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IMF’s tough verdict: Romania severely hit by recession

The economy will decrease by 8-8.5 per cent in 2009, compared to a contraction of 4.1 per cent as previously anticipated, the head of the IMF delegation, Jeffrey Franks, told a press conference at the end of the evaluation mission in Bucharest.

"Romania was hit by a very severe recession," Jeffrey Franks, head of the IMF mission which carried out an evaluation of the way in which Romania has fulfilled its obligations from the Stand by Agreement, said yesterday. He stressed that the inflation dropped much more quickly than expected, and the projection of the Fund was revised at a level of 4.3 per cent for 2009. From the point of view of the targets set by the government, in terms of quantity they were fulfilled, except those connected with the arrears, Jeffrey Franks stressed. "We reached an agreement for the assessment of this first period of evaluation of the assistance for Romania, with what has been done so far and what it is necessary to do from now on," Franks said.

The economy will register a growth of 0.5-1 per cent in 2010, according to the IMF. For 2009, the economy will decrease by 8-8.5 per cent, compared to a contraction of 4.1 per cent, as anticipated in May, Jeffrey Franks estimates. The IMF official pointed out that the Fund has not yet obtained the data regarding the general consolidated budget of Romania, in order to check whether this target was observed. "We reached an agreement at the level of the mission of experts for the evaluation of this first period for the assistance granted to Romania. At the level of the team of experts, the same as the colleagues from the Bank and from the Commission, we reached an agreement in connection with what has been done so far and what will be done from now on. Now it is our turn to discuss with the management of the Fund, and it will be at the discretion of IMF Board to make the final decision. From the point of view of the targets that we had agreed for the end of June, they were fulfilled in terms of quantity with one exception.

As for the data regarding the arrears in the general consolidated budget, we don't have information to see if that target was observed."

IMF expects also a continuation of the disinflation process in Romania in the next months. "As for inflation, it decreased faster than we expected, and thus it will reach 4.3 per cent at the end of 2009," Franks said.

Some of the money could be used to cover the budgetary deficit

We do not want to push towards a contraction much more severe than that which could be obtained through a budgetary correction, Jeffrey Franks also stressed, according to Agerpres. "It will be necessary to find funding sources to cover the 7.3 per cent budgetary deficit agreed now. We shall propose to direct some of the money from the next two tranches to covering the budgetary deficit," Jeffrey Franks said.

The budgetary deficit of Romania will decrease from 7.3 per cent in 2009 to loess than 6 per cent in 2010, the chief of the IMF delegation, Jeffrey Franks, mentioned yesterday. "For 2010, we reached the conclusion and the agreement between the Romanian authorities and ourselves, the IMF expertise team, that additional efforts of 2 - 2.5 per cent of GDP will be necessary. The deficit will decrease from 7.3 per cent in 2008 to less than six per cent. The diminution will not occur automatically, through the additional effort of 2.5 per cent of GDP, but because the economic situation will continue to be weak," Jeffrey franks said.

The head of the IMF mission stressed that the Fund wants to avoid the worsening of the situation of Romania and pursues a balance between the need to consolidate the economy and the extent of the consolidation measures, especially because the current situation is the result of a first half year with much weaker performances than the Fund had foreseen upon the conclusion of the Stand By Agreement. One element is the current account deficit, which rises to 5.5 per cent, against 7.5 per cent, as foreseen by the IMF experts.

We do not request to lay off 150,000 civil servants

The IMF mission has not requested the Romanian Government to lay off 150,000 civil servants or any another figure. "IMF discussed the budgetary deficit and the need to cut the expenditures, but does not suggest the means through which this would be done," Franks said.

At the same press conference, Jeffrey Franks also stressed that he is satisfied with the way in which the fiscal responsibility law is being worked out, but he showed that a closer collaboration between the central and local authorities is necessary, in order to assure both control and fiscal responsibility mechanisms, and an autonomy relying on these bases.

According to IMF, the method to increase the revenues to the state budget is to improve the collection, not to introduce measures likely to strengthen the fiscal policy.

In the social assistance area, IMF showed that the additional resources, which were agreed, are necessary, but requested the Romanian authorities to make sure that there will be less benefits in the place of the 200 social benefits, which must be better directed and controlled, in order to go only to those who need them.

Romania should cut the public sector's expenditures on wages on the medium term (3-5 years), from the current 9 per cent of GDP level to 6 per cent of GDP or less, Jeffrey Franks added. He explained that these cuts cannot be done immediately, instead needing a period of 4-5 years with a drop of 0.5 of GDP per year.

The banking system coped well with the situation

The Romanian banking system coped well with the situation, in spite of the evolution of the financial crisis and we are happy that all the ten foreign banks present in Romania maintained their exposure on Romania, Jeffrey Franks said. The National Bank will have to remain cautious because of some possible pressures on the rate, the head of the IMF mission also stressed. "We support the National Bank in its approaches to relax gradually the monetary policy, in the moment when the conditions allow it, but it will remain cautious," the IMF official said.

The fund worried about the financial situation of the state companies

The IMF representatives are worried about the financial situation of some state companies, the chief of the IMF delegation, Jeffrey Franks, also declared. "We continue to be worried about the financial conditions in some state companies. We agreed also here that additional efforts are necessary in order to assure their better monitoring, especially of those which register significant losses or arrears," Jeffrey Franks stated.

Geoana: The anti-crisis measures do not yield results

The president of the Social Democrat Party, Mircea Geoana, emphasized yesterday that it is necessary to change the economic strategy, because, as shown also by the IMF evaluation, it is obvious that the measures against crisis and for economic stimulation taken by the Government do not give results, Agerpres informs. According to Geoana, Romania has suffered a "severe" economic contraction, and if the same policies are applied, the risk to be even more severe grows up, and we may have a dramatic situation in September-October.

Orban: Romania risks default of payment

PNL first vice president Ludovic Orban sounded the alarm on Monday about the risk for Romania "to deepen its economic crisis," getting into default of payment, Agerpres informs. "The request that the Government has addressed to the representatives of the International Monetary Fund to use the loan in order to pay the salaries and pensions actually conceals the fact that Romania is in danger of getting into default," Orban declared in a press conference, after the meeting of the Central Political Bureau of PNL.

The PNL leader said that Boc Government is interested to pay these debts until the presidential elections from autumn. According to Orban, "Romania is not governed by the Romanian Government, it is left under the administration of the IMF representatives." In the opinion of the Liberal leader, Romania's deficit may rise to ten per cent "without any tendency to be corrected."

AOAR: MNCs will control the economy

The multinational companies will dictate Romania's economic development if the Romanian authorities won't take the measures needed to support the local business environment, measures such as encouraging entrepreneurs by offering security funds, Cristian Parvan, the secretary general of the Association of Businessmen in Romania (AOAR), stated on Monday for Agerpres.

Against the backdrop of the conclusions presented by the officials of the International Monetary Fund, officials that have completed the first evaluation of the stand-by agreement with Romania, the AOAR representative pointed out that ‘if the authorities will continue to spend money on excessive and unfocused social protection, then the economy will worsen on a yearly basis.'

Dan Nica: Romania avoided a disaster this year

Romania avoided a disaster this year, more precisely a 14 pc decrease of the Gross Domestic Product that would have taken salaries and pensions down by 20 pc, Social-Democrat vice-premier Dan Nica declared Monday. According to the source, the Government was able to avoid the disaster by taking credible measures, which convinced the IMF to grant the financial loan to Romania.

EC: Gov needs to pass additional measures

An European Commission (EC) team was part of the IMF mission to Romania in the context of international financial assistance granted to this country. The EC delegation, led by Unit head Fabienne Ilzkovitz, deemed implementation by Romania of its economic programme as satisfactory, according to an EC press statement. Yet, the worsening of economic conditions during the first half of this year requires government to adopt additional measures, including structural reforms to prevent a rise in the budget deficit, which is likely to be higher than previously expected.Ilzkovitz is head of the Economy and Financial Affairs General Directorate for a number of countries including Romania. The mission unfolded July 29 through August 10.

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