Romanian Premier Sees Upgraded IMF Accord by Fall

Romania will reach an “upgraded” agreement with the International Monetary Fund and the European Union by the fall, which will help lower financing costs and support the currency, Prime Minister Victor Ponta said.

The country will obtain a precautionary loan of 3 billion euros ($3.94 billion) to 5 billion euros, with fewer conditions than in its previous two accords, Ponta said in an interview yesterday in Bucharest. The terms will concentrate on strengthening state-owned companies and maintaining fiscal discipline, he said.

“It’s going to be an upgraded agreement,” Ponta said. The amount “is not very important for us as long as we don’t see any danger in the short and medium term, but rather in the conditions of the agreement. We aren’t going to have a very detailed agreement like we used to have.”

Romania is discussing the loan with the IMF, the EU and the World Bank through the end of this month. The country’s leaders want a third consecutive agreement with the lenders to act as a backstop against potential spillover into financial markets as authorities around the world put the brakes on stimulus measures.

The leu strengthened 0.2 percent to 4.4290 per euro by 4:30 p.m. in Bucharest, after weakening for four straight days, according to data compiled by Bloomberg. Yields on the country’s 2019 euro-denominated bonds fell 5 basis points, or 0.05 percentage point, to 3.82 percent, the lowest since May 31, according to data compiled by Bloomberg.

Yield Outlook

Borrowing costs will continue to decline after the country obtains the third loan agreement and as the central bank will probably cut its record-low 5 percent main interest rate further, Ponta said.

“The biggest challenge for Romania right now is the financing as the banks are more restrictive,” Ponta said. “This accord with the EU, IMF, World Bank and then others with the European Investment Bank and the European Bank for Reconstruction and Development would help get the financing we need to boost the economy.”

The EU’s second-poorest country completed an agreement of as much as 5 billion euros with the lenders last month after a three-month extension triggered by delays in overhauling the economy and state-owned companies. Romania treated the agreement as precautionary, meaning it didn’t draw any of the funds available.

‘Easier’ Talks

Negotiations on the next accord will probably be “much easier” because the government has “proved its commitment and courage,” Ponta said.

The agreement would be “positive for Romania” because “it would ensure a financial cushion in case of renewed risk aversion” and “provides an impulse and accountability for further structural reforms,” Dan Bucsa, an economist at UniCredit SpA in London, said in a research report yesterday.

IMF Managing Director Christine Lagarde, who met Romanian officials during a two-day visit this week, signaled that the fund is ready to back a new agreement focusing on restructuring state-owned companies and the health-care system.

Romania’s export-driven economy may grow more than the 1.6 percent forecast by the government after 2.4 percent growth in the first half of the year from the same period of 2012, Ponta said.

Investment Levels

The country wants to attract 10 billion euros in investments, especially in the energy and the automotive industries, as part of a plan to create more jobs, he said.

The government’s planned sale of a 10 percent stake in nuclear power plant operator Nuclearelectrica SA is “ongoing” after delays prompted by union challenges and promotion, Ponta said, declining to specify a timeframe for the sale.

“This is not the best moment for nuclear energy in Europe, but I’ve clearly said that even if we get a lower price, we’re going ahead with it to show our commitment,” he said.

Ponta said his cabinet will complete by the start of the next Parliament session in September a draft law on a stalled gold-mine project majority owned by Canada’s Gabriel Resources Ltd.

The law would include environmental obligations, the results of negotiations on the state’s stake in the project and the level of royalties. Parliament will debate the draft and make a decision on whether the project can go ahead, Ponta said.

The company “has no other choice” than to agree to the plan “as they have been waiting for a government solution for 13 years,” Ponta said. “This time they are facing a final decision.”

Gabriel Resources, backed by hedge-fund firm Paulson & Co., Newmont Mining Corp. and BSG Resources Ltd., has spent more than a decade trying to build the mine in the face of opposition by environmental campaigners. It estimates the site may hold 17 million ounces of gold.

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