IMF signs fresh precautionary bailout deal with Romania

IMF - Reiterates Faith in Romanian Economy

IMF – Reiterates Faith in Romanian Economy

Reiterating his country’s commitment towards fiscal reforms, Romanian President Traian Basescu said on Sunday that Romania has signed a fresh two year deal with the International Monetary Fund and other lenders.

Romania has an existing bailout package deal of €20 billion (£16.9 billion) with a clutch of lenders led by IMF, expiring in May. Analysts had expected it to sign a new, precautionary and a smaller deal.

The deal is precautionary in nature, meaning Romania will draw on €5 billion worth funds – €3.6 billion from the IMF and €1.4 billion from the European Union – if need arises. “The agreement is for two years”, announced Traian Basescu adding “It is necessary that we have these funds available for whenever we need them”.

Under the present deal with IMF and other lenders, Romania has already received a little over €17 billion in exchange for implementing tough and unpopular austerity measures, including slashing public sector salaries and raising value added taxes.

The new deal will boost investor confidence and show the government’s commitment to reduce its budget deficit to the targeted 4.4 percent in 2011 from 6.6 recorded last year, as the country slowly comes out of recession. Basescu said that the country will not withdraw the remaining portion of the funds from IMF under the existing deal and will rather borrow from EU, if required.

The present government of Prime Minister Emil Boc – a close ally of Basescu, survived four no-confidence votes in the parliament last year as it tried to implement tough fiscal measures and currently appears to be comparatively more stable.

The relative political stability has helped the government raise funds cheaper and without much difficulty.

The country’s currency – the Leu, has lost nearly five percent against the Euro since last March and analysts believe that the new deal will reassure the investor community.

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