Mr. Emmanuel Zervoudakis, Head of the IMF mission that visited Romania, made the following statement today:
"The IMF mission held discussions with the Romanian Government during August 29-September 12 in connection with the Article IV consultation and the second review under the Stand-by Arrangement of SDR 400 million that was extended to February 2001 by the IMF Board last June.
Over the last two weeks, the Romanian authorities and the mission made considerable progress toward agreeing on policies required to complete the second review under the stand-by arrangement. However, there is still a number of outstanding issues, mainly in the areas of domestic arrears, state sector wages, and the government’s intentions regarding the budget revision. The discussions will continue in the coming weeks, in particular during the Annual Meetings of the International Monetary Fund and the World Bank that will take place in Prague at the end of the month, with a view to reaching agreement on completion of the review. In any event, the Board of the IMF will meet in the second half of October to review the discussions held under the Article IV consultation.
Economic policies in 2000 have been so far broadly supportive of an export-led recovery in output and a further consolidation of the external position. There is also evidence of a pickup in fixed investment in recent months as the output recovery in industry has firmed up and market confidence has continued to improve. These favorable developments have been made possible by good budget performance so far this year, broadly supportive monetary policy, as well as a generally favorable external environment.
In line with the program, real GDP is projected to rise by about 1.5 percent as the effects of the stronger than expected recovery in industrial output will be offset by the effects of the drought on agriculture. Provided that policies remain broadly on track, the current account deficit will amount to about US$1½ billion in 2000, in line with the original target.
However, inflation has persisted at high levels and is unlikely to decelerate significantly in the remainder of the year, owing in part to higher fuel prices and the effects of the drought on food prices, but also to policy slippages—there has been little progress in reducing domestic arrears and, since mid-year, wages in state-owned companies have been rising faster than targeted under the program. Moreover, achievement of the targeted deficit might be jeopardized by the inclusion of additional non-priority spending in the revised budget.
In the area of structural reform, privatization of the largest commercial companies under the World Bank’s Private Sector Adjustment Loan has proceeded more slowly than expected. Critical decisions are also pending in the banking sector with regard to the privatization of Bank Agricola and the Romanian Commercial Bank."