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Franks (IMF): Even with IMF support 2009 and 2010 will be difficult for Romania
The 2009-2010 period will be a difficult one for Romania, even with the support received from the International Monetary Fund after an economic compression this year and zero growth next year due to the world economic crisis, the head of IMF mission to Romania, Jeffrey Franks said.
He pointed out that government policies should allow Romania to avoid the worsening of crisis effects and create a flexible and more competitive economy Frank said in an interview published on the IMF Internet page.
IMF officially announced on Monday night that the financing accord signed with Romania for two years was approved by its executive council and pointed out that the first installment of 4.37 billion DST (4.9 billion euros or 6.6 billion dollars) is available immediately. Previously Romania’s representative to IMF, Mihai Tanasescu had declared that the first financing installment would be distributed in 24-48 hours.
On 24 March Romania signed an accord for total financing of 19.95 billion euros, of which 12.95 billion euros from IMF, 5 billion euros from the European Commission, 1 billion euros from the World Bank and 1 billion euros from EBRD, EIB and IFC.The aid established with IMF covers three main areas – fiscal consolidation, bank reform and reducing inflation which will lead to recovering financial stability, Franks said adding that Romania’s government had already taken measures to restrict fiscal deficit by cutting down expenses and engaged to increase public investments to insure a long time improvement of competitiveness.
Romanian authorities established with IMF to include certain deficit targets in every quarter so that at the end of December it should not exceed 24.3 billion lei. For the first quarter, the deficit target is 8.3 billion lei, for the end pf quarter 2 it is 14.5 billion lei and for the end of quarter 3 – 18.6 billion lei. In July an IMF delegation is expected in Bucharest to evaluate the observance of the target established for mid year.
IMF imposed on Romanian authorities the adoption of restrictive fiscal and salary policies to gradually reduce budget deficit from 4.9% of GDP in 2008 to 4,6% this year, 3.6% in 2010 and 2.7% of GDP in 2011. In order to make sure that vulnerable groups in society are not seriously affected by reforms of the budget sector, the government should take protection measures for low wage employees in the public sector, of pensioners with small incomes and other categories exposed to the effects of economic recession, by re-launching net expenses for social security, the IMF representative showed.
Moreover, the adoption of prudent salary policies helps temperate price increases so that the central bank should reach the inflation target this year, after missing the objective two times in a row. Bringing inflation within the interval of BNR targets is one of the objectives established in the financing accord approved by IMF board on Monday.
IMF foresees that BNR will succeed in reaching the inflation target fixed for this year – 3.5% +- 1%, estimating that the annual inflation rate will drop to 4.5% in December.
Franks also explained that the government was taking measures so that the banking sector could remain healthy , able to intervene in case a bank was in danger. He also said that authorities had convinced the banks to come with additional aid as insurance for future losses, while foreign banks in Romania engaged to keep their money in Romania.