IMF will unblock aid to Romania when austerity cuts effective

(BUCHAREST) - The IMF board will release a new disbursement of its aid package to crisis-hit Romania when austerity measures announced by the government are effective, an IMF representative said Monday.

"The board will meet and analyze the agreement as soon as the authorities have taken the promised measures," chief of IMF mission Jeffrey Franks said during a press conference.

Romania's government last week announced it would wages in the public sector by 25 percent and cut pensions and unemployment benefits by 15 percent starting on June 1 in an attempt to curb a rising public deficit.

"Our normal schedule is to go to the board in June, if the government needs more time, there will be no problem," he said.

Once the IMF board approves the deal, about 900 million euros will be transfered to Bucharest, Franks said, speaking in Romanian.

Romania last year obtained a 20-billion-euro aid package from the IMF, the European Union and the World Bank after pledging to trim the bloated civil service and freeze public wages and pensions in order to slash the deficit from 7.2 percent in 2009 to 5.9 percent in 2010.

Franks said performance until March had been been "relatively good" but added that the government would face major challenges until the end of the year.

"The impact of the crisis has been more severe than anticipated and recovery has been delayed," he said.

After forecasting growth of 1.3 percent for 2010, the IMF and the Romanian government now predict the Romanian economy will stagnate or even slightly contract.

Franks said the IMF backed the austerity cuts announced by the government, which should help tame the public deficit to 6.8 percent, nearly one point up from the previous target.

Without these cuts, the public deficit would rise to 9.1 percent, he warned.

Franks said between 2005 and 2008 the number of employees in the public sector rose by 250,000. This figure has to be "reduced gradually," he stressed.

"Based on our findings, we have concluded the programme is working but new fiscal measures still need to be adopted," European commission mission chief Fabien Ilzkowitz said, commenting on the austerity cuts announced by the centre-right government.

She said given the more complex procedures within the European body, the Commission should disburse the next tranche of its loan in September.

The Romanian press on Monday criticized the government for being unable to curb tax evasion, "which has devastating effects" according to the daily newspaper Romania Libera.

The unions, opposed to the cuts announced by the government, are due to hold a crisis meeting on Monday to decide on future protests.

The opposition social-democrat party (PSD) has criticized the set of measures planned by the government, deemed "anti-economic" and pleaded instead for an increase in taxes on high revenues.