Thursday, February 26, 2009

Romania to Seek ‘Package’ of Loans, Central Bank Says

By Adam Brown and Irina Savu

Feb. 26 (Bloomberg) -- Romania’s government may seek a package of loans from the European Union, the International Monetary Fund and other organizations to ease the worst effects of the global financial crisis, the central bank governor said.

“We are still in the phase of evaluating this with the government and will probably conclude next week,” Mugur Isarescu told journalists at a televised news conference in the northern Romanian city of Cluj today. “We are talking with the IMF and the European Commission. There would probably be several loans - a package of financing from several sources.”

Eastern Europe’s governments are facing difficulties financing their budget and current-account deficits as investors shun riskier assets. Countries including Hungary, Ukraine and Latvia needed aid from the International Monetary Fund and the European Union to avert defaults.

Romania’s government aims to narrow the budget deficit to about 2 percent of gross domestic product this year, from about 5.2 percent last year by freezing state wages. It also predicts a 2009 current-account deficit of almost 10 percent of GDP this year, from almost 13 percent last year, or a record 16.9 billion euros ($22 billion).

Sharp Slowdown

Romania, which had the fastest-growing economy in the EU in the third quarter of last year, predicts a sharp slowdown this year that will lower budget revenue. The IMF said this month that the country probably faces a recession in 2009 and the central bank has little room to lower interest rates to stimulate growth.

Isarescu said Romania may also seek loans under existing agreements with the World Bank, the European Bank for Reconstruction and Development, and other lenders. He gave no amount for the loans being sought.

He said any loan agreement may be extended over several years and “we have enough data that leads us to believe that this crisis will be prolonged.”

Isarescu earlier said the country should keep its target of adopting the euro in 2014 and avoid trying to accelerate entry to the euro zone.

“The problem lies in our power to enter the euro zone,” he said. “We have to undertake many reforms. It is possible that in a while we will see changes to criteria for entry, but I don’t foresee much relaxation.”

Isarescu made the comments day after Prime Minister Emil Boc said the government may accelerate plans to adopt the euro to more closely link the country’s economy with other EU members.

To contact the reporter on this story: Adam Brown in Bucharest at abrown23@bloomberg.net

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