Press Release: IMF Approves Stand-By Credit for Romania
IMF News, August 5, 1999
Source details
- Canonical URL
- Press Release: IMF Approves Stand-By Credit for Romania
Other formats
Bibliographic details
- Published: August 5, 1999
Approval and financing terms
- The IMF approved an eight-month Stand-By credit for Romania in an amount equivalent to SDR 400 million (about US$547 million).
- The loan will be made available in four installments.
- The first installment, available immediately, will be in an amount equivalent to SDR 53 million (about US$73 million).
Executive Board assessment and guidance (Stanley Fischer)
- Executive Directors welcomed the authorities' renewed commitment and effort to correct severe economic imbalances and long-existing structural weaknesses.
- Directors considered that the authorities' program, if fully implemented, would mark a major step forward in Romania's quest for financial stability and establish the basis for sustainable growth.
- Directors noted recent up-front actions in fiscal strengthening and progress in bank restructuring and privatization.
- Given uneven implementation of previous Fund programs and weakness of the economy, Directors urged authorities to hold firm to policy commitments to regain market confidence.
- Directors stressed importance of persevering with both fiscal and structural adjustment and cautioned against premature relaxation of financial policies.
- Directors emphasized medium-term fiscal sustainability and structural reforms as key to sustained non-inflationary growth.
- Directors called on authorities to intensify enforcement of budget constraints on state-owned enterprises and urged strict adherence to the incomes policy.
- Directors welcomed the enterprise and bank restructuring program agreed with the World Bank and urged vigorous implementation.
- Directors regretted that authorities had not obtained the desired amount of private sector financing and emphasized the need to work vigorously toward obtaining additional private foreign financing to support the reform program.
Program objectives and macroeconomic targets for 1999
- Main objectives:
- Narrow external imbalances via domestic demand restraint and improved competitiveness.
- Contain inflation to about 40%.
- Limit the decline in output in 1999 to 3.5%.
- Restructure the economy to set a basis for sustainable growth.
- Specific targets and expectations:
- Reduce general government deficit by nearly 2 percentage points to 3.9% of GDP in 1999.
- Contain nominal wage growth in the state sector to well below the rate of inflation and leu depreciation.
- Strengthen reserves and limit the leu's depreciation in the context of a managed float during the latter half of 1999.
- Accelerate privatization and restructuring of the enterprise and banking sectors.
- Target current account deficit to decline by US$0.8 billion to US$2.2 billion (about 7.5% of GDP) in 1999.
Fiscal policy, monetary policy, and financing
- Fiscal policy:
- Targets a sizable reduction in the fiscal deficit through major tax increases and strict limits on discretionary spending.
- Unemployment benefits, severance payments and pensions are not targeted to decline in real terms.
- A significant tightening of fiscal policy is expected to reduce the current account deficit and ease pressure on monetary policy.
- Monetary policy:
- Aims at containing inflation and achieving broad exchange rate stability.
- Credit policy will be tailored to stabilize broadly the exchange rate of the leu while preventing net foreign reserves from falling below their target.
- Monetary policy will have to remain tight, especially in the coming months.
- Financing:
- With likely availability of foreign financing in the context of an IMF-supported program, strengthening foreign reserves is a priority to help restore access to foreign capital markets.
Structural reforms and bank/enterprise restructuring
- Bank restructuring:
- Includes orderly liquidation of Bancorex by the end of July, at an estimated fiscal cost equivalent to 2% of GDP (already included in the fiscal program).
- Improvements in bank supervision and external audits of major state-owned banks, with assistance from the IMF and the World Bank, are key steps toward restructuring and privatization.
- Enterprise sector:
- Plan includes privatizing or liquidating a large number of companies and reducing losses through mine closings, layoffs and cuts in subsidies.
- Social dialogue and safety nets:
- Government intensified dialogue with social partners to win support as unemployment is expected to rise significantly by year-end.
- Social transfers targeting vulnerable groups will total 10.5% of GDP in 1999.
- Government plans to keep unemployment benefits and child allowances stable, provide severance payments, introduce retraining programs, expand wage subsidies, and has taken initiatives to improve the pension system and health services.
Recent economic performance (selected findings)
- Output and labor:
- After a 7% fall in 1997, real GDP declined by 7.25% in 1998.
- Industrial output led the decline in 1998.
- Unemployment rate reached 12% in early 1999, twice its level in 1996.
- External sector and inflation:
- External current account deficit widened by US$0.5 billion to US$3.0 billion (8% of GDP) in 1998 and remained large in early 1999.
- Inflation declined to 41% at end-1998 from 150% at end-1997.
Key statistics and projections (selected entries from "Romania: Selected Economic Indicators, 1995-2000")
- Real GDP (annual percentage change):
- 1995: 7.1
- 1996: 4.0
- 1997: 3.9
- 1998 Outturn/Est.: -1.5 / -6.6 / -7.3 (table presents multiple series for 1998 and 1999; program projection for 1999: -3.5)
- 1999 Prog.: -3.5
- 2000 Prop./Proj.: 2.5
- Industrial production (period average):
- 1995: 9.5
- 1997: 9.8
- 1998: -2.2
- 1999: -5.6
- 2000: -17.3
- Unemployment rate (e.o.p.; percent):
- 1995: 8.9
- 1996: 6.3
- 1997: 8.8
- 1998: 11.0
- Consumer prices (Dec./Dec.):
- 1995: 27.8
- 1996: 19.0
- 1997: 56.9
- 1998: 130.3
- 1999: 151.4
- 1999 (program/target): 40.6
- 2000 projection: 38.3 / 15.0 (table shows multiple series)
- Public finance; central government budget (in percent of GDP):
- Revenues (selected years): 17.8 (1995), 19.4 (1996), 16.8 (1997), 15.3 (1998), 17.6 (1999), 19.6 (2000), 22.8 (later column)
- Expenditures (selected years): 21.9 (1995), 22.9 (1996), 21.7 (1997), 20.3 (1998), 21.2 (1999), 22.7 (2000), 25.0 (later column)
- Balance (selected): -4.1 (1995), -4.9 (1996), -5.0 (1997), -3.6 (1998), -3.1 (1999)
- Public finance; general government budget (in percent of GDP; selected years and balances):
- Revenues and expenditures series show values across 1995–2000; general government balance: -2.6, -4.0, -4.5, -3.3, -2.7, -1.1 (table entries)
- Money and credit (12-month percentage change):
- Broad money (e.o.p.): 71.6 (1995), 30.0 (1996), 66.0 (1997), 59.0 (1998), 75.9 (1999), 48.9 (2000), 34.6 (later column)
- NBR interest rates (e.o.p; in percent): 67.0, 66.9, 138.8, 105.0 (table entries)
- Balance of payments (in billions of U.S. dollars; selected and percent of GDP):
- Current account balance (percent of GDP): -3.2 (1995), -7.4 (1996), -6.2 (1997), -7.9 (1998), -7.5 (1999), -7.0 (2000)
- Exports (percent of GDP): 7.9 (1995), 8.7 (1996), 8.1 (1997), 8.5 (1998), 8.4 (1999), 8.3 (2000), 8.6/9.2 (later columns)
- Imports (percent of GDP): 10.6 (1995), 9.9 (1996), 10.4 (1997), 10.9 (1998), 10.5 (1999)
- Gross external debt (percent of GDP): 6.9 (1995), 9.6 (1996), 12.0 (1997)
- Gross reserves (in months of imports of G&S): 2.8 (1995), 3.0 (1996), 4.2 (1997), 3.6 (1998), 4.3 (1999)
- Romania's IMF position:
- Romania joined the IMF on December 15, 1972.
- Romania's quota is SDR 1.03 billion (about US$1.4 billion).
- Outstanding use of IMF financing currently totals SDR 319 million (about US$437 million).
International Monetary Fund press release, Press Release No. 99/38, August 5, 1999.