Saturday, March 14, 2009

Romania’s Current-Account Gap Narrowed in January

By Adam Brown

March 13 (Bloomberg) -- Romania’s current-account deficit, which has prompted the country to seek international financing, narrowed in January as slower wage and lending growth and a weaker leu discouraged imports.

The shortfall narrowed to 525 million euros ($677 million) from 1.16 billion euros the previous January, the Bucharest-based Banca Nationala a Romaniei said in an e-mail today.

“Imports are falling particularly due to the brisk contraction in both private consumption and investment,” ING Bank Romania analyst Nicolaie Alexandru-Chidesciuc said in an e-mail today. He predicted “a sharp contraction in the trade and current-account deficits in 2009 and probably in 2010.”

The government is in preliminary talks with the International Monetary Fund and the European Union to help finance its current- account and budget deficits. Romania is joining east European countries including Hungary, Latvia and Ukraine in seeking international aid as the global financial crisis threatens to engulf the region.

The leu has weakened more than 14 percent in the past year against the euro, the main currency for Romanian international trade, as global investors pull out of markets and currencies seen as carrying a higher risk amid world financial turmoil.

The leu’s drop slowed imports in January to 2.49 billion euros, from 3.98 billion euros in the same month of last year, the National Statistics Institute said yesterday.

Financing Need

The government, which predicts the current-account shortfall will narrow to less than 10 percent of gross domestic product this year from 13 percent last year, hasn’t said how much money it aims to borrow. Central bank adviser Eugen Radulescu said the country needs about 10 billion euros in financing this year.

The Cabinet aims to narrow the budget gap to 2 percent of GDP this year from 4.8 percent last year.

Slower investment and economic growth also eased a lending boom, increased unemploymentwage gains, further discouraging Romanians from buying increasingly expensive imports. and lowered

The services component of the current-account gap, including tourism and transportation, had a net inflow of 118 million euros from 88 million euros for January of 2008, the central bank said.

Foreign direct investment in January totaled 912 million euros, more than covering the current-account deficit, the bank said.

To contact the reporter on this story: Adam Brown in Bucharest at abrown23@bloomberg.net

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