Faced with stalled growth and a weakened currency, Bucharest became the latest government to ask the IMF and EU for an emergency rescue package
Romania could receive about €20 billion as part of an International Monetary Fund-European Union rescue package, with negotiations due to start this week.
The funds, aimed at cushioning the impact of the economic crisis in EU’s second poorest member state, was likely to be similar in size to the €20 billion Hungary signed up for in November, said an official familiar with the issue.
The Romanian government and the International Monetary Fund (IMF) had reached agreement on the “broad quantitative parameters” of a support package during last week’s visit of a Romanian government delegation to Washington, the official said.
The IMF confirmed that one of its teams was heading to Bucharest on Wednesday. EU and World Bank experts were also likely to follow, in order to finalise the details of the rescue package.
Romania would be the third EU member state after Hungary and Latvia to ask for international help. The EU has set up a rescue fund of €25 billion for non-eurozone members, already tapped by Budapest and Riga as part of mixed IMF-EU rescue packages.
However, EU commissioner for economic affairs Joaquin Almunia rejected suggestions by the Austrian finance minister that the remaining €15 billion would be insufficient.
“At the moment we have resources that are more than sufficient to meet the needs of a further European contribution in the context of Romania,” he said.
“I don’t think we’ll need to go beyond present limits even if there are new applications from countries,” Mr Almunia stressed.
The IMF and the EU have demanded the imposition of austerity measures from Hungary and Latvia in return for the loans, a demand likely to be imposed to Romania as well. Already Riga has been pondering a re-negotiation of the agreement due to the harsh conditions. Mr Almunia, however, said that any talks with the new Latvian government on this matter would result in “difficult negotiations”.
Earlier on Monday, Romanian President Traian Basescu asked the national parliament for its support in requesting a foreign loan, urging lawmakers to refrain from lavish spending and trade unions from increased wage demands.
Romania’s currency has plunged by a fifth over the past year and its once booming growth has stalled. Mortgages and private loans taken out in euros, which until the crisis offered lower-interest rates, are causing particular hardship, as Romanians now have a difficult time paying back the loans, as their salaries are shrinking against the euro.
Adding to this, the government’s budgetary policies last year were not aimed at minimising the impact of the crisis, with the EU commission warning of economic overheating and growing public debt. The country’s judiciary and fight against high-level corruption are also under EU monitoring, with the commission last month criticising backwards trends since July 2008.