IMF Board OKs Romania’s Access To EUR1.85B Tranche

The completion of the review enables the immediate disbursement of 1.718 billion Special Drawing Rights (SDR), or about EUR1.854 billion, bringing total disbursements under the program to SDR6.088 billion, about EUR6.57 billion, the IMF said.

The Executive Board also approved Romania’s request for a waiver of non-observance of the end-June 2009 performance criterion pertaining to general government domestic arrears.

Romania’s arrears rose by 490 million lei (EUR1=RON4.2747) in the first six months, bringing the total stock to approximately RON1.5 billion, though the government pledged to reduce them in the agreement with the IMF.

The country’s IMF representative Mihai Tanasescu told MEDIAFAX that the Board also approved to allow Romania to use half of the amount to finance budget deficit.

John Lipsky, IMF’s First Deputy Managing Director and Acting Chair, said policy implementation has been strong, against the backdrop of a significant deterioration in economic activity since the approval of the stand-by arrangement in May.

„The deeper than expected economic downturn, however, requires a recalibration of policies so as to strike an appropriate balance between the short-term response to the crisis and the medium-term policy objectives,” he added.

The fiscal targets have been appropriately adjusted to partially accommodate the cyclical deterioration in revenues and avoid a negative impulse to demand, while buttressing the adjustment effort needed to reach the medium-term deficit targets, Lipsky also said.

He added the revised program focuses on measures that would secure permanent reductions in current spending, while preserving capital and social safety net spending.

„The inflation targeting regime and flexible exchange rate policy have helped cushion the impact of the crisis while providing an appropriate anchor for monetary policy,” IMF official also said. „Improved stability in financial markets and declining inflation may provide some room for further easing, but a cautious approach is warranted given the still high inflation rates and remaining vulnerabilities to external pressures.”