Economic contraction of 8 pc this year, Fin Min Pogea says

Publish date: 31-07-2009
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The IMF will be flexible in the negotiations on the hiking of the budget deficit target against the backdrop of worsening macroeconomic indicators however for the time being it is unable to put forward an exact figure, Jeffrey Franks, the head of the IMF mission that is evaluating the agreement with Romania, stated yesterday. Sources that took part in the talks with the IMF delegation on Wednesday have stated that the Government has asked the IMF for the hiking of the budget deficit set for 2009 and for the non-taxation of the reinvested profits if the economic slump will continue.

According to those sources, the Romanian authorities are taking into consideration the hiking of the budget deficit by 3 per cent over the 4.6 per cent of GDP level established for 2009. At the same time, the Government wants to obtain the Fund's consent for the hiking of the expenditures on investment projects by 0.5-1 per cent of GDP.

Finance Minister Gheorghe Pogea stated on Wednesday evening, before the first talks with the IMF delegation, that the general consolidated budget has registered a deficit of 2.7 per cent of GDP in Q1, a level that fell below the limit agreed with the IMF, and that the Government will request the financial institution for the hiking of the deficit to a level at least equal to the revenue drop caused by the crisis. Pogea also stated yesterday that 'there could be' an economic contraction of 8 per cent this year and that the 4.1 per cent forecast established in the loan agreement reached with the IMF will be modified.

In what concerns the possibility that the IMF mission in Bucharest would bring higher taxes and fees for the Romanians, Mihai Tanasescu, the former Finance Minister and Romania's current representative within the IMF, stated in an interview for 'Gandul' daily that he personally does not believe that is the solution. 'Tinkering with a major tax is not the solution; that would inhibit even more the business environment that is the key to the restructuring of public expenditures,' the former Finance Minister stated.

In his turn, former Prime Minister Radu Vasile considers that the IMF loan is a good thing for Romania in the context of the current crisis, a context in which the liquidity shortage is ever more acutely felt.

The budget deficit negotiated with the IMF for this year is set at RON 24.36 bln, with the technical memorandum pointing to quarterly targets. That deficit was set in the context of annual budget revenues (minus the non-reimbursable external sums) of RON 166.72 bln and of primary expenditures of RON 182.72 bln.

The Fund has established budget deficit performance criteria for the first two evaluations (in June and September). The criteria consist of a level of RON 14.5 bln half way through the year and of RON 18.6 bln at the end of the first nine months. The IMF has asked the Government for a public expenditure cut equivalent to 1-2 per cent of GDP, stating that the Romanian side has to decide where the cuts will be made and warning that the expenditures level set for the first quarter has been surpassed mainly at a local level.

At the end of the Government meeting on Wednesday evening Prime Minister Boc criticized the local authorities for their high expenditures. The Head of Government announced that the level of expenditures on the wages of the local public administration staff will be set in relation to the number of citizens served by the mayoralties and on the basis of cost standards that will be completed by mid-September.

Basescu: Romania will not fulfill IMF conditions

Because of the economic crisis Romania will not be in the position to fulfill the parameters set in the agreement with the IMF for the second half of this year, President Traian Basescu stated yesterday on the public radio station, Agerpres informs. The Head of State also presented the reasons why that will happen, with one of them being the fact that an economic recession higher than the minus 4 per cent initially expected is now forecast. Basescu expressed his hope that the IMF will show 'a lot of leniency' for Romania considering that the Fund's specialists know that Bucharest is not the one at fault for the inability to fulfill its commitments for H2 of 2009.

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