Romania takes first official steps for a foreign loanPublish date: 10-03-2009
Romanian authorities announced they have sent a letter of intent to the European Commission, applying for medium-term foreign financial assistance. The move comes after two months of heated debates on whether Romania should resort to foreign financing in the midst of worsening economic conditions.
"In the current global financial crisis, a cautious approach on the part of Romanian authorities AIMS to avoid delayed intervention, which could affect the macroeconomic balance, and to ensure a medium-term umbrella for possible vulnerabilities," a Finance Ministry press release states.
The foreign financing issue has made the headlines in past weeks, as the businesspeople and government representatives spoke their minds about this. Some are against any kind of foreign loan, others say Romania needs foreign financing from all financial institutions, while a third group says that financing is needed, but are against a loan from the International Monetary Fund (IMF), due to harsh conditions imposed by the institution.
An IMF delegation is currently in Romania to discuss with local authorities the possible measures to be taken in case a stand-by agreement is reached. A Romanian delegation was in Washington last week to discuss the subject. According to sources close to the talks, the main issues discussed in Washington were macroeconomic indicators. The IMF expects that Romania's economy will go into recession and that the budget deficit will exceed 3 percent this year, while local authorities foresee economic growth of 2.5 percent of the gross domestic product and 2 percent budget deficit.
Furthermore, sources say that IMF foresees a multi-annual adjustment of the deficit, which is likely to narrow below 3 percent in 2010. An agreement with IMF could be signed for five years (to 2014).
Government sources told Mediafax news agency that Romania is to borrow €19 billion from IMF and the European Commission, following an evaluation made by the Finance Ministry and the National Bank of Romania (BNR). "One option is to have a €12 billion facility from IMF and a €7 billion loan from the European Union," sources said. However, according to the Financial Times, Romania could be granted financing worth €20 billion from several international institutions, coordinated by IMF.
Romania's representative to the IMF, Mihai Tanasescu, told Business Standard that "we should be somewhat discreet about this. Conclusions of the talks will be available within 7-10 days".
Mircea Geoana, President of the Social Democratic Party (PSD), part of the ruling coalition, said that conditions likely to be imposed for an IMF loan should be known before an agreement is reached, and that a public debate is needed on possible solutions to overcome the crisis.
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