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

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

Technocrats or politicians

Technocrats or politiciansMircea Geoana, president of the Social Democratic Party said that if the censure motion was passed, he together with the endorsers of the motion would propose the election of a new government formed of technocrats, to ensure the administrative functions until the end of the presidential elections.

Financial consultant, Bogdan Baltazar (photo) is opposed to a government formed of technical experts, although this type of organizational system functioned in other countries such as Hungary. “I don’t believe in a technocratic government. We need a political government and to solve political issues”, Bogdan Baltazar told Wall-Street.

But a team of experts is absolutely necessary at the Ministry of Finance, as Laurian Lungu opined.

IMF to conduct a third review under Romanias SBA this month

The political pressures that led to the split of the governing coalition is putting the disbursement of the third tranche under the stand-by arrangement with the International monetary Fund at risk, economists with UniCredit said.

International Monetary Fund will carry out a third review under Romania’s stand-by arrangement in order to assess the Romanian economy’s performances and to which extent the country has managed to contain economic indicators within the agreed target ranges. Bogdan Baltazar says Romania has met IMF conditionality, while other analysts have a more pessimistic view.

“On a short term, we expect international institution to adopt a stand-by mode (e.n: towards the political tensions in Romania). The only risk is that the disbursement of the next tranche could be postponed, we don’t see a complete disruption of the external financing program”, UniCredit said in a report released yesterday.

UniCredit sees a budget gap of 7.3% of GDP for this year, same as IMF, and 6% deficit for 2010. For 2011, the budget gap is likely to narrow to 5% of GDP.