Monday, February 6, 2012

Romania, IMF Agree on $664 Million Tranche as Balkan Nation’s Growth Slows

Romania and the International Monetary Fund reached a staff-level agreement to unlock about 505 million euros ($664 million) in funds from its standby loan, IMF Mission Chief Jeffrey Franks said.

The eastern European country met the terms of its 5 billion-euro accord by narrowing its budget deficit to 4.35 percent of gross domestic product last year from 6.5 percent in 2010, Franks said at the end of a two-week visit to the capital Bucharest to conduct the fourth review of Romania’s accord.

“The Romanian government must continue reforms, considering the upcoming elections and higher uncertainties in the euro zone,” Franks said. “It will be crucial for Romania to keep a good track record and attract more investments.”

Romania turned last year to the IMF and the European Union for a second agreement from which it doesn’t want to draw funds, after completing a two-year 20 billion-euro bailout needed to prevent a collapse. The government pledged to narrow its budget to 1.9 percent of GDP this year from 4.35 percent in 2011 to keep its international backstop.

The Washington-based fund lowered its economic growth forecast for Romania this year to between 1.5 percent to 2 percent from a previous outlook of between 1.8 percent and 2.3 percent on slowing exports to western Europe, the country’s major trading partner, amid the sovereign-debt crisis, Franks said.

Market Rewards

“Despite a deterioration of our growth forecast, we don’t see now any problem in meeting thebudget deficit target, ” European Commission Mission Chief Istvan Szekely said. “Markets are rewarding Romania for the progress made as shown in the sale of dollar bonds last week.”

The country sold $1.5 billion in 10-year bonds at a 6.875 yield, in its first debt offering denominated in dollars under a medium-term notes program of 7 billion euros until 2013.

Romania, which exited a two-year recession in 2011, saw economic growth accelerating to the fastest in three years in the third quarter, sparked by a bumper harvest and a recovery in domestic consumption. The country suffered its worst contraction on record from 2009 until 2011, when its GDP probably grew 2.5 percent.

The lenders agreed to a government plan to delay the liberalization of electricity prices for households until 2017 and maintained the deregulation deadline for the prices paid by corporates of 2013, Franks said.

Frank also said the IMF and Romania will discuss possible spending increases later this year.
Health-Care Warning

“Further discussions are needed in April for the schedule to liberalize natural gas prices,” he said.

The IMF warned Romania about implementing a new health-care law aimed at securing long-term financing for the current underfunded system, Franks said. The country must also make more efforts to reduce the unpaid overdue debts of local authorities to private companies, Franks also said.

The Washington based lender urged the government to speed- up state-owned companies reforms by selling minority and majority stakes and naming independent managers for the companies.

The government plans to sell 15 percent stakes in Transelectrica SA (TEL), Transgaz SA and Romgaz SA and 10 percent stakes in Hidroelectrica SA and Nuclearelectrica SA. It will also seek to sell a majority stake in Oltchim SA and Cupru Min SA.

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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