The conclusions of international lending institutions

Romania has met the obligations undertaken through the stand-by agreement signed with the International Monetary Fund, the European Commission and the World Bank, regarding a loan of roughly 20 billion Euros. This is the conclusion of the assessment mission carried out in Bucharest by IMF experts, who announced on Wednesday that Romania deserves the next payment from the loan, amounting to some 900 million Euros.

However, the IMF team operated a downward adjustment of its economic growth forecast for this year. Because of problems facing the region as a whole, but also because of the floods and the low domestic demand, the Romanian economy will shrink in 2010 by another 1.9%, and it may start growing next year at the soonest. This is why the chief of the IMF mission, Jeffrey Franks, has recommended that the austerity measures taken by the government should be carried on. These measures primarily include the 25% cut of public sector salaries and the increase of the VAT from 19% to 24%. He has also criticised the poor absorption of European funds, which may bring some life into a comatose economy. Jeffrey Franks said:

“Evidence from numerous states suggest that a country with major fiscal problems also has significant difficulty in ensuring economic growth. The IMF views fiscal adjustment as the first and foremost policy for resuming economic growth. The most important measure to boost the Romanian economy, at the moment, is to speed up the absorption of European funds.”

The IMF has also recommended that the government should carry on the reform of social assistance programmes, to resume the privatisation and restructuring of state-owned companies, and to strengthen the monitoring and regulation of the banking sector. The next payment from the loan is not intended for consumption, but for the National Bank, which will use this money in order to strengthen the country's currency reserve and maintain a steady currency exchange rate. President Traian Basescu in his turn insisted that the austerity measures must not only be kept in place, but even deepened:

“We have issued normative acts regarding the lay off of 74 thousand public sector employees. In my opinion, this is not enough. Unless we carry on the austerity measures in 2011 as well, we will not get Romania back on its feet. The severe imbalance generated by the measures applied in 2007 and 2008 must be corrected in 2010 and 2011.”

The president also warned about the deficit in the pension system, which may reach 4.5 billion Euros in 2013, if the current legislation is maintained. And last, the president criticised the government members who, shortly after the IMF experts presented their conclusions, rushed into announcing that next year, the reduced salaries of public sector employees might be increased again.

(Radio România Internaţional, Serviciul în limba engleză).