IMF "Flexible" In Negotiations With Romania On Wider Budget Def - Mission Head

"We have to settle a maximum limit for the budget deficit," Franks added.

The discussions between IMF representatives and Finance Ministry's representatives mainly focused on the way the macroeconomic contraction affected the budget.

The first talks between government representatives and the IMF mission took place Wednesday evening.

People who attended the talks told MEDIAFAX earlier Thursday that the government asked the IMF to raise the budget deficit target for 2009, while IMF officials had a "flexible" attitude regarding the deficit, as long as it is kept within sustainable limits.

According to the sources, Romanian authorities want to raise the budget deficit target by 3 percentage points above the 4.6% of the GDP target set for 2009, on the backdrop of negative effects of the financial crisis.

The government also plans to get the IMF's approval to incraese expenses for investment projects by 0.5%-1% of the GDP.

Official sources told Mediafax early July that the IMF is working on a new macroeconomic framework that will be based on a GDP contraction of 7% to 8%.

Romania’s GDP fell 6.2% on the year in the first quarter, but some analysts expect the economy to contract even more in the next quarters.

IMF's current forecast was published after closing the negotiations with the Romanian authorities in March and indicates an economic contraction of 4.1% for 2009.

Romania negotiated with the International Monetary Fund a budget deficit target of RON24.36 billion in 2009, or 4.6% of the GDP, based on RON166.72 billion revenues, not including EU funds, and RON182.72 billion primary expenditure.

The budget deficit will be monitored quarterly through the cash balance of the general government, according to the Technical Memorandum of Understanding of the agreement between Romania and the IMF.

An IMF mission led by Jeffrey Franks came to Bucharest on Tuesday for the first evaluation of the stand-by agreement approved by the financial institution in May. The evaluation is due to end on August 10.

Romania and the IMF agreed on a EUR12.95 billion two-year stand-by arrangement, as part of a EUR19.95 billion financial support package that also includes funds from the European Commission, the World Bank, and the European Bank for Reconstruction and Development.

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