Tuesday, March 24, 2009

Romania may cut reserve requirement after IMF deal

BUCHAREST, March 23 (Reuters) - Romania may cut its minimum reserve level for banks and try to persuade foreign banks to keep the resulting extra cash in the EU member's economy after it seals an IMF deal, media and analysts said on Monday.

A round of loan talks with a visiting IMF mission in Bucharest is expected to conclude on Wednesday, when a framework for the aid deal may be officially disclosed.

Romania approached Brussels and the IMF for support earlier this month, becoming the third member of the bloc to seek outside help to ride out global turmoil, after Hungary and Latvia, in a package estimated to worth 20 billion euros.

The country's president and central bank governor met their Austrian numbers on Monday, in what Romanian media and analysts said was part of moves to persuade western banks to revive lending to Romania as it bids to ride out the credit crunch.

Market watchers say Bucharest is trying to get assurances from western banks that their Romanian branches would not use a cut in the amount of hard currency reserves they need to hold at the central bank, to return financing to parent banks.

Three of the country's national daily newspapers on Monday reported the hard currency reserve requirement would be cut following an IMF deal, from the current 40 percent of hard currency funds, according to the central bank's definition.

'A possible reduction in reserve requirement for hard currency funds will be designed to boost lending (after an IMF deal),' said Ionut Dumitru, head of research at Raiffeisen Bank in Bucharest.

'They (the authorities) are probably seeking to discuss an agreement so, if a deal with the Fund is signed and reserves requirement ratio is cut, money will not exit Romania.'

Much of Romania's access to lending depends on its mostly foreign-owned banking sector, where Austria's Erste Bank has the biggest stake.

Basescu would not elaborate on the agenda of the Vienna talks.

'Austrian banks are determined, and have said so publicly, to keep credit lines to Romania open, to provide liquidity and not to withdraw it,' Austrian President Heinz Fischer told a news conference after meeting Basescu.

Romanian media said that a 'gentlemen's agreement' with Austrian banks was the main aim of talks.

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 hard currency debts and budget deficits accentuated its deep external imbalances.

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