Tuesday, March 10, 2009

Romanian president says IMF deal is only solution

By Radu Marinas and Luiza Ilie

BUCHAREST, March 9 (Reuters) - President Traian Basescu called on Monday for popular support for austerity measures and an IMF loan, telling parliament that a foreign loan was the only way to rescue Romania's struggling economy.

Shortly after Basescu's address, the International Monetary Fund announced that its March 11-25 mission to Bucharest would discuss a possible programme with Romanian leaders.

Basescu called for broad political support for belt-tightening measures that economists say are crucial to warding off recession and much worse economic pain.

'Romania needs a safety belt that means external borrowing ... Right now Romania can access money from the European Union but the condition that the EU imposes is a partnership with the IMF,' Basescu told parliament.

Latvia and Hungary have already asked the IMF for a bailout, and analysts see Romania as the next in line for an IMF programme as it struggles to plug its external shortfall. The global lender sent a team to Romania in January.

'The program would be part of a pro-active, insurance-based multilateral financing package, to be supported by the European Union and the World Bank, among other international financial institutions,' the Fund said in a statement.

Government officials welcomed the news.

'It is good to have an IMF deal, even a precautionary deal is welcomed as it would provide a safety net ... the simple fact that we're holding talks with them can be a barrier to leu currency weakening,' Ionut Popescu, an economic adviser to Prime Minister Emil Boc told Reuters by telephone.

The centre-left government had until now been reluctant to confirm that it was in talks with the IMF for fear of alarming the public and sparking social unrest.

The government faces an uphill struggle to win domestic support for international aid, which will probably require deep cuts in social spending just months after it won parliamentary elections on a pledge to boost salaries and welfare payments.

Romania has not experienced mass protests over the economic crisis, unlike other eastern European countries like Latvia and Bulgaria, but Prime Minister Emil Boc is already under pressure from trade unions for reducing public sector pay rises.

ELECTION CHALLENGES

Romania has gone from being the European Union's fastest-growing economy last year, attracting billions of euros in foreign investment, to one of its most vulnerable.

Both companies and households borrowed heavily abroad, amassing debt in euros -- a bet that turned sour when the leu currency dropped 18 percent in recent months -- while unchecked private consumption and state spending failed to finance infrastructure and development.

Basescu, facing a presidential election later this year, wants to ensure any budget cuts do not strain the ruling coalition between Boc's centrist grouping and its leftist partner, the Social Democrat Party (PSD), which appears more reluctant to accept IMF involvement.

'If people take to the streets and say they do not want to tighten the belt ... this is something that must be taken into account,' presidential adviser Cristian Preda said.

Details about the size of any aid are scant but economists say it could be around 20 billion euros. The short-term debt of banks and companies maturing this year is 24 billion euros, while public debt stands at 1.6 billion.

Commentators say feuds within the coalition could affect Basescu's re-election chances because of his close links with Boc's Democrat-Liberals (PD-L) and strained relations with the PSD.

At the same time, Boc wants to build broad support for any IMF programme after protests over economic problems helped bring down governments in Latvia and Iceland.

(Additional reporting by Marius Zaharia, Writing by Radu Marinas, editing by Tim Pearce)

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