IMF approves second cash boost to prop up economy

The International Monetary Fund (IMF) has approved the second tranche of 1.9 billion Euro from 12.3 billion Euro for Romania to help prop up the local currency, keep cash in the banking system and bail-out the state’s budget deficit

October 2009 - From the Print Edition

Half of this cash will go to the monetary reserve to ensure currency stability and comfortable liquidity in the financial sector. The remainder of the money will go to the Government to cover the cash shortfall.
Under the IMF’s two-year stand-by agreement, Romania has so far received about 6.570 billion Euro.
“The inflation targeting regime and flexible exchange rate policy have helped cushion the impact of the crisis, while providing an appropriate anchor for monetary policy,” said John Lipsky, acting chair, IMF. “Improved stability in financial markets and declining inflation may provide some room for further easing, but a cautious approach is warranted given the still high inflation rates and remaining vulnerabilities to external pressures.”
The IMF praised the Government’s financial policies and continued to call for vigilance to respond to any signs of stress in the banking system, particularly the deterioration in asset quality, such as falling house prices.
“Our efforts in adjusting the budgetary deficit are proved by the positive evaluation made by the IMF,” said the Minister of Finance, Gheorghe Pogea.
Because the effects of the decline in the economy haver worsened later in the year, the Ministry, IMF and European Commission have increased the budget deficit target.
When the stand-by agreement was signed, the IMF established a 4.5 per cent budget deficit target, but after they evaluated the effects of the global crisis on the Romanian economy, they agreed with the Government on a new target of 7.3 per cent for 2009.
“Romania will continue its policy for fiscal consolidation in order to reach the target of three per cent budgetary deficit by 2011,” says Pogea.
IMF experts will return to Romania at the end of October or beginning of November to evaluate the country’s progress.