Romania Gets $423 Million From World Bank to Weather Crisis

Romania, which received a 20 billion-euro ($28 billion) bailout led by the International Monetary Fund and the European Union, got a further $423 million loan from the World Bank to weather the financial crisis. 

The board of the lender, formed in the wake of World War II to help nations reduce poverty, approved the loan late yesterday, it said in a statement.

The 14-year loan is intended to help the government spend money more efficiently and help Romania’s poor during the crisis, the Washington-based bank said. The loan will “minimize risks of domestic financial sector crisis by addressing current and potential vulnerabilities,” the statement said.

The economy will stagnate next year after contracting this year and resume growth only in 2011, the International Monetary Fund said on June 10. The economy will contract 4.1 percent this year, post zero growth next year and expand 5 percent in 2011, the IMF said in a report on its loan agreement with Romania.

Gross domestic product fell an annual 6.2 percent in the first quarter as consumption plunged 13.7 percent, spurred by a slowdown in lending, wage growth and recessions in the country’s main trading partners in Western Europe.

Still, Romania and Hungary, which also needed an International Monetary Fund-led bailout to avert default and Is similarly cutting spending, are exceptions to a trend of fiscal deterioration in emerging Europe, the Middle East and Africa, according to Bank of America-Merrill Lynch.

‘Improvement’

Hungary and Romania are showing “a sharp improvement in their fundamentals on the back of the IMF,” London-based economist David Hauner said at a presentation of the bank’s revised global economic forecasts on July 8. “Clients are becoming positively interested in these countries.”

The combination of “fully-financed” IMF programs, “sharply” narrowing current-account deficits and “much room” for interest-rate reductions “makes for two remarkable stories to watch,” while elsewhere in the region the main vulnerabilities are fiscal, the bank said.

The World Bank and Romania have had a “partnership strategy” in place since 2006. That program includes a series of loans disbursed to the country over two years in order to support Romania’s integration into the European Union.