Thursday, February 26, 2009

Romania to ask for financial help

Thursday, February 26, 2009

BUCHAREST, Romania: The head of Romania's central bank said Thursday his country will ask the International Monetary Fund and the European Union for loans to help it fight the economic crisis.

"Romania's discussions with international and EU financing bodies refer to a program spreading over several years, because we have all the data to believe that this crisis will last," said Mugur Isarescu, the governor of the National Bank of Romania.

Isarescu said the government and the central bank are considering borrowing more than it is currently needed, to cover the lack of financing in the private sector and ensure economic growth. He did not specify a sum.

Like other countries in Eastern Europe, Romania is facing financial and economic difficulty after a period of rapid growth fueled in part by credit. Currencies across the region have fallen amid fears about the stability of banks in the region and concens that richer countries in Western Europe or the IMF may have to come to the rescue.

Hungary, Latvia and Ukraine have already turned to the IMF for help.

Isarescu said an IMF loan would be used to help protect foreign currency reserves, which stood at €26.2 billion ($33 billion) at the end of December.

"It is an infusion of large sums of foreign currency. The sums could reach 1, 2, 3 or 4 billion euros. It is a currency swap — it gives us the possibility to increase reserves and reach a certain level of credibility, without creating problems with inflation," Isarescu said.

The IMF warned earlier this month that Romania could slide into recession this year as its economic vulnerability has been raised by high trade and fiscal deficits. The government aims to narrow the deficit to 2 percent of gross domestic product this year, from more than 5 percent last year, partly by freezing state wages.

The Romanian national currency, the leu, has lost about 20 percent of its value in the past year. Unemployment is set to grow to more than 5 percent this year, the government predicts, with thousands of layoffs in the automobile and other industries.

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