IMF Loan Helped Romania Avert Potential Currency Crisis - Ctrl Bker

Publish date: 26-11-2009
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Without the EUR20 billion aid package obtained in the spring, Romania might have been unable to prevent growing pressure on the leu, which in turn would have negatively impacted inflation and the leu-denominated household financial assets, central bank's governor Mugur Isarescu said.

"Some adjustments would have been very painful for want of external financial support. For instance, if the risk of a financing gap had materialized at the highest level expected for 2009, then the depreciation pressures on the leu would most likely have generated a currency crisis with a negative impact on inflation and, implicitly, on leu-denominated financial assets of households," Isarescu said Tuesday in a dissertation upon being admitted as foreign associate member to the Royal Academy of Doctors in Barcelona.

Isarescu said Romania's multilateral loan agreement with the International Monetary Fund, the European Union and other lenders gave the country two major economic advantages: coverage of the external financing deficit and international credibility.

"Estimations showed that Romania's deficit financing for 2009 could have ranged between EUR7.5 billion and EUR16 billion, dependent upon foreign investors' sentiment and their willingness to roll over the credit lines extended to banks and private companies. This gloomy sentiment was reflected in the weakening of the leu between October 2008 and February 2009," Isarescu pointed out.

The "credibility import" from the EU and the IMF prevented the diminishing of foreign financing, or at least slowed the reduction level, Isarescu said.

He added the bailout package had a favorable impact on several economic areas, including in the banking sector, where the parent banks of Romania's top nine lenders committed to keep their exposure to the country at the end-March levels and maintain capital adequacy ratios at safety levels.

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