Wednesday, March 25, 2009

I.M.F. Approves Romanian Rescue

The New York Times

PARIS -- The International Monetary Fund said Wednesday that it would come to the rescue of Romania as part of a $27 financing package to help the country weather the financial crisis. The fund said in a statement from Washington that agreement had been reached on an economic program supported by a loan of about $17.5 billion under a two-year stand-by arrangement.

Pending the approval of the fund’s executive board, Romania would be able to draw $6.75 billion upon board approval. Another $9.7 billion loan will be forthcoming from the European Union and other bodies.

The Romanian economy has been weakened by a sharp decline in foreign investment, even as the government’s finances and the banking sector have been overwhelmed by the economic crisis. The economy is expected to shrink by as much as 4 percent in 2009.

“The objective of the policy package is to cushion the effects of the sharp drop in private capital inflows,” Dominique Strauss-Kahn, the managing director of the fund, said in the statement. The I.M.F. program will also help to prepare Romania “for eventual entry into the euro zone,” he said.

Romania joins Ukraine, Serbia, Belarus, Hungary and Latvia in seeking help since the global economy went into a tailspin last year, leading investors to sell the currencies of smaller countries in a flight to dollars, euros and yen. International institutions have sought to plug the hole in the countries finances with about $60 billion of emergency lending.

“In addition, the program aims to maintain adequate capitalization of banks and liquidity in domestic financial markets; bring inflation within the central bank’s target and maintain it there; and secure adequate external financing and improving confidence,” Mr. Strauss-Kahn said.

The fund said the Romanian program contains “explicit provisions to increase allocations for social programs, as well as protection under the reforms for the most vulnerable pensioners and public sector employees at the lower end of the wage scale.”

The rescue plan was worked out in close cooperation with other international institutions. Pending the approval of their respective authorities, the E.U. will follow up with a loan of 5 billion euros, the World Bank has agreed to provide 1 billion euros, and the European Bank for Reconstruction and Development “and other multilaterals provide an additional 1 billion euros.” Mr. Strauss-Kahn also said the fund was “actively consulting with banks and other financial institutions operating in the country so that they will continue to provide adequate financing to Romania.”

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