Friday, August 14, 2009
Romania Hit by Severe Recession
With Romania in economic trouble, the International Monetary Fund (IMF) is evaluating whether the country has met requirements for a multi-billion dollar bailout package.
IMF delegation chief to Bucharest Jeffrey Franks said this week that Romania's GDP will drop 8 to 8.5 percent this year.
"A very severe recession hit Romania," he told reporters in Bucharest.
In March, Romania and the IMF agreed to a 19.95 billion euro ($28.3 billion) bailout package, to be delivered over a period of two years. The IMF's mission in Bucharest was to evaluate whether Romania is meeting certain requirements to eventually pay back the loans.
Furthermore, the Romanian government negotiated with the IMF over how to spend the money. It was initially agreed that the money would be used to fund foreign currency reserves of the Romanian Central Bank. But the Romanian government requested to use the funds to cover part of the budget deficit.
Franks said that while the "Romanian banking system managed to put up with the negative economic situations," he warned that the system will continue to be under stress.
Inflation is expected to reach 4.3 percent by the end of the year, with a current account deficit of 5.5 percent for this year. The decrease is a result of the international economic downturn and fall in demand for goods and services. For the next two quarters of 2009 the downturn is expected to slow down, with modest economic growth for 2010.