IMF speaks of new follow-up agreement with Romania

By bne IntelliNews July 17, 2013

The new two-year agreement to be signed between Romania and the IMF should focus on balanced growth along with macroeconomic stabilisation, the Fund’s managing director Christine Lagarde stressed in a speech delivered this week in Bucharest, quoted by Ziarul Financiar daily.

The growth should be driven by external demand [exports], but also by the two elements of internal demand: consumption and investments, Lagarde explained. Unless the three growth drivers are equally active, the growth can generate unbalances that are hardly manageable.

The comment comes at a moment when Romania’s 2.2% y/y growth in Q1 was driven mainly by the exports [external demand], while both elements of the domestic demand have lagged behind.

The focus on growth was broadly seen as the new element in the Fund’s rhetoric expressed in Bucharest after the past two stand-by agreements between the country and the IFIs have concentrated on macroeconomic stabilisation and reforms in the state-controlled companies.

Once economic growth is achieved, fiscal consolidation is an easier task and this is a cycle that Romania already entered, Lagarde commented.

The financial sector should be helped by the state to develop in the right direction – namely to finance the real sector, the Fund’s managing director argued.

Currently, Romanian banks have stopped extending loans on a combination of weak demand and high loan interest rates. The central bank has urged lenders resume financing – but took no further steps other than cutting earlier this month the monetary policy interest rate.

The financial sector reform should continue and the banks should help the real sector – not only operate for the sake of operating, the IMF head commented. The state should engage to a larger degree in guaranteeing financing for small and medium sized enterprises and other sectors that are not as risk-friendly as banks would like to see – Lagarde  also outlined.

An IMF team of experts will continue in Bucharest talks with the Romanian officials on a follow-up agreement with the Fund. The new SBA would most likely be precautionary – meaning that the country will not draw the credit attached but rather use it only under emergency situation.

 

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