Just a few days after the IMF eventually agreed to extend the accord with Romania, the agreement is again hanging on a thin thread. An important feature - perhaps the most important - which links salaries to performance, even in loss-making companies, has been challenged by trade unions in sectors where these companies operate, and, surprise!, the Bucharest Court of Appeals ruled to approve their action, suspending the government ordinance that introduced the new salary system. The Supreme Court of Justice is now expected to pronounce. Even worse! Before unions' blackmail, the Government itself pledged to amend the ordinance. Not all of it, just here and there, in the essential places! And the announced salary revolution is demoted to just another bubble "a la roumaine"!
The IMF issued a positive signal when it approved the accord. Its importance shows in the delicate but crucial situation Romania is in now. Because something special had to exist in the context where the extension was negotiated and approved by the Washington institution.
Orchestrated on the very brink of the delayed approval of the IMF accord, an attempt was made to destabilise the financial-banking system, probably designed to compromise the deal. The government had to make a difficult choice between agreeing to compensate FNI losers with budget funds (thus breaching the IMF-imposed budget deficit), or risk street protests and an onslaught on the financial-banking system, which, unless tamed quickly, would ruin the accord altogether. That the IMF was the target shows in the fact that when it put off the approval for a week, street demonstrations degenerated into violence, and a political manifesto was circulated calling on police to keep out of civil war - that is, ignore any attempt to destabilise the country politically. Another evidence is that the announced unions' unrest over the new salary regulations will be backed by the Court of Appeals' decision to suspend the law in question. It was uncanny and unwelcome, because economic laws are not the prerogative of the legal system - these laws are objective and are not established by people. After all, the Constitution or the legal system don't pay the salaries to loss-makers!Personal experience reminds that IMF green light cannot help with Romania's economic problems, not even with securing foreign financing. A country that has the green light may have some money coming from the World Bank or the European Union, but private investors may still keep a safe distance. The only true fact is that green light does provide some advantages, and without it, all gates are shut.Still, with all the green light in the world, no rating agency plans to update Romania's sovereign ratings before the autumn elections. If they stick to their threats - and keep in mind that some of them came from top dogs such as Standard&Poor's - Romania may well be cast into the twilight, with the predictable election results this autumn.The IMF accord is precisely what can keep the country out of this twilight. Miscalculated foreign involvement further complicated and sharpened political confrontation in Romania. It serves no good, and it is certainly not serious to say that if Iliescu and his party return to power, foreign financing for Romania would stand to suffer - foreign financing is barely trickling in today, before the elections, even more, under present power, the country has received the least foreign aid since the Revolution. Rather, statements like this stir up a segment of the Romanian society and kindle confrontation.
When it approved the accord in a delicate moment, the IMF - remarkably - stuck strictly to economic requirements, keeping a distance from the political filth in Romania and their reverberations abroad, thus supporting not only financial order, but legal order in Romania.Unfortunately, the chance of this foreign support for domestic financial and legal order is about to be wasted. If the salary revolution the Government promised turns out to be a pathetic bubble, the IMF will have every right to suspend the accord and indirectly doom our chances of foreign funding.The Isarescu government was wrong. It was wrong in the first place, when it vowed before the IMF to quickly cut down on arrears. An illusion, simply because economic agents and the populace cannot pay more than they get, and any additional constraint readily turns into arrears, as practice has proved. The only long-term solution is a combination between legalising bankruptcy and achieving sustained economic growth that would gradually improve the economy's payment capacity. But this takes years.
The second time the Isarescu Government was wrong was when, by virtue of groundless promises, it strictly tied salaries to arrears in arrears-stricken enterprises. It was just as bad a call as the Justice had made, when it ventured into re-formulating economic laws. Performance-linked salary as an economic law means that pay is linked not only to arrears but to increasing labour productivity, to service quality and, necessarily in loss-making companies, to restructuring. And there is the natural principle that an employee in a company with outstanding debts cannot earn more than a similar worker in a debt-free enterprise. This is, in fact, the problem that had to find an unequivocal juridical or administrative regulation!
The final note: ready for the predictable blackmail of the unions, the Government was wrong because it failed to begin its salary revolution with a clear warning that the choice for the Romanian society was explicit: it's either the Government, or the unions! If you pick the unions, you'll either have to find a new Government, or all of you, teachers, doctors, military and police, will have to ask for money not from Isarescu but Costin, Bratianu & co.
Any other approach is just another bubble "a la roumaine"!
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