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Romania gets IMF, EU conditional green light on aid

02. November 2010. | 07:47

Source: EUbusiness.com

The International Monetary Fund and the European Union gave conditional backing on Monday to new disbursements from a crucial lifeline to crisis-hit Romania, urging that austerity measures be implemented.

The International Monetary Fund and the European Union gave conditional backing on Monday to new disbursements from a crucial lifeline to crisis-hit Romania, urging that austerity measures be implemented.

"We have reached an agreement at the level of experts. As soon as the conditions are met, we can expect the board to unlock a new tranche," Jeffrey Franks said, speaking Romanian, during a press conference in Bucharest.

He added that the instalment, worth around 900 million euros, could be released by mid-January.

Among the agreed conditions, Franks mentioned final approval of pension and the public-sector pay reforms, as well as the reduction of state arrears.

Romania last year secured a 20-billion-euro (28-billion-dollar) rescue package from the IMF, the European Union and the World Bank in exchange for austerity measures aimed at taming the country's public deficit.

Franks praised authorities for having kept most of the promises made during the previous assessment mission and called on them to go ahead with the austerity plan.

"The government is on track to reach the public deficit target for 2010," he said.

Romania has pledged to bring down the shortfall from 7.1 percent in 2009 to 6.8 percent in 2010 and 4.4 percent next year.

In order to do so, the government has slashed public wages by 25 percent and raised the VAT tax on goods sales and services from 19 to 24 percent.

But Franks stressed the IMF still expected progress in several areas.

"Spending pressures, particularly in health and social assistance programmes still need to be addressed and improvements in tax collection remain a challenge."

He said keeping public spending under control would accelerate economic recovery and added that the IMF expected the Romanian economy to grow by 1.5 to 2.0 percent in 2011 after having contracted by 7.1 percent last year.

"If the specified actions agreed with the authorities are taken, conditions for the fourth disbursement of the EU assistance programme worth 1.2 billion euros will be met," the European Commission said in press release.

The IMF representative said Romania's wish to conclude a new deal with international lenders when the current agreement ends, in March, would be discussed during the next mission to Bucharest, due in January or February.

The Romanian government contends that a new accord with the IMF and the EU would reassure foreign investors on its determination to carry on with reforms and help it obtain cheaper credit on international markets.

"Romania is in a position where, coming out of one of the worst economic crises in decades, there are limits on what it can borrow on local and international markets," Franks stressed.

He also encouraged Bucharest to maintain a stable tax system in the next two years.

"Romania does need an agreement with the IMF because otherwise it seems incapable of taking the requisite steps," Alexandru Chidesciuc, chief economist of the ING Bank in Bucharest, told AFP.

While the government has shown determination in delivering on its commitments, "it is now up to parliament to adopt the reforms" aimed at curbing public expenditure, he stressed.


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