MANAGING A FINANCIAL CRISIS ROMANIA STOR: 1998-1999

According to the IMF report "Romania-Recent Economic Developments" (SM/97/94), the monetary policy accommodated the increased deficits in the general government and state enterprise sectors and became highly expansionary from mid-1996. Credit growth, side by side with sharp increases in real wages and the budget deficit, drove the economic recovery through 1996. Output and export growth were led by traditional, energy-intensive industries, so that the IMF staff concluded that the economic recovery through 1996 was unsustainable. By the end of 1996, the premium in the parallel foreign exchange market for ROL reached 30-40 percent. The current account deficit surged in the last quarter of 1996 alone to about USD 1 billion, mainly on account of energy imports. At the onset of 1997 Romania was on the verge of a financial crisis.