element of at least 35 percent of the value of the loan, using currency-specific discount rates based on the commercial interest reference rates reported by the OECD (CIRRS) in effect at the time of contracting or guaranteeing the loan.
The ceilings shall be monitored from data supplied monthly to the IMF by the Ministry of Finance. The stock of debt at end-June 2001 was $1,194 million for maturities over one year ($83 million of which was off-budget), $196 million for the subceiling of debt with maturity of one to three years (none of which was off-budget), zero for debt with less than one year maturity.
Nonaccumulation of external payments arrears of the government will be a performance criterion monitored on a continuous basis. For program purposes, arrears with respect to called-up sovereign loan guarantees are defined as external payments overdue more than 30 days.
IX. Indicative Targets for Ceilings on Average Reserve Money
Average reserve money is defined as the sum of average currency in circulation outside the NBR and average deposits (required plus excess reserves) of the commercial banks at the NBR for the indicated month. Commercial bank deposits exclude required and excess reserves in foreign exchange for foreign exchange deposits. Data on reserve money will be monitored from the daily indicators data of the NBR, which shall be supplied to the IMF weekly by the NBR. The stock of average reserve money as of September 2001 was lei 60,442 billion.
The ceilings on average reserve money will be adjusted in the following circumstances:
(1) Should reserve requirements be increased/decreased from 25 percent on all required reserves held in lei, the reserve money targets would be increased/decreased by the product of the change in the reserve requirements and the programmed deposits for which required reserves are held in lei. The level of the programmed deposits is lei 134,285 billion for June 2002, lei 142,014 billion for September 2002 and lei 171,352 billion for December 2002.
(2) The reserve money targets will be lowered by the shortfall in actual reserves from required reserves for any individual bank.
X. Indicative Targets for Ceilings on Broad Money
Broad money is defined as the liabilities of the banking system with the non-bank public. Broad money includes foreign currency deposits of residents, but excludes government deposits and deposits of foreign monetary institutions and other non-residents. For the purposes of the program, deposits which are denominated in foreign currency will be converted into lei at the accounting exchange rates specified in consultation with Fund staff.
Data on broad money will be monitored from the monthly data on the accounts of the banks and the banking system, which shall be supplied to the IMF monthly by the NBR. The stock of broad money at program exchange rates as of September 30, 2001 was lei 235,363 billion.
XI. Indicative Targets for Ceilings on Banking Sector's Total Exposure to State-Owned Enterprises
Total exposure covers all loans, advances, holdings of debt and off-balance sheet exposure of resident banks to state-owned enterprises. Data on loans will also be reported separately from total exposure. State-owned enterprises are all regis autonomes and commercial companies with majority ownership by the government or APAPS. For the purposes of monitoring, foreign currency denominated debt will be converted in lei at end-month lei/dollar exchange rates specified in consultation with Fund staff. Foreign currency denominated credit in convertible currencies, other than the U.S. dollar, shall be converted at their respective exchange rates against the U.S. dollar as specified in Section II of this attachment. Data on banking sector lending to state-owned enterprises will be monitored from monthly data provided by the NBR.
The amount of total exposure, as reported by the NBR, will include (on a cumulative basis from end-March 2002):
(i) exposure to companies where the majority ownership shifted to the private sector. For this purpose, APAPS and the relevant ministries will provide a monthly update of their portfolio to the NBR;
(ii) any amount of debt or off-balance sheet write-offs;
(iii) any assumption of debt or off-balance sheet items by the government or other public bodies.
Additionally, the NBR will report monthly on total exposure of the banking system to state-owned enterprises with outstanding exposure over lei 100 billion, on a company-by-company basis. The stock of banking sector exposure to state-owned enterprises at program exchange rates as of September 30, 2001 was lei 27,052 billion of which lei 13,541 billion was to BCR.
1Foreign financing is defined as disbursements of balance of payments support loans to the government with a maturity of more than a year from multilateral and bilateral creditors and resources with a maturity of more than one year raised in the international capital markets by the government. This excludes use of IMF resources.
2These include the State Social Security Fund, the Unemployment Fund, and the Health Social Insurance Fund.