IMF: Unemployment will continue to rise in Romania

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Unemployment will continue to rise in Romania in 2009 and early 2010, because this is an indicator with a delayed reaction to economic growth.
When the economy decreases, unemployment reacts later, and when economy bounces back, the decline in unemployment is also delayed, IMF Mission Chief for Romania Jeffrey Franks said on Friday, on a visit to Bucharest as part of an ongoing mission to assess the developments in a stand-by arrangement between Romania and the IMF.
Franks said there are reason for satisfaction in the way the Romanian authorities reacted to achieving the objectives included in the arrangement, adding that the abrupt drop in Romania’s Gross Domestic Product (GDP) in Q1, 2009 does not warrant a revision of conditions included in the arrangement, at least not for now, although the drop was more abrupt than economists were expecting.
A positive sign, he said, is that the largest nine foreign parent banks of banks incorporated in Romania agreed on Tuesday to adjust the solvency indicator from 8 to 10 percent for the 24 months of the arrangement.
This will mean about 1 billion euro will be injected into the Romanian banking system in two installments, in September 30, 2009 and March 2010. This buffer capital is provided between the bleakest scenarios from the stress tests conducted by the IMF and the National Bank of Romania.
There is tight interdependence between Romania and European countries, which makes that results in countries like Austria depend on the results in Romania and the other way around.
The effects of a forecasted drought on Romania could be a shock, but what is important is the social effects of the drought.
Franks said that 2009 will be a difficult year even with the IMF assistance.
He added that the optimism he found in Romania and other countries is the result of economic downturn having slowed down, but growth has not resumed yet.
Franks also argued that any pay rises should be considered against economic performance, and they will have to be discussed by the Romanian Government with the IMF.
There is currently a weaker collection of Government revenues, but there is a possibility of the parameters agreed upon with the IMF in the arrangement to be released in the weeks ahead, being met.
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