Romanias new government to re-negotiate 2012 budget deficit target.

By bne IntelliNews May 3, 2012
Romania's new cabinet of PM designate Victor Ponta will re-negotiate the budget deficit target with the IMF and the EC, leaving it within the 3%-of-GDP limit set under European ESA'95 methodology, candidate finance minister Florin Georgescu was quoted as saying by daily Ziarul Financiar. Currently, the deficit target is set at 1.9% of GDP under the domestic, cash based methodology but there is also a limitation set at 3% of GDP under ESA'95. A wider cash-based deficit would be necessary for the planned public wage hike and for servicing the government's overdue obligations to pensioners, Georgescu explained. The candidate finance minister is expected to meet the IMF expert team in Bucharest today. IntelliNews Comment : The nomination of central bank's deputy governor as finance minister in Ponta's cabinet was already received with confidence by investors. Central bank governor Isarescu also stressed that this nomination guarantees a certain fiscal discipline. But the central bank still interrupted this week its interest rate cuts cycle started last autumn, even if admitting that there is still room for further cuts. As former finance minister under the leftist cabinet of PM Nicolae Vacaroiu and deputy governor of the central bank, Georgescu should benefit from certain credibility before the IFIs. But Georgescu has also used public spending as means to spur [unsustainable] economic growth during 1992-1995. The lack of structural reforms in these years has severely damaged the country's banks. Georgescu has supervised the banking system therefore he was not directly involved in public finance in the past years. Except for huge required reserve levels, the central bank took very few steps to prevent excessive lending, particularly forex lending, before the 2008 crisis.

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