Recalibrating Conventional Wisdom: Romania-IMF relations under scrutin
Recalibrating Conventional Wisdom: Romania-IMF relations under scrutin

Author(s): Cornel Ban, Daniela Gabor
Subject(s): National Economy, Economic policy, Financial Markets
Published by: Friedrich Ebert Stiftung
Keywords: IMF; financial policy; Central Bank; Liquidity management; financial stability;
Summary/Abstract: This study proposes a critical evaluation of Romania-IMF relations by focusing on financial, monetary and fiscal policy choices. As such, the study has two pillars. First, Daniela Gabor scrutinizes the IMF’s take on the Romanian central bank’s monetary and financial stability policies. Gabor finds that the central bank and the IMF have constructed and reproduced the fiction that the central bank controls monetary (and to some extent financial) conditions in the economy through its inflation-targeting regime. This fiction is useful for the central bank to deny responsibility for domestic economic developments, and for the IMF to construct balance of payment crises as crises of state intervention in the economy. Moreover, the central bank uses liquidity management instruments (standing facilities, open market operations) for the purpose of managing capital flows, and not for inflation targeting, as the IMF demands. Finally, both the central bank and the Fund share the belief that a gradual, orderly transition to a local banking model is to be achieved by market means rather than via regulatory interventions. This market-driven approach enables transnational banks to forge alliances with the central bank in order to oppose government-initiated measures by narrating them as measures that pose serious risks to financial stability.

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