New arrangement with IMF precautionary only in its intention

The Government and the NBR asked the IMF that the current funding arrangement approved at the end of March to be stand-by, the same as the one signed in 2009, with the only distinction being the “intention” of the authorities not to use the funds.

The wording used in the letter of intent leaves room to the authorities to actually draw the money from the IMF and the European Commission, thus offsetting expectations of getting away from the “debt spiral”, i.e. the alternative of repaying debts to foreign funders by taking on more debt from them.

After two years of dramatic adjustments, which materialised in redundancies, in cutting salaries of public workers by 25% and the VAT hike, Romania still does not dare apply for programmes of the “flexible line of credit” and “precautionary line of credit” type.

The flexible line of credit was created by the IMF especially for countries where there are no big macroeconomic imbalances, but which need protection against the effects of the global financial crisis. Poland was the second country to resort to the flexible line of credit from the IMF, after Mexico.

In the case of the emergency loans granted by the IMF to countries such as Romania, Hungary and Ukraine, the institution has requested compliance to strict criteria, such as cutting the budget deficit and external imbalances.

The Romanian authorities and the IMF do not rule our recession continuing this year, expecting a 0.5% decline in 2011 in the pessimistic scenario.