Tuesday, January 27, 2009

Romanian president opposes asking for IMF help

By Justyna Pawlak

BUCHAREST, Jan 27 (Reuters) - Romanian President Traian Basescu has spoken out against a potential deal with the International Monetary Fund, defying expectations from many economists that Bucharest may be forced to seek IMF help.

Bucharest's month-old coalition government appears conflicted about seeking the fund's help to shore up jittery markets and insulate the economy from the threat of a financing crisis, in deals similar to those sought in 2008 by Hungary and Ukraine.

Basescu's comments, made in a late-night television show on Monday, come as the Washington-based lender began a scheduled mission to Bucharest. The fund has said talks about any assistance programme are not on the agenda for the visit.

A senior coalition strategist, Ionut Popescu, said in December at least 10 billion euros in IMF cash may be necessary, while Prime Minister Emil Boc has said a decision whether to seek help had not yet been taken, saying the country had 'many solutions' to its current situation.
But Basescu, who has close political ties with Boc's month-old cabinet, said Romania should not seek an IMF deal.

'Romania needs financing ... but the solution is to take money from the EU, not from the Fund .. We are not in the same situation as Hungary,' he said.
'I absolutely oppose the idea that Romania goes to the IMF to ask for 10 billion euros.'

Many economists say Romania may be unable to find cash for short-term debt and public spending without external help this year as its economy is expected to slow sharply to less than 2 percent from last year's buoyant growth rates of 8-9 percent.

It may also be forced to talk to the IMF if financial markets turn more negative on its situation. Already, two major rating agencies place it as the only EU member with sub-investment grade.
Economists say markets are waiting for convincing signs from the government that it will conduct prudent fiscal policy, after loose spending by the previous cabinet sparked ratings downgrades.

In its first test, Boc's centre-left coalition is expected to approve its budget plan for 2009 this week.

Boc, who appointed Popescu as an economic adviser earlier this month, has pledged to focus on re-establishing credibility with markets and to slash the state deficit to 2 percent of gross domestic product from some 5 percent last year.

But he faces a policy dilemma because without much additional cash, a slump in foreign demand for its exports and a squeeze on domestic credit could drive the economy into recession.

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