News 09 Nov 12

Romania's Feuding Leaders Agree on IMF Loan

Trying to guarantee economic growth, Romania's President and Prime Minister have agreed on the need for a fresh IMF loan.

Marian Chiriac
Bucharest

President Traian Basescu on Thursday announced that Bucharest is eager to ink another agreement with the International Monetary Fund for a year or two, when an ongoing deal expires in April 2013. 

“Now is the right moment to analyze the current agreement and to look at some elements of a possible future accord," Basescu said, shortly after a meeting with a delegation of IMF and other international lenders.

"Together with the Prime Minister and the governor of central bank, we decided to have another agreement with the IMF for a year of two,” he added.

An IMF mission is currently in Bucharest for a review of Romania’s current precautionary aid deal.

Prime Minister Victor Ponta backed the idea. "We should sign a new precautionary agreement that could help us build on what we have already achieved," Ponta said in a statement.

Analysts say the future loan is needed to ensure economic growth over the coming years. “Even though Romania is stable with a low level of public debt and with a budget deficit below 3 per cent of GDP, economic growth is not yet guaranteed. Furthermore, support from the IMF will send a positive sign for any interested foreign investors,” economic analyst Gabriel Ciofu said.

Ciofu added that important that President Basescu and Prime Minister Ponta have agreed on this issue.

“Finally, there is a consensus between the main political leaders on a sensitive topic for Romania. It shows that Romania could be a stable country,” Ciofu said.

Basescu and Ponta met on Wednesday for the first time since their bitter feud earlier this year led to an impeachment referendum and sparked a political crisis. They discussed judicial reform and the economy, according to reports.

Romania is dependent on a 20 billion euro rescue package from the IMF, the European Union and the World Bank. It obtained the loan in May 2009 in exchange for agreeing to push through austerity measures aimed at taming the country’s yawning deficit.

In July 2010 the government cut civil servants' wages by 25 per cent, while thousands of state jobs were axed and VAT was increased by 5 per cent to 24 per cent.

In March 2011, the IMF approved a 24-month standby agreement with Romania for approximately 3.7 billion euro. So far, Romania has used the funds available as a precautionary credit line and has not drawn on them.

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