Tuesday, May 10, 2011

Romanian economy on track but reforms needed: IMF

09 May 2011

(BUCHAREST) - Romania's economy is on the right track but the pace of reforms must be maintained in order to avert possible shocks, the IMF head of mission Jeffrey Franks said on Monday.

"Things have improved but there are real dangers, such as instability in other parts of Europe," Franks told a press conference.

"Romania must not give in to the temptation to slow down the pace of reforms," he added.

In March, the European Union and the International Monetary Fund decided to grant Romania a fresh credit line of five billion euros ($6.8 billion dollars) to be drawn only in case of emergency.

Franks stressed that the performance criteria and targets set under the new deal had been met.

"Current indicators show that Romania will not have to draw" on the credit line, he said.

IMF and EU forecasts show that after two years of severe recession, the Balkan country will see its economy grow by 1.5 percent in 2011, and by 3.75 to 4.0 percent in 2012.

But Franks added that higher growth depended on accelerating structural reforms, including in state-owned enterprises.

Romania has pledged to restructure loss-making state-owned companies, whose overall arrears account for 4.0 to 5.0 percent of gross domestic product.

"It is critical that the state-owned enterprises become an engine of growth instead of a drag on the economy," Franks stressed.

Authorities plan to deal with this issue by selling minority stakes in energy companies such as power-grid operator Transelectrica, nuclear operator Nuclearelectrica, gaz transporter Transgaz and gaz producer Romgaz, and to close down several coal mines.

Under the new deal, Romania also promised to trim down its public deficit from 6.5 percent in 2010 to 4.4 percent this year, by keeping a tight lid on public-sector wages, slashed by 25 percent last year, and on pensions.

But the IMF and the EU warn that the real challenge will be to bring the gap under 3.0 percent in 2012, as part of Romania's efforts to join the eurozone in 2015.

The choice of the date has sparked off a a vivid debate, critics saying Romania would not be ready to adopt the single European currency in four years' time.

But Franks stressed: "The most important thing Romania can do is push reforms forward as quickly as possible regardless of data selected for euro acession."

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