Progress on the elimination of domestic arrears has been slower than envisaged, John Lipsky, First Deputy Managing Director of the Fund warns.
The IMF Board on Friday approved the sixth review of the agreement with Romania and the supplementary letter, according to a press release, meaning that the institution will disburse the seventh instalment of the loan worth some EUR 900 M to be wired into the account of the National Bank of Romania (BNR) most likely today.
The release of the new instalment was initially supposed to be addressed by the IMF Board in mid-December, but the issue was postponed until January because Romania had failed to adopt the wage law, the 2011 budget and the pension reform act in time. A new IMF mission is due in Bucharest on January 25 to assess the fulfilment of objectives established for the last quarter of the year and also for talks on a new precautionary agreement. The last evaluation of the agreement will take place in April-May when criteria agreed on for the first quarter of 2011 are to be discussed and the final parameters of a new agreement are set to be finalised. So far, Romania has received EUR 11.27 bln from the Fund, plus the instalment approved on Friday and the last part of the loan worth SDR 874 (nearly EUR 1 bln).
new agreement talks
’We have held an informal discussion on the possibility of closing a new agreement. The IMF Executives commanded the intention and unanimously sanctioned, in principle, the commencement of talks with the Romanian authorities on a new, precautionary agreement.
Talks are due in Bucharest at the end of January, when a delegation of the IMF is expected to go to Bucharest, Romania’s representative to the IMF, Mihai Tanasescu, stated for Realitatea TV. ‘What I would like to stress out is the fact that an agreement with the IMF would also come with one with the EU. The amount will not be set in Bucharest, what we do know is that, according to the standards in place, any drawing country is eligible for the equivalent of 300 pc; it is not a new loan, Romania is not going to borrow any more. In the eventuality of a new loan, the amount will be made available to Romania’, Mihai Tanasescu added. President Traian Basescu said, on Thursday, that Romania would ‘categorically’ propose to the IMF that commitments under the new agreement should refer to ‘fundamental levels’ such as fiscal consolidation and continuation of structural reforms and state modernisation, with priority to be given to the modernisation of legislation in the field of labour. Government sources had told Mediafax the week before that the IMF would make available to Romania approximately EUR 3.6 bln in the framework of a new agreement to be most likely concluded after the completion of the current programme in May, with the money to only be drawn in case of emergency. The IMF had conditioned the disbursement on the adoption of a number of laws including the unified salary law or the pension law. Romania is also set to receive another instalment from the IMF this year – the eight one worth SDR 874, Money.ro informs.
New waiver regarding arrears
The IMF has granted Romania a new waiver of nonobservance of the criterion on domestic arrears, one the Government has always failed with every single review since the beginning of the current agreement last spring. ‘In completing the review, the Executive Board also approved Romania’s requests for a waiver of nonobservance of the end-December 2010 performance criterion on general government domestic arrears and for a waiver of applicability of the end-December 2010 performance criteria on the general government overall balance, the general government guarantees and for the target on inflation at end-December 2010” a release reads. John Lipsky, First Deputy Managing Director and Acting Chair, stated: “Policy implementation under the Fund-supported arrangement has remained strong. However, progress on the elimination of domestic arrears has been slower than envisaged. The authorities have taken important structural measures, including pension and public wage reforms and the passage of a prudent 2011 budget”.
Romanian representative to the IMF Mihai Tanasescu also warned about government arrears which constitute a major issue for the Romanian state. ‘This is the sixth time that Romania is requesting a waiver of nonobservance of the performance criterion on domestic arrears and the Fund officials have had enough of it. It is clear that we have a structural flaw in that respect’, Mihai Tanasescu said, according to HotNews.ro.
efforts in the health care sector and in public enterprises remain crucial
Romania is now on a clear path to meeting its short and medium-term fiscal goals. The current challenge is to fully implement the approved reforms and maintain tight control over expenditures to assure that the budget parameters are observed. “In this respect, further efforts are crucial in the health care sector and in public enterprises to control spending pressures. Improving absorption of European Union structural funds should become a top government priority. Efforts to improve tax administration should continue. The initiation of labour and social safety net reforms will also help boost productivity and target limited budgetary resources to the most vulnerable. Priority should be given to permanently resolving the issue of domestic arrears by way of improving payment discipline in the economy and increasing the credibility of the authorities’ adjustment efforts”, also reads the press release.
vasilescu: oug 50 not a condition for disbursing new instalment
BNR governor’s aide Adrian Vasilescu has told Realitatea TV that the modification of OUG 50/2010 on retail loans had not been a condition for the disbursement of the seventh instalment of the loan and that, in fact, it had been a requirement of the European Commission who wanted to make sure the provisions of the relevant European directive were observed. ‘The IMF was only drown into this game because, at some point, the head of the delegation expressed a position, reminding of the EU directive in the field which was not observed under the Romanian legislation’, the BNR official noted.
ron appreciates against the eur, depreciates against the usd
The national currency continued along a slight appreciation trend in the first part of Friday’s session after losing some of its original growth, the official reference exchange rate being RON 4.2580/EUR, the lowest since the end of September 2010. The deals explained the trend by the IMF’s announcement regarding the release of the seventh loan instalment. The exchange rate calculated for Friday was smaller by 0.41 centimes than the one on Thursday – RON 4.2621/EUR. On the other hand, the RON continued to loose ground to the US dollar, the exchange rate going up by 2.31 centimes to RON 3.2779/USD, a maximum level since November, when one UD dollar was worth RON 3.2861.