The condition for IMF loan: Romania must tighten belt

Romanian legislators began talks yesterday with the International Monetary Fund for a rescue package that could help the country mitigate the effects of the current economic crisis, a measure that could force Romania to return to more austere ways.

Prudence in disclosing the size of the rescue package

Brussels announced that EU was willing to help Romania and that “EC had begun advanced talks with Romanian legislators and IMF”.

After closed-door consultations on a possible external finance from IMF, the Government and the National Bank are still keeping the secret on the size of the funding package. “The amount will be determined throughout our negotiations”, a source familiar with the issue told AFP.

In default of some official statements, analysts estimate the size to vary between five and 20 bln euros, amounts that include a loan from EU.

IMF delegation in Romania is headed by Jeffrey Franks (photo).

BNR is surely familiar with the amount applied for, but it is more prudent to be left out of the public eye, said president Traian Baasescu, adding the loan will mature within two years.

As the solution that involves external finance is far from being unanimously approved in Romania, especially because may have a major impact on life standards. Basescu was in fact the first to warn the population on a further belt tightening.

“The more we postpone the adoption of more austere measures, the harder we will reimburse the loan”, the president warned.

“The loan talks with IMF will focus on the level of public deficit”, said the former minister of finance, currently the Government economic advisor, Ionut Popescu. “The tax increase will be a strictly political decision”, he added.

IMF lays the contractual groundwork

The letter of intent for an eventual agreement, as well as the memorandum that would comprise the economic terms are regularly drafted by IMF and concluded by Romanian authorities, said BNR governor councilor, Lucian Croitoru.

“In case of an agreement, IMF is the party that usually drafts the letter of intent and memorandum on the conditions Romania would have to meet. The documents would afterwards be signed by the representatives of Romanian party”, Croitoru explained. A possible accord with the International Monetary Fund could be inked for two years and if it is a stand-by one it will be conditioned by carrying out structural reforms in legislation, labor market and the fight against corruption, plus a stricter budget planning, advisor to the central lender BNR governor, Lucian Croitoru said, cited by NewsIn.

IMF is most likely to demand a three-four year budget frame and take interest in how the government estimates spending and incomes, Croitoru said. “From my experience, incomes have been overrated,” he added, explaining that if the budget deteriorates, the IMF will stop the money flow. Hence, failing to abide by the requirements of an accord with the IMF would be a negative signal Romania sends abroad.

The IMF has many times slashed Romania’s often budget revisions, asking for a multiannual budget. Therefore, the money the IMF will hand goes to the balance needs, Croitoru said.

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