Ansola, IMF: S&P rating downgrade to further undercut confidence in Romania

“Yesterday’s S&P downgrade of Romania’s sovereign foreign currency credit rating to below investment grade is likely to further undercut confidence (in the country i.e.),” says Juan Fernandez-Ansola, IMF’s representative for Bulgaria and Romania. He adds that the Fund has been assessing with the authorities in Bucharest the possible effects of global financial markets turmoil, as with several other Fund members.
The IMF official says the institution remains ready to assist the Romanian authorities in their endeavours to achieve macroeconomic stability and improve investor confidence and adds that the Fund did does not have discussions about financial support underway for Romania, as in Ukraine’s and Hungary’s case.
“Strong wage and fiscal policies are required to defend the interests of all Romanians, especially the most vulnerable,” says the IMF representative, adding, “The initiative to increase teachers’ wages by 50 percent may need to be reconsidered. We estimate that the impact on the budget would be modest in 2008 but reach over 0.75 percent of GDP in 2009. In addition, if the increase were extended to other public sector employees, the impact could reach over 4 percent of GDP in 2009. This would send a wrong signal to financial markets.”
Juan Fernandez-Ansola points out that even before this salary increase became known, public and private financing sources were drying up, the RON was under pressure, Romania’s sovereign risk premium had increased to record historical levels, and domestic interest rates had increased substantially.