Romania reached a staff-level agreement with the International Monetary Fund and the European Union on a 4 billion-euro ($5.3 billion) precautionary loan, its third deal in five years.
The government requested a 24-month standby arrangement with the IMF and balance-of-payment assistance from the EU, Andrea Schaechter, the IMF mission chief to Romania, told reporters in Bucharest today at the end of a two-week visit. The country, the EU’s second-poorest member, doesn’t plan to draw on the money, she said.
The accord, equally split between the IMF and the EU, will be Romania’s third consecutive package and the smallest since 2009, when the country won a 20 billion-euro bailout from the lenders. It will serve as an anchor against potential spillover into financial markets from the easing of global stimulus by the world’s central banks.
“We agreed on 4 billion euros, less than the previous 5 billion, to show an improvement,” Prime Minister Victor Ponta told reporters in Bucharest today. “We won’t use the money, it’s just a buffer we can count on in extraordinary circumstances, like a financial crisis in Europe or worldwide.”
The government will focus on overhauling the health-care system to cut costs with hospitals by increasing reliance on family doctors, ambulatory and private-care services, Schaechter said. The other main goal of the accord will be to clean up state-owned transport and energy companies and press ahead with plans to sell them, she said.
“The environment is uncertain and difficult, with the euro area going through a recession, and we’ve seen that capital flows have become more volatile to emerging markets, including Romania,” Schaechter said. “So a precautionary accord with the EU and Washington-based IMF can help Romania to stay on course with reforms and macroeconomic policies and serve as a buffer against external shocks.”
The leu weakened 0.3 percent to 4.4057 per euro by 1:21 p.m. in Bucharest today, falling for a second day. The leu is the best-performing currency in eastern Europe so far this year with a 0.9 percent gain against the euro.
The IMF expects the Romanian economy to expand about 2 percent this year and 2.25 percent next year, helped by growing exports and recovering domestic demand in 2014, Schaechter said. Inflation is expected to slow before the end of the year to within the central bank’s target band of 2.5 percent, plus or minus 1 percentage point, as food-price growth eases.
Romania’s government raised its economic-growth forecast for this year, citing a pickup in export demand, and said the pace of the expansion may surpass that estimate if domestic consumption rebounds.
Schaechter said the new deal needs approval from the IMF’s board of directors and the EU before coming into effect. The IMF’s board usually meets to discuss a new loan two months after a staff-level agreement has been reached, she said.
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