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| ROMANIAN ECONOMY UNAFFECTED BY POLITICAL CRISIS(30.05.2007) |
| (2007-05-30) |
| Last updated: 2007-05-31 18:10 EET |
The tense political situation in Romania doesn’t appear to have affected the economy, which continues to attract foreign direct investment. This was the news announced by the International Monetary Fund representative for Romania and Bulgaria, Juan Jose Fernandez Ansola, speaking on Tuesday in Bucharest. The official expressed his hope that the situation would settle down and noted that in Romania, investors base their decisions on long term calculations. This year, foreign direct investments will reach nearly 7 billion euros, these funds being allocated both for acquisitions and for developing new businesses, the IMF official added.
This estimate is similar to the one made by the Romanian Agency for Foreign Investments, which anticipated that the investment value in 2007 will go down to 7 billion euros, compared to 2006 when it reached 9.1 billion euros. This takes into consideration the absence of any major privatizations scheduled for the period. Economic growth remains significant, estimated by the IMF as standing at 6.5-7% in 2007, slightly higher than the 6.2-6.5% estimates given at the beginning of the year.
The IMF believes that reducing interest rates would be premature, anticipating that the downward inflationary trend will be reversed in the second half of 2007 and in early 2008. Juan Jose Fernandez Ansola estimated an inflation rate of 4.5-5.5% for the end of the year, as compared to 3.77% at the end of April. We recall that the target set by the National Bank of Romania stands at 5% at most.
In any case, the IMF praised the success of the disinflation process and Bucharest's accomplishments in increasing production and exports, maintaining a low foreign debt and a comfortable level of the international reserves, which facilitated Romania's entry into the EU. Such praise from the IMF is rather unexpected and unusual. Last week, the International Monetary Fund board held its annual macroeconomic consultations with Romanian authorities. However, we should also mention that the Fund issued a warning that the Romanian economy continues to face an increase of the current account deficit.
According to Juan Jose Fernando Ansola, there are two possible scenarios, depending on the budget deficit. If it reaches 2.8% of the Gross Domestic Product, as the budget law allows, the current account deficit will increase to 11.5% of the GDP. In turn, if the budget deficit stands at between 1 and 1.5%, the current account deficit could remain at 10.5% of the GDP. That is why, under the current circumstances of economic growth, the International Monetary Fund recommends that the budget deficit be maintained at a maximum of 1.5% of the Gross Domestic Product.
(Mihai Radulescu)
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