IMF Says Agreement Reached on Romania’s Precautionary Loan

The International Monetary Fund completed a review of Romania’s loan accord, saying the economy may expand slower than earlier forecast because of a prolonged drought and political turmoil before elections this year.

The IMF and Romania reached a staff-level agreement to unlock the next tranche of the country’s precautionary 5 billion-euro ($6.2 billion) loan, the fund’s Mission Chief Erik de Vrijer said in Bucharest today. The Balkan nation hasn’t drawn any money so far from the loan.

Romania’s economy will probably expand 0.9 percent in 2012, down from the earlier forecast of 1.5 percent, the Washington- based lender said, maintaining a previously agreed target for the budget deficit to remain below 3 percent of gross domestic product.

The international lender is assessing the government’s progress on meeting fiscal targets and planned state-asset sales after a political conflict between Prime Minister Victor Ponta and suspended President Traian Basescu undermined investor confidence, pushing the country’s currency to record lows and boosting borrowing costs.

‘Significant Risk’

“The overlap of the political uncertainties with increased market stress poses significant risk to the economy,” de Vrijer said. “It is important for the government to keep strict spending discipline and not have additional spending before elections.”

For the IMF’s board to approve disbursing of the loan tranche, Ponta’s government must cut overdue debt owed by local authorities, increase gas prices and offer for sale by September a 15 percent stake in Transgaz SA (TGN), the country’s natural-gas grid operator and a majority holding in chemical company Oltchim SA, de Vrijer said.

The IMF urged Ponta’s government to impose “discipline” on spending policy by local authorities before parliamentary polls in November or December after some of the state’s arrears started to increase.

De Vrijer said on Aug. 7 that he was a “little bit worried” about the impact the political turmoil was having on the economy, which rebounded in the second quarter and posted an annual growth of 1.2 percent, after declining in the previous two quarters.

Ponta’s government, the country’s third this year, pledged to comply with the terms of the precautionary loan agreement with the IMF and the European Union. It arranged an additional 1 billion euros from the World Bank this year, though it hasn’t yet drawn any money.

The government secured the amounts it needs to restore public wages to the level before a 25 percent cut in 2010, Finance Minister Florin Georgescu said on Aug. 2. Georgescu also said the Cabinet predicts economic growth will reach 1.2 percent this year.

A new joint mission of the IMF and the EU will return to the country “soon after parliamentary elections” when the details of the 2013 budget will be outlined, de Vrijer said.

To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net; Irina Savu in Bucharest at atimu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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