Friday, April 24, 2009

Romania signs letter of intent for IMF-led aid deal

BUCHAREST, April 23 (Reuters) - Romania's centre-left government signed on Thursday the letter of intent to get a 20-billion-euro, IMF-led aid package designed to underpin markets and pump fresh cash into the battered emerging economy.

The country of 22 million people on the EU's eastern frontier is the third member of the bloc to be bailed out after Hungary and Latvia, as world financial turmoil wipes out sources of funding for an economy heavily reliant on foreign cash.

"The approval of the IMF's support of Romania's economic program is on track. The program is expected to be approved by the IMF's Executive Board in early May," Tonny Lybek, the Fund's regional representative in Romania said in a statement.

The aid package was agreed between Romania and the lenders on March 25.

As the global crisis engulfs the continent, Romania has turned from being the EU's fastest-growing economy to one of its most fragile as private debt in foreign currencies and a growing budget deficit have exacerbated deep external imbalances.

"We are on the right track in implementing this deal," Prime Minister Emil Boc told reporters. "It is very important, with help from this accord, to back economic recovery, to relaunch borrowing and save existing jobs."

Over several months, Romania has moved from being an attractive destination for foreign investment, as manufacturers poured in to benefit from fast rates of growth, to an economy plagued by ballooning debt and sour market sentiment.

Thousands of workers have been laid off and several major factories have announced work stoppages in recent months, while Romania's economy is set to contract by around 4 percent this year.

The loan package gives Boc's cabinet some breathing room by allowing it to run a budget deficit barely below last year's 5.2 percent of gross domestic product (GDP).

It envisages cutting spending by roughly 1 percent of GDP.

The package includes 12.9 billion euros of IMF money and 5 billion euros from the EU as well as funds from the World Bank and the European Bank for Reconstruction and Development.

Romania would be able to draw 5 billion euros after the approval of the 2-year standby agreement by the board.

Finance Minister Gheorghe Pogea said the deal sets quarterly budget gap ceilings ranging from 1.6 percent of gross domestic product at the end of the first quarter to 4.6 percent -- 5.1 percent in line with EU methodology -- at the end of 2009.

Following is a table with agreed budgetary targets: =========================================================== 
BUDGET DEFICIT end-Q1 end-Q2 end-Q3 end-Q4
(bln lei) 8.3 14.5 18.6 24.3

(pct/GDP) 1.56 2.73 3.5 4.6*

=========================================================== Note: *Figures computed in line with Romanian methodology. (Reporting by Luiza Ilie; Writing by Radu Marinas, Editing by Toby Chopra) Keywords: ROMANIA IMF/ ( ; +40 21 315 8320; Reuters Messaging: )

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