Friday, January 15, 2010

Romanian Parliament Approves Budget to Free IMF Loan

By Irina Savu and Adam Brown

Jan. 14 (Bloomberg) -- Romania’s parliament approved the 2010 state budget that freezes state wages and cuts investment to meet International Monetary Fund criteria and unlock a $30 billion bailout loan.

The budget, accepted by lawmakers in a 192-138 vote in Bucharest today, aims to narrow the deficit to 5.9 percent of gross domestic product from about 7.3 percent last year, which may prompt the IMF to resume payments as early as February.

Lawmakers met the Jan. 15 deadline to approve the 2010 budget, which was made a condition to unlock the bailout loan. The rescue package was frozen after Romania’s government collapsed in October amid infighting that delayed budget talks. Standard & Poor’s yesterday said it may raise the outlook on Romania’s junk credit rating with the approval.

“It is a budget to get us out of the economic crisis and consolidate the economy,” Prime Minister Emil Boc

The leu weakened 0.1 percent to 4.1197 per euro by 8:17 p.m. in Bucharest after gaining as much as 3 percent this year on optimism over resumed payments. The Bucharest Stock Exchange’s main BET index, up 10 percent this year, fell 1 percent.

An IMF delegation will visit Romania next week to review loan conditions and the budget. President Traian Basescu said last month after meeting IMF officials that passing the budget by the deadline of Jan. 15 may bring Romania 2.3 billion euros ($3.3 billion) in loan payments in February.

The budget freezes wages for the 1.3 million state workers, cuts 100,000 jobs and lowers infrastructure investment by 28 percent. It foresees state revenue of 166 billion lei ($58 billion), or 31.8 percent of GDP, and spending of 37.7 percent of GDP.

Finance Abroad

Romania, the European Union’s second-poorest member is rated BB+ at S&P, the highest junk grade, with a negative outlook. The nation is looking abroad to finance its shortfall to take advantage of improved investor sentiment after a new government was formed.

Romania may sell 1 billion euros in euro-denominated bonds in the first quarter and more later in the year, Finance Minister Sebastian Vladescu said on Jan. 13.

Boc also predicted today that the economy will grow about 1.3 percent this year after a contraction of about 7 percent last year. He said the country will continue in recession in the first two quarters and recovery will come in the second half.

The pace of contraction slowed in the third quarter to an annual 7.1 percent from 8.7 percent in the second quarter, with most of the improvement coming in manufacturing. Industrial output rose an annual 3 percent in November, the first gain in a year, as demand picked up from reviving economies in westEurope.

The Banca Nationala a Romaniei cut its main interest rate on Jan. 5 to 7.5 percent from 8 percent, the first reduction since the former government crumbled. The rate remains the EU’s highest.

To contact the reporter on this story: Adam Brown in Bucharest atabrown23@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net
said in a speech after the vote. “We’re preparing the economic relaunch with wisdom and maturity.”

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