Law No. 64 Of 8 July 1992 Approving The Abeyance Of Standby Loan Granted To Romania By The International Monetary Fund

Original Language Title:  LEGE nr. 64 din 8 iulie 1992 privind aprobarea aranjamentului de credit stand-by acordat României de către Fondul Monetar Internaţional

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LAW No. 64 of 8 July 1992 approving the abeyance of standby loan granted to Romania by the International Monetary Fund ISSUER PARLIAMENT Published in MONITORUL OFICIAL NR. 161 of 14 July 1992, the Romanian Parliament adopts this law.

Article 1 shall approve the arrangement of the stand-by credit worth 314.04 million SDRS granted Romania of the International Monetary Fund, for a period of 10 months, starting from May 29, 1992.

Article 2 the equivalent in MDL of 314.04 million SDRS respectively 85.172 million lei, which is transferred to the account no. 1 the International Monetary Fund at the National Bank of Romania, as receipt of credit transelor, cover from Banca Naţională a României's reserves.

Article 3 the equivalent in lei of income and stand-by fee in currency for this credit, it supports from the State budget.

Article 4 National Bank of Romania and the Ministry of economy and finance are responsible for implementation of the provisions of this Act.
This law was adopted by the Senate at its meeting on 23 June 1992, in compliance with the provisions of art. 74 para. (2) of the Constitution of Romania.
Academic SENATE PRESIDENT ALEXANDRU BÂRLĂDEANU this law was adopted by the Chamber of deputies at its meeting on 29 June 1992, with due regard for the provisions of article 7. 74 para. (2) of the Constitution of Romania.
PRESIDENT of the CHAMBER of DEPUTIES: MARTIAN D Annex STAND-BY ARRANGEMENT This document as annexes a letter and a memorandum accompanying attendant on 4 May 1992, on behalf of the Minister of economy and Finance of Romania and the Governor of the National Bank of Romania, which require a stand-by arrangement and shall be determined: (i) the objectives and policies of the Romanian authorities intend to follow them for the period of this stand-by arrangement; and (them) with the trust fund agreements Romania relating to the carrying out of an examination of the progress made in achieving the objectives of the program and the policies and measures which the Romanian authorities will follow them for the period that remains in this stand-by arrangement.
To support these goals and policies, International Monetary Fund grant this stand-by arrangement in accordance with the following provisions: 1. during the period of 10 months commencing on 29 May 1992, Romania will be allowed to conduct purchases of the Fund in an amount equivalent to SDR 314.04 million, subject to paragraphs 2, 3, 4, 5 and 6 below, without a new review from the Fund.
2. a) under this arrangement Purchases will not be overcome without the agreement of the Fund, the equivalent of SDR 157.02 million until august 15, 1992, the equivalent of SDR 209.36 million up to November 15, 1992 and the equivalent of 261.7 million SDRS on February 15, 1993.

b) none of the limits referred to in points. a) above will not be applied to any purchases under this stand-by arrangement which will enhance Romania's currency Fund availability in the credit tranches, over 25% of the rate or increase the respective currency Fund availability as a result of purchases from borrowed sources, more than 12.5% of the share.

3. Purchases under this stand-by arrangement will be made from ordinary sources and borrowed sources in a proportion of 1:2 until purchases under this arrangement will achieve a total of SDR 205,300,000 and then borrowed from sources, provided that any amendment made by the Fund in terms of proportions and borrowed resources will be applied to the amounts that can be purchased after the date of the change.
4. Romania will not make purchases under this arrangement that will enhance the liquidity of the Fund in its currency reserves, under the transelor of credit, over 25% of the rate or to increase the liquidity of the Fund in the currency of that-as a result of purchases from resources borrowed-over 12.5% of quota: a) during any period in which the data at the end of the previous period shows that : (1) limit on cumulative net change credit granted by the banking system General Administration consolidated, which is referred to in paragraph 20 and annex 4. 1 of the memorandum annexed hereto; or (2) limit on cumulative assets change in net domestic bank system, to which reference is made in paragraph 23 and annex 4. 2 of the memorandum; or (3) limit on aggregate change in net international reserves, to which reference is made in paragraph 37 and annex 4. 3 of the memorandum; or (4) limit on contracting or ensuring external debt with due between 1-12 years old or below concerning contracting or ensuring external debt with due between 1-5 year period referred to in paragraph 39 and annex 4. 4 of the memorandum, were not respected; or b) after November 14, 1992 until the examination referred to in paragraph 40 of the memorandum will not be carried out; or c) during any period of stand-by arrangement, if Romania: 1) imposes or intensify restrictions on payments and transfers for current international transactions; or 2) introduce or modify multiple currency practices; or 3) conclude bilateral payments which are incompatible with the provisions of art. 8; or 4) imposes import restrictions or intensify the grounds of balance of payments.
Where Romania is hindered to make purchases under this arrangement due to the provisions of this paragraph 4, purchases will be resumed only after a consultation took place between the Fund and Romania and has reached agreements regarding the circumstances under which purchases may be replayed.
5. Romania will not make purchases based on this stand-by arrangement during any period of the arrangement in which it has a financial obligation towards the arrears or fail in carrying out a ransom expected according to the guidelines, relating to Corrective Action for failure to a purchase or pursuant to decision No. 9331-(87/167) with subsequent amendments.
6. Romania's Right to engage in transactions covered by this arrangement may be suspended only in respect of requests received by the Fund: a) a formal ineligibilitate; or (b)) a Council decision suspending the Executive transactions, either generally or to examine a proposal made by an executive director or director-general in order to suppress or limit the official eligibility. When a reminder about a decision to examine a proposal shall be made in accordance with this paragraph 6, purchases under this arrangement will be replayed after no longer held a consultation between the Fund and Romania and it has reached a settlement regarding the circumstances under which purchases may be replayed.
7. Purchases under this arrangement will be made in the currencies of other members, selected in accordance with the policies and procedures of the Fund and can be made and the SDR-s if, at the request of Romania, the Fund has agreed to provide them at the time of purchase.
8. Value date for purchases under this arrangement that involve borrowed resources will be determined in accordance with Rule G-4 (b) of the rules and regulations of the Fund. Romania will consult with the Fund at the date of purchases that involve resources borrowed in accordance with regulation G-4 (d).
9. Romania will pay interest for this arrangement in accordance with the decisions of the Fund.
10. a) Romania will redeem its currency amount resulting from a purchase made based on this arrangement, in accordance with the provisions of the Statute and the decisions of the Fund, including those relating to ransom when the situation of the balance of payments and reserves are getting better.

(b) any reduction in the currency) Romania, owned by the Fund, subject to redemption will reduce the amount referred to above), in accordance with the principles applied by the Fund for this purpose at the time of the reduction.

Value date of a ransom for a purchase financed from resources borrowed, under this arrangement, will normally be the 6th day or the 22nd of the month or the next business day if chosen day is not a working day, provided that rascumpararile will be completed in the latest 7 years from date of purchase.
11. During the period of stand-by arrangement, Romania will remain in close consultation with the Fund. This consultation may include correspondence and visits of Fund staff in Romania or Romanian representatives to the Fund. Romania will provide the Fund through reports, at the intervals required data or background information on the Fund may require in relation to the progress made by Romania in implementing the objectives and policies set out in the attached letter.
12. In accordance with the letter of the authorities, Romania will consult with the Fund regarding the adoption of any measures that may be appropriate, on the initiative of the Government, or whenever the Director-general shall request consultations when any of the criteria in paragraph 4 above were not respected or when he considers that a consultation program is desirable. In addition, after the period of the arrangement, because Romania has performed in higher ransom credit cuts, the Government will consult regularly with the Fund, at its own initiative or at the request of the Director-general with regard to the policy on balance of payments.
Dear Mr. Camdessus,

The Government of Romania, since 1990, a programme of economic reform. This program was supported by a stand-by credit for a period of one year, which began in 1991, and has benefited from technical assistance from the Fund. We appreciate greatly both forms of support. It has achieved considerable progress in order to achieve our goal of creating an environment in which the individual options and market forces to play a prominent role. We believe that this transformation of the economy will lead to sustained growth in production and a constant improvement of the living standards of the population. However, the stabilisation phase of our reform effort has not been completed yet, and the Elimination of the macroeconomic imbalances will require further decisive adjustment efforts. In these circumstances, we request a new stand-by arrangement with the Fund for a period of 10 months, in an amount equivalent to SDR 314.04 million, to support our programme of adjustment and economic reform in 1992. We intend also to ask for financial support under the compensatory financing facility and unanticipated, for oil import element (FFCN), in an amount equivalent to SDR 76.8 million, based on an excess of imports of crude oil in the year ending on September 30, 1991, as soon as we make the reimbursement in respect of a previous drawdown made in oil import element base of FFCN.
The efforts made by us, so far, in a frame, more severely than originally prevazuse and aggravated by external financing in the immobilization of intirzieri, are a clear proof of our decision to continue the process of reform. We have adopted a number of measures to reform the previous adjustment, including price and trade liberalisation, prudent financial policies and income tax reforms in the financial sector and liberalization of currency and system. In addition, we have introduced a number of important structural measures, in order to stimulate economic activity, the privatization of State assets and the creation of a legal and institutional framework, which are essential for the development and effective functioning of a market economy.
We hope that in 1992 to advanced on the path of progress achieved so far. Moreover, it will be especially important to stop the decline in production, to reduce inflation at a reasonable rate and to strengthen external accounts. The details of economic policy that the Government intends to follow to achieve its economic objectives are described in the attached memorandum.
The Romanian Government is ready to take any further measures that might be needed if the objectives or the overall process of reform will be threatened.
The Romanian authorities will consult closely with the Fund, in accordance with the Fund's policies on such consultations. In this regard, the Government will provide Fund information it will ask in connection with Romania's progress in carrying out economic and policy measures to achieve the objectives of the programme for 1992. In order to facilitate the pursuit of progress achieved under the programme, together with the analysis of the evolution of economic and economic policy measures will be carried out until October 15, 1992.
Yours sincerely, George Danielescu, finance and economy Minister Mugur Isarescu, Governor of the National Bank of Romania's economic policy Memorandum regarding the annex to the Romanian Government of Mr. Michel Camdessus, Managing Director of the International Monetary Fund, Washington, D.C. 20431 U.S.A. MEMORANDUM on economic policy of the Government of Romania i. Introduction 1. Romania is situated in the midst of a comprehensive program of reform, which aims at transforming the country from a centralized planning system to a market economy. A macro behaviors is the foundation required for successful reform program. As a result, the main goal of the program is the conclusion of the 1992 stabilization phase of the reform process.
2. the programme aims at the Elimination of the current's 1992 internal and external imbalances. In addition to the continuation of a prudent financial policies, to achieve this objective advertisement introducing new structural measures designed to improve resource allocation and growth potential and actual production. These measures include the continuation of progress as regards the liberalisation of the markets, the introduction of appropriate policies in the area of interest rates, creating in effect a private property and the development of a legal and institutional framework to facilitate the operation of the private sector. The existence of a currency trade system open and allowing Romania's integration into the global economy continue to be key in the external sector policy.
3. Changing the current situation characterized by reduced production and the existence of a high inflatii is one of the best horses to ensure social protection. At the same time, the Government is convinced that economic reform and adjustment can succeed only if measures are taken to reduce the burden of adjustment press on the most vulnerable groups of the population. Social protection provided for in the programme is meant to alleviate this burden through a well-defined policy.
II. recent economic developments and Policies 4. In 1991, the economy has been hard hit by a number of unforeseen negative developments, and reduced production was higher than expected. Gross domestic product (GDP) decreased by 13 real%, industrial production by about 21% below the 1990 level. These declines reflect a number of factors, including the absence of a related financing foreign trade, lowering the USSR and other countries of the former C.A.E.R., the problems associated with the Gulf crisis, lack of raw materials and imported energy, as well as economic disruption and blockages of the system of payments owed arrears between enterprises. Heavy industries, energy-intensive and the mining industry have been most severely affected. Floods and problems associated with the implementation of agrarian reform have contributed to the decline of agricultural production.
The decrease in real GDP was reflected in the rise in unemployment. In late June 1991 there were registered unemployed 195000, from which they received unemployment benefits 128000. These figures have risen to 337500 and at the end of 1991 266000.
5. In spite of prudent financial policies, inflation was much higher than expectations. In November 1990, the month began the program of liberalization of prices and by the end of 1991, the price level rose by 345%. The unification of the exchange rate in November 1991, which raised the rate from 60 to 180 lei lei to one dollar S.U.A., has increased as well, the pressure on the price level. Among the products affected, energy prices (except for domestic consumption) have grown up right away, as a reflection of the effects of the spread of this movement of the exchange rate. Real wages have fallen by 22% from the beginning of price liberalization, despite the increase in payments for wages provided for by schedule of wage indexation.
6. NET International Reserves (RIN) of the banking system declined in 1991 with 822 million dollars during the year 1991 S.U.A., lowering the RHINE was dominated by developments in the current account; less than half of the current account deficit was offset by net capital reinforcements. The main factors that have affected the current account developments were the collapse of trade with the former countries are members of the C.A.E.R. and with some countries in the Middle East, as well as financial constraints decurgind from the fall in capital inflows in the medium term and long term; as a result, trade flows were much smaller than prevazuse in 1991.
7. Monetary policy was the main anchor of our economic program and, therefore, an important goal of the National Bank of Romania (B.N.R.) was maintaining domestic credit expansion within the banking system under a strict control. Until September 1991, net assets of the banking system's internal increased by 99 billion lei (19.2% of the currency since the beginning of the period). This amount has been something less than the requirements of the program supported by the stand-by arrangement in 1991, thanks to the net credit granted by the Government, which has risen much less than planned-as a result of a deficit less than prevazuse for General Administration-as well due to the lack of appropriations for budget funds.
8. The combination of poor financial discipline of firms with a strong monetary policy, however, led to a rapid accumulation of arrears payments between businesses that have hindered implementation of stringent financial policies and contributed to the creation of an inflationary pressures. These arrears, estimated to have reached a lump sum of about 1800 billion lei in early 1992, and as an amount net of about 400 billion dollars have also led to a "bottleneck" really pay system, with negative consequences on the production. In October, the B.N.R. has begun to allow an expansion of bank credit to the enterprises, in an effort to ease the problem of arrears.
On 23 December 1991, Parliament ratified a law that is required for bank credit enhancement for the liquidation of arrears between enterprises. This operation, known as global clearing ended in late January 1992.

9. In order to keep inflation under control and pressure to reduce the effort of adjustment on the normal progress of the B.N.R. sterilized in February 1992 most of the liquidity injected into the economy as a result of the offset. Moreover, the Government recognizes the importance of the transmission of a signal clear undertakings with regard to its commitment to prevent reaparitia arrears and to avoid in the future any clearing operation. In this connection, two decisions were adopted to force repayment of government loans received under the netting and to impose obligations on undertakings a financial discipline. Government decision concerning financial discipline establishes that all firms must fulfil legal obligations according to their maturities are used, regardless of the fact that payments should be made to the workers, the Government, suppliers etc. This decision also establishes that companies may be declared insolvent if it does not fulfill its obligations within 30 days. The companies declared insolvent may have additional 30 days before they can be subject to reimbursement, including through procedures of bankruptcy if they fail to secure an arrangement with their creditors. Parliament was presented a Bill in which is incorporated the Government decision concerning the financial discipline in order to confer a greater legal force, by establishing legal and administrative responsibility of the Board of Directors of enterprises for financial leadership. In addition, a new law on bankruptcy is located currently in the Parliament debate to update and strengthen the existing commercial code.
10. With effect from 1 April 1991, interest rates have been liberalized within the framework of the reform of the financial system. Despite this measure, the interest rates on deposits have been moved slightly, reflecting in part the rigidity of the financial system, and the lack of incentives for banks to increase the interest to attract deposits in some conditions credit ceilings on specific banks. New banks were as far as to attract deposits from C.E.C. through a better quality of service, but their very small size has not pressed too much on C.E.C., which in essence remained reluctant to increase interest.
In order to increase the cost of funds for banks, the B.N.R. has raised interest rate by refinancing in several stages during the year 1991 and again in early 1992 to 28% compared to 3% at the end of 1990. However, despite the Government's efforts to increase pressure for the liberalisation of interest rates, they remained negative in real terms.
11. To make large macroeconomic imbalances and face increasing from previous years, the Government has promoted a moderate tax program in 1991 and the achievements made during the year were higher than those provided. In the last quarter of 1991 appeared some difficulties in tax collection due to the blockage of the system. However, after global compensation was concluded in January 1992, all arrears from taxes the previous year, were liquidated. Total general government deficit was only 16.2 billion lei (0.8% of GDP) in comparison with the much larger deficit prescribed by 50.2 billion lei (2.4% of GDP).
In 1991, unemployment fund and other extrabudgetary funds were not included in the General Administration. If these funds, which grew larger surpluses in 1991, would have been included, General Administration balance had been in surplus, also with 5.6 billion lei (0.3% of GDP).
12. Following the unification of 11 November 1991, the Leu's exchange rate has fluctuated between 180 lei/dollar S.U.A. and approximately 200 lei/dollar S.U.A.
As far as the trade regime, consistent with the effort of the reform towards a market economy, the Government has liberalized export regime by reducing the number of items that are prohibited or subject to export quotas and by increasing the quota limits. The Government has also removed quantitative restrictions on imports.
III. the Government's macroeconomic Program for 1992 13. The Government's macroeconomic programme for 1992 aims in particular: the decline of economic growth) stopping real; b) reductions of inflation rate from about 15 percent a month in the first two months of the year, at 1.2% monthly until the end of the year; and (c) increase international reserves) with 500 million u.s. dollars to cover the months of 1.7 imports until the end of the year. In order to achieve these objectives, the Government intends to maintain its financial policies (fiscal and monetary) prudent and appropriate policy interest rates; to provide a limitation of salaries through a strong policy of revenue; to pursue a policy of flexible exchange rates. These macroeconomic stabilisation policies will need to be complemented with structural policies that are intended to make the economy more efficient and productive. Structural reform measures will include further liberalization of prices, privatization, strengthening financial discipline through restructuring and liquidation of State enterprises and the continuation of reforms in the fields of finance and taxation.
14. Recently, the Government has taken a series of measures in an effort to lay the groundwork for the 1992 economic program and to give appropriate signals for the creation of a favourable perspectives of the reform.
The measures mentioned above, have been taken to deal with the issues of arrears between enterprises. Interest rates on loans and deposits were raised in January 1992. In the foreign trade system a new customs tariff came into force in May. More tax reforms were introduced at the beginning of the year. Details of the adjustment programme, including such measures as well as future ones, are described below.
1. Fiscal policy and social protection 15. Maintaining strict fiscal discipline and reducing the size of government sector are key elements of the Government's economic programme, both in terms of the stabilization effort in the short term and at medium term. For 1992, the draft budget submitted for approval to Parliament envisages a general government deficit of no more than 2% of GDP.
Achieving this objective will be a particularly difficult task, taking into account the recent experience of the Eastern European countries which show that revenues from income taxes and from ICM will decrease and the pressures for an increase in current expenditure and capital will grow. Considering these difficulties, and the need to maintain the credibility of the adjustment programme and the increasing accumulation of internal financing of investments necessary for the restructuring of the economy, the Government is determined to follow a prudent fiscal policy. We believe that under these conditions, carry out this task in terms of budget deficit will represent a substantial adjustment effort.
16. In terms of income, their total to be of 33.5% of GDP in 1992, compared to 36.7% of the GDP in the previous year in comparable terms.
Many important reforms in the area of taxes were introduced with effect from 1 January 1992, with an aim to enhance the simplicity and transparency of the tax system and to minimize the incentives for tax evasion.
In this respect, ICM-site now comprises five categories (levels) compared with more than 20 how many there were before. The tax on profit of enterprises scheme has also been simplified; now there are two levels of 35% to 45%, in comparison with the progressive scheme which before 67 levels. It is also expected that the measures taken to eliminate problems related to the formation in the past to spur businesses to pay arrears between collecting the fees, in particular for the tax on profit of enterprises.
17. The policy of maintaining a strict control on all categories of expenditure, which has had success in 1991, will be enhanced in 1992 by adopting a system of ceilings for expenditure in cash to maintain the monthly expenditure in accordance with the collection of revenue. The Government is determined to develop a program for reducing the level of subsidies to a number of 16 essential consumer goods, including some household energy items. On May 1, and again on 1 September 1992, the level of subsidies will cut by 25% compared to their levels during the period January-April 1992, as prices will be increased and it will for them to be removed in their entirety by the end of 1993.
The Government has also established a programme for the restructuring of enterprises, which is expected to reduce subsidies to the industry, including the mining industry. This program is currently discussed with the World Bank.
18. Benefiting from improved data and experience of a year, the Government decided to expand the definition of tax within the sector, in order to have a more comprehensive explanation of operations taxation.
To this end, the Fund for unemployment, which in 1991 had a surplus equivalent to 1.4% of GDP, will be included in the fiscal objectives. Taking into account the development and production of closures of enterprises, it was specified that this Fund in 1992 to have a deficit of 0.4% of GDP, which was included in the total deficit of 2% of GDP.

19. Reflecting its decision to maintain a conservative fiscal policy, the Government is ready to introduce, with a short notice, a set of fiscal measures for contingencies to protect tax policy objectives. Deviations from the program may occur, for example, due to macroeconomic evolution and its effects on the various revenue and expenditure entered in the budget. Among the most important potential measures which the Government has identified, where, during the year, the fiscal deficit would be threatened, may include: increased rates of tax on profit of enterprises; the introduction of a tax on agricultural income, mid-year; passing the collection over imports FILES from the first point of sale at customs points, internal indexing of local property taxes, which currently are set down in fixed amounts; the introduction of excise duties on products such as alcoholic beverages, tobacco and gasoline. If during the year 1992 there is a need for some additional budget, the Government is determined to keep them in balance.
20. The Government will support largely on bank loan for its financing needs, while it will endeavour to issue Government securities to cover part of the deficit. As a result, the program limits the aggregate net credit amendment granted the Government banking system and this will constitute a criterion of performance (annex 1). In determining this boundary, an important consideration was to leave sufficient private sector applications for loans from the banking system. The limit will be adjusted, meaning the amount of funding, with shrinking domestic non-bank sources and any equivalent in local currency of foreign loans, including loans from the World Bank, which are used to finance the expenditure shown in the budget.
21. The Government attaches high priority to structural reforms in the tax system that reduce the distortions what prevent efficient allocation of resources and strive to maintain the objective of equity. Provision is made for the replacement of the ICM tax upon added value (VAT) and the Government is determined to introduce a simplified value added tax at the beginning of 1993. The Government plans also to replace the tax system with a progressive income tax, starting January 1, 1994.
22. The Government is determined to maintain and strengthen social protection to prevent further hardship for the population during the transition period. In 1990-1991 have been approved laws that have improved the system of pensions, indemnities of illness, temporary incapacity, birth rate and unemployment allowance were introduced.
These categories of allowances will remain largely unchanged, in 1992 and the total payments in the budget will be equivalent to 9.6% of GDP, i.e. something lower than in 1991 because the number of employees who will opt for a fulfilling retirement before the age limit is estimated to be lower.
However, unemployment is expected to grow rapidly in the year 1992 and its reach 1.5 million (14% of the workforce).
As a result, the period for which the aid is granted unemployment benefit has been extended from 6 months to 9 months and ushered an additional unemployment aid, but much smaller, for the period exceeding nine months. It is expected that the amount of aid to be granted unemployment in 1992 to stand up to 2.2% of GDP, compared to 0.2% of GDP in 1991. In addition to these grants, Government grant substantial subsidies to households for food, energy and public transportation. These subsidies amounted in 1991 to about 5.5% of GDP, the same amount being provided and for 1992. The Government will endeavour, however, to improve the method of calculating refunds and will seek to increase the use of cash transfers as an effective form of income support. In this regard, the Government intends to eliminate the 20% reduction in taxes for those with children, and to simplify the system of allocations for children.
2. Monetary policy. Monetary policy will be one of the two main applications of the program, 1992 and, together with wage and fiscal policy, will have the task to reduce the inflationary pressures that will result from selective adjustments and liberalizarile price, exchange rate changes and external shocks. The Government considers that implementing a strict monetary policy has particular importance for establishing the credibility of the reform program and to reduce inflation. To achieve the desired reduction in inflation, it is necessary to have a strict policy in the field of credit; in consequence, the Government has set targets for monetary growth based on moderate projections regarding price trends and the demand for money.
To this end, the Government will allow an increase of 88% of the money supply (in national currency). Schedule of credits for 1992 is designed to be compatible with this monetary growth and increase laid down provided for 476 million dollars in net international reserves S.U.A.. A result of the above, the increase in net assets of domestic banking system will be 67% of monetary mass recorded in late 1991. The ceilings for the growth of net domestic assets of the banking system will be a performance criterion, as detailed in annex 4. 2-24. National Bank of Romania went to indirect methods of monetary control and the establishment of specific banks credit ceilings. In this regard, National Bank of Romania implements the measures recommended by the recent technical assistance missions of F.M.I.; requirements for reserves and debt consolidation loans bidding had already been introduced. In order to increase efficiency and credit policy to not allow past losses of enterprises to become a burden for the financial system, the Parliament adopted in February 1992, a law which States that the outstanding debts to the banking system, derived from the pre-1991, to be replaced by special accounts, public debt to be paid, inter alia with the amounts derived from the sale of State assets and recovery of receivables from enterprises.
3. interest rates Policy and financial sector reform. To improve the efficiency of the allocation of appropriations and for the provision of financial incentives for build-ups, Government will be based on a flexible structure of interest rates and to ensure that they reflect market conditions. Appropriate interest rate policy constitutes a necessary complement of the exchange rate policy and, in this regard, domestic interest rates have to be sufficiently attractive to encourage the holding of Spooks and internal assets. As a result, the Government decided to take measures to ensure that domestic interest rates are real positive levels.
26. In addition, provision should be made, however, measures to promote domestic demand for financial assets and improve internal markets in particular officials making a living C.E.C. restructuring, more sensitive to the economic realities and to market forces. From now on, the Government will ask the C.E.C. as its negotiable instruments (e.g. bonds C.E.C.) to pay interest rates that reflect market conditions. For the promotion of a competitive banking structures, foreign banks have been granted the right to act on the internal market. So far, four foreign banks operating in Romania, while the Government will continue to encourage such activities.
4. Prices and wages. The Government will continue its policy of liberalisation of prices. Prices of consumer goods, 16, yet controlled, will be increased in two stages in 1992 and liberalized in full by the end of 1993. In terms of energy, the Government undertakes to revise its prices at least once a month, and make those adjustments necessary to maintain domestic prices, taking into account the changing exchange rate, all necessary processing costs as well as taxes, at world market levels for the entire duration of the programme. The price of natural gas, which is now about 30% lower than the international prices, will increase by 10% on a quarterly basis, in real terms, till she will achieve parity prices.
28. income Policy, the other main program Freddie is regarded by the Government as essential to promoting frînarea competitiveness and inflationary pressures to the economy.
In consequence, the Government has adopted a policy of wage indexing on a long-term basis, with the intent of keeping salary increases below the rate of inflation. In addition, the Government follows a policy of taxable income determines the tax penalty for those businesses in which expenditure on salaries in excess of the salary Fund of reference established that takes into account the economic performance of each undertaking. Such taxes can reach up to 500%. We believe that this policy also stimulates the Elimination of surplus labor force. Analysis of the mid program will examine the evolution of salaries and operation taxable wages policy.
5. The reform of enterprises and the privatisation of 29. The Government is considering privatizing State assets as being essential in order to achieve savings, strengthen financial discipline in the market of enterprises and improve their efficiency and productivity.

To this end, the Government has unleashed a vast privatization program. The privatization law, enacted in 1991, provides for the privatization of about 6000 enterprises State property privatization process of some of these businesses started. Related capital remaining businesses will be transferred at the rate of 30% at the five Funds of Private property (FPP) and 70 percent of the State property Fund (FPS). These funds will be set up on 1 June 1992.
30. privatization Law also provides the opportunity for businesses to sell up to 75% of the total value of their assets in the form of commercial units and the use of the sums thus obtained to finance investment.
It is expected that at least 400 commercial units to be sold until mid-1992. Progress in the privatisation process and the sale of assets will be assessed in the context of the analysis from the middle of the program. Moreover, the Government will continue to sell to the public housing, law enforcement, Land Fund and distribute land.
31. The Government also expected the liquidation/closing non-viable State enterprises, as an essential element of the programme. In addition, in order to complete the process of privatisation and liquidation of enterprises will be adopted a restructuring strategy. In order to strengthen the constringerilor of businesses, the Government budget has been subject to approval by Parliament of a new law on bankruptcy but, meanwhile, will apply to bankruptcy proceedings of the commercial code. The Government will also establish, with the support of the World Bank, in the framework of the proposed loan for structural adjustment, a monthly tracking system of the financial situation of the enterprises, including arrears between enterprises.
32. the liberalization of prices and economic reform measures being implemented, businesses will be able to make decisions based on the market, using the criteria of profitability. It is imperative, however, that in their operational decisions undertakings not to consider that there will be a global clearing operation. As a result, the Government attaches great importance to the approval of the Bill by Parliament to combat the problems of moral hazard arising from previous global compensation. Adoption of the law will be a topic for the mid-term review of the programme.
Moreover, the financial discipline of the enterprises will be strengthened by a decision of the Government, which requires State-run businesses to charge interest at the level of the market for new loans granted between enterprises (to be tracked through the financial monitoring system); It will serve the same purpose as the elaboration of a law on competitiveness, rapid implementation of bankruptcy proceedings and strict banking supervision to support lending decisions based strictly on economic considerations.
6. the external Sector and the balance of payments on the 1992 33. One of the main objectives of the reform effort from Romania was to integrate Romania into the world economy by removing deformarilor from the system. As mentioned previously, a remarkable progress has been registered already. Under the system, a basic element of that effort was the unification of the currency markets on 11 November 1991. In consequence, Romania was confronted with a serious economic policy dilemma. Low level of liquid reserves and foreign funding have created a great pressure on the exchange rate. This pressure has been compounded by the lack of foreign currency transferred from revenue from exports.
In this last aspect, the prospects of a depreciation of the exchange rate, fuelled by lack of foreign currency, have sharpened the issue are handed over, as did insufficient interest rates attractive to amounts held in lei.
In an effort to maintain the price level for salary negotiations, some interventions have been made official, who maintained the exchange rate under 200 lei to one dollar extra S.U.A., a big gap between interbank exchange rate and practised at exchange houses as a consequence of the effort to control the run with two capital markets and limiting the amount of money individuals can buy homes. However, the Government has made its foreign obligations face, even under these circumstances.
34. In order to improve the situation and stimulate exports by giving up the tendency to use barter arrangements, reaction and other compensation arrangements, the Government examines alteration of certain elements of the system or the exchange rate, including the requirement for 100% of currency transfers.
Currency system will operate on the basis of floating under a procedure fixing ring, and exchange offices will participate in the interbank market. Foreign reserves will be used for leveling operations and not to support a course hardly maintained.
In accordance with its objectives of reducing deformarilor in the economy, the Government relied on appropriate financial policies, including the policy of interest, to make domestic assets sufficiently attractive in order to support the exchange rate.
35. In a new trading system of tariffs came into force at the beginning of January 1992. The previous code was not considered suitable for long-term needs of Romania to have a rational and transparent system as an integral part of the strategy of its development in prospect.
In general, the new code of the customs tariff provides for lower taxes and less dispersed than the previous one.
Average rate, calculated based on a weighted average of about 12%. So even if you would use a moderate import surcharge, temporary and uniform protection degree ad valorem would remain low. In accordance with the orientation towards market reform effort were taken and other measures designed to liberalize its trade system. Requirements approved by the ministries concerned, which covered 86 articles have been removed in mid-1991.
In terms of exports, the number of exports "controlled", including those which are prohibited and those subject to temporary quotas have been steadily reduced. Since March 1992, 33 articles were banned temporarily, while only 35 articles were subject to temporary quotas; limits for 13 of these last items were increased in the month. The Government plans to eliminate practically until mid-1992, all requirements for licensing the import and export (with a few exceptions, such as explosive and toxic products related to ensuring public health and national security). In addition, except for some goods subject to control prices and subsidies and has several products that are considered strategic and internal market deficits (ex: wood, corn sugar), all export quotas will be eliminated.
In the future, as price controls and subsidies for various goods will be removed automatically will be removed and the corresponding quotas.
36. Structural reforms listed above, together with the outward orientation of the currency policy and trade, aiming to export growth. At the same time it will act for the creation of an information system concerning prices and foreign markets, accessible to all potential exporters.
While the main focus of efforts to increase exports is put on the use of appropriate incentives, economic policy decurgind it is hoped that these efforts will further boost the promotion of exports.
37. The Government considers that the program will be implemented in 1992-a difficult context. It is estimated that the current account deficit in 1992 will be of $ 1.3 billion S.U.A., with a net of capital input estimated at $ 1.7 billion S.U.A. (excluding exceptional financing) and taking into account the necessity of bringing international reserves at a reasonable level, Romania needs an exceptional funding of approximately $ 650 million S.U.A. to be satisfied through the drawdown of the Fund and the Group of 24 countries.
In accordance with the objective of balance of payments of the total 1992, which advertises a surplus of about $ 476 million S.U.A., settled quarterly tasks for net international reserves of the banking system which will constitute a criterion of performance (annex 3).
38. The Government attaches great importance to the role that foreign direct investment can play in economic restructuring and in maintaining external debt levels to be controlled. Within the strategy of attracting foreign investment, the currency system has been altered for the purposes of the removal of restrictions for repatriation of dividends and income. Foreign investors may also open and maintain accounts in foreign currency.
In accordance with the provisions of the law of foreign investment, which went into effect in May 1991, there is no limitation regarding the participation of foreign capital in the formation of companies in Romania, and investments are encouraged in almost all sectors of activity; apply also some tax exemptions. It is estimated that the entries in the foreign direct investment will amount to about 200 million dollars in 1992 and at S.U.A. sums much larger in the years ahead.

39. With regard to the creation of external debt, the Government considers that you have manifested that external funding sources to be used so that the resulting debt service burden to be bearable, and the external solvency maintained. In order to achieve this aim, the Government supervises very strictly all foreign loans contracted or guaranteed by the public sector and was created an interministerial committee that will list all possible credits and to decide on priorities before the granting of Government guarantees. Moreover, the Government is planning to limit contracting external debt public or publicly guaranteed with due over one year and up to and including 12 years at 3.5 billion dollars in 1992, S.U.A. with a separate subplafon of 2.5 billion dollars for loans with overdue S.U.A. over 1 year and up to and including 5 years.
These two types of ceilings will constitute the performance criteria (annex 4). The public sector will limit the contraction or guarantee short-term debt only at normal commercial loans.
7. Implementation and revision. The Government considers that the policies and measures set out in this memorandum are compatible with the objectives of the programme or, if it will be the case, will take any further measures that may become required. In any case, the Romanian authorities will consult closely with the Fund in a manner in accordance with its policy in respect of such consultations and provide requested information to Fund tracking progress in achieving the objectives of the programme.
In order to facilitate the implementation of the programme, together with the analysis you have done until 15 October 1992. This analysis will focus on structural reforms, particularly on development in the areas of reform, price liberalization, privatization and financial sector reform.
Special attention will be given to analyzing also the achievement of fiscal and monetary policy, interest rates, wages, evolution, external financing and foreign exchange market officials.

Annex 1 the limits concerning the change of the net credit granted by the banking system General Administration consolidated cumulative Change Limits on 31 December 1991, until: (in billion dollars) on June 30, 1992 September 1992 25.5 3.8 30 31 December 1992 110.0 General Administration consolidated is defined as including Central Administration, social insurance fund, the Pension Fund and local administration; to these are added the funds for research, health care, education and unemployment, as well as autofinanţate organs. Are excluded from this definition of Central and local funds for the construction of housing, from the gold revaluation Fund and other extrabudgetary accounts.
Net credit granted by the bank administration system is defined as including all claims on the banking system deposits less any administration Administration made in the banking system. The data are taken from the balance sheets of the National Bank of Romania and of other banks. Prosecution program, the Administration will be reduced deposits equivalent in MDL of all revenue from external loans (minus refunds) that are used to finance the fiscal deficit, including loans from the World Bank. All revenue from revaluation of stocks of enterprises will be awarded from the Fund for the restructuring of enterprises and warehouses will be excluded from the administration. Financial instruments issued by banks in return for loans outstanding as at 1 April 1991 will be excluded from the banking system claims on the administration.
Will not be accepted, no transfer of the gold revaluation accounts General Administration as defined in the program. Limits regarding net credit granted by the banking system General Administration will be diminished with all loans made by the General Administration of internal banking sources.

Annex 2 concerning the Limits of the change in net domestic assets of the system bancar1) 1) as are defined in the program.



Limits (in billion dollars) on December 31, 1991 1,000 cumulative Change from December 31, 1991, until June 30, 1992 524 30: September 1992 723 31 December 1992 694 internal Net Assets of the banking system (which include all the newly created commercial banks) are defined as the difference between the arrangements of the banking system towards the public nebancar (broad money = broad money) and net international reserves , both expressed in lei. Broad money (broad money) include deposits of residents and exclude all deposits and administration bodies of monetary institutions and other non-residents. Net international reserves are set out in the annex. 3, but in determining these limits they exclude foreign currency deposits of contrapostul residents.
Net domestic assets comprise the sum of the following assets and liabilities: net credit granted to General Administration (as defined in annex 1, for the purpose of tracking program), net credit granted to the Administration, coming from deposits of the Fund for restructuring firms, Fund for the construction of housing and other extrabudgetary funds, and deposits related to proceeds of foreign loans (minus refunds), outside the sector loan administration external commitments, medium and long term, other foreign assets, net (net claims on the national list of bilateral agreements and payments, liquidity in foreign currencies and debt neconvertibile in transferable rubles), capital accounts and reserve, transit accounts of Banca Naţională a României payable and other depositaries, assets and liabilities, which represent, inter alia, adjustments from evaluation.
Under the program, net international reserves, as well as those components that define broad money will be converted into lei, at the exchange rates that have been agreed on the basis of a forecast of the real exchange rate, constantly.
Limits shall be aggregated quarterly and will be tracked through the banking system accounts.

Annex 3 goals for changing the minimum aggregate net international reserves in foreign currencies convertible Lens (in million dollar S.U.A.)


31 December 1991-89 cumulative Increase on 31 December 1991 to 30 June 1992 26 30: September 1992 151 31 December 1992 476 net International Reserves comprise less than gross official reserves its commitments.
The goal of the program, the gross official reserves will be defined through the availability of monetary gold, special drawing rights, the reserve position F.M.I. currency availability and in convertible currencies held by Romania's National Bank and commercial banks. Shall be excluded from the reserve assets long-term assets, deposits in foreign currency contrapostul owned by resident individuals and businesses, all assets in foreign neconvertibila, and precious metals other than gold. Gold coinage will be valued at a price of $ S.U.A. 362.18 record per ounce. On 31 December 1991, Romania's gross official reserves, as defined above, amounted to 1,109 million u.s. dollars, including S.U.A. gold valued at $ 814 million S.U.A.
For the program, reserve will be defined as commitments of the National Bank of Romania and of commercial banks in convertible currencies compared to non-residents with an original maturity of up to 1 year including, as well as the use of Fund resources. On 31 December 1991, Romania's international reserve, as defined above, amounted to $ 1,198 million S.U.A.
All assets and liabilities denominated in currencies other than the dollar S.U.A., including special drawing rights shall be converted to their courses from December 31, 1991 versus the dollar will be tracked S.U.A. Objectives on the basis of information provided by the Fund staff's National Bank of Romania. All changes of definition or assessment of the assets and liabilities, as well as details of the transactions related to sales, purchases or gold swaps will be also communicated to the personnel fund.

Annex 4 thresholds for contracting or guaranteed external debt external debt contracted or guaranteed maximum limits (in billion-dollar S.U.A.)


With maturities over 1 year and up to 5 years With maturity of over 1 year and up to 12 years during the period from 31 December 1991 to 30 June 1992:2.5 2.5 3.5 3.5 30 September 1992 31 December 1992 2.5 3.5

Sub-loans limits apply only to foreign debt contracted or guaranteed by the Administration, the National Bank of Romania or other public property units with initial due over one year and up to and including 12 years. The Administration is defined as it looks in the annex. 1. these limits Are excluded from debts included in international commitments, as they are defined in the annex. 3. Debts falling within these limits will be assessed $ S.U.A. courses in existence at the time when the contract or warranty shall become effective.
Compliance with the emission limits will be verified by the dates shown above on the basis of the information submitted by the Fund staff on all contractarilor and guarantees for new debt, falling both in and outside them.

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