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Procedía Economics and Finance 22 (2015) 755 - 761
2nd International Conference 'Economic Scientific Research - Theoretical, Empirical and Practical Approaches', ESPERA 2014, 13-14 November 2014, Bucharest, Romania
International financial institutions and the Romanian transition: remarks on a bibliographical investigation
Tudor Ciumaraa*
a "Victor Slävescu " Centre for Financial and Monetary Research, Calea 13 Septembrie no. 13, Bucharest, 050711, Romania
Abstract
This paper investigates the perceived influence of international financial institutions on the Romanian transition. Although the interventions of these institutions in Romania have frequently been subject to public scrutiny, to the author's knowledge the opinions and experiences of local specialists and decision makers have been scarcely investigated in a structured manner. The context of the study lies in the deep transformations of the Romanian economical and political environment in the 1990s, which have been significantly shaped by external influences. The study aims to provide a systematization of the main perspectives on the interaction between the international institutions and Romanian decision makers during this period. Therefore, the main method of study is represented by a critical review of the economic and political literature related to the Romanian transition. The literature available on the subject shows a variety of approaches and levels of analysis. As a consequence, the review is structured based on the personal positioning of the authors (decision makers, academics, foreign observers) and the way they position themselves regarding the research topic (critics, supporters, neutral observers). The paper closes with several observations regarding the main viewpoints on the subject, indicating the determined directions for the next stages of research.
© 2015 TheAuthors. PublishedbyElsevierB.V.This is an open access article under the CC BY-NC-ND license (http://creativecommons.Org/licenses/by-nc-nd/4.0/).
Selection and/or peer-review under responsibility of the Scientific Committee of ESPERA 2014
Keywords:decision makers, external influences, economic transition, IMF, World Bank, Romania, academics, literature review, foreign observers;
* Corresponding author. Tel.: +40-724-079-495. E-mail address:tudor@ciumara. ro
2212-5671 © 2015 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.Org/licenses/by-nc-nd/4.0/).
Selection and/or peer-review under responsibility of the Scientific Committee of ESPERA 2014 doi: 10.1016/S2212-5671 (15)00300-7
1. Introduction
This focus of this paper is represented by the way the influence of international financial institutions (IFIs), such as the International Monetary Fund and the World Bank, was perceived during the Romanian economic transition in the 1990s. While not attempting to analyze the motivations of the international institutions, or their entire strategies regarding public policy on target countries, some relevant perspectives emerge, contributing to the knowledge base of the larger field of international development. Although the interventions of these institutions in Romania have frequently been subject to public debate and analysis, to the author's knowledge the opinions and experiences of key local specialists and decision makers have been scarcely investigated in a structured manner. This paper is certainly just a stepping-stone in the analysis of this subject. The related literature is quite rich and we can expect interesting new information to emerge in the years to come. However, the framework of research proposed can be of use in further efforts to investigate the subject.
2. Structure of the investigation
The context of the study lies in the deep transformations of the Romanian economical and political environment in the 1990s, which have been to a significant extent shaped by external influences. The study aims to provide a framework for the systematization of the main perspectives on the interaction between the international financial institutions and the Romanian decision makers during this period. Therefore, the main method of study is represented by a critical review of the economic and political literature related to the Romanian transition. The focus of the literature review was on key figures of the transition or seminal authors. The literature available on the subject offers a variety of approaches and levels of analysis of the theme. As a consequence, the review is based on the personal positioning of the authors (decision makers during the transition, academics or foreign observers) and the way they position themselves regarding the research topic (critics, supporters, neutral observers). It should be mentioned that initially the research was limited to Romanian decision makers and academics, but in the end, it appeared reasonable to expend the focus to foreign observers as well, who might contribute with interesting and important facts. The table below presents the general structure of the research
Table 1.Structure of the analysis.
Positioning of the authors Critics Supporters Neutral observers
Decision makers
Academics
Foreign observers
Of course, sometimes the border between these categories is rather diffuse. For example, many of the decision makers during the transition came from academia and after their political and administrative activities, they returned to the community of scholars. The choice of placing them in a category or another was based on their role in the economic transition and their main professional position during the period of interest.Also difficult sometimes was to classify the way the authors positioned themselves related to the subject of analysis. In some cases, objective analysis was blended with discrete forms of criticism or support.
As expected, perhaps, quite often the elements of information of interest to this study take the form of storytelling. Enough time has passed since the 1990s to have a substantial body of memoirs from those that had first hand experiences related to the study. Such autobiographical resources are very interesting, especially since it is a much smaller chance that the author has a hidden agenda when describing the interaction between the international institutions and the Romanian officials (except, perhaps, the desire to present his own actions in a positive light or explain them).
The subject of the research is quite delicate and concerns the true objectives of the local intervention of the financial institutions. Organizations such as the World Bank and the IMF attach structural adjustment conditionalities to the loans they give, mainly related to privatisation, elimination of subsidies or austerity programs.One of the main questions of this paper is weather the International Financial Institutionsoperate outside
democratic control and scrutiny, and are able to impose their preferred economic solutions accross the world (as stated by Murphy, 2008, p. 714).The argument made by Murphy is thatthe core characteristics of the new global economic system include forced policy homogenization, favouritism towards transnational corporations over local solutions, and incorporation of national elites into global structures despite democratic deficits and wholesale corruption (p.715).There are various other issues raised in relation with the IFIs, some of which are mentioned in this study.Whileit is not necessarily the objective of the study to entertain conspiracy theories, it is not either to purposely avoid them. Although the research question has many nouances, basically there are two sides of the coin: the international financial institutions operated in Romania having in mind the Romanian best interests or different interests, of entities that controlled them.
3. The decision makers
3.1. Critics
When referring to the "decision makers" we generally understand members of the government that had direct interactions with the IFIs in their official capacities. There were dozens of such officials in the 1990s whose testimonies could be very interesting in this matter. For example, a former Romanian labor minister from the early 90's (Zamfir, 2009, p.166-167) describes how was written the letter of intent Romania presented to the IMF in 1991, laying out the policies it intended to implement. So, the labor minister called the prime-minister, after receiving a draft letter, asking who wrote it, since it had not been discussed in government meetings. The prime minister replied the IMF had written it. "What do you mean?" the minister said. "Maybe it's their intention?" "No", the prime minister said. "It's our intention. The IMF wrote it and we have to accept it and present it as ours." "And can we discuss it?" "Yes, but we have to adopt it". The overall impression of Mr.Zamfir was that the intervention of the "West" was brutal and that the World Bank and the IMF imposed their opinion using a sort of political and economical blackmail (p. 166). Besides the conclusion that the path of the Romanian transition had huge avoidable costs, Zamfir also makes an interesting observation (p. 168): to the mistakes made by the West it cand also be added the inhibition of the internal capacities of identifiying solutions for the complex problems faced by Romania. This is an issue that can be adressed in the discussion of the process of elites formation in Romania as well as regarding the development of different types of experts, such as management consultants and economic researchers. It may become interesing at some point to explore the arguments that may point to the idea that this inhibition of internal capacities was purposly not avoided.
A very strong opinion regarding the financial institutions in question has form prime minister of Romania Nicolae Vacaroiu, who confesses: To be honest with you, I can say that the IMF and the World Bank represent in the financial-monetary field, but also in economic policies, what used to be the soviet commissars(Vacaroiu, 1998, p.96). This is a concise comparison but in just a few words it conveys a lot of information. The soviet comissars have been the tools used several decades before to impose an alien economic order and also to plunder the country. Just like minister Zamfir, Vacaroiu uses the word brutal to describe the imposing of economic and financial strategies by the IMF and World Bank, institutions that serve the interests of the great powers (p.130).On a quite different note, former minister of finance Florin Georgescu (2000) has a very balanced, yet nuanced, presentation of the role and mistakes of the IMF in Eastern Europe and Romania in his foreward to Patrick Lenain's "Le FMI".
3.2. Supporters
As expected perhaps, not everyone feels the need to criticize the intervention of the IFIs. For example, another prime minister (Vasile, 2002) prefers to focus his discussion more on the critical importance of the financial institutions in the long-term development of Romania, everything correlated in his presentation with good performance of the government he lead. It is useful to mention that this account was given in the prime minister's memoirs, which can be considered to carry a certain amount of subjectivity. With a focus also on the long term, Isarescu (2006, p. 163), former prime-minister and long term governor of the National Bank, considers that the agreements with the international financial institutions supported the Romanian transition, being in the long term national interest and also being politically neutral.
There is one perspective that presents the IFIs as scapegoats, institutions that took the blame for necessary but painful changes. In the eyes of former president Emil Constantinescu(2008) the IMF not only that absolved the European Union from paying the very high costs of the economic consultancy for the post-communist transition, but also took over the resents that people felt for the social costs of the economic reforms. To the people in South Eastern Europe, these seemed as imposed by the IMF and not by the European Union.
A former minister of finance, Mr.Ionut Popescu perhaps in an indirect reply to prime minister Vacaroiu, expressely mentioned that the IMF experts were not soviet commissars. In his oppinion theyaccepted arguments but thought linearly (Popescu, 2009). So, what Popescu tries to say in a polite manner is that the mistakes made by the IMF were not due to a hidden agenda but to limitations in the economic vision of it's officials. One of the earlier accounts of the relationship between Romania and the IMF is given by Mircea CoS ea, former minister of state, who was writing (1995, p. 175) about the evolution of the relationship between Romania and the IMF, mentioning that the negociating parties became partners. Mr. CoS ea was at the time active on the political scene and his position on the subject could have been seriously influenced by short-term political objectives.
3.3. Neutral observers
To describe decision makers as neutral observers is somewhat strange. This term is actually used in the paper to indicate an (attempt to make an) objective analysis of the relationship between the IFIs and Romania. An example in this sense is long-term member of the Parliament, Varujan Vosganian (1999, p.150-160) who presents in his paper the government actions, the terms of the agreements with the international institutions, some of the errors that were made, but all in a neutral, balanced manner. The same can be said about former prime minister Theodor Stolojan (1999, p.5-6), who points out to the fact that the international financial institutions managed to bridge the economic policies of the successive governments, showing both positive and negative aspects of their implications.
In presenting the behavior of the financial institutions towards Romania, which showed a lack of desire to provide the country with needed financial resources, former president Ion Iliescu chooses to explain the reasoning for these institutions actions, rather than blame them for not helping the country (1994, p. 148). Again, just as was the situation with some other accounts we mention in this paper, Mr. Iliescu was at the time actively involved in politics, at the highest level. We could say that he did not have the liberty of expressing his ideas on the subject without considering the effects of his genuineness.
4. The academics
4.1. Critics
Among the first critical assessments of the role played by the IFIs on the Romanian economic transformation is that of Ciutacu(1992, p.219-220), who considers that economic competition and political propaganda are usually correlated, even if the often become divergent. His point was that the IMF, IBRD and EBRD financed consumption in Eastern Europe in order to support production in the West. So, no deep secrets in this relationship, just economical and political common sense, but not in the fashion depicted in public statements. Two decades later this idea is presented by Vacarel (2011, p. 18), member of the Romanian Academy. While discussing the role of the IMF and IBRD in the transition,he places blame for the errors made: in reality, irrefutable evidence exists from which it results that the measures for attaining the objectives were imposed by the international financial institutions and that these aimed at satisfying their own interests.
In a more indirect approach, ConstantinescuN.N. (2000, p. 92), also member of the Romanian Academy, considers that the economy of the country should be exerted from within, not from foreign orders, coming from the IMF, World Bank or elsewhere. This was a gentle suggestion of the fact that such orders had come and the national economy had been ruled based on them. And, finally we mention yet another reference to the soviet commissars, this time coming from the academic environment. Dinu (1999, p. 382-383) makes an indirect reference to the commissars mentioned by Vacaroiu, stating that the lack of flexibility of the IMF and World Bank make the recipient countries feel that their strategies are a sort of forced export of transition, not very different from the export of revolutions that Moscow had made over five decades before.A more clear-cut positioning is that of Badescu and
Dumitrescu (2010) have a very critical perspective over the role and influence of the IMF and World Bank in general and in Romania in particular.
4.2. Supporters
Open supporters of the IFIs interventions in the 1990s are less easy to find in the academic environment. This can at least partly be due to the difficulty of distinguishing between objective observers and those completely in favor of these interventions. We can therefore mention at this time the position of Iordanescu (2009), who points to the many faults of the Romanian system of transforming the economy and the society as an argument for the implication of the IMF.
4.3. Neutral observers
A more detailed discussion of the subject is that of Dinu and BrateS (2013), whoalso find some faults in the Romanian political and academic elite. According to them the political elite was imitative(p. 73) while the academic elite was peculiar because of its lack of involvement in substantiating the theoretical aspects of the national economic strategy (p.310). So, yet another source that points to the importance of studying the evolution of the local economic research environment. On a different note, Abraham (2006, p. 138) preferes to focus more on the ideological confusionthat was associated in Romania with the neo-liberal intervention of the IMF.
The IFIs and the EU had an important role in bolstering the institutional capacity of the Romanian state (Pop, 2006, p.146). Pop also notices (p. 184) that "to their credit, the IFIs used their comparatively secure position and far superior resources to absorb some of the risks involved in their relationship with the Romanian governments." Stoica (1997, 2000) makes a detailed presentation of the IMF, including it's involvement in Romania. This statement can perhaps summarize his position regarding the role of the IMF in Romania: we must mention that the IMF is not specialized in the process of social and economical reconstruction through the transition from command economy of communist type to free market economy (Stoica, 1997, p. 13, 2000, p. 21).
Not always the literature relevant for the subject of this study is actually focused on it. Sometimes, just remarks, placed in discussions of rather different topics, can also be relevant. Such as the case of the brief mentioning of the possible mistakes contained in the IMF recipe which is made by Pop (2005, p.16), who places most of the blame for missing many opportunities of the transition on Romania's inability to have proper microeconomic policies.
5. The foreign observers
5.1. Critics
Among the critics of IMF intervention, we find Oatley and Yackee (2004) whopresent arguments that American interests shape IMF conditionality agreements and American policymakers influence the IMF to pursue American financial and foreign policy objectives. Their findings are also partially supported by those of Stone (2008).
A remarkable figure in the economic and financial world, Stiglitz (2002) makes a rather strong case against the IMF in his depiction of the institution's experiment in Romania (Eventually, at least in the case of Romania, the failings of the strategy became evident even to the IMF, p. 205), with positive comments towards the local administration (mentioning that less competent or more corrupt governments might have been tempted to accept the financial blackmail that had been facilitated by the IMF.
5.2. Supporters and neutral observers
There are numerous accounts of the implication of the IFIs in Eastern Europe after the collapse of communism. For example, Bartlett (2001, p. 82) mentionsthe critical role of IFIs in governance practices in the former communist countries whileLimpach and Michaelowa (2010) present arguments regarding the mixed political impact of the international financial institutions on the recipient countries.
4. Conclusions
As mentioned at the beginning of the paper, this research is by no means finished. Many relevant sources are yet to be analyzed and classified in the proposed framework and we could also expect many interesting new accounts of the economic transition in the years to come. The results obtained so far have beensummarized in the table below.
Table 2.Structure of the findings.
Positioning of the authors Critics Supporters Neutral observers
Decision makers Vacaroiu, 1998 Vasile, 2002 Iliescu, 1994
Georgescu, 2000 Isärescu, 2006 Vosganian, 1999
Zamfir, 2009 Constantinescu E., 2008 Popescu, 2009 Stolojan, 1999
Academics Ciutacu, 1992 Dinu, 1999 Constantinescu N.N., 2000 Badescu & Dumitrescu, 2010 Vacarel, 2011 Iordänescu, 2009 Stoica, 2000 Pop N., 2005 Abraham, 2006 Pop L., 2006 Dinu & Brates ,2013
Foreign observers Stiglitz, 2002 Oatley & Yackee, 2004 Stone, 2008 Murphy, 2008 Bartlett, 2001 Limpach & Michaelowa, 2010
The situation presented in Table 2 is not straightforward. For example, in the category of decision makers we have former prime ministers in all positions analyzed: critics or supporters of the intervention of IFIs, as well as neutral observers. Perhaps, in the future, the analysis will benefit from a subsequent filter, represented by the ideological stance of the authors analyzed. A certain segmentation appears to emerge, with authors more inclined to left-wing politics tending to be more critical regarding the IFIs than those positioned in the right side of the political spectrum.
The issue of the role played by the international financial institutions in the Romanian transition is rather complex and clear answers are difficult to reach if objectivity is to be maintained. This conclusion is supported by the vast differences in opinions revealed in the course of the research. However, common perspectives can be noticed, with similar issues raised by different individuals, with different experiences in relation to the studied events.
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