Romania has secured a €20 billion aid package from the IMF and the EU in a bid to thwart a financing crisis and stabilise its stricken economy. The country of 22m people is the fifth country in central and eastern Europe to seek such a bailout in the current economic crisis.
Economists say the package, in the works for weeks, should underpin wobbly markets and ease pressure on the domestic leu currency, trading near record lows against the euro since the start of the year. But while it leaves scope for public spending to bolster the economy, the loan is unlikely to prevent Romania from slipping into recession this year as the global crisis chokes off manufacturing and domestic consumption.
The Fund acknowledged the bleak economic prospects for Romania, already one of the European Union's poorest countries in per capita terms, but said aid would limit the impact of global woes.
The package includes €12.9 billion of IMF money and €5 billion from the EU as well as funds from the World Bank and the European Bank for Reconstruction and Development. Romania would be able to draw €5 billion after the approval of a 2-year standby agreement in the board, the Fund said.
The money, however, is conditional on a broad package of fiscal reforms, which the IMF said were crucial to ensuring long-term stability, and analysts pointed to Romania's record of breaking the terms of deals with the Fund. They also said the economic outlook would dominate markets' thinking.
Over the last few months Romania has moved from an attractive destination for foreign investment as manufacturers poured in to benefit from fast rates of growth, to an economy plagued by ballooning debt and sour market sentiment.
Thousands of workers have been laid off and several top factories have announced work stoppages in recent months.Economists blame an unrestrained spending spree by the private sector and consumers, as well as loose fiscal and wage policies, for fanning a vast external imbalance that made Romania highly vulnerable.
