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IMFSurvey Magazine: Countries & Regions

IMF Outlines Plan to Lend $17.5 Billion to Romania

EU flag raised in Bucharest when Romania joined EU in 2007: new loan program aims to ease country’s entry into euro zone (photo: Bogdan Cristel/Reuters)

GLOBAL FINANCIAL CRISIS

IMF Outlines Plan to Lend $17.5 Billion to Romania

IMF Survey online

March 25, 2009

  • Romania feeling effects of sharp drop in private capital inflows
  • Program measures aim to reduce government's financing needs
  • Steps also part of plan to prepare Romania for entry into euro zone

The IMF announced plans to lend about $17.5 billion to Romania to help the country cushion the effects of a sharp drop in private capital inflows.

The loan program would include measures to address external and fiscal imbalances and to strengthen the financial sector.

The loan, to be extended as a two-year Stand-By Arrangement, is subject to final approval by the IMF’s Executive Board, which will meet to discuss the program once all agreed conditions are in place. Romania would be able to draw on about $6.75 billion immediately after Board approval.

IMF Managing Director Dominique Strauss-Kahn said in a statement that the Romanian authorities’ proactive approach had set the central European country on a good footing to face potential difficulties ahead. “Core measures under the program are designed to strengthen fiscal policy further to reduce the government’s financing needs and improve long-term fiscal sustainability, thus preparing Romania for eventual entry into the euro zone,” Strauss-Kahn stated.

An IMF analysis prepared for the Group of Twenty (G-20) industrialized and emerging market countries said that many emerging market economies are likely to face prolonged capital account pressures. Some governments may have to support companies in their countries that are unable to raise financing to roll over their debt. Emerging market banks, especially in central and eastern Europe, may need to be recapitalized in view of prospective losses, the IMF report said.

Romania’s loan program aims to maintain adequate capitalization of banks and liquidity in domestic financial markets; bring inflation within the central bank’s target and maintain it there; and secure adequate external financing and improving confidence.

Coordinated support

The IMF coordinated its support for Romania with that of other multilateral financial institutions, including the European Union, the World Bank, and the European Bank for Reconstruction and Development. “In conjunction with Romania’s efforts and multilateral financial support, we are actively consulting with banks and other financial institutions operating in the country so that they will continue to provide adequate financing to Romania,” Strauss-Kahn said. Foreign banks operating in Romania will be asked to provide assurances that they will provide a capital cushion to safeguard their operations during the downturn while maintaining their current exposures to the country.

Global activity is now projected to contract by to 1 percent in 2009 on an annual average basis—the first such fall in 60 years, the IMF has said. Global growth is still forecast to stage a modest recovery next year, conditional on comprehensive policy steps to stabilize financial conditions, sizeable fiscal support, a gradual improvement in credit conditions, a bottoming of the U.S. housing market, and the cushioning effect from sharply lower oil and other major commodity prices.

The IMF has so far committed around $50 billion in lending to several economies affected by the deepening global economic crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Serbia, and Ukraine. It announced a precautionary loan for El Salvador in January, and an IMF team has also been in negotiations with Turkey.

Comments on this article should be sent to imfsurvey@imf.org


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