Bogdan Preda in Bucharest -

It all looks pretty positive in comparison to Greece, just a few hundred kilometres to the south: Romania got another two instalments totalling €2.3bn from the International Monetary Fund (IMF) at the end of February, pushing the central bank's reserves to an all-time high of almost €30bn, or about a quarter of the country's annual GDP.

But is Romania really more deserving of a handout than Greece? A closer look at what's happening in Romania reveals that the economy clearly isn't doing any better than it was a year ago; in fact, the fresh money from the IMF won't be the miracle cure to pull the country out of the crisis, which Prime Minister Emil Boc described it as just hours after the IMF agreed to disburse the funds to solve "probably the most difficult period Romania has been facing since World War II." Well, he said that in order to justify the "austerity measures" his government has had to implement as part of the IMF's loan terms.

It's still a bit unclear what exactly Romania's government has promised the IMF (again!) in order to get the money. But it's almost equally true that with no help during these hard times, scores of investments by western companies from both inside and outside the EU, which Romania joined in 2007, would see their investments fall apart, many of them even before they get to see any return. So for now it all seems like a win-win situation. Besides, formally at least, Romania hasn't been caught red-handed forging its statistical data, like Greece and Ukraine have. Also Romania, along with its southern neighbour Bulgaria, should be able to provide some kind of investment shelter in case large companies facing losses in Greece consider moving out of there.

But the question that begs a serious answer is whether the IMF and EU are betting that these loans to Romania will actually yield the expected results in terms of healing the economy and helping pull the country out of the present crisis.

The real problem

The main issue in Romania isn't necessarily the macroeconomic situation, because the data actually doesn't look that bad in comparison to other recent EU entrants, but the willingness to improve it. Therefore, the biggest problem is that despite the loud promises it would press on with reform, the new government itself seems far too relaxed after managing to secure three years in power after December's tightest presidential election in the past 20 years of democracy.

Romania seems to have developed a feature that the European Commission and the IMF, its main lenders, will have to take very seriously from now on: that of a black hole, sucking in a lot of loans and failing to show enough achievements because of a lack of efficient public management and insufficient implementation of the measures it agreed upon entering the EU, or even of its own laws.

The government realizes it doesn't have enough money to run the country after the global economic crisis halved foreign investments to about €5bn in 2009 from €9bn in 2008. It also realizes it can't raise the flat income tax of 16% because it would lose its competitive advantage in the region at a time when neighbouring Bulgaria taxes income lower, at 10%.

So, where is the Romanian government going to get money from besides the IMF? Well, it's looking around for easy tax-fixes. For example, it cut a facility by which very small companies, so-called micro-enterprises, were entitled to pay only 3% on their entire income. Such companies will now have to pay 16% on net profits rather than the 3% on total gross income. The result could be that about two-thirds of owners will opt to shut them down, thus causing the government to actually lose money, according to a survey.

Another way to cut spending of some €240m in 2010, in line with promises made to the IMF in order to keep the public deficit in check, would be to fire about 14,000 state employees. It remains to be seen whether it can pull off such a bold move, even though many of those workers are actually failing to do their jobs properly and preventing the country from getting all the money that's due it.

What Romania could do, but has so far failed to achieve, is to receive all the EU accession funds available to it. The country has missed out on billions of euros in non-reimbursable accession funds from the EU due mainly to a lack of political will and an inability of civil servants to create the necessary framework for such projects to happen. Romania is committing the cardinal sin of not making use of all free cash available simply because it hasn't put in place the mechanisms and monitoring to enable the absorption of such funds. Put more simply, the people paid to do such work aren't actually working.

Figures concerning the absorption of EU funds are mind-boggling: since it joined the EU in January 2007, Romania has received only about 5% of the funds it is still entitled to. Thus the country has actually paid six times more money into the EU budget than it has actually received. One terrible example is that the Ministry of Transport, in charge of the much-needed infrastructure works, is entitled to receive €32bn by 2013 from accession funds, but has only drawn 2.4% of that amount because it hasn't prepare the much-needed projects that would allow for such disbursements, according to the Ziarul Financiar business daily. The story is similar for each and every sector of the Romanian economy. "What's happening with the absorption of European funds in Romania is a sad story," says Werner Weihs-Raabl, head of infrastructure and public sector at Erste Bank, which owns Banca Comerciala Romana, Romania's biggest bank. "The fact that nothing has happened in this sector is disappointing."