Friday, October 23, 2009

IMF to begin second review of Romania loan deal

WASHINGTON/BUCHAREST, Oct 22 (Reuters) - The International Monetary Fund said on Thursday it will start a second review of Romania's aid package later this month, relenting on previous plans to postpone the mission until a new government was formed.

However, IMF mission chief for Romania Jeffrey Franks said that a follow-up mission may be needed due to 'ongoing political developments'.

'The mission will initiate discussions with authorities on the second review ... but a follow-up mission may be necessary to continue discussions after a new government has been formed,' Franks said in a statement.

'Successful completion of the second review will require a broad-based political commitment to approve a 2010 budget with a budget deficit no higher than 5.9 percent of GDP.'

Analysts welcomed the move, saying it will help calm local markets in the short-term, but said the Washington-based lender's flexibility posed risks to the budget deficit.

'The likelihood of expanding fiscal deficit is here to stay and the moral hazard of the Romanian politicians might increase as a result of IMF's leniency,' said Nicolaie Alexandru-Chidesciuc, chief economist at ING ( ING - news - people ) Bank Romania.

'This bodes ill for the economy looking forward and the IMF might find strong resistance from politicians in early 2010 when trying to impose harsh measures to correct imbalances.'

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