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| TALKS AND MEASURES ON THE ECONOMY 05/08/2009 |
| (2009-08-05) |
| Last updated: 2009-08-06 12:00 EET |
International Monetary Fund experts are in Bucharest until August 10th, to assess how Romania has enforced the provisions of a stand-by agreement signed this spring, under which Romania has received a foreign loan of close to 20 billion Euro.
The money is coming in several instalments from the IMF, EU and the World Bank, and will be used to overcome the current economic crisis. According to the head of the IMF mission in Bucharest, Jeffrey Franks, the statistics for the first 6 months indicate that the situation is a lot worse than expected, in Romania as well as in other European states. For instance, by the end of the year revenues to public budgets will be 4 billion Euros below estimates, public spending will be 6 per cent higher than budgeted, and the deficit may reach 8 per cent – double the initial forecast. So the government, National Bank of Romania, the IMF and the European Commission adjust their plans to the new figures, and look for new solutions to end the slump.
With the economic environment worsening since March, when the agreement was negotiated, Romanian authorities asked the international financial institution to increase this year’s budget deficit target to 7-7.5 per cent of the GDP. The head of the mission currently in Bucharest voiced flexibility in this respect, but requested the government to settle the issue of special pension benefits. Specifically, these must be integrated in the public sector and prorated to the contributions paid by each employee. At present, special pension benefits are received by around 200 thousand people: MPs, magistrates, diplomats, military or intelligence service staff. The IMF also asked the government to tighten conditions for early retirement for health reasons, an option used by one out of four Romanians. The IMF wants the retirement age increased and pension benefits adjusted not to the national average salary, but to the inflation rate.
On the other hand, after talks with trade unions and employers, IMF experts consider deferring the enactment of a bill on the single payment system for the public sector, which the Romanian government was scheduled to pass by late October. Also, Fund experts insist that governmental spending must be reduced. In turn, the National Bank of Romania has taken steps to help the economy out of the crisis. On Tuesday, the central bank cut the key interest rate by 0.5 per cent, to 8.5 per cent per year, and brought commercial banks’ compulsory reserve threshold down from 35 to 30 per cent of the loans granted for up to 2 years. Banks will thus benefit from an additional billion Euros, which could help relax lending terms. Analysts expect the central bank to further reduce the key interest in the months to come, but to pay more attention to inflation and currency exchange risks.
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