Romania ‘meets’ EU aid conditions
Reform measures taken by Romania satisfy conditions for next round of international financial support, European Commission says.
The European Commission today said that it is satisfied that Romania has made enough spending cuts to warrant receipt of the next instalment of EU aid to help the country stabilise its economy.
The EU’s finance ministers still have to give their final approval before the instalment – worth €1.2 billion – can be paid out.
The payment is part of a €20bn aid package put together by the EU and the international financial institutions last year because of concerns that Romania was at risk of defaulting on its debt.
The funds are being released in instalments, provided that Romania implements a policy programme that aims to enable the country’s economy to withstand short-term liquidity pressures, improve its competitiveness and return to a sound and sustainable footing.
The package includes a €5bn loan from the EU’s balance-of-payments facility, which is used to help non-eurozone countries in financial difficulties.
The EU has so far released a total of €2.5bn to Romania, spread over two instalments, the first in July 2009 and the second in March this year.
The Commission said that a joint mission with the International Monetary Fund (IMF) and the World Bank that had visited Bucharest over the course of the past week found that “the conditions for the third disbursement of the EU balance-of-payments assistance programme were met”.
The mission concluded that Romania was making “sufficient” efforts to reach a budget deficit target of 6.8% of gross domestic product (GDP) this year and 4.4% of GDP next year. Romania aims to get its deficit below 3% of GDP by 2012.
Fact File
HUNGARY AND LATVIA
The European Commission and International Monetary Fund (IMF) last month postponed the conclusion of a similar review in Hungary to the one they have just completed in Romania, because of concerns that the Hungarian government was not serious enough about cutting the country’s budget deficit.
The Commission said that Hungary’s planned deficit-cutting measures fell “somewhat short of the required adjustment and are largely of a temporary nature”. The Commission also warned that a levy on the financial sector that was passed by Hungary’s parliament on 23 July could “have a significantly negative impact on the country’s investment climate and economic growth”. It said that other planned financial reforms were “distortive and potentially not in compliance with EU law”. The Commission and IMF have said that they are ready to resume the review should Hungary show flexibility on its economic plans.
Hungary was granted a €6.5bn loan from the EU balance-of-payments facility in November 2008 (part of a €20bn international support package), of which €5.5bn has been paid out. Hungary will be unable to get access to the remaining €1bn until the review is complete. The Hungarian government has said that it does not currently need the money and that it is determined to follow its own economic agenda, even if this means losing financial support from the Commission and the IMF.
Hungary and Romania are two of the three countries to have received support from the balance of payments facility during the financial crisis. The other is Latvia which was granted a €3.1bn loan from the facility in January 2009.
The Commission warned, however, that Romania’s economic recovery remains fragile, adding that recent weakness in domestic demand and recent floods “will probably delay” the recovery. Inflation is also expected to rise in the short term because the government raised the country’s value added tax rate in July.
The next instalment of aid will be dependent on Romania implementing reforms that include an overhaul of the country’s pension system and the creation of an independent ‘Fiscal Council’, whose purpose will be to strengthen the way the country drafts and implements financial policies. The government is also supposed to step up its fight against corruption and tax fraud.
Of the €20bn support package to Romania, €12.95bn is being provided by the IMF, €1bn by the World Bank, and a combined €1bn from the European Investment Bank and European Bank for Reconstruction and Development.
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