Wednesday, March 11, 2009

Romania cbank: IMF deal to raise investor confidence

By Marius Zaharia

BUCHAREST, March 11 (Reuters) - A potential IMF-led financing programme for Romania will increase foreign investors' confidence and speed reforms in the country's struggling economy, its central bank's chief economist said on Wednesday.

Countries in central and Eastern Europe are scrambling to stop an evaporation of foreign funds that has caused Hungary and Latvia to grab IMF-led lifelines, raised the risk of lending default, and sparked some public unrest.

"The potential IMF loan would have three advantages," Valentin Lazea told reporters.

"Firstly, it will provide some financing, secondly, it will increase investors' confidence in the Romanian economy, and third, it will strengthen political will to make structural reforms."

Romania announced on Tuesday it had started talks with the EU Commission, the IMF and other institutions to seek "medium-term foreign financial assistance", code-language for a financial bailout.

Lazea said Romania was better off than other countries that had asked for an IMF bailout, and a potential deal would be only a "proactive" measure. A mission from the Fund arrived in Bucharest on Wednesday for a two week assessment.

"We don't have a problem similar with other countries which had to ask for such loans... but we are doing it (asking for external help) for the purpose of having insurance against potential problems that may surface," he said.

He said raising the country's foreign currency reserves through an IMF deal would calm investors and create room for a potential future relaxation of banks' minimum hard currency reserve requirements.

Analysts worry, however, that fiscal conditions the IMF may seek to impose on Romania as part of the deal could prove impossible for its newly formed centre-left government to implement in what is the EU's poorest state by some measures.

Lazea said he could not predict if the IMF will come up with a demand for the government to hike taxes, but added "anything was possible". Asked whether he saw any resemblance between potential conditions imposed on Romania with those imposed on other countries the Fund has bailed out, he said:

"We have always vowed for differentiation from other countries; this is the most professional approach."

Lazea gave no details on the size of the potential deal, but economists say it could amount to around 20 billion euros, near the $25 billion of IMF, EU and World Bank money agreed in a bailout of Hungary last October. (Reporting by Marius Zaharia and Luiza Ilie; Editing by Patrick Graham)

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