Up to €1 bln agreement with World Bank requires IMF ok

President Traian Basescu yesterday met with a World Bank mission. Furthermore, the WB is to release today a report on the economic and financial crisis impact on new European Union (EU) members, including Romania.

This is the first concrete step Romania has made to obtain a foreign loan. Analysts and authorities have often discussed possible financing from the EU or the International Monetary Fund (IMF), but no official application was filed to date, the institutions said.

Pauna said that WB only lends funds based on a letter of guarantee from the IMF regarding a country’s macroeconomic situation. “Discussions on reforms are held between the IMF, the World Bank and the concerned government. Such a program is promoted only in case of certainty that a country’s macroeconomic framework is stable. The goal of such a loan is not to finance unsustainable deficits, but to correct the causes of possible imbalances,” he said.

Speaking about an agreement with the IMF, which some local authorities are reluctant about, Pauna said that markets see this as a positive step. However, it is up to the government to decide whether Romania needs such an agreement or not. “If we look at other countries, an agreement with the fund was seen as positive by the markets and access to financing has improved. We can assume that this will also be the impact of a possible agreement between Romania and the fund,” he said.

Basescu and Prime Minister Emil Boc recently stated that Romania should opt for an EU loan, without involving the IMF. However, state advisor on economic issues, Ionut Popescu, told Business Standard that an agreement with the European Commission is not likely without the involvement of the IMF. “The EC wants states asking for European Union help to have an agreement with the fund,” Popescu said. An agreement with the monetary fund would involve strict conditions regarding sharp budget spending cuts and would set a budget deficit target that is difficult to meet, at some 1 percent of gross domestic product (GDP), according to Finance Ministry experts.

Mugur Isarescu, Governor of the National Bank of Romania, warned Wednesday that “two, three, or four billion euro” is the necessary financing for the national currency to weather the crisis. He added that he is considering taking out a loan through the government or the central bank, which would solve the liquidity problems of companies.

‘Discussions on reforms are held between the IMF, the World Bank and the concerned government. The goal of such a loan is not to finance unsustainable deficits, but to correct the causes of possible imbalances.' Catalin Pauna World Bank, Chief Economist