Romania has passed over crisis, still has a long way

Romania was pulling out of a serious crisis fairly successfully, but with a long way to go to attain rude economic health, that’s the International Monetary Fund’s conclusion, Financial Times analysts noted in a comment following Funds latest staff visit to Bucharest.The IMF appears particularly pleased with Romania’s fiscal tightening, which is partly linked to the Fund’s standby packages. The Fund expects that the government can meet its target of keeping the deficit within 2.2 per cent of GDP this year, despite the appeal of loosening in the run-up to the general election slated for December 9. Financial Times remarks that Romania’s tough austerity programme brought protestors to the streets earlier this year, and led to the toppling of the previous centre-right government. “Having followed a pro-cyclical loose fiscal policy in the boom years of the last decade, Romania is now locked into a similarly pro-cyclical process of cuts and tax rises at a time when the eurozone crisis is casting a long shadow over the economy, and the effects of the country’s own crunch in 2009 are still feeding through. The “social-liberal” government of Prime Minister Victor Ponta may feel that it has enough of a cushion in the polls to allow it to please the IMF rather than Ponta’s socialist vote base”, FT emphasizes. Fundamentally, Romania suffers from its economy having both the characteristics of an emerging market (structural weaknesses, patchy infrastructure, concerns about corruption) and the problems of being linked to the crisis-hit eurozone. According to Dumitru Dulgheru, head of fixed income research at BCR, quoted by FT, the single currency area accounts for more than 50 per cent of exports and 80 per cent of FDI.Dulgheru and BCR think the IMF’s forecasts on the optimistic side, and expect 0.7 per cent growth this year and 1.9 per cent next. Dulgerhu is also sceptical about whether the government will keep the deficit within target range, and warns that the IMF may be too incautious about inflationary pressures. He says that risks to growth “are on the downside”.