GEOANA ON IMF LOAN AGREEMENT: Romania Is Trying To Obtain 3% Interest Rate

• PSD leader says Romania will borrow 13 billion EUR from the IMF to sustain the exchange rate and 5 billion EUR from the EU to finance the budget and investments

• Almunia: "EU-IMF Agreements with Romania will be announced this week"

Cătălin Deacu

PSD President Mircea Geoana, who is also Speaker of the Senate, yesterday announced that Romania was going to borrow approximately 18 billion EUR from the EU and the IMF, that is, some 13 billion EUR from the IMF to stabilize the exchange rate and some 5 billion EUR from the EU to finance the deficit and investments. "In several steps, the National Bank, could attract from the IMF an amount which is currently close to 13 billion EUR, including 11 billion EUR in Special Drawing Rights. This sum is not automatically transferred or borrowed. The money will be drawn in line with the requirements of the monetary market. In order to cover the budget deficit, we are contemplating 4-5 billion EUR, which will be fed into the budget to finance budget spending," Geoana said, adding that Romania was able to also borrow up to 2 billion EUR from the World Bank, the European Investment Bank and the EBRD, notwithstanding the funds budgeted for investments.

On a different topic, the Senate speaker commented that the budget deficit could reach 4% of the GDP. "A deficit of 4% or more will require guarantees that the resources for pensions and salaries remain unaffected and that so will funding for public investment", Geoana said, quoted by NewsIn. Regarding the IMF loan agreement, Geoana said Romania was trying to negotiate an interest rate similar to the 3% obtained by neighbouring countries. However, he stressed it was hard to make accurate estimates as to the level of the interest rate, considering that funds would be drawn in accordance with the actual needs. "We cannot speak now of a 20 billion loan we are going to pay back. Practically, we are talking about 10 billion , which will be put on stand-by and be used as necessary by the Central Bank of Romania and the other 7 billion which comes from, let"s say, classic loans (i.e. from the European Commission and the other financial institutions, except for the IMF) with preferential interest. In fact, we are talking about paying back 7 billion in a time frame for a preferential interest rate," Geoana added.

Geoană also referred to some of the IMF requirements. Without detailing too much of the letter of intent to the IMF, the PSD leader stressed that the key points were cutting public spending, working on salaries and improving spending efficiency within State-controlled companies. He also stressed that there was "a fairly high degree of flexibility" on social issues. "The IMF is more relaxed when it comes to social issues," Geoana said. "We can see quite clearly now that this loan is needed and the risk of not taking it is extremely severe," he added, thus making a shift of opinion from last week, when he said that a decision on a potential loan should be made only if the money proved to be necessary.

• Unions: "IMF want to give BNR and the Government manoeuvring space. We won"t be restrictive"

Upon the end of the meeting with IMF representatives yesterday, union federation BNS leader Dumitru Costin said the Fund was "insisting" on a 4% economic recession amid a budget deficit ranging between 2% and 6% of the GDP. According to Costin, the estimate is "most likely" between 3.5% and 4% of the GDP. "The IMF is insisting on an economic growth of minus four percent as the economy is not likely to get out of the crisis and the current situation is unprecedented, so solutions will have to differ from the classics," Dumitru Costin said. The IMF"s economic growth estimate includes the international context, which has already caused a significant decrease in Romanian exports, as well as Romania"s bad infrastructure and good banking system.

The BNS leader added that, as far as the conditions to be imposed on Romania were concerned, "these will no longer be the traditional measures we have grown accustomed with, because the context has changed. They will be more flexible." "When we asked them about the monetary policy, the IMF representatives said they wanted to give the National Bank of Romania and the Government more manoeuvring space," Costin added. He concluded that policies would o longer be as restrictive as before.

• IMF requests single law for State employee salaries by 2010

Petru Dandea, Vice President of the union confederation Cartel Alfa, said the IMF wanted salary increments to equal up to 20-20% of the over salary revenue. He added that the Fund would assist the Government in partnership with the World Bank to finalize the single law for State employee salaries by 2010. Dandea stressed that the IMF had warned Romania about the risk of having a budget deficit of even more than 4% of the GDP in 2009, if the IMF estimate of a 4% recession would prove correct.