IMF: Dark days ahead for Romania

“Even with help from the IMF, 2009 and 2010 will be difficult years. Growth will be negative this year, and close to zero next year due to the lingering effects of the world downturn,” said Jeffrey Franks, IMF’s Mission Chief for Romania, in an interview published on the fund’s website.

The IMF Executive Board approved the €12.9 billion loan to support the country during the current global economic crisis. The first €5 bln tranche will reach the National Bank of Romania (BNR) today, information confirmed by President Traian Basescu.

“The way this money will be used depends on how the short-term private debt, currently worth €20 billion, will be repaid, and also on the decision of the National Bank to cut the cash reserve ratio on euro and lei. This money will act as insurance for regaining the trust of investors and halt the depreciation of the leu,” Lucian Croitoru, Advisor to the Governor of the National Bank of Romania (BNR), told Business Standard.

“Economic activity fell sharply at the end of 2008 and continues to drop in 2009. Economic growth will transform into a 4.1 percent contraction in 2009, due to the sharp decline in domestic demand, which will bring about a correction of the current account deficit to 7.5 percent in 2009 from 12.5 percent of GDP in 2008,” Franks added. However, IMF’s forecast for 2011 does offer a gleam of hope: the economy is to return to a 5 percent GDP growth rate, based on rising demand.

Nevertheless, some analysts see Romania’s situation as even more bleak. “The four percent GDP decline is a realistic one, considering the double-digit drop in industrial production, which is expected to be further aggravated in the near future,” Rozalia Pal, Chief Economist of UniCredit Tiriac Bank, told Business Standard. Pal added that the budget deficit will widen to 5 percent of GDP, while the annual inflation average will amount to 5.4 percent, compared to the optimistic 4.5 percent forecast by the IMF, and the growth rate of private sector loans is expected to reach 12 percent, this year.

Businesspeople say that the forecast presented by the IMF is realistic or even optimistic and that Romania is to go through “hard times.”

“I believe that the IMF scenario is an optimistic one. I cannot see how the money will enter the real economy. The problem is there is no more viable business, not that banks lack funds,” businessman Dan Sucu, President of the Mobexpert furniture producer and retailer, said.