Franks, IMF: Economic contraction of 3 pc this year, too pessimistic

Publish date: 27-07-2010
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The IMF is in the process of revising its economic growth forecast, however an economic contraction of 3 per cent this year is far too pessimistic, Jeffrey Franks, head of the IMF mission to Romania, stated yesterday on day one of the new round of negotiations on releasing the fifth tranche of the loan that the Boc Government contracted from the IMF, the WB and the EU. The IMF official's statement, quoted by Mediafax, comes after most of the local banks and the EBRD announced last week that they expect the Romanian economy to contract by 3 per cent. "The EBRD forecast is pessimistic. I am not that pessimistic," Franks said.

After his meeting with the Governor of the National Bank of Romania Mugur Isarescu, the IMF official also stated that the main challenge for the international financial institution will be to reverse the Romanian economy's trend in order for it to come out of recession. In what concerns the structural reforms that the Romanian state conducted in recent months, Franks pointed out that there are sectors in which "things are moving along very well," but there are also sectors in which the reform process has to be speeded up. "We have to carry on with the pensions' reform, a reform that was delayed in recent months, but also with the blanket salary law.

Overall however there has been significant progress in recent months," the IMF official added. Referring to the budget deficit target set for this year (6.8 per cent of GDP), Franks pointed out that it is premature to talk about a possible change. He explained that the IMF will discuss this issue with the Finance Ministry and that an IMF team is already present within that Ministry's headquarters in order to analyze the data. Jeffrey Franks, head of the IMF mission to Romania, also stated that a suspension of talks, like it happened in Hungary, does not represent a danger in Romania's case.

"I don't see a danger in that," Franks said when asked whether Romania is in danger of suspending its agreement with the IMF just like it happened in Hungary. Two weeks ago the IMF and EU representatives suspended their talks with the Hungarian Government, talks that were meant to evaluate the external loan agreement, after the Hungarian authorities rejected the idea of adopting new austerity measures, instead choosing to place a supplementary tax on banks and to set an upper ceiling for public sector salaries, including the salaries of central bank officials. The arrival of an IMF mission in Romania on Monday, barely a week after its officials left neighbouring Hungary in a huff, is not without a certain irony, Financial Times noted in an article published Monday. "But preferring the role of pugilist to that of poodle, Viktor Orban, Hungary's new prime minister, told the IMF last week that it could keep its policy prescriptions", FT reads.

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