Romanian president meets IMF officials

BUCHAREST, Romania

Romania’s president on Thursday met with International Monetary Fund officials to discuss the second tranche of $17.1 billion in loans to support the country during the economic turmoil.

President Traian Basescu says he wants to negotiate the possibility of using euro1.9 billion ($2.7 billion) of the IMF loan to boost the state budget because the deficit has grown, instead of putting funds into foreign currency reserves at the central bank.

“We must see whether we can get the IMF to approve the second tranche going to the state budget, and not to the National Bank,” said Basescu in an interview with national television late Wednesday.

Initial predictions suggested Romania’s economy would contract by 4 percent this year, but in recent weeks government officials have aid it will will shrink by twice that, or 8 percent.

One of the IMF’s demands is that Romania cuts its budget deficit. Basescu says he wants the next installment of the IMF money to be used for salaries, pensions and investments in the state sector.

National Bank governor Mugur Isarescu warned Thursday that the only expenditure that grew in the first half of the year was state sector salaries, while state spending on investment projects shrunk. Isarescu said a high budget deficit cannot be avoided.

He said that inflation had dipped, partly because domestic consumption is down and because the Romanian currency, the leu, had stabilized.

He revised his inflation forecast for December 2009 to 4.3 percent from 4.4 percent, and predicted inflation at the end of 2010 would be 2.6 percent.

The IMF announced the $17.1 billion loan to Romania in March to cushion the effects of the sharp drop in capital inflows caused by the global financial crisis. The two-year loan is part of a larger $26.4 billion package to which the European Union, the World Bank and the European Bank for Reconstruction and Development are contributing, among others.

The IMF had already paid $6.6 billion to Romania. The rest will be made available in quarterly installments subject to the IMF’s review of Romania’s economy.

The IMF delegation will end its review visit to Romania on Aug. 10.