Tuesday, March 24, 2009

Romania expected to OK IMF-led loan request on Wed

By Marius Zaharia and Luiza Ilie

BUCHAREST, March 23 (Reuters) - Romania's center-left government will likely approve on Wednesday an official letter requesting a loan package led by the International Monetary Fund, Prime Minister Emil Boc said on Monday.

Romania approached Brussels and the IMF for support earlier this month, becoming the third European Union member after Hungary and Latvia to seek outside help to patch up finances strained by the global crisis and calm nervous markets.

'All chances are that this loan agreement is reached between the Romanian government, the European Commission and the IMF,' Boc told reporters after a ruling coalition meeting.

'Most likely on Wednesday we will approve within the government the official form of the letter of intent we will send to Washington regarding this deal,' he said.

The standby agreement with the fund will keep the flat income tax and the value-added tax unchanged, Boc said, while boosting central bank reserves to ensure market liquidity and a pick-up in lending, which has all but stopped in recent months.

'After the reply of the IMF board (which meets on May 4) we will officially sign the deal and make public its content,' said Boc, declining to reveal the amount of the loan before Wednesday.

However, Deputy Prime Minister Dan Nica said a package of 19 billion euros was 'not far from the truth.'

Mircea Geoana, the head of the leftist Social Democrat Party in the governing coalition said earlier that the IMF could provide up to 13 billion euros and Brussels another 4 billion to 5 billion.

A mission of IMF experts is due to end its visit on Wednesday following two-week talks with Romanian authorities.

MOST ADVANTAGEOUS

Geoana called the aid package 'one of the most advantageous deals of this type made by countries in the region.'

'Unlike in Hungary where fiscal measures were requested, unlike in Latvia where fiscal and wage measures were demanded ... we are in a position to say this is a reasonable formula which will get the coalition's vote,' Geoana said.

As the global crisis engulfs Eastern Europe, Romania has turned from being the EU's fastest-growing economy to one of its most fragile as private debts denominated in foreign currencies and a growing budget deficit have exacerbated deep external imbalances.

Sources close to the talks have said the terms of an IMF-led deal may include raising the official retirement age and additional spending cuts in the public sector, such as on loss-making state firms or non-performing railway or mining companies.

Analysts and the media said on Monday that Romania may also cut its minimum reserve level for banks and try to persuade foreign banks to keep the resulting extra cash in the economy and revive lending after it seals an IMF deal.

The president and the central bank governor met their Austrian counterparts on Monday in what analysts said was part of an effort to get assurances from western banks that Romanian bank branches would not use the extra funds to return financing to parent banks.

Geoana said the IMF was also planning to meet Austrian banks, which own the largest part of the Romanian banking system in Vienna on Thursday.

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