Over the course of the previous stand-by arrangement, sealed in 2009, the economy did not manage to pull out of recession, and Romania experienced two years of dramatic adjustments – layoffs, public sector wage cuts and a hike of the value added tax. State-run companies continued to post huge losses and record arrears.
The main objective of the new deal with the IMF and the European Commission is the consolidation of economic growth, but so far recovery has been rather slow.
The agreement signed in March focuses on continued reform in the healthcare sector and on restructuring/ privatizing/ increasing the efficiency of loss-making state-run companies.
As Romania has complied with the criteria agreed with the IMF and has gone through three reviews without major problems, the IMF made available three loan installments totaling EUR1.6 billion, which can be drawn in case of need.
Under the new arrangement, Romania does not intend to borrow more money from the IMF, so the release of a new tranche is no longer conditional on quarterly reviews. However, in case of need, the IMF will make available up to EUR3.6 billion for Romania. Signals from the IMF will continue to be very important for international markets, especially since Romania could have to attract more foreign financing.
Some analysts believe Romania will draw money from the IMF, as the external funding of the budget deficit and of the current account deficit are some of the major concerns in 2012. Romania started in autumn to face net capital outflows and access to international markets is difficult because of the high risk perception, amid lingering tensions over the sovereign debt crisis.
Recently, the government decided to increase Romania’s contribution to the IMF’s share capital, applying a decision of the Board of Governors last year, which has no connection with EU talks of capitalizing the IMF. Romania’s contribution will increase by 781.2 million Special Drawing Rights (around EUR900 million).
In addition to the IMF agreement, Romania also has a precautionary loan from the European Union and a EUR400 million loan from the World Bank.
So far the deficit targets have been reached at the price of cutting investments, of not paying arrears to the private sector, cutting public sector employee numbers and wages.
It remains to be seen what the government will sacrifice next year in order to meet the target, especially since 2012 is an election year.
The European Commission expects growth of around 2% next year, while the IMF has announced GDP growth of 1.8% to 2.3%, provided that the absorption of EU funds improves and that domestic demand rebounds. The latter does not appear very likely.
(English version by Daniela Stoican)