IMF is willing to be flexible on Romania, finance minister says economy could plunge 8% this year

The IMF mission is at the beginning of the negotiations and it is evaluating the macroeconomic program. In today's talks it considered the way in which the economic situation worsened and its effect on the budget. It is willing to be flexible, said Franks.

Moreover, he said that the IMF cannot talk of new targets fixed for the Romanian government and it cannot advance exact numbers at the moment.

The Finance Minister Gheorghe Pogea declared today at the end of the talks with the representatives of the IMF, the European Commission (EC) and the World Bank (WB) that Romania could record an economic contraction of 8 percent this year, as prognosis for the economic status of EU member states worsened.

The minister estimated at mid July that Romania's economy could shrink by 6.5 – 7.1 percent this year.
Pogea anticipated that in the second quarter of 2009 the economic downturn could be worse compared to the first, stressing that this negative evolution will impact the budget revenues.

Romania's economy went down 6.2 percent in the first quarter this year compared to the similar period in 2008, according to statistics.

At the end of the talks held last evening between the representatives of the Romanian governing coalition an those of the EC and IMF, an official declared for NewsIn that the representatives of the IMF estimate the economy will go down by 8 percent this year and, under these circumstances, they would agree with a budget gap of 8 percent of the gross domestic product (GDP) if the executive slashes additional expenses.

The current budget agreed with the IMF in March has in view a gap of 4.6 percent of the GDP in 2009 and is built on an economic downturn estimate of 4 percent.

The official explained that the possibility of increasing revenues to the state budget is very reduced given that any hike in taxes like the flat tax would bring insufficient incomes and would only make it harder for economic agents to operate.

Thus, the only viable measure the government can take to remain within the targets imposed by the IMF is to operate a new cut of budgetary costs.

The IMF mission, led by Jeffrey Franks, arrived in Romania on July 29 to evaluate the degree to which the country fulfilled the commitments taken through the agreement signed in March.

The mission will end on August 10, at which time the conclusions will be announced. The IMF officials will also draw up a report, which the IMF board will discuss at the end of September.

The institution will then decide whether the Romanian authorities carried out the specific tasks and whether the second installment of the loan, worth 1.9 billion euros, will be delivered.

Romania sealed a 19.95 billion euros financing agreement with the IMF, the EC, the World Bank, the European Bank for Development and Reconstruction and the International Finance Corporation.

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