Wednesday, March 25, 2009

Romania Gets 20 Billion-Euro Bailout From IMF, EU

March 25 (Bloomberg) -- Romania got a 20 billion-euro ($27 billion) bailout from the International Monetary Fund, European Union and other lenders to finance its budget and current- account deficits as the economy shrinks and revenue dwindles.

About 13 billion euros will come from the IMF and the rest from the EU, World Bank and the European Bank for Reconstruction and Development, the Washington-based lender said in a statement today.

“An IMF staff mission and the Romanian authorities have today reached agreement, subject to approval by IMF management and the executive board, on an economic program,” IMF Managing Director Dominique Strauss-Kahn said in the statement. “The objective of the policy package is to cushion the effects of the sharp drop in private capital inflows.”

The Balkan nation, which had the fastest-growing economy in the EU last year, is plunging into a recession and the central bank has little room to lower interest rates to revive growth. The loan brings to more than $60 billion the total handed out to eastern Europe. Hungary, Ukraine, Belarus, Latvia and Serbia have also sought bailouts to prevent defaults and aid banks.

‘Core Measures’

The loan from the Washington-based lender will be disbursed over the next two years with a 5 billion-euro installment coming after approval by the IMF executive board, the statement said.

Romania requested talks with international organizations this month to discuss financing the shortfalls as exports suffer from waning demand in its key western European trading partners.

“Core measures under the program are designed to strengthen fiscal policy to reduce the government’s financing needs and improve long-term fiscal sustainability, thus preparing Romania for euro zone entry,” the IMF said. The country aims to adopt the European common currency in 2014.

The IMF also said the loan agreement contains “explicit provisions to increase allocations for social programs.” The fund didn’t say what conditions it may place on the Romanian government as part of the package.

Central bank adviser Lucian Croitoru said yesterday the government predicts the economy will contract by as much as 4 percent this year. It expects shrinking state revenue will push the budget gap to as much as 4.6 percent of gross domestic product. The government also predicts a current-account deficit of as much as 9 percent of GDP in 2009.

Moody’s Investors Service, which affirmed Romania’s credit rating at Baa3 on March 20, said it would consider a downgrade if the country didn’t obtain aid.

To contact the reporters on this story: Adam Brown in Bucharest at abrown23@bloomberg.net; Irina Savu in Bucharest isavu@bloomberg.net

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