Friday, January 31, 2014

Romania’s IMF Deal Status Unclear on Premier-President Dispute

By Andra Timu and Irina Savu 
January 30, 2014


Romania’s accord with the International Monetary Fund and the European Union is caught up in a dispute between President Traian Basescu and the government over a fuel tax and its status is unclear.

The government wants to keep its pledges to the international lenders and sell state assets to narrow the budget deficit, after the IMF board canceled discussion of the accord in December because of the political deadlock, Prime Minister Victor Ponta told reporters in Bucharest today.

“It remains to be seen whether the domestic legal procedure will be completed and if the President signs the documents,” Ponta said. “I haven’t found a correct term to define the current status of the accord,” Ponta said when asked whether the agreement is frozen or suspended.

The approval of the Washington-based board is needed to complete quarterly reviews of the 4 billion-euro ($5.4 billion) loan, equally split between the IMF and the EU, from which Romania hasn’t drawn any funds yet. The country considers the accord precautionary as it aims to shield itself against market shocks and help reduce debt financing costs.

The second-poorest EU state, which secured the third consecutive accord with the IMF and the EU since 2009, has been embroiled in a feud between Basescu and the government in the past two months over an additional 7 eurocent excise duty on fuel. The two officials may discuss the tax and the accord at the next meeting of the Supreme Defense Council on Feb. 2, Ponta said.

The current joint IMF, EU, World Bank review mission will end on Feb. 5 with a new so-called letter of intent with Romania’s commitments, Ponta said.

Basescu Refuses

Basescu refused to sign documents needed to complete the previous IMF review saying the tax, which had the lender’s endorsement, harms the economy and the citizens, while Ponta says the tax is needed to boost state revenue and narrow the budget gap. The government has drawn up this year’s budget under the IMF-EU guidance, targeting a deficit of 2.2 percent of economic output.

After agreeing to a three-month delay to April of the fuel tax to get Basescu to approve the 2014 budget, the only thing the government can do now, is to postpone imposing the tax on diesel fuel for another three months, Ponta said yesterday.

The leu strengthened 0.4 percent to the highest since Jan. 8 to 4.5107 per euro at 1:12 p.m. in Bucharest today. The yield on Romania’s 2024 dollar-denominated bonds rose 2 basis points, or 0.02 percentage point, to 5.09 percent, according to data compiled by Bloomberg.


To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net

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