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IMF: Romania has become prisoner of foreign context

IMF: Romania has become prisoner of foreign context
24.03.2008, 19:18 8

The increase in the cost of foreign loans, which can already be seen, the restricted access of local banks to financing from abroad and the slowdown of the economies of the main trade partners are the main problems Romania could weather in the current unfavourable international climate, says Juan Fernandez-Ansola, the regional representative of IMF for Romania and Bulgaria.
He says Romania has not taken any steps over the last few years that would help it overcome such a predicament, especially tax-wise, and is now largely dependent on the unpredictable international developments.
"In our base scenario, we estimate economic growth will continue, though I would not be so certain that the economy will remain so dynamic over the next four quarters if international social tensions continue or worsen. The risk is that, if the economy slows down from 6% to 3% for instance, you will shortly find yourself without the budgetary revenues you were counting on, whilst the deficit may quickly exceed the 3% of GDP cap," Ansola told ZIARUL FINANCIAR in an interview.
He says the slowdown of economies in the eurozone, the main trade partners, will also affect Romania, which "cannot remain immune, because it is not isolated from the rest of the world." He feels that a decline in exports would be hard to compensate by boosting domestic demand without exacerbating domestic imbalances, which are already significant.
"Romania would be really pressured in case of a very, very severe slowdown in the eurozone. Still, our base scenario does not include such a development. We do not anticipate recession, not even in the US, but we might see a significant slowdown of the economic growth there."
The IMF official says tensions on the international markets come at a very bad time for Romania. "Romania cannot afford the luxury of saying 'foreign turmoil came at a bad time, we cannot deal with it right now because we have elections and we will deal with the macroeconomic problems next year'. The economy has to deal with them now."
In addition, he warns that authorities must take into account highly unlikely events, which can cause major disruptions.
That comes in the context where the trend of Romania's economic situation is said to largely depend on foreign developments, which are hard to forecast and impossible to control.
However, "this does not necessarily mean that there are no corrections or preventive measures that can be taken by the authorities to stabilise the vulnerabilities of the economy."
"The increase in the monetary policy rate was but a first step, which has to be followed up by other measures. Continuity is needed in this direction, it needs to be consolidated, because policies so far have not matched the development of imbalances. Budgetary adjustment is a good decision but it is not enough," the Fund representative added.

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