Monday, August 1, 2011

IMF, Romania Agree on Second Installment of 480 Million Euros

Romania and the International Monetary Fund completed talks after a two-week review to unlock about 480 million euros ($691 million) in funds that can be tapped under the country’s crisis-prevention agreement.

The mission finished reviewing Romania’s progress under a 5 billion-euro precautionary deal today and will recommend to the IMF board to make available a second installment. The east European country trimmed its budget deficit to within its target and started selling state assets, IMF mission chief Jeffrey Franks said at a news conference in Bucharest today.

Romania, which counted on an IMF-led bailout from 2009 through early 2011, is returning to domestic and international markets to finance the budget deficit wants investors to buy energy assets as the economy recovers. Romania doesn’t plan to draw the precautionary funds as it has sufficient reserves and the IMF will store the available installments in Washington for emergency withdrawal.

The government will try to find buyers for minority stakes in utilities Transgaz SA andTranselectrica SA (TEL) this year and revive last month’s failed stake sale in oil company OMV Petrom SA (SNP) next year. It pledged to narrow its budget deficit to 4.4 percent of gross domestic product this year and below 3 percent in 2012.

The Banca Nationala a Romaniei left its benchmark interest rate unchanged at 6.25 percent, the highest in the European Union, for a 13th month on June 29 to tame inflation, sparked by a government tax increase last year and rising global commodity prices. The central bank expects the effects of a value-added tax increase on inflation to dissipate in the second half.

Romania’s inflation rate unexpectedly fell in June to the lowest since February as the farm harvest boosted supply and cut food costs, giving the central bank more room to leave rates unchanged to help an economic recovery this year.

To contact the reporters on this story: Irina Savu in Bucharest at isavu@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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