Romania 'Won't Need' IMF Money This Year 2011-07-29

President Traian Basescu says Bucharest will not need to draw any money from its €5 billion IMF-led precautionary deal this year.
 

Romania's President yesterday downplayed reports that Bucharest would need to draw money from its preventive agreement with the IMF in order to reduce the budget deficit this year and in 2012.

“Romania doesn’t need any money this year from the IMF or the EU. But we do not know what will happen after 2011 on the markets,” Basescu said on Tuesday.

Basescu on Monday met IMF, European Commission and World Bank representatives, who are currently in Romania for the second evaluation of the country’s new stand-by agreement.

Following the meeting, the head of IMF’s mission in Romania, Jeffrey Franks, said he had “good news”, and that the report presented to the IMF Board would be a positive one.

The mission is in Bucharest to review Romania's €5 billion precautionary aid deal until August 1.

Analysts warn that the country still faces an uphill financial battle.

“Owing to the austerity measures that the government has implemented the budget deficit will be reduced this year, but at the cost of reducing investments and public spending,” economic analyst Ionel Blanculescu said. "The country still lacks a clear strategy to reinforce the economy and get out of recession," he added.

Romania's new, "precautionary" agreement with the IMF came into force in April.

Under it, Romania pledged to strengthen its economy by developing key sectors, including energy and transportation. It also promised to make better use of EU funds worth some €30 billion until 2013.

In May 2009, crisis-hit Romania obtained a two-year €20-billion emergency loan from the IMF, the EU and the World Bank in exchange for key reforms aimed at slashing public spending.

Last July the government cut civil servants' wages by 25 per cent, while thousands of state jobs were axed and VAT was increased by 5 per cent to 24 per cent.

The government says it had no other option to keep the economy afloat, but critics say that while other European countries are trying to find alternative sources to cover their deficits, Romania is relying exclusively on IMF help.