Romania needs to borrow $7.9 billion in 2011, will sign new IMF deal in 2011

Wednesday, September 22, 2010

Romania needs to borrow $7.9 billion in 2011

BUCHAREST, Romania — Romania needs to borrow almost euro6 billions ($7.9 billion) next year to cover its budget deficit and plans to sign a new deal with the International Monetary Fund in 2011 to shore up the ailing economy, the president said.

On Wednesday, authorities said some 5,000 people had gathered to protest in the capital of Bucharest against wage cuts and other austerity measures. They were demanding the government increases salaries to the 2009 level and stop layoffs of public workers.

Authorities slashed public sector wages and hiked sales tax to reduce the budget deficit, as the International Monetary Fund requested.

Romania needed euro20 billion (US$26 billion) in bailout loans from the IMF, the European Union and the World Bank in 2009. Part of the funds helped pay state wages and pensions last year, when the country’s economy shrank by 7.1 percent.

President Traian Basescu said the country still needed help with its finances.

“Romania still needs to borrow financial resources,” Basescu said late Tuesday in his address to the Parliament. “This is the reason why in 2011 we will sign a new accord with the International Monetary Fund.”

The country signed a euro20 billion ($26.2 billion) loan agreement with the IMF, the European Union and the World Bank in 2009, when its economy shrank by 7.1 percent. Some of the money was used to pay salaries and pensions. The agreement ends next year.

The government took harsh austerity measures this year, slashing public sector wages by one-fourth, hiking the sales tax and pledging to cut jobs in the public sector.

Basescu said the country will have to borrow euro5.7 billion ($7.47 billion) in 2011 just to cover the budget deficit, which will be 6.8 percent this year.

During a meeting with IMF mission chief to Romania earlier this month, Basescu said the two sides should assess in October whether Romania should extend the current agreement with the IMF or sign a precautionary agreement. In July, Basescu said he would prefer a precautionary agreement, which would allow the country to access funds only if it faces a critical situation.

However, on Tuesday, Basescu said the forecasts for 2011 show that Romania will only return to growth if reforms are implemented and the budget deficit is reduced.

He said although Romania has seen the peak of its economic crisis, it had not yet reached the peak of its “social crisis” from the recession.

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