Bailed-out Romania seeks $8.8b emergency fund loan

Romania will seek a €5 billion ($8.8 billion) precautionary loan from the International Monetary Fund and the European Union this year, the country's central bank governor said yesterday.

The two-year bailout agreement with the IMF, the EU and the World Bank ends this year.

Mugur Isarescu said Romania will use the money only in case of emergency and unexpected events that could lead to a drop in the bank's reserves or that could prevent the authorities to finance the budget deficit. He said the IMF will make available €3.6 billion and the EU €1.4 billion.

President Traian Basescu said Romania would not take the last €1 billion instalment of a €20 billion IMF-led loan from 2009.

The economy is expected to grow by 1.5 per cent in 2011. However, Basescu said the country still needed a safety net for emergencies in the next two years.

Isarescu said the central bank's reserves are strong and as a result the last IMF instalment is no longer needed. But it will still take the last instalment from the EU, worth €1.35 billion.

Romania signed the agreement for the IMF-led loan in 2009, when its economy dropped by 7.1 per cent. Last year, authorities took tough austerity measures, slashing public sector wages by a quarter and raising the sales tax from 19 per cent to 24 per cent, to keep the bailout agreement.

Isarescu said inflation doubled in 2010, as a result of the sales tax hike, but is expected to drop to 3.6 per cent by the end of this year. Yearly inflation stood at 7.96 per cent in December 2010.

- Bloomberg