The International Monetary Fund (IMF) has agreed a €20 billion aid package with Romania in a bid to thwart a financing crisis in the new European Union member, the global lender said today.
The country of 22 million people on the EU's eastern frontier is the third member of the bloc to be bailed out after Hungary and Latvia, as world financial turmoil wiped out sources of funding for an economy reliant on foreign cash.
Economists say the package, in the works for weeks, should underpin wobbly markets and ease pressure on the domestic leu currency, trading near record lows against the euro since the start of the year.
But while it leaves scope for public spending to bolster the economy, the loan is unlikely to prevent Romania from slipping into recession this year as the global crisis chokes off manufacturing and domestic consumption.
The Fund acknowledged Romania's bleak economic prospects, but said aid would limit the impact of global woes.
"In current world economic environment ... the financing gap has opened up," the Fund's mission chief Jeffrey Franks told reporters.
"With international support, the adjustment will be cushioned and we are hoping to avoid the worst and have a gradual adjustment over time."
The package includes €12.9 billion of IMF money and €5 billion from the EU as well as funds from the World Bank and the European Bank for Reconstruction and Development. Romania would be able to draw €5 billion after the approval of a 2-year standby agreement, the Fund said.
The centre-left coalition cabinet of prime minister Emil Boc meets later today to rubber-stamp the deal.
Over several months, Romania has moved from an attractive destination for foreign investment as manufacturers poured in to benefit from fast rates of growth, to an economy plagued by ballooning debt and sour market sentiment.
Economists blame an unrestrained spending spree by the private sector and consumers, as well as loose fiscal and wage policies, for fanning a vast external imbalance.
Reuters