The economic growth estimated for the first half of 2003 was 0.2% smaller than the 5% originally stipulated in this year's budget, said Finance minister Mihai Tanasescu.
The underperformance can be blamed on the agricultural problems, which may trigger an inflation increase this summer, but also on the poor industrial output results, especially in February and April.
Several foreign analysts had anticipated the smaller-than-expected economic results ever since May, when they adjusted their previous GDP growth estimates down to 4.5% or even to lower levels. Back then, the Government played down the analysts' concerns, saying the original targets would most certainly be met.
An International Monetary Fund delegation arrived in Bucharest last week and will be able to give an accurate assessment of the economic evolution posted in the first half of the year.
Neven Mates, the IMF chief negotiator for Romania, arrived yesterday, bringing a list of slipups and delays in meeting the pledges included by the Government in the supplementary letter of intent this spring.
The fast-growing lending tops the list. "The IMF feels that an exaggerated increase in lending points to an overheated economy, which can lead to higher inflation and other macroeconomic slipups. However, we should indeed beware of a major trade balance disequilibrium," the Finance minister stated.
Imports soared this year, also because of the ROL/USD and ROL/EUR exchange rate. The future evolution of the exchange rate and the increasing trade deficit are hardly encouraging, as Romania has already faced this problem before and cannot keep financing these imports without causing other major imbalances. The trade deficit (the gap between imports and exports) has reached $2 billion in the first two months of 2003.
The IMF is now pushing for a rate hike, to cut the market's significant appetite for credits. However, the National Bank of Romania is opposing this measure, which would cast doubt on its monetary policy, given its sustained efforts aimed at cutting rates.
Non-government lending in ROL went up 9.3% in the first five months of the year. According to the Finance minister, the National Bank claims the lending increase can be maintained at the current levels and is, therefore, sustainable.
Any rate increase could reverberate around the market, causing shock and confusion, as most players expect rate cuts this fall, not increases.
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