IMF agreement made public

Publish date: 12-06-2009
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The ceilings set for the budgetary deficit, inflation, the governmental guarantees and the restructuring of the state companies further to the understanding with the IMF were made public on the site of the institution. Thus, the Government of Romania will have to save, to adopt the laws regarding the restructuring of the public salary system, and modify the pension legislation. The technical memorandum of the agreement with IMF shows that Romania has a strong capacity to reimburse the loan of EUR 12.95 bln, granted by the financial institution, but it depends on the commitment towards the programme and the success in the rebalancing of the economy, Mediafax informs.

The first installment, in the amount of 1.307 bln of Special Drawing Rights (SDR), will be returned in 2012. "The capacity of Romania to repay the contracted amount is great. At the end of the arrangement, the exposure of the Fund on Romania will account for around 10 per cent of GDP. Although this exposure is high, the associated risks are lessened by the relatively low level of the public debt," the IMF report shows. The SDR is the accounting unit of IMF, used to calculate the contributions of the member countries. One SDR is quoted now at around EUR 1.1. In 2013 and 2014 Romania will have to reimburse most of the loan, in two installments, of 4.323 bln SDR and, respectively, 4.305 bln SDR. The last but one installment to be reimbursed in 2015 amounts to 1.39 bln SDR, while the last installments of 109 M SDR will be paid in 2016.

The political tension increases the risks

The financial institution also shows that the tense relations from the alliance could increase the fiscal imbalance. While President, Premier and both parties from the coalition have signed the programme on which the Fund relies, the presidential elections from October could strain the relations within the alliance and, finally, undermine the effective implementation of the programme. If the adjustment is incomplete, bigger fiscal imbalances could prompt the exit of capital and risks associated with the capacity of Romania to reimburse the loan," the IMF stresses. The IMF also shows that the global recession may deepen even more than it was anticipated, or the reimbursement may be extended. The institution mentions that the parent-banks may not maintain the funding lines from Romania, in spite of signing the assumed commitments.

The IMF conditions

The annual inflation rate from each quarter is a performance criterion in the agreement with IMF, and if the established central level is exceeded by two percentage points it will be necessary to adopt measures, as an obligation to continue the programme, the same memorandum shows.

The indicative target for 2009 was set at 4.5 per cent plus/minus one percentage point. Through the understanding with the IMF performance criteria were established also for the months of June and September 2009, when the annual inflation rate should be in an interval of plus/minus one percentage point compared to the central level established at 6.4 per cent, respectively 5.7 per cent. If the annual inflation exceeds the above-mentioned interval, BNR will discuss with the IMF experts for evaluation. If the consumer prices vary by over two percentage points from the central level, the authorities will have consultations with the Fund over the measures that must be adopted, and in whose absence the agreement cannot continue. For 2010, IMF set a central level of the inflation rate of 2.5 per cent, with a variation interval of plus/minus one percentage point, according to the quoted document. Moreover, the budgetary deficit negotiated with IMF is established for this year at RON 24.36 bln.

On another hand, the Finance and Labour Ministries, but also other institutions, will provide to the IMF all the data regarding the public companies which were monitored at the beginning of the agreement concluded with the international institution, and the sanctions established in case of failure to fulfill the established targets. The Executive pledged also to revise until December 31 the legislation regarding the pensions, through measures for their indexation with inflation, to limit the possibilities of discretionary increase of the pensions, and the gradual adjustment of the pensioning age, especially for women. Also according to the agreement, the net international reserves of the National Bank of Romania can decrease this year by maximum EUR 9 bln, against the level of EUR 25.53 bln calculated for the end of 2008.

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