Monday, May 25, 2009

Romanian economy seen shrinking as jobs get cut

By Alina Wolfe Murray

Associated Press Writer / May 22, 2009

BUCHAREST, Romania—Unemployment will continue to rise sharply in Romania as the economy is set to shrink this year despite an International Monetary Fund-led bailout loan of euro20 billion ($26.4 billion), an IMF official said Friday.

IMF Romania mission chief Jeffrey Franks said economic results for the first few months of 2009 "were substantially worse" than expected, calling the downturn "quite sharp." This follows strong economic growth of over 6 percent in the years before the financial crisis. However, he noted that pressure on the financial markets had started to ease.

Franks said 2009 would be "difficult, even with good policies and international support," adding he expected a turning point in the economy at end of 2009 or the beginning of 2010.

The unemployment rate has climbed to about 5.7 percent, but Labor Minister Marian Sarbu predicts it may top 8 percent by the end of the year.

Franks said a positive sign for the financial system came from the support pledged by European banks to boost funding to their subsidiaries in Romania to help them weather the financial crisis. Nine banks, including Erste Group Bank, Raiffeisen International, Societe Generale, Volksbank, and Alpha Bank vowed this week to increase the minimum capital adequacy ratio for subsidiaries to 10 percent from 8 percent.

Franks said that this will inject about euro1 billion ($1.37 billion) into the system in two stages, at the end of September and the end of March 2010.

Earlier this month, the IMF approved a euro12.95 billion ($17.1 billion) loan to Romania to cushion the effects of the sharp drop in capital inflows caused by the global financial crisis.

The two-year loan is part of a larger euro20 billion package to which the European Union, the World Bank and the European Bank for Reconstruction and Development are contributing, among others.

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