CORNEL BAN, GABRIELA GABOR Recalibrating Conventional Wisdom: Romania-IMF relations under scrutiny I. The IMF’s position on monetary and financial policies in Romania Introduction The program did not include any conditionality to improve the operation of the central bank’s inflation targeting framework. IMF 2014(p.13). Conventional discussions of the IMF’s presence in Romania typically portray the government as the (often reluctant) negotiation partner. When the economy hits a balance of payments crisis, as it so often did since 1989, the IMF sits down at the negotiating table to work out a program for struc­tural reform and macroeconomic stability that persuades politicians to undertake unpopular, if deeply necessary, fiscal adjustments and privati­zations. This is how IMF country reports have de­fined the policy challenges in Romania both before and since the crisis(IMF, 2014). Tellingly, Christine Lagarde’s Bucharest speech in July 2013 highlight­ed the structural(privatization and liberalization) and fiscal reforms necessary to join, as Lagarde put it, the European family. In contrast, the relationship between the IMF and the Romanian central bank(BNR henceforth) re­ceives less attention, as if BNR’s actions have little relevance for the build-up of vulnerabilities before and the unfolding of the crisis. This microcosm of money neutrality, the theory that monetary poli­cy cannot have‘real’ effects, should be examined more carefully peculiar because balance of pay­ments problems can have both real and/or mone­tary causes; and because commitments under IMF agreements are signed by both the prime minister and the governor of the central bank. The purpose of this contribution is to investigate the key concerns that IMF country reports have expressed towards the Romanian central bank’s monetary and financial stability policies. These are grouped in three distinct themes: g The inflation-targeting regime: how effective are the policy instruments? g Liquidity management: are central bank’s inter­ventions in money and currency(fx) markets con­sistent with the inflation-targeting regime? g Financial stability: what should be the post-cri­sis rethink of the cross-border banking paradigm and the increasing importance of portfolio inflows (capital account management) In answering these questions, two observations are important as methodological underpinnings for this contribution. First, there is no one-to-one relationship between the theoretical concerns that the IMF outlines in its country reports and its policy advice. The contribution approaches such instanc­es where analysis and policy advice do not align closely as windows into the political economy of the IMF’s engagement with monetary-financial is­sues at country level. There is a second point of dis­juncture, between the IMF’s advice and the BNR’s policy decisions. Put differently, although scholars and Romanian public discourses typically focus on the politics of disagreement between govern­ments and the IMF, the Romanian central bank has made policy decisions that run contrary to IMF advice. The report maps out these contradic­tions, and reflects on why it may be easier for the central bank to have policy autonomy during IMF agreements than it is for governments. Is it about the nature of disagreements, on detail rather than substance? Or about the IMF’s perceptions that the central bank is its most‘sympathetic interlocutor’ on the domestic policy scene, an interlocutor that merits certain policy autonomy? In exploring the questions above, the contribution makes three arguments: g The BNR and the IMF have together constructed, and continuously reproduce, 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. g The BNR uses liquidity management instruments (standing facilities, open market operations) for the purpose of managing the capital account(cap­1