IMF, EU say Romania’s budget cuts will allow them unfreeze multibillion bailout

IMF, EU to unfreeze Romania bailout

BRUSSELS — The International Monetary Fund and the European Commission said they were likely to unfreeze a multibillion dollar loan to Romania after the parliament pledged to curb its budget deficit.

A joint euro20 billion bailout from the IMF, EU and World Bank was suspended in October after the Romanian parliament dismissed the government, partly over tough spending plans demanded by the lenders.

The 2010 budget was approved earlier this month, shortly after President Traian Basescu was re-elected, ending months of political instability.

Jeffrey Franks, the IMF mission chief to Romania, told journalists in Bucharest that he expected the IMF board to meet in mid-February on resuming the loan and that he was optimistic that they would approve the payment of some euro2.3 billion in loans days later.

Half the money will help plug the budget deficit, with the other half going to the national bank.

The European Union’s executive also said it was confident of paying out a bailout loan installment of euro1 billion ($1.41 billion) in March. It said Romania has now “broadly met” the conditions for handling its economy that are attached to the IMF-led loan and that this will help improve market confidence.

Romania’s 2010 budget has set a target of reducing the budget deficit to 5.9 percent of gross domestic product, down from 7.3 percent last year. The EU limit is 3 percent for all member countries.

Franks said the economy shrank by about 7 percent last year, less than a forecast of 8 percent, and that growth would return by some 1.3 percent in 2010. However, he also warned that the number of unemployed might hit 1 million, with 200,000 more people becoming jobless.

IMF and EU officials are also calling on Romania to make reforms to pensions, public sector wages — including shedding government jobs — and tax administration. Labor Minister Mihai Seitan has said that some 80,000 public sector workers could be laid off.

Romania was already running up a high budget deficit before the economic crisis and was hit hard by the sudden recession. The country is one of the poorest in the 27-nation EU, which it joined in 2007.

The EU promised last year to lend Romania euro5 billion as part of the IMF-led bailout. It paid a first installment of euro1.5 billion in July and had planned to transfer euro1 billion in the last three months of 2009. It will pay the rest in four installments in 2010 and 2011.