Tuesday the 13th: Government on slippery slope, IMF agreement at risk?

Ana Sabiescu, 14 Oct 2009

Romanian version

The approval of the censure motion by the Parliament would bring down the Romanian government and would deepen the political instability of the country at a time when it needs comprehensive and substantial reforms to meet the conditionality of the IMF Stand-By Arrangement. Analysts interviewed by Wall-Street expect the political crisis to put the local currency under pressure, while others say the country needs technocrats at the head of Ministry of Finances.

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IMF/EU agreement at risk, should a new government fail to install soon

Although the government is very likely to dissolve, analysts say the new ministers should focus primarily on meeting conditions imposed by International Monetary Fund and European Commission.

“From an economic perspective, the government must keep tabs on the country’s compliance with IMF conditionality. But the installation of a new government would last at least a month, and many things to stimulate the economy can be done in the meantime”, Laurian Lungu, managing partner at Macroanalitica, told Wall-Street.

The negative impact of the political noise and economic problems, Lungu continued, could reflect in the performance of the local currency, and in a worst case scenario, we may see a new historic high in terms of exchange rates.

“The leu is currently on a downtrend, but I don’t expect wide-band volatility of the currency, unless European Commission or International Monetary Fund intervenes. If too much time is wasted and the country is at risk of failing to meet IMF macroeconomic targets, IMF and EC may act in response, because after all, they are the country’s lenders”, Laurian Lungu added.

Ionut Dumitru, Raiffeisen Bank’s senior economist said that if the political crisis lasted for too long and too much time was wasted on the installation of a new government, the IMF stand-by arrangement could be harmed, and pressures on the local currency would be visible.

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Tuesday the 13th: Government on slippery slope, IMF agreement at risk?

IMF/EU agreement at risk, should a new government fail to install soon

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