Some important issues discussed at the Annual Meeting of the IMF, World Bank and IIF in Istanbul, October 2009 Valentin Lazea National Bank of Romania Bucharest, November 19, 2009

1. The resurgence of economic growth Currently, growth seems to be V-shaped, at least in some developed economies (USA, Germany, France etc.) There was, after all, a de-coupling, since some emerging economies (Brazil, China, India) witness robust growth rates even in 2009, as a result of years of prudent macromanagement. For instance, the SE Asian countries which have learned their lesson in , will grow in 2009 by some 5.8 percent (while Emerging Europe countries will fall by circa 6.8 percent). In 2010, capital inflows directed towards emerging economies will revive to the level of 2008 (approximatively 600 billion USD), without reaching the record levels of Moreover, most of this capital will come as equity and not as credit.

2. A modified balance of economic power and representation As a result of much better economic performance, emerging markets (EM) feel entitled to request a larger representation within the IMF and the WB. Currently, developed markets (DM) hold 57.9% of the voting rights at the IMF, while the EM hold 42.1%. The latter request a reallocation of circa 7% of voting rights from DM to EM, to better reflect the new balance of power. The USA seem favourable to such a reallocation, since they only detain 17.1% of the voting rights. The great loser seems to be the EU, which holds 32.4%. The USA have declared that they favour a reallocation of 5% of voting rights, as well as a reduction in the number of constituencies, from 24 to 20.

3. Reviewing the dollars role as an international reserve currency In the long-run, the power of the dollar seems to be declining. Witness the trade between large blocks (Africa-China, Latin America-Asia) which takes place, more often, in other currencies. In a seminal article, Barry Eichengreen explores two possible scenarios: the demise of the dollar by a composite currency (such as the SDR), or the emergence of a triad of reserve currencies (dollar, euro, yuan). Both scenarios are problematic. The SDRs are handicapped by the lack of a liquid market. Its issuer, the IMF, is not acting as a central bank (and in order to do so, it would need a modified statute). The national markets of the eurozone lack homogeneity, with different risks attached to different governments. For the Yuan, a major handicap is its lack of full capital account convertibility. As a conclusion, Barry Eichengreen sees a diversification possible, but not sooner than two or three decades from now.

4. The increase in the capital of the IMF Combining the desire for a larger say of EM with the need to create a more liquid SDR market, some emerging countries (the BRICs) have agreed to participate in an increase of the capital of the IMF, buying new bonds issued by this institution. So, China is willing to buy bonds worth 50 billion USD, while Brazil and Russia, 10 billion USD each.

5. The perception about Romania In the IIF conference, Romania was singled out for the dramatic deterioration of its budgetary deficit, from 2.5% of GDP in 2007 to 5.4% in 2008 and to around 7.3% in The main reasons were unsustainable pension increases (some 2% of GDP) and budgetary wage increases (some 3% of GDP, of which 0.5% only in 2008). The health of the Romanian public finances depends critically on the reform in these fields, strongly requested by the IMF and WB.