The new two-year precautionary arrangement with Romania, whichstarts on March 31st, has received the green light from Washingtonon Friday, and is set to focus on stimulating the economy by meansof structural reforms and by improving infrastructure.
The biggest problem is that of arrears of state-owned companies,which are much higher than government arrears, according to JeffreyFranks, chief of the IMF mission to Romania. He told Mediafax thatRomania would come out of recession at the end of March, and thateconomic growth would pursue an upward trend from one quarter tothe next.
According to Franks, Romania cannot afford the luxury of cuttingtaxes and increasing the budget deficit in order to stimulate theeconomy.
Over the course of the old arrangement with the IMF, the economyfailed to come out of recession, with state-owned companiescontinuing to record huge losses and accumulate arrears. Fiscalconsolidation needs to continue in Romania in order for the budgetdeficit to be reduced, especially amid a low absorption of EU fundsand public spending being "infested" by inefficiency, says thechief of the IMF mission.
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