Friday, March 27, 2009

Romania gets largest EU bailout to date

Details emerged of the parameters of a bailout package solicited by Romania to counter the ongoing financial crisis, EurActiv Romania reported yesterday (25 March). It is the largest IMF-wrapped bailout package to date in favour of an East European EU country in difficulty.


At the spring summit held on 19-20 March in Brussels, EU leaders decided to increase from 25 billion to 50 billion euro an emergency facility to bail out EU countries that are not members of the euro zone (EurActiv 20/03/09).

Created in 1988, the EU facility was used for Hungary in October 2008, when it suffered the full blow of the financial turmoil (Budapest received a bail-out to the tune of 6.5 billion euro). The facility has since been increased from 12 to 25 billion euro.

The funding comes from the money markets. The Commission in fact borrows money from the markets using EU-denominated bonds.

Latvia was the next country to make use of the facility, as the country had to take out a 7.5 billion euro, IMF-led rescue loan. The package included financing from the EU, the Nordic countries, the Czech Republic, Poland, fellow Baltic state Estonia and the World Bank.

In early March, it became known that Romania too was holding talks with the European Commission and the International Monetary Fund to secure a similar rescue package (EurActiv 05/03/09).

An IMF delegation announced in Bucharest on Wednesday (March 25) it had concluded negotiations for a financial assistance package solicited by Romania.

Out of the overall 20-billion loan, the IMF will provide 12.9 billion, the European Commission five billion and the World Bank 1.5 billion. About one billion will be raised by other financial institutions.

Romania will not pay any interest in the first two years, after which a payback period of three to five years will follow.

Jeffrey Franks, head of the IMF negotiating team, explained that the accord signed with the Romanian government would be analysed in Washington by the Fund's management. The first instalment of the loan could be available for Romania as early as May. Franks told the website that the interest on the loan would be around 3.6%.

Filip Keereman, the European Commission's representative at the Bucharest talks, said the process of obtaining money from the EU could yet take longer. The Commission has to make a proposal to the EU's Council of Ministers, which is expected to adopt the decision at the beginning of May. The loan could become effective at the beginning of July, he said.

Asked to elaborate on the conditions attached to the loan, Keereman said: "The condition referring to the budget is important. This would mean having a deficit inferior to the one last year. By 2011, we would like Romania to come out of the excessive deficit zone."

Mihai Tanasescu, Romania's representative at the IMF, told that the Commission could ask for interest of 2.3% on the first instalment.

Emil Boc, Romania's prime minister, said on Tuesday: "In 10 to 14 days, we are going to receive an official answer from the Commission and the IMF. Then, we'll be able to sign a loan accord, after which, at the beginning of May, the loans will enter the working boards of EC and the IMF, and from then on the loan accord will be operable and the first instalments could be delivered to Romania."

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