New 3.5bn-euro IMF arrangement has been approved

The new two-year precautionary arrangement with Romania, which
starts on March 31st, has received the green light from Washington
on Friday, and is set to focus on stimulating the economy by means
of structural reforms and by improving infrastructure.

The biggest problem is that of arrears of state-owned companies,
which are much higher than government arrears, according to Jeffrey
Franks, chief of the IMF mission to Romania. He told Mediafax that
Romania would come out of recession at the end of March, and that
economic growth would pursue an upward trend from one quarter to
the next.

According to Franks, Romania cannot afford the luxury of cutting
taxes and increasing the budget deficit in order to stimulate the
economy.

Over the course of the old arrangement with the IMF, the economy
failed to come out of recession, with state-owned companies
continuing to record huge losses and accumulate arrears. Fiscal
consolidation needs to continue in Romania in order for the budget
deficit to be reduced, especially amid a low absorption of EU funds
and public spending being “infested” by inefficiency, says the
chief of the IMF mission.