Romania starts talks with EU, IMF on loan

March 11, 2009
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, BUCHARAEST, March 11 – Romanian officials on Tuesday began talks with European Union and International Monetary Fund representatives on a loan that analysts said could be worth up to 26 billion dollars (20 billion euros).

"The size of the loan is under consideration," the Romanian finance ministry said. Analysts in recent days have said the credit could amount to between 6.0 and 26 billion dollars.

Government sources cited by the Mediafax news agency have said Romania could borrow 15 billion dollars from the IMF and another 9.0 billion dollars from the European Union.

"The amount will be determined during the course of the negotiations and not before their start," a government source told AFP.

Mihai Tanasescu, Romania\’s representative at the IMF, said outcome of the talks would become known "within 10 days."

The finance ministry added: "An international credit as well as measures adopted by the authorities will help to strengthen financial stability in the medium term, rejuvenate the business climate and re-gain investor confidence."

The ministry said the planned loan was necessary to "avoid a deterioration in macroeconomic stability and to ensure the establishment of a protective umbrella" in response to the economic crisis.

At London-based Capital Economics research group analyst Neil Shearing said that while a loan for Romania "should calm fears of an immediate meltdown and could lead to a near-term bounce in Romanian markets, it does not remove the need for a fundamental depreciation in the leu," the national currency.

"Moreover it will not prevent Romania from entering a deep recession this year."
He noted that IMF loans come "with strings attached, usually in the form of a commitment to fiscal retrenchment."

He said a bailout package would not enable Romania to "revert to its recent pattern of development."

"Rapid growth has been driven by an unsustainable credit binge, funded by borrowing from abroad. This is the root of the country\’s problems."

Romania\’s parliament last month adopted an austerity budget for 2009 that freezes public sector pay and allocates billions of dollars for investments in infrastructure to boost the struggling economy.

The plan foresees economic growth at 2.5 percent in 2009 and a public deficit of 2.0 percent of gross domestic product.

The finance ministry foresees growth of less than 1.0 percent in the first three months of this year, sharply slower than the 8.2 percent recorded in the same period last year.

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