IMF Completes First Review Under Stand-By Arrangement with Romania

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Romania’s economic performance under a program supported by a 24-month Stand-By Arrangement (SBA). The completion of the review enables the immediate disbursement of SDR 1.718 billion (about €1.854 billion or US$2.727 billion), bringing total disbursements under the program to SDR 6.088 billion (about €6.570 billion or US$9.665 billion).

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.

The SBA was approved on May 4, 2009 for SDR 11.443 billion (about €12.348 billion or US$18.167 billion). The arrangement entails exceptional access to IMF resources, amounting to 1,111 percent of Romania’s quota.

Following the Executive Board's discussion on Romania, Mr. John Lipsky, First Deputy Managing Director and Acting Chair, stated:

“Against the backdrop of a significant deterioration in economic activity since the approval of the Stand-by Arrangement in May, policy implementation has been strong. 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.

”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. The revised program focuses on measures that would secure permanent reductions in current spending, while preserving capital and social safety net spending. However, the reductions contemplated will require additional reforms to strengthen controls over areas that pose the largest fiscal risk—including expenditure commitments, pension reform, contingent liabilities, and public entities outside the central government—are crucial.

“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. 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. Financial policies remain appropriate to tackle the challenges posed by the crisis, and continued vigilance will be needed to respond to any signs of stress in the banking system, particularly the deterioration in asset quality to be expected as a result of the continued weak economy,” Mr. Lipsky stated.