IMF to try to get preventive recapitalization from mother banks operating in Romania, Austria deems

Publish date: 01-04-2009
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The International Monetary Fund could try to obtain preventive recapitalization from mother banks operating in Romania according to an official Austrian document, also showing Romania was given the possibility to contract a bilateral loan from state with particular interests, but refused to.

Romania turns to be a victim of the crisis to a larger scale than estimated, but a real catastrophe can be eluded even if the economy will not recover until the end of 2010, an official document preparing the visit of the Austrian foreign minister Michael Spindelegger in Romania read.

According to the estimates of Austrian officials, Romania is considered to stand at an average level in Europe compared to Baltic countries and Ukraine, near Germany and Great Britain, with a growth rate of -4 percent

The document stresses the lack of confidence in the optimistic economic growth prognosis of the Romanian Cabinet. The IMF sees Romania's economy contracting by 4 percent this year while the government says 1 percent. At the beginning for the year the industrial production lowered an annual 12 percent, exports slumped 26 percent and imports 34 percent according to the document.

However, Romania could be one of the crisis' victims with the slumps in exports, imports and lending clog, all coupled with the sudden real estate braking. All these could have a negative impact on consumption as well.

Therefore, even if banks in Romania have an average solvency of 12 percent, the IMF could try to get Austrian mother banks to preventively recapitalize subsidiaries in Romania, the document reads.

The rising number of credits in foreign currency could fence significantly the central bank's operation area in Romania. Moreover, the leu's rapid deterioration should be avoided with the intervention of foreign currency reserves which makes it difficult to lower the minimum mandatory reserves from the current 18 percent at passives in lei and 40 percent in foreign currency.

As for the economic comeback, the IMF believes a slight recovery could be seen in mid-2010, but the significant advance of the past years will not be witnessed too soon. One downside mentioned by the document is the slow moving pace of the absorption rate of European funds.

Austria agrees with the welfare the IMF loan will bring on Romania, raising confidence in the economy, the document read.

About 35 percent of the Romanian banking system and 44 percent of the insurance market are controlled by Austria. There are 5,200 companies with Austrian capital in Romania and investments stand at 12 billion euros.


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