By Radoslav Tomek and Adam Brown
Jan. 20 (Bloomberg) -- Romania has an “extremely good” chance of unblocking a $30 billion international bailout package after Parliament passed an austerity budget that meets lenders’ demands, central bank Vice Governor Cristian Popa said.
“The situation of political stability has been sorted out,” Popa told reporters at a conference in Vienna today. “The budget has been approved under the terms agreed with the European Commission and the IMF.”
Teams from the International Monetary Fund and the European Union start a seven-day visit to Bucharest today to decide whether to unfreeze payments under the loan package, which also includes contributions from the World Bank and other international lenders.
The package was frozen on Nov. 6 after the government collapsed because of infighting. The IMF demanded the formation of a new government and passage of a budget before resuming payments. Romania formed a government under Prime Minister Emil Boc on Dec. 23 and Parliament passed the budget on Jan. 14.
The leu, which has risen since Parliament passed the budget, fell 0.2 percent against the euro to 4.1189 as of 12:06 p.m. in Bucharest today. The benchmark BET stock index gained 1 percent.
Tonny Lybek, the IMF representative in Romania, said on Jan. 15 that the mission will visit central bank and government officials and review the country’s compliance with 2009 conditions plus the 2010 budget.
He also said the IMF may decide to send the delayed tranche of 1.5 billion euros ($2.13 billion) plus a tranche of 800 million euros that was scheduled for March. The EU said last week it will decide whether to send a delayed tranche of 1 billion euros.
The budget approved by Parliament targets a deficit of 5.9 percent of gross domestic product, compared with an estimated gap of 7.3 percent last year. Both deficit figures are meant to comply with IMF conditions. The budget freezes wages for the 1.3 million state workers, targets job cuts of 100,000 and cuts infrastructure investments by 28 percent.
Popa also said the budget-deficit target implied the chances of meeting the 2010 inflation goal of between 2.5 percent and 4.5 percent are “very high,” even after increases in excise taxes drove up inflation to an end-year rate of 4.7 percent. The central bank targeted inflation of 4.5 percent or slower last year.
Popa also said the central bank’s main interest rate, which was cut to 7.5 percent from 8 percent on Jan. 5, “at this point is appropriate. We have always had a policy of reasonably smooth steps. I don’t see why that needs to change.”
Standard & Poor’s rating agency said on Jan. 13 that budget approval may trigger an improvement in Romania’s credit rating outlook. The EU’s second-poorest member is rated BB+ at S&P, the highest junk grade, with a negative outlook.
The Balkan nation is looking abroad to finance its shortfall to take advantage of improved investor sentiment after a new government was formed. Romania aims to sell 1 billion euros in euro-denominated bonds in the first quarter and more later in the year.
Editors: James M. Gomez, Jennifer Freedman
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