Romania's government negotiates with the IMF over 3-3.5% budget gap in a recession scenario

One of the variants negotiated today by the government with the International Monetary Fund (IMF),part of the on-going talks over a financial aid, is a 3-3.5 percent budget deficit this year in the pessimistic economic recession scenario, people from the Cabinet told NewsIn.

Another variant is that of a 2 percent budget gap of the gross domestic product in an optimistic scenario of a 0.5 percent economic advance this year, the same people said.

However, no matter whichever variant is chosen, the Cabinet will be forced to cut spending drastically this year, an IMF requirement. The government has already planned massive public spending cuts, starting with the measure of freezing public salaries in the first quarter and stopping payments for extra hours and bonuses of publicly-paid employees.

But the budget collections remain low, especially because of the dearth of industrial orders which affected big players on the market and caused activity breaks. Today the subsidiary of the largest steel producer worldwide, Arcelor Mittal Galati, announced it will send its employees, including the management, in technical unemployment starting April 1, paying them 75 percent of the wages.

A mission of the IMF has arrived in Bucharest on March 11 and is currently assessing the economy and negotiating a financial aid for Romania, part of a multilateral financing package including the European Union and the World Bank. 

After the first round of talks, the finance minister declared Romania's economy is to inch -1 percent to 1.5 percent this year. Moreover, the IMF is said to have agreed to the widening of the country's commercial gap this year, according to people close to the negotiations. However, the IMF's conditions attached to the loan remain unknown, same as the value of the credit. 

Romania's 2009 budget is built on a 2.5 percent economic growth with the gross domestic product estimated at 579 billion lei and a 2 percent budget gap target.

As for the IMF loan, the idea stirred controversies inside the ruling coalition, but also among lawmakers, some claiming such a move would have disastrous social effects.
"I am optimistic," president Traian Basescu said last evening. A loan from the IMF would not result into a social disaster, as some put it, but on the contrary, will help spare the people from a difficult situation and also contribute to the country's modernization, he added.

NewsIn