Thursday, May 10, 2012

IMF praises Romania on aid deal, allows wage rises

BUCHAREST (Reuters) - Romania has shown strong commitment to its 5 billion euro aid deal and reached most of its targets, enabling it to start reversing some state pay cuts this year, an International Monetary Fund official said on Wednesday.

The country, which cut public salaries and raised sales tax to complete a previous 20 billion euro ($26 billion) bailout, has space to run a slightly higher deficit than initially planned and still be within its European Union commitments, said Jeffrey Franks, the IMF mission chief.

The new left-leaning government sealed parliamentary backing on Monday with a comfortable majority after public anger against spending cuts and tax rises helped it to oust the previous cabinet last month.

It needs to stay prudent due to risks from the euro zone and an election in November, Franks said.

"It is of crucial importance that Romania keeps this path. We strongly believe if Romania maintains this reform commitment this will pave the way to accelerated growth and rising living standards," Franks told a news conference.

He said the IMF had also agreed the new Romanian government could hike state wages in two steps, the first to come later this year, until wages are fully restored in 2013 to the level before the 2010 cuts.

The leftists' original plan was to restore wages to their pre-austerity levels before the parliamentary election in November, which by new Prime Minister Victor Ponta is expected to win.

Romania will now aim for a budget gap of up to 2.2 percent of gross domestic product (GDP) in cash terms this year, compared with a previous 1.9 percent, but that would still be within a broader target of 3 percent according European Union accounting standards.

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