EXCLUSIVE: IMF Ready To Increase Aid To Romania If Need Arises

„There are still dangers in Europe and this is probably one of the motivations for which the president and the prime minister are pushing for a follow-up arrangement with the IMF,” Jeffrey Franks, head of the IMF mission to Romania, told MEDIAFAX.

Romania and the IMF last year signed a two-year EUR13 billion loan agreement, part of a larger EUR20 billion package that includes funds from the EU, the World Bank and other lenders.

The authorities in Bucharest recently announced they are considering a follow-up agreement with the IMF once the current one ends in April 2011.

„We have not yet discussed the size of the arrangement, but I think we will make sure there are sufficient resources available so if Romania were to run into problems in the coming years, they will have the full support of the IMF,” Franks said.

The IMF official said he doesn’t expect Romania to run into major difficulties in the future, but the follow-up agreement would be an „insurance policy” against possible problems during „very uncertain times.”

„Until the crisis is completely dissolved in all of Europe, there is some danger still, for any country in emerging Europe, not just for Romania or Hungary or Latvia. It’s not a stable situation yet (…) and that is one of the reasons why the government has taken the decision to negotiate a follow-up arrangement with the fund,” Franks said.

However, the size of the risk is much lower than it was two years ago, he added.

Given the international context, it would be dangerous for Romania to cut away „key components” of its fiscal measures, because the country might be unable to cover its budget deficit.

„It is important that Romania continue firmly reducing its deficit so that it keeps its public debt to GDP ratio down,” Franks said.

He added that under its current program with the IMF, which aims for a budget deficit of 4.4% of gross domestic product in 2011 and of 3% of GDP in 2012, Romania’s public debt in GDP ratio will peak below 40%.

„Just because you have a Maastricht criteria that says you have to keep your debt below 60% of GDP, that does not mean you should be at 59% because markets will get much nervous at a much lower level for a country like Romania than they would for the US or for the UK,” Franks said.