Romania bailed out by IMF
Romania has reached an agreement to take out a 12.95 billion Euro loan from the International Monetary (IMF) under a two year stand-by agreement to prevent the deterioration of the country’s financial and economic situation. April 2009 - From the Print Edition
In January this year President Basescu rejected calls for an IMF loan for Romania, calling such a move the ‘last chance’ for the nation.
Since then he has u-turned and, after discussing with IMF representatives in Bucharest, Basescu warned that “the current crisis will have effects in 2010 as well as 2009 and that it is important for Romania to have the safety belt of the fund in place”.
As we went to press, the agreement needed approval by the IMF’s management and executive board.
The 13 billion Euro loan is part of a 20 billion Euro package from international financial institutions to prop up the fragile Romanian economy and its weakening local currency, the RON.
The programme should also contribute to bringing down inflation and improve business confidence in Romania.
The country will have at its disposal a five billion Euro loan from the EU, while the World Bank has agreed to provide one billion Euro. The European Bank of Reconstruction and Development (EBRD) will also contribute loans of one billion Euro.
The IMF loan attempts to strengthen the country’s financial policy and bring in much-needed cash for a Government which this year faces a black hole of around 13 billion Euro in its budget. Dominique Strauss-Kahn, managing director of the International Monetary Fund, said the loan will prepare Romania for eventual entry into the Euro zone, for which Romania has set a tentative date of 2014.
There will also be conditions to allow allocations for social-based programmes, as well as protection for “the most vulnerable pensioners and public sector employees at the lower end of the wage scale”, Strauss-Kahn added.
Romanian will pay back 3.5 per cent interest per year and the two-year credit will be paid back by 2015 the latest.
As we went to press Jeffrey Franks, the head of an IMF mission to Romania, was discussing with Romanian banks’ foreign owners to maintain a high solvency level for their Romania operations.
The Romanian central bank (BNR) will now consider lowering the mandatory minimum reserve which a bank must keep in bank, and which is now 40 per cent for Euro deposits and 18 per cent for those in RON.
“Even though we will maintain the minimum reserve at 40 per cent for Euro when calculating this reserve, we might exclude the long term deposits or any other financing line a bank is attracting in order to grant credits,” said Governor Mugur Isarescu.
This should ease bank liquidity and allow them to sustain loans for a longer period. If Romania wants to enter the Euro Zone by 2014, it must bring down its level of mandatory minimum reserves to two to three per cent.
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