Sunday, January 25, 2009

IMF says no funding for Romania on mission agenda

BUCHAREST, Jan 23 (Reuters) - The International Monetary Fund will visit Romania next week for a scheduled mission, with no talks on the agenda about providing any funding, the IMF said on Friday.

Many economists say Romania's month-old coalition government may be forced to seek IMF help later this year to prevent a financing crisis and to reassure jittery markets, in deals similar to those sought in 2008 by Hungary and Ukraine.

There have been few signs from the centre-left policymakers that any deal is on the cards, although a senior coalition strategist said in December at least 10 billion euros in IMF cash may be needed to insulate the country from global crisis.

"The government has not requested an IMF programme, and therefore there are no discussions about it on the mission's agenda," the lender said in a statement.

"Moreover, we are not exerting any pressure on the government to request an IMF programme."

The lender said the mission will assess Romania's macroeconomic situation and discuss policy plans with the new government and businesses.

Bucharest's ruling centrists face a policy dilemma because any fiscal stimulus given to the economy in the wake of global crisis may spook markets already concerned about loose budget policies and large twin fiscal and trade deficits last year.

But without much additional cash, Romania's economy may slide into recession because of slumping foreign demand will damage exports and scant private funding may choke off domestic consumption, economists say.

"It is very likely that another country in eastern Europe will go to the IMF and it is more than likely that it will be Romania or Bulgaria," said Neil Shearing, emerging Europe economist at Capital Economics in London.

"Romania has been living broadly beyond its means."

Underlining such concerns, two of the main rating agencies see Romania as the only EU country with sub-investment grade.

Since coming to power after November's election, the coalition has pledged to slash deficits and focus on re-establishing credibility with international investors.

Observers say a convicing budget for this year will be a crucial test of its ability to steer the country through the global crisis. Talks on the budget are due to end next week.

So far, Prime Minister Emil Boc has pledged to cut the deficit to 2 percent of gross domestic product from some 5 percent last year but has failed to convince independent economists that his cutback plans are realistic.

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.

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