The Romanian national currency, leu decreased to a new record to the euro currency after the Bucharest Executive announced that the economy will contract in 2010 more than estimated, the Wall Street Journal reads. The euro appreciated in the same afternoon in which Finance Minister Vladescu announced that the government decided to decrease estimates for this year with a 1-2% contraction - a consequence of the austerity measures like the VAT increase and budgetary sector salary decreases.
Recent events triggered an alarm for investors regarding the adjustment needed in Romania. Capital Economics economist Neil Shearing declared that the measures are painful.
The government announced the decision to increase VAT by 5 percentage points to 24%, as an alternative to pension cuts - a measure rejected by the Constitutional Court. Romanian authorities expressed their hope that the VAT increase will be enough to satisfy IMF demands.
IMF money is crucial for Romania.