International credit upheaval hit Romania’s leu exchange rate, IMF report says

Exchange rates in Turkey, Hungary and Romania suffered pressures coming from the global credit crisis, the “Regional Economic Outlook” report shows. The core of the turmoil came from United States, whose subprime mortgage industry almost collapsed because of the home loans granted to people with weak credit.

Yet, Europe’s emerging economies handled well the international uproar, despite crediting problems and a large external debt some recorded, the report explains.

IMF recommended Romania to tighten the salary – productivity tie and to fortify its banking industry in order to avoid future crediting problems. The institution believes Romania should enforce a tighter macroeconomic discipline, in order to avoid further problems in the financial industry.

The effects of both fiscal and salary policies in the public area, the widening current account deficit and the turmoil seen in the international financial markets should trigger more attention on the evolution of Romania’s economy, the chief of the IMF mission in Romania, Albert Jaeger warned on October 2.

The official emphasized a 14 percent current account deficit this year stands for a large external deficit. The IMF official warned Romania should keep a weather eye opened on the salary policies in the public area, which could overheat the country’s economy.

The current account deficit this year widened for the first time over the 10 percent GDP limit, to a total of 10 billion euros. Romania should see a 13.4 percent current account deficit, according to the National Prognosis Commission.