March 25 (Bloomberg) -- Romania got a 20 billion-euro ($27 billion) loan from the International Monetary Fund, European Union and other lenders, the sixth eastern European nation to be bailed out as the region’s economies struggle to stay afloat.

About 13 billion euros will come from the IMF and the rest from the EU, World Bank and the European Bank for Reconstruction and Development, the Washington-based fund said in a statement.

The “package should more than cover Romania’s financing needs this year,” said Ozgur Yasar Guyuldar, an emerging markets strategist in Vienna at Raiffeisen Centrobank, in an e- mail today. “The IMF deal will certainly bring some discipline to the budget. I view this aid package as a big relief.”

The Balkan nation, which had the fastest-growing economy in the EU last year, is plunging into a recession and the central bank has little scope to lower interest rates to revive growth. The loan brings to more than $60 billion the total handed out to eastern Europe. Hungary, Ukraine, Belarus, Latvia and Serbia have also sought bailouts to prevent defaults and aid banks.

“The objective of the policy package is to cushion the effects of the sharp drop in private capital inflows,” IMF Managing Director Dominique Strauss-Kahn said in the statement.

Market Reaction

Romania’s leu strengthened 0.3 percent against the euro today after weakening as much as 0.1 percent before the announcement. It was trading at 4.2825 to the euro as of 1:40 p.m. in Bucharest.

The benchmark BET stock index pared its earlier loss after the announcement and was trading unchanged at 1:40 p.m. after falling as much as 1.5 percent earlier. Romania’s credit risk, as measured by credit default swaps, fell to the lowest in four and a half months to 501.5 basis points after the announcement, according to CMA Datavision in London.

The loan agreement was not “an appeal to be saved,” said President Traian Basescu at a news conference in Bucharest. “Romania has made a preventative accord taking into account what could have happened in the future. It would be hard to explain in the future if we didn’t buckle our seatbelt through the accord with the IMF and the EU.”

He also said about 13 billion euros of the package will go directly to central bank foreign exchange reserves, which stood at 25.9 billion euros as of the end of February.

Budget Deficit

The loan from the IMF will be disbursed over the next two years with 5 billion euros coming in the next few months after approval by the executive board, Jeffrey Franks, head of the IMF negotiating team, told reporters in Bucharest today.

The government will target a budget deficit of 4.5 percent of gross domestic product this year, compared with 4.8 percent last year, even as the economic contraction cuts revenue, Franks said. The budget approved in December would have led to a deficit of about 9 percent of GDP, he said.

The country, which had a record current-account deficit of about 13 percent of GDP last year, has predicted it will narrow to less than 10 percent this year as a weaker leu trims imports.

Romania requested talks with international organizations this month as exports suffer from waning demand in its key western European trading partners.

“Core measures under the program are designed to strengthen fiscal policy to reduce the government’s financing needs and improve long-term fiscal sustainability, thus preparing Romania for euro-zone entry,” the IMF release said. The country aims to adopt the European common currency in 2014.

Investment Deterred

Romania’s economy expanded 7.1 percent last year. Private lending soared as much as 64 percent, wages increased more than 20 percent on the year and rising foreign investment brought unemployment to a 16-year low.

This year, the international financial crisis has deterred new investment and persuaded foreign investors to withdraw cash, weakening the leu and restricting growth to an annual 2.9 percent in the fourth quarter. The government predicts the economy will shrink as much as 4 percent this year.

Prime Minister Emil Boc, elected in November to head a coalition of his Liberal Democrat Party and former communists from the Social Democrat Party, has said the government will ensure social protection for pensioners and the poor while cutting spending in other areas and raising some taxes.

The IMF said the agreement contains “explicit provisions to increase allocations for social programs.” It said the conditions placed on the government were “ambitious but realistic,” though state wages and pensions will not be cut.

SocGen Committed

Frederic Oudea, chief executive officer of Societe Generale SA which owns BRD-Groupe Societe Generale, Romania’s second- biggest bank, said the loan agreement is “a very good piece of news.”

“I would like to confirm our commitment in Romania in the long term,” Oudea said at a news conference in Bucharest today to commemorate 10 years of activity in the country. He also said he and representatives from nine other Romanian banks will hold talks with the IMF on Thursday about the financing package. He said his bank won’t repatriate funds from Romania.

The EBRD, in a separate news release, said about half of its 1 billion-euro contribution “will be dedicated to the financial sector and the rest invested across the broader economy, including in the corporate, energy and energy efficiency and national and municipal infrastructure sectors.”

Moody’s Investors Service, which affirmed Romania’s credit rating at Baa3 on March 20, said it would consider a downgrade if the country didn’t obtain aid.

To contact the reporters on this story: Adam Brown in Bucharest at abrown23@bloomberg.net; Irina Savu in Bucharest isavu@bloomberg.net

Last Updated: March 25, 2009 07:56 EDT