Romania secures five billion Euro cushion over election year

Romania is set to sign a new five billion Euro precautionary stand-by arrangement with the International Monetary Fund and the EU this month, which will be operational in April

March 2011 - From the Print Edition

This safety net will put at the country’s disposal 3.6 billion Euro from the IMF, 1.4 billion Euro from the EU and a 0.4 billion Euro loan from the World Bank in case an unseen crisis strikes Romania.
“The new agreement will concentrate on promoting growth and employment while maintaining stability,” said Jeffrey Franks, IMF Mission Chief for Romania.
However Senate leader Mircea Geoana attacked the process of the deal by arguing that the Government “sinned” by not making the contents of the agreement and its negotiations transparent.
The agreement will last for two years, during which time Romania will continue to be monitored by the IMF.
President Traian Basescu said he “insisted” on the agreement covering two years, so that it could pass over the general election at the end of 2012.
The Head of State believes that any politicians trying to pledge to the electorate huge spending commitments will risk violating the agreement with the IMF, EU and World Bank.
“This will put any party who intends to fool voters with populist promises in a ridiculous situation,” he added.
Romania predicts the budget deficit will be 4.5 per cent in 2011 and three per cent in 2012, while the IMF argues the current account deficit will remain at five per cent for the next two years.
“Economic activity is now stabilising and we expect growth of 1.5 per cent in 2011 rising to four to 4.5 per cent in 2012, based on continued strong exports complemented by gradually improving domestic demand,” said Franks.
The IMF also believes that Romanian inflation has peaked at around eight per cent at the end of 2010. This unforeseen hike was mainly due to the five per cent rise in VAT in mid-2010.
“The economy has been stabilised and we have taken necessary measures to leave the crisis,” said President Traian Basescu. “We have created conditions to pass to sustainable economic growth.”
Romania has also decided not to draw the last one billion Euro tranche of its 13 billion Euro loan from the IMF agreed in 2009.