Thursday, March 26, 2009

IMF-led aid could rescue Romania 2009 growth

By Marius Zaharia
BUCHAREST, March 26 (Reuters) - Romania may recover to record economic growth in 2009, central bank governor Mugur Isarescu said on Thursday, a day after it sealed an IMF-led rescue to pump fresh cash into its battered economy.

The 20 billion euro package made Romania the bloc's third member to be bailed out after eastern European contemporaries Hungary and Latvia, as world turmoil wipes out sources of funding for an economy heavily reliant on foreign cash.

The two-year programme assumes an economic contraction of 4 percent this year, Isarescu said: "The minus 4 figure is the assumption of the (loan) programme and the worst case scenario."
"My belief is that with the help of this programme, Romania will have positive growth," he told a news conference.

Analysts have said that while the loan leaves scope for public spending to bolster the economy, it cannot prevent Romania from slipping into recession as the global woes choke off manufacturing and consumption.

But they say the package, in the works for weeks, will underpin markets and ease pressure on the leu currency, up half a percent to 4.254 against the euro on Thursday after trading near record lows since the start of the year.

"With these comments, the central bank would like to avoid boosting pessimistic expectations concerning the Romanian economy," said Nicolaie Alexandru-Chidesciuc, ING Bank senior economist in Bucharest.

"It is true that the aid offers some support for economic growth through the large budget deficit it allows, but we cannot avoid recession this year."

The package gives the centre-left government some breathing room by allowing it to run a budget deficit barely below last year's 5.2 percent of gross domestic product (GDP). It also envisages cutting spending by roughly 1 percent of GDP.

Isarescu, who foresees the external shortfall falling to 8-9 percent of GDP this year from around 12 in 2008, said the main factor influencing inflation is the exchange rate, adding that his bank still has money to intervene.

He stressed he expected the leu to remain in "sustainable area" in the near term, while Finance Minister Gheorghe Pogea said earlier in the day the IMF deal will soften downward pressures on the currency.

Thirteen billion euros from the IMF are designed to feed in the next two years the central bank's reserves -- at around 26 billion at the end of February.

"We want for this year to maintain the level of foreign reserves stable. Regaining credibility and the improvement of the rating will depend on these reserves."

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