Tuesday, November 3, 2009

Romanian aid hinges on prompt budget approval-IMF

By Radu Marinas


BUCHAREST, Nov 2 (Reuters) - Romania's approval of a 2010 budget by Dec. 10 is essential for Bucharest to receive quickly a third tranche of aid from the International Monetary Fund, a representative of the Fund told Reuters on Monday.
An IMF mission began a second review of Romania's 20 billion euro aid package last week, seeking broad political support to keep the agreement going after the collapse of the centrist minority cabinet of Prime Minister Emil Boc in October.


The cabinet fell in a parliamentary vote of confidence, raising concerns over Bucharest's ability to meet criteria needed to continue drawing funds from the package and help safeguard the recession-hit economy.
Bucharest has agreed a budget with the Fund with a deficit of 5.9 percent of gross domestic product, but the draft bill has stalled due to the collapse of the government and political wrangling ahead of a Nov. 22 presidential election.


However, analysts say passing a budget could be difficult before the expected second round of the hotly-contested poll on Dec. 6 as politicians await their outcome.

'The budget is essential for the timely disbursement of aid money. It needs to be approved by parliament by around Dec. 10,' Mihai Tanasescu, Romania's IMF representative in Washington, told Reuters.
Romania needs the 1.5 billion euro tranche from the IMF to shore up its public finances and avoid deeper crisis. 

Asked what the chances were for the timely disbursement of the third tranche as scheduled, next month, Tanasescu said: 

'This is a very tough question. I see a 50/50 chance for it to materialise ... It all depends on a broad political consensus on approving the budget bill quickly.' 

He added that the Fund may show flexibility on other commitments Romania has agreed to, including putting into effect a bill to reform the public pension system by the end of the year and creating a unified public sector wage scheme. 

'Despite the fact that political parties understand the urgency, the process is difficult because of the legal aspects,' Tanasescu said. 

The interim cabinet has limited powers and cannot issue laws so parties would need to create a legal formula to solve it. 

Tanasescu also said the IMF is currently working on updating its current contraction forecast for 2009 from 8-8.5 percent and said there were chances the interim cabinet would find ways to achieve the year-end budget deficit ceiling of 7.3 percent/GDP. 

'The Fund is working on a slightly smaller contraction forecast for this year ... I believe the government will find solutions to meet its fiscal deficit commitments,' he said.

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