Friday, March 20, 2009

Romania closes in on IMF loan

The Financial Times

By Thomas Escritt in Budapest

Published: March 20 2009 17:14 | Last updated: March 20 2009 17:14

Romania and the International Monetary Fund could announce a support package of up to €19bn next week, bringing with it the prospect of relief for Romania’s credit-starved enterprises.

As an IMF-led delegation finishes its second week in the country, government officials are expecting to borrow €12bn from the lender and a further €7bn from the European Union, according to local media reports.

An agreement would be timely for the country’s lenders, who have complained that the perception of Romania as a risky investment destination with unstable public finances has made euro lending prohibitively expensive, and who expect an international rescue package to shore up confidence.

Stephen van Groningen, chief executive of the Romanian subsidiary of Austria’s Raiffeisen Bank, said: “I think it is a pity that Romania has such a bad rating . . . How can you compete if you are paying 3 or 4 per cent more for your money than other countries?”

He said an IMF loan would allow the government to set out clear fiscal policies, creating a “certain clarity which I think is missing at the moment”. It would boost the National Bank of Romania’s reserves and allow the central bank to cut minimum reserve requirements for bank lending in foreign currencies from their current high level of 40 per cent, allowing lenders to push more liquidity into the economy.

A loan would help Romania refinance €25bn in short-term private sector debt that falls due in months.

For entrepreneurs, constrained access to credit in Romania is crippling and is leading many to adopt creative approaches. Vasile, an entrepreneur who imports dairy products from Hungary, is delaying his tax payments. “I pay a fine of 0.1 per cent a day, which works out at an interest rate of 36 per cent a year. It’s effectively very expensive credit but it’s the only source of finance I have at the moment,” he said.

While an IMF loan may bring relief, many ask why politicians, who until recently were denying that Romania even needed external support, have taken so long. In late January, Traian Basescu, the president, said taking an IMF loan was the “last thing Romania would do”, insisting that EU funds would be sufficient even in the worst case. Even in February, officials were still briefing that they expected an IMF package of less than €10bn.

Matei Paun, a corporate finance consultant, said: “Initially, the hoped they could avoid it. A lot of [government officials] think at least 50 per cent of the reasons for needing this are psychology. I think that’s wrong. There’s no smoke without fire.”

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