Tuesday, March 3, 2009

Germany confirmed on Tuesday that Romania was in talks over an International Monetary Fund loan

BERLIN, March 3 (Reuters) - Germany confirmed on Tuesday that Romania was in talks over an International Monetary Fund loan amid concerns it will be the next of eastern Europe's teetering economies to need bailing out in the global credit crunch.

Bucharest has yet to admit to having approached the global lender regarding a loan, although the IMF has said a Romanian team was in Washington for discussions on economic developments. Sources told Reuters on Monday aid was on the agenda.

If a deal is reached, the country of 22 million would be the third European Union member to seek help from the IMF as the global cash shortage envelops eastern Europe, hitting economies highly dependent on foreign funding.

Without at least several billion euros in aid, economists warn, the relatively poor Black Sea country may plunge into a payments crisis that would hit its currency, destabilise the economy and likely ripple out to its regional peers.

"Romania is in talks with the IMF over additional loans," German Foreign Minister Frank-Walter Steinmeier said after a meeting with his Romanian counterpart Cristian Diaconescu in Berlin. "I hope they will lead to success."

The Romanian government's spokeswoman declined to comment.

Steinmeier said Berlin wanted to remain in close contact with Romania, one of Germany's key export markets in eastern Europe, but added there was no agreement yet whether Brussels should also offer financial help.

Romania has already started talks with Brussels on getting aid in what could become an IMF-led rescue plan similar to those sought by crisis-stricken Hungary and Latvia last year.

"Whether beyond that, other talks with the European Union are to be considered -- on taking up Commission facilities to support the budget as happened towards Latvia and Hungary -- that remains to be seen," Steinmeier said.

"At any rate, I think there is support from the side of the European Union and the member states.

TROUBLE SNOWBALLING

Since the global crisis accelerated in October, Romania has turned from being the EU's fastest-growing economy and an attractive destination for foreign investors into one of its most vulnerable.

Two rating agencies have downgraded it to below investment grade and foreign investors have fled local markets, sending the leu currency to record lows against the euro and wiping out 80 percent of the stock exchange's value in a year.

Most economists now expect last year's nine-percent economic growth to turn into a contraction as soon as the first quarter of 2009 as a cash freeze and evaporating demand from the West damages local production, as elsewhere in eastern Europe.

And with a double digit current account deficit and vast hard currency debt in the private sector -- both a legacy of a corporate and private spending spree in recent years -- Romania is seen as one of the riskiest economies.

"People need to be proactive," said Tim Ash from RBS in London. "(An IMF deal) would definitely be good." (Reporting by Kerstin Gehmlich; writing by Justyna Pawlak; editing by Patrick Graham)

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