Monday, December 15, 2008

Coalition official says Romania needs IMF deal

BUCHAREST, Dec 15 (Reuters) - Romania should seek financing from the International Monetary Fund to shore up its finances and limit the economic downturn, according to a senior strategist from the centre-left coalition likely to form the next government.

Ionut Popescu, a former finance minister who commentators say could return to the post in the new cabinet, said Bucharest may be forced to ask for at least 10 billion euros in a stand-by agreement from the Washington-based lender.

Economists have said for months that Romania should seek IMF support to reassure financial markets, similar to deals sought by neighbouring Hungary and Ukraine.

But the outgoing cabinet of Prime Minister Calin Tariceanu appeared reluctant to ask for help ahead of last month's parliament election. Tariceanu lost the vote to a centre-left coalition.
"It may be a stand-by deal worth at least 10 billion euros. It is hard now to estimate its size ... I do not say that we shall use all this amount, but this will be a buffer in case Romania needs it," Popescu said.

The Romanian economy grew 9.1 percent in the third quarter, the fastest rate in the European Union, but analysts forecast a sharp slowdown next year, including possible recession.

So far this year, the poor Black Sea state has suffered little damage from the global financial crisis, avoiding the economic pain already plaguing western Europe and many of its former Soviet bloc peers in the east.

But with European demand slowing and global cash shortages likely to curb investment, most economists predict a sharp slowdown in 2009, from this year's roughly 9-percent expansion.
"Authorities made a big mistake when they scrapped the deal with the Fund ... this (a new arrangement) will offer Romania increased safety for the tough period that will come," Popescu said.

Romania's last stand-by accord with the IMF expired in mid- 2006 and Romania did not renew it, saying its policy mix was appropriate. The Fund said at the time its deal was off-track because of weak policies to bring down stubborn inflation.

Ever since, the outgoing cabinet has been blamed by international observers and analysts for its loose fiscal and wage policies -- key threats to financial stability.

"A deal with the IMF will act like a safety net ... it will ensure rigour and advocate much-needed financial discipline at a time of needed restraint for public money, it will eventually boost investors' trust in the Romanian economy," Popescu said.

Recently, two rating agencies downgraded Romania to sub-investment grade because of government policy gridlock. Moody's Investors Service, which still sees Romania above "junk" level, said the country could slip into recession next year. (Editing by Stephen Nisbet)

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