Friday, May 22, 2009

IMF pleased with Romanian govt fiscal actions so far

BUCHAREST, May 22 (Reuters) - Romania's centre-left government has taken appropriate steps to tighten its fiscal stance to fight the global crisis, the IMF said on Friday.

However, the International Monetary Fund's mission chief to Romania said the economy would continue to contract in the second and third quarter after global financial woes forced the country to secure 20 billion euros in IMF-led loans earlier this year.

"We are very pleased with the initial efforts of the government to comply with the economic programme," Jeffrey Franks told reporters.

"Stress tests for the banking system and ... a set of fiscal adjustments were done ahead of schedule, which is a very positive sign ... about the seriousness of Romania in complying with the programme."
Romania has turned from being an attractive destination for foreign investment to an economy plagued by ballooning foreign debt, a gaping current account deficit, bloated government budgets and sour market sentiment.

This has forced it to seek aid, following similar deals secured by fellow EU states Hungary and Latvia which suffered when private lending slowed sharply.

The economy contracted by 6.4 percent on the year in January-March and some analysts expect further shrinkage in subsequent months as manufacturing collapses and Romanians cut back spending.
"We have not reached the bottom but maybe the steepness of the decline will ease. (Quarter on quarter) growth will only turn positive late in 2009 or in 2010," Franks said.

Franks said he had "every expectation" the government's budget target of 5.1 percent of gross domestic product would be met, shrugging off concerns that the goal was at risk in an election year.

Romania will hold European parliament polls on June 7 and a presidential election in the fourth quarter.
However, he added the IMF would show flexibility in its conditions if economic conditions were to worsen.
The Washington-based lender has allowed Hungary to run bigger budget deficits this year and next, preventing the need for more austerity measures that could have stifled its ailing economy even further.
Franks said foreign banks had agreed to recapitalise their Romanian subsidiaries with 1 billion euros this year and next.

"We have agreed that banks will bring in some additional capital, by Sept. 30 for 2009 and by March 30 for 2010, to make sure their capital adequacy ratio is above 10 percent," he said. (Reporting by Radu Marinas and Luiza Ilie editing by Mike Peacock)

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