Supplementary Memorandum on Economic and
Financial Policies in 2003
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I. Introduction
1. Since the completion of the first and second reviews on August 28,
2002, we have made significant progress toward realizing the main macroeconomic
objectives of our program, particularly in respect to inflation, the current
account deficit and growth. This memorandum updates our policies for 2003
that were originally presented in the first Supplementary Memorandum on
Economic and Financial Policies (SMEFP-1), dated August 12, 2002, and
addresses setbacks that have recently occurred in the implementation of
wage policy, enforcement of payments to energy utilities, and privatization
of the remaining state-owned enterprises.
II. Background And Request for Waivers of Performance
Criteria
2. Macroeconomic developments in 2002 were very favorable. We
estimate that GDP grew by about 5 percent, led by strong export growth
that reflected the cumulative effects of private investment in consumer
goods industries over the past few years. The 12-month headline inflation
rate fell to 16/ percent in February, and the 2002 current account deficit
was reduced much more than envisaged under the program. Strengthened confidence
in macroeconomic stabilization led to rapid growth in credit, supporting
recovery in investment. Foreign reserves expanded faster than programmed,
and have now reached a comfortable level of 4¼ months of prospective
imports of goods and services.
3. Monetary and budget policies have been on track. The end-December
performance criteria on NDA and NFA of the NBR were met with comfortable
margins (Table 1). Somewhat faster growth in
monetary aggregates reflected stronger demand for money than originally
envisaged. The rapid drop in inflation initially resulted in high real
interest rates, which prompted the NBR to cut its main policy interest
rate by over 1,500 basis points since April 2002. The deficit target for
the general government in 2002 was also met, although revenue was about
¼ percent of GDP lower than assumed in the second supplementary budget.
This was offset by lower interest expenditure and payments of social benefits.
4. The financial results of the main energy utilities improved.
Price adjustments in the energy sector continued as envisaged under the
program. Payment enforcement measures in April and May 2002 improved the
collection rates of the two gas distribution companies even more than
targeted under the program, but further progress is needed in electricity
and even more in heating collections. While we met our Q3 and Q4 collection
targets, payments from commercial companies have slowed, which has put
the March and June collection targets at risk. Particularly weak performance
was reported for a group of 23 large state-owned companies slated for
privatization that paid only about ¾ of their bills in Q4. Measures
described in paragraphs 18 and 19 below address this issue.
5. After encountering serious difficulties in enforcing our wage
policies in Q3, we achieved a major improvement in Q4 of 2002. The
end-September performance criterion on the wage bill in state-owned enterprises
(SOEs) was exceeded by 4 percent as some large SOEs did not adjust their
budgets after shifting large numbers of employees to newly established
companies. This has also rendered the end-December performance criterion
beyond reach. To meet the revised end-December target discussed with staff
in October 2002 (prior action for the third review), we took decisive
measures by adjusting down the budgets of these companies, and reducing
by 4 percent the quarterly wage bill in all monitored SOEs. These objectives
were largely achieved, and the average 2002 wage growth in the monitored
group of SOEs was brought down to the economy-wide average1.
Further measures in the area of wage policy are described in paragraphs
15 and 16 below. Based on this, we are requesting a waiver for the nonobservance
of the end-December performance criterion on SOEs wage bill. Our efforts
to reduce employment in SOEs in 2002 did not prove very successful. Employment
on a net basis was reduced by only 2¼ percent, as about 80 percent
of programmed layoffs were implemented, but new hiring exceeded the target.
6. Privatization is behind schedule, but we expect acceleration in
the months ahead. We signed privatization contracts for six large
companies in Q4, compared with eight set as a benchmark. We currently
have seven large companies in the final negotiation phase and expect to
sell all of them by end-March.
7. The relaunch of the invitation for expressions of interest in
the privatization of the largest state-owned bank, BCR, proved unsuccessful.
After consultation with Fund and World Bank staff, we decided to sell
a blocking minority share (25 percent plus two shares) to the EBRD and
the IFC with a view to better prepare the bank for sale to a strategic
investor, as described in paragraph 26 below. We therefore request a waiver
for the non-observance of the end-February 2003 structural performance
criterion on the completion of the BCR privatization.
III. Policy Measures Agreed in the Context of the Third
Review
8. Our main macroeconomic objective for 2003 is to consolidate stabilization,
which requires decisive progress in strengthening financial discipline
in state-owned enterprises. The program envisages to: (i) reduce
inflation to 14 percent by end-2003; (ii) contain the current account
deficit below 4½ percent of GDP in 2003; and (iii) raise official
reserves to a level of around 4/ months of imports by end-2003. The widening
of the current account deficit relative to 2002 and the inflation target
reflect the impact of the increase in the minimum wage on demand and the
effects of the recent oil and gas prices shocks. We expect that GDP growth
will be close to 5 percent in 2003. We are aware that we can achieve and
sustain these targets only by significantly strengthening financial discipline
and accelerating privatization in the enterprise and financial sectors,
areas in which the implementation of the program has so far been lagging.
To ensure these results and fully complete the program supported by the
SBA, we are requesting that the arrangement be extended by 5½ months
until mid-October 2003 and purchases rephased. Quantitative performance
criteria under the program for end-June 2003 are presented in Table
1, and Table 2 contains the list of prior
actions, structural performance criteria and benchmarks.
A. Fiscal Policy
9. In 2003, fiscal policy will continue to support disinflation.
The 2003 budget approved by parliament in November 2002 set
the general government deficit target at 2.65 percent of projected GDP,
¼ percentage point below the 2002 target. In addition, we target
a reduction of losses in the energy sector by ½ percent of GDP in
2003. The somewhat lower reduction than originally envisaged reflects
a temporary increase in oil and gas prices, which we expect to be reversed
toward the end of 2003. Moreover, we are committed to reduce the budget
deficit target further should this prove necessary to offset excessive
consumption growth that might develop if the effects of the minimum wage
increase are not contained. To ensure sufficient room for such downward
adjustment, we reached understandings with Fund staff on monthly revenue
targets for the general consolidated budget and monthly expenditure ceilings
for the state budget for the first half of 2003 (TMU;
section III).
10. On revenue, the 2003 budget marks a major step in our strategy
to gradually reduce payroll taxes, complemented with measures to broaden
the tax base of the pension fund:
- We cut payroll tax and social security contribution rates by 5 percentage
points on January 1, 2003, thereby reducing far-reaching distortions
in the labor market and incentives for the growth of the informal economy.
The revenue loss of about ¾ percent of GDP will be partially compensated
by the full-year impact of the recently implemented VAT and profit tax
laws and higher taxes on land and buildings.
- We will approve by April 20 a government decision to increase fuel
excises on May 1, 2003 to restore their value in euro as of January
2003.
- The new Labor Code, effective since March 1, 2003, no longer provides
for the possibility of hiring employees on the basis of "civil
contracts," most of which are exempt from pension fund contributions.
To eliminate any remaining legal uncertainty, we will approve by April
10, 2003 an Emergency Ordinance canceling Articles 1-7, and Articles
15, 16 (b), 18, and 20 in law 130/1999, which provided the basis for
exempting "civil contracts" from the obligation to pay pension
fund contributions (prior action). By July 31, 2003 we will amend the
legislation on labor inspection (law 108/1999) in order to strengthen
its capacity to enforce the stipulations of the Labor Code to reduce
the scope of the informal economy.
- We will request by April 15, 2003, technical assistance from the World
Bank, and the Fund on the issues of medium-term adjustment in gas prices
and the concomitant reform in the tax regime in the gas sector (prior
action). Moreover, the government will issue a decision no later than
end July, thereby creating a clear pricing and taxation framework for
bidders in the forthcoming privatization projects in this sector.
- We remain firmly committed to refrain from any other tax cuts in 2003.
In particular, we will not introduce a reduced VAT rate or modify income
tax rates.
11. On the expenditure side, the 2003 budget gives priority to increasing
capital expenditure and strengthening the social safety net. Investment
spending is set to increase by 0.6 percent of GDP, while total social
transfers will increase by 5 percent in real terms. We have limited the
increase in nominal gross wages in the budgetary sector to 6 percent in
January and 9 percent in October 2003, consistent with our target for
keeping the annual growth in the net wage bill in the budgetary sector
at 3 percent in real terms. Moreover, while we will continue downsizing
total budgetary sector employment, we will provide sufficient resources,
including through the recruitment of well-qualified civil servants, for
improving public administration, implementing the judicial reform, and
strengthening the institutional capacity for adopting and implementing
EU legislation and absorbing EU grants.
12. In February 2003, we adopted additional measures to mitigate
the social impact of energy price increases and restructuring in state-owned
companies:
- To ensure the social acceptability of reforms in the energy sector,
we have adopted an improved heating support scheme for low-income households,
which increased available budgetary resources by lei 1.5 trillion. We
will also introduce, in two steps, the option of equal monthly payments
of heating bills. Moreover, as a one-off measure to address the problem
of unpaid bills of the poorest households which are beneficiaries of
the minimum guaranteed income, we have allocated another lei 1.4 trillion,
which will be used to reduce their arrears to local heating companies.
- To cover the additional costs imposed on the local district heating
companies by mandatory equalization of charges for non-metered deliveries
with the average consumption in households with meters, the regulatory
agency (ANRSC) will review the need to increase the distribution tariffs
by end-March. We will allocate in the rectified budget an amount equivalent
to lei 400 billion to cover the resulting increase in subsidies.
- In the context of accelerated restructuring of companies in the process
of privatization, we have allocated additional resources in an amount
of lei 1,166 billion to grant to laid off employees (a) severance payments
up to two times the net average economy-wide wage in January 2003; and
(b) supplementary income for 20-24 months (depending on the length of
service) equal to the difference between regular unemployment benefits
and individual net wages during the three months preceding the layoff,
under the condition that individual wages doe not exceed the net average
economy-wide wage in January 2003. In the mining sector, companies that
will not be able to pay severance payments out of their own budget,
will also utilize this scheme.
- The above-referenced additional social measures will be financed
through savings in interest expenditure (lei 1.3 trillion), the unemployment
fund budget (lei 0.8 trillion), and nonpension expenditures of the pension
fund (lei 4 trillion). The latter will require an amendment of law 19/2000
by April 15, 2003, with a view to strengthening eligibility criteria
for the two-year maternity leave through an extension of the minimum
contribution period from 6 to 10 months.
13. We made important progress in implementing the tax administration
reform. To improve collection efficiency, in November 2002 we approved,
as a prior action, an Emergency Ordinance providing for the establishment
of a common agency for collection, audit, and enforcement of social security
contributions as of January 1, 2004. In January 2003, we established a
separate tax administration department in the Ministry of Public Finance,
appointed the responsible Secretary of State (prior action), and created
a large taxpayers office for Bucharest. By end-May 2003, we will approve
legislation amending the laws on the pension, unemployment and health
insurance funds (in particular Law 19/2000, Law 76/2002, and Emergency
Ordinance 150/2002), which will harmonize procedures for collection, enforcement
and auditing (structural performance criterion). We envisage to harmonize
the tax base of the social security contributions in the coming months
following appropriate studies of the impact of these changes on the various
social security programs.
14. We intend to issue off-budget external guarantees of up to US$650
million in 2003 to facilitate investment, particularly in the railways
and the second phase of the nuclear power plant Cernavoda. We consider
the investment in the railway system as crucial to improving its safety
and efficiency. The second phase project in Cernavoda (already at an advanced
stage) is very important for our strategy to modernize Romania's energy
sector. Both projects will generate resources for the repayment of the
loans, and the guarantee will not impose a burden on the budget.
B. Wage Policy
15. We have approved the 2003 budgets of monitored SOEs, which limit
the growth in their gross wage bill to 14 percent compared to 2002 (prior
action). We are carefully monitoring the effects of the January minimum
wage increase of 43 percent on the overall wage level. Financial plans
of about 100 private and state-owned companies available in mid-February
suggest that their take-home wages are set to grow by about 8 percent
in real terms, and employers wage costs by 5 percent, primarily in small
companies. While preliminary data available in mid-March for about 250
companies indicate a lower growth rate, more information is needed to
assess the impact on the overall economy.
16. We have decided to implement further measures to strengthen our
2003 wage policy. Before April 15, we will issue instructions
to all state-owned companies that their wage budgets will have to be adjusted
for any externalization, temporary, or permanent transfer of staff to
other firms. To strengthen the credibility of our wage program, and to
accelerate restructuring in the over-staffed state-owned sector, the employment
reduction described in paragraphs 22 and 24 will allow us to cut employment
by 8,000 positions in addition to the 14,300 positions already envisaged
in our 2003 wage and employment program and impose a hiring freeze in
all monitored state-owned enterprises. The exceptions from this freeze
will have to be approved by the Cabinet, and their total number cannot
be higher than the 3,135 new positions included in the 2003 wage and employment
program for January-December. To ensure that the Q1 target is met, we
will block 4 percent of the Q1 wage bill in the monitored SOEs, which
can only be released upon approval of the responsible Minister if the
quarterly target is within reach.
C. Energy Sector Reforms
17. We will continue with the adjustment of administered prices (Table
3). The unified end-user price for natural gas was raised from
the equivalent of US$82.5/tcm to US$90/tcm on March 1, 2003 (prior action),
and will be further increased to US$93/tcm on July 1, 2003 (structural
performance criterion). The adjustment of the electricity prices on April
1, 2003 and July 1, 2003, as well as Termoelectrica's producer price for
electricity on July 1, 2003 will maintain tariffs at their level in U.S.
dollar terms at the time of the previous adjustment (structural performance
criteria). Having been fixed in lei terms since July 2002, the National
Reference Heating price will be raised to the equivalent of US$20/Gcal
as of July 1, 2003 (structural performance criterion).
18. To achieve the 2003 collection targets, we will act decisively
against industrial energy users with a weak payment record. The largest
non-payers to the three utilities (DGN, DGS, and Electrica), as identified
in Table 4, which had not fully paid by March
19, 2003, their bills (excluding penalties) for December 2002 and January
2003, were disconnected by March 25, 2003 (prior action; in the case of
Siderurgica and Roman the payments were only completed on April 2). Each
of these companies will stay disconnected until all bills from December
2002 onwards have been paid in full to the respective energy supplier
(continuous structural benchmark). In cases where such a measure would
have had unacceptable social consequences, the general consolidated budget
paid the difference between amounts actually paid and total bills for
December up to an amount of lei 211 billion. Starting with the bills for
January 2003, if these companies do not pay in full, payments from the
budget will not be available. However, given that we do not expect Siderurgica
and the three mining companies to be able to fully pay their bills even
in the coming months, the budget will provide additional support on an
exceptional basis in an amount of up to lei 320 billion until June 30,
2003, by which time the restructuring measures described in paragraphs
22 and 24 will have led to their improved financial performance. We will
also accelerate restructuring, including by labor retrenchment, and privatization
of 22 companies in the APAPS portfolio, as described in paragraph 24.
To provide Electrica with a strong incentive to persevere in improving
collections, the June 2003 indicative target on its collection rate has
been converted into a performance criterion.
19. To prevent moral hazard and strengthen financial discipline,
we amended in March Emergency Ordinance 208 (prior action), which has
provided for an open-ended cancellation of arrears owed by companies under
privatization to utilities and the budget. In particular, the amendment:
- removed the reference to the cancellation and rescheduling of arrears
in 23 companies accumulated after January 1, 2003 in paragraph 12 (a)
and (c) of the ordinance, limiting the cancellation of arrears to the
stock on December 31, 2002;
- eliminated paragraph 14, which transfers the loss resulting from the
cancellation of arrears to utilities to the budget via a triangular
offset;
- deleted paragraph 5, thereby limiting the write-off of accrued penalties
for arrears envisaged in Article 18 c.) (1) in law 137/2002 to the stock
on December 31, 2001.
Moreover, we will not extend the special regime provided for in paragraph
2, which protects companies under privatization from creditors, beyond
six months.
20. To speed up collections from households, we have reduced the
deadline for payments to 15 working days, and for disconnections to 45
days. In addition, all subsidies to district heating companies from
the state and local budgets will be paid fully and on time into the escrow
accounts. At the same time, heating distributors with arrears as of April
1 will be again disconnected from heat and gas deliveries used to supply
hot water until full payment, in line with the action plan adopted in
consultation with the World Bank in spring 2002.
21. Despite delays in preparatory steps, privatization projects in
the energy sector will be completed on time. We have signed the contract
with the privatization advisor for Petrom (prior action) and will approve
the privatization strategy agreed with the World Bank by end-May 2003,
with a five-month delay relative to the original schedule. We will prepare
the information memorandum and launch the tender for expressions of interest
by end-June (structural benchmark). For the two electricity distribution
companies, we announced the expression-of-interest tenders to acquire
a majority holding of at least 51 percent (prior action) on January 8,
have shortlisted bidders by end-March and will invite binding offers by
end-May. We signed the contract with the privatization advisors for the
two gas companies in early March 2003, and will approve the privatization
strategy by end-April and announce the privatization tender by June 30.
To facilitate faster privatization, we will closely coordinate the restructuring
of the electricity sector with the World Bank.
22. Restructuring of the mining sector will be accelerated. With
the help of a World Bank-supported program, we will continue to downsize
unviable mines. In 2003, employment in the sector will be reduced by 6,000
positions, of which 1,300 have already been cut.
D. Privatization and Liquidation
23. Rapid growth and lasting macroeconomic stabilization are not
possible without a decisive break-through in privatization. We will
sell 6 companies with more than 1,000 employees by end-March, another
6 by end-June (structural benchmarks) and bring 10 such companies to the
stage of negotiations with a selected bidder by mid-2003. We will refrain
from imposing employment preservation conditions in the privatization
contracts, and will continue to attach a weight of at least 50 percent
to the offered price in the bid evaluation process.
24. We are aware that many large companies cannot be privatized unless
their overstaffing is reduced. We have therefore decided to reduce
employment in 22 companies by over 18,000 positions (excluding any externalization)
by end-June, 2003 (performance criterion). At least 6,000 employees will
be made redundant by April 5, including 1,750 positions in Siderurgica
(prior action). To alleviate social effects, we approved a special time-limited
program that will provide severance payments to employees as described
in paragraph 12. This scheme will also be available for up to 2,000 layoffs
in other companies in APAPS' portfolio. We will also impose a hiring freeze
in these companies until end-year, effective April 1, 2003.
25. We will initiate liquidation procedures for companies with particularly
weak financial results. We will immediately start liquidation procedures
for the three companies PoliROU, Siderca, and Sidermet. For the companies
Corapet, Rulmentul Slatina, Verachim, Oltplast, Chimcomplex, Tepro, and
CaROU, the liquidation procedure will be initiated by end-June, unless
privatized (structural benchmark).
26. Although the sale of BCR proved unsuccessful in the current business
environment, we remain firmly committed to its privatization once market
conditions have improved. The completion of the sale of a blocking
minority share to the EBRD and the IFC will be an end-July structural
performance criterion. To achieve this objective, on April 8 we provided
the two IFIs complete access to all requested data, BCR staff and BCR
auditors (prior action). By April 10, we will modify the bank privatization
law and approve the revised privatization strategy. To facilitate the
timely preparation of the 2002 accounting statements, the Ministry of
Finance issued all necessary norms and regulations on February 20, 2003.
We will share the preliminary 2002 balance sheet and income statement
with the two IFIs by March 31, 2003.
E. Monetary Policy and Banking Issues
27. Monetary policy will continue to be conducted in a managed float
framework. The NBR will guide the exchange rate along a path consistent
with our inflation target and a modest real appreciation. The current
policy of less frequent but sizable 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
targeted depreciation rate and further interest rate adjustments will
be reconsidered after the effects of the minimum wage increase can be
assessed with greater precision. Our 2003 monetary program also targets
an increase in official reserves by US$1 billion, to about 4¼ months
of prospective imports of goods and services. Velocity is expected to
decline further, in line with continued progress in reducing inflation
and strengthened confidence.
28. The rapid growth in foreign-currency-denominated credit poses
increasing financial risks. The effect of the December reserve requirement
differentiation for lei and foreign currency to 18 percent and 25 percent,
respectively (from the common level of 22 percent) has yet to fully materialize.
The NBR will continue to exercise close supervision of the most active
lenders, to ensure their adequate assessment of credit risk. The tightening
of loan provisioning in January 2003 should also help moderate credit
growth. If necessary, later in the year we will consider increasing capital
requirements for lending in foreign currencies.
29. We have started to implement the measures recommended in the
Safeguards Assessment report. We have clarified the reconciliation
procedure between accounting statements and monetary data and submitted
to the Fund the first and second such quarterly reconciliation, certified
by the Internal Audit Department. An investment committee has been working
in the NBR since September 2001 to exercise its foreign reserve management
function. We are also actively implementing the other recommendations
of the Safeguards Assessment report.
F. Governance Issues
30. Our efforts to improve the business climate continue. The
parliament has approved in December 2002 an anti-corruption program and
legislative changes required for its implementation are under way. We
will conduct all privatizations in an open and transparent manner. In
protecting the rights of minority shareholders, we will refrain from introducing
measures that impose an undue burden on strategic investors. We will prepare
a report on our efforts to prosecute individuals involved in financial
wrongdoings, including FNI, Banca Romana de Scont, and other recent cases
and share it with Fund staff. In cooperation with the World Bank, we will
reassess the impact of the new Labor Code on labor market flexibility
and amend it as needed.
1Three
railway companies did not adjust their budgets after transferring employees
to nonmonitored companies. As a result, the outcome for the SOEs wage budgets
was 0.2 percent higher than the revised target. This small deviation does
not have macroeconomic significance, but we are aware that such operations
might hurt the credibility of our wage policies. The possibility to transfer
employees has been eliminated under the new labor code, effective as of
March 2003.
Supplementary Technical Memorandum
of Understanding
for Stand-By Arrangement
- Ceilings on the Average Net Domestic Assets of the National Bank of
Romania
- Targets for Floor on Net Foreign Assets of the National Bank of Romania
- Ceilings on the Cumulative Deficit of the Consolidated General Government
- Ceilings on Aggregate Wage Bill of Monitored State-Owned Enterprises
and List of Twenty-two State-Owned Companies to Operate Layoffs
- Indicative Target for Ceilings on Arrears of Monitored State-Owned
Enterprises to the Consolidated General Government
- Floors on Cumulative Aggregate Collection Rates of Distrigaz Sud,
Distrigaz Nord, and Termoelectrica
- 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
- Ceilings on Contracting or Guaranteeing of External Debt
- Indicative Targets for Ceilings on Average Reserve Money
- Indicative Targets for Ceilings on Broad Money
- Indicative Targets for Ceilings on Banking Sector's Total Exposure
to State-Owned Enterprises
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-December 2002).
(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 2002)
(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: |
| |
December 2001 |
US$248 million |
| |
March 2002 |
US$248 million |
| |
June 2002 |
US$953 million |
| |
September 2002 |
US$953 million |
| |
December 2002 |
US$953 million |
| on a cumulative basis from end-December 2002: |
| |
March 2003 |
US$50 million |
| |
June 2003 |
US$450 million |
(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-December 2002). The outstanding stock
on December 31, 2002 was $478.9 million evaluated at the program exchange
rates.
(iii) upwards by the amount of foreign currency receipts from large privatizations
(sale price above $10 million) (cumulative from end-December 2002).
The NFA will be monitored on the basis of daily operational data through
to end-March 2002, after which monetary survey data will be used. Daily
data will still be used to calculate average NFA. All data is provided
by the NBR. The NFA figure was US$ 3,311 million on September 30,
2001, and US$ 5,257 million on December 31, 2002.
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", the
"National Administration of Roads (NAR)", 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 2003 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:
|
| |
|
Floor |
Actual |
|
| |
|
(In billions of lei) |
| Cumulative quarterly privatization proceeds
of the general consolidated government for 2003: |
|
| |
March 31, 2003 (minimum target)
|
1,000 |
|
| |
June 30, 2003 (minimum target) |
2,000 |
|
| |
September 30, 2003 (minimum target) |
3,000 |
|
| |
December 31, 2003 (minimum target) |
4,000 |
|
|
To achieve the deficit target of lei 49,520 billion in 2003 and to ensure
sufficient room for a downward adjustment of this target in the course
of 2003, should this prove necessary to contain the effects of the minimum
wage increase, the cumulative monthly expenditure entitlements for the
state budget during January-June 2003 will be limited to the ceilings
agreed with Fund staff. In addition, should the cumulative monthly revenues
of the general consolidated budget fall short of the revenue targets agreed
with Fund staff, the monthly state budget expenditure ceilings will be
adjusted downwards to compensate for this shortfall.
|
| |
|
Agreed revenue targets |
Actual |
|
| |
|
(billion of lei) |
| Consolidated General Government (excluding
"National Administration of Roads"; cumulative total revenues
including grants) |
|
| |
January 31, 2003 (actual) |
|
44,246 |
| |
February 28, 2003 (indicative revenue target) |
85,732 |
82,348 |
| |
March 31, 2003 (indicative revenue target) |
128,797 |
|
| |
April 30, 2003 (indicative revenue target) |
177,248 |
|
| |
May 31, 2003 (indicative revenue target) |
221,602 |
|
| |
June 30, 2003 (indicative revenue target) |
267,507 |
|
|
|
| |
|
Agreed expenditure Ceilings
|
Actual |
|
| |
|
(billion of lei) |
State Budget
(cumulative total expenditure) |
|
| |
January 31, 2003 (actual) |
|
19,616 |
| |
February 28, 2003 (indicative ceiling) |
39,901 |
38,042 |
| |
March 31, 2003 (indicative ceiling) |
65,215 |
|
| |
April 30, 2003 (indicative ceiling) |
88,987 |
|
| |
May 31, 2003 (indicative ceiling) |
113,120 |
|
| |
June 30, 2003 (indicative ceiling) |
137,764 |
|
|
IV. Ceiling on Aggregate Wage Bill of Monitored State-Owned
Enterprises and List of Twenty-Two State-Owned Companies to Operate Layoffs
A. Ceiling on Aggregate Wage Bill of Monitored State-Owned Enterprises.
The set of 76 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 82 in 2002
and 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,
or temporary/permanent transfers of employees when the sum of these
transfers exceeds 100 employees per month). 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, starting with the month following the month
of signing the privatization contract.
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. List of Twenty-Two State-Owned Companies to Operate Layoffs
The set of 22 state-owned companies that will operate at least 18, 000
layoffs, as discussed in paragraph 24 of the SMEFP-2, consists of:
- Tractorul-UTB SA Brasov.
- Turnu SA Turnu Magurele.
- Electroputere SA Craiova.
- CSR SA Resita.
- Republica SA Bucharest.
- Iasitex SA Iasi.
- Mefin SA Sinaia.
- Mecanica SA Marsa.
- Chimcomplex SA Borzesti.
- Letea SA Bacau.
- Rempes SA Deva.
- CUG SA Cluj.
- Fortpres SA Cluj Napoca.
- Siderurgica SA Hunedoara.
- Tepro SA Iasi.
- Fortus SA Iasi.
- ARO SA Campulung.
- Carom SA Onesti.
- Roman SA Brasov.
- Faur SA Bucharest.
- Industria Sarmei SA Campia Turzii
- Rulmentul SA Brasov
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
76 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, Termoelectrica and Electrica
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 the combined collection rate for heating and electricity of Termoelectrica,
including the production units transferred to local authorities (performance
criterion). Indicative targets will be set on the collection rates for
(i) electricity for both Termoelectrica and the production units transferred
to local authorities; (ii) Termoelectrica's district heating; (iii)
heating in the transferred units;
- on Electrica's collection rate (indicative target till March 2003,
performance criterion as of June 2003).
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.:
| c(m) = |
sum(heating collections(m):heating collections(m-12)
divided by
sum(heating bills(m-1):heating bills(m-13)). |
(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:
| c(m) = |
sum(electricity collections(m):electricity collections(m-12)
divided by
sum(electricity bills(m):electricity bills(m-12)). |
Using these definitions the collection rate of Termoelectrica at end-December
2001 was 85.5, of Electrica 92.9, 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, Tepro,
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:
- the contracting or guaranteeing of external debt, for which separate
limits are set out in Section VIII of this attachment;
- debt transferred in the process of bank restructuring, privatization
or liquidation of state-owned enterprises.
- the assumption of debt as a result of an activation of a guarantee
or collateral.
- domestic guarantees for loans for fuel imports for the 16 heat-producing
units which were transferred from Termoelectrica to local authorities,
to the extent that external off-budget guarantees issued for this purpose
(see Section VIII) fall short of US$120 million (i.e., the sum of domestic
and external guarantees issued for this purpose must not exceed US$120
million).
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 189,866 billion
for March 2003 and lei 204,549 billion for June 2003.
(2) The reserve money targets will be lowered by the shortfall in actual
reserves from required reserves for any individual bank, measured from
the 24th of the previous month to the 23rd of the
test-date month, as provided for in the relevant NBR regulation.
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 Insurance Fund for Work-Related Accidents, the Unemployment Fund, and
the Health Social Insurance Fund. |
