The solutions given by The National Bank of Romania to the international financial crisis and their effect Author: Horia Mircea Botoş

Effects of the IMF financing on the Romanian Economy T

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Effects of the IMF financing on the Romanian Economy

The global financial crisis, felt in 2008, generated and then generalised a feeling of mistrust and increased risk aversion of investors significantly. Current account deficit, external financing needs and relatively high ratio between high and deposits in foreign currency have made the Romanian economy uncertain and risky for foreign investors. Calculations showed that for 2009 Romania could have had a funding shortfall estimated at 16 billion, depending on the sentiment of foreign investors and their desire to renew lines of funding of banks and private companies. This negative sentiment was reflected in the depreciation rate for the period October 2008-February 2009. In these circumstances, the authorities decided to promote policies that ensure minimal reduction of external financing in Romania.

Since December 2008, NBR has been searching for an economic program focused on reducing public deficits and private affairs, to minimize the effects of the crisis. Achieving these goals needed the design of a model of measures to bring the economy on a sustainable in the long slope that would minimize losses, including in terms of unemployment.

Risk financing holes would have resulted in the highest level anticipated for 2009; depreciation pressures Ron would result in a crisis of the exchange rate, with negative effects on inflation and especially financial assets in U.S. dollars. Other adjustments, such as bringing public spending, the unsustainable level reached during the cycle of high input of capital, should be worn low mark of credibility to the population. In this context, the IMF provided two essential given the situation of the Romanian economy: the coverage deficit funding and credibility.

An import of credibility of the IMF has made private funding to reduce less. The measures included in the agreements have provided the financing of the Romanian economy. This funding was reflected positive investment in relatively higher compared to the situation would not have concluded agreements and in stabilizing and reducing the depreciation rate against the euro and other currencies, the Vienna agreement, and that banks have taken commitment to renew lines of funding and to maintain the rate of capital adequacy levels to insurers.

Decreased pressures Ron depreciation and thus a reduction of inflationary pressures arising through the exchange rate channel, together with efforts at fiscal consolidation, have enabled the national bank to move to relax the prudent monetary policy, which will alleviate the decrease GDP, while inflationary pressures increase.

Looking forward, the main challenge of 2009 is to implement the adjustments provided for in the IMF. Failing to implement the measures set out by the IMF will result in a loss of credibility that will affect our country in more than one sector. And in this case pathways variables may be GDP, exchange rate, current account deficit; inflation will have more negative slopes.

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