BUCHAREST, Romania - Crisis-hit Romania will receive euro20 billion in loans from a group of lenders led by the International Monetary Fund, officials said Wednesday. The money will bolster government finances hard hit by the world financial crisis.
Jeffrey Franks, the head of the IMF mission to Romania, told reporters that the organization had agreed to a two-year bailout loan of euro12.95 billion ($17.49 billion). The first part, euro5 billion, will be available in the summer.
Franks said another euro5 billion will come from the European Union, euro1.5 billion from the World Bank, and the rest from the European Bank for Reconstruction and Development.
Romania is the third EU member to receive an IMF-led bailout loan after Hungary and Latvia, having been hit hard by the economic crisis in recent months. Eastern Europe has struggled with falling growth, sagging currencies and political turmoil from the crisis.
On Tuesday, the Czech government of Prime Minister Mirek Topolanek collapsed after losing a parliamentary no-confidence vote over its handling of the economic crisis. Hungarian Prime Minister Ferenc Gyurcsany on Saturday announced his resignation, and his Socialist Party will propose a new prime minister who is expected to face a Parliament vote on April 14.
Former Latvian Prime Minister Ivars Godmanis and his center-right coalition government resigned in February after weeks of instability brought on by the country's economic collapse.
Romanian Prime Minister Emil Boc is expected to meet ministers later Wednesday and approve the loan request.
Franks said that as a condition of the loan, Boc's center-left government would take measures to gradually reduce the budget deficit.
The European Commission said in a statement that "a key element of the economic policy package is an immediate and sustained fiscal consolidation to limit the budget deficit to 5.1 percent of gross domestic product this year and to below 3 percent of the GDP in 2011."
The country's public finances have been stretched by the economic downturn, with lower revenues from income and corporate taxes as well as higher costs on social security for the jobless. The financial system has also been strained as some international investors have pulled out their capital on fears about the stability of the country's economy.
"The economic times are going to be difficult for Romania over the coming two years with or without international support.....Unemployment is rising... Wages are beginning to fall," said Franks.
Romania appears headed for recession this year after years of strong growth while unemployment is expected to rise by more than one-fifth to top 5 percent in April. Labor Minister Marian Sarbu said this week there would be up to 800,000 unemployed by the end of 2009, higher than estimated.
The average monthly salary in Romania was about euro430 in January,and year on year inflation in February was 6.9 percent, with the central bank hoping it would be reduced to 3.5 percent for 2009.
There are also fears that a large number of the estimated 2 million Romanians working in Italy and Spain may return as the global downturn hits those economies, in turn putting more strain on the Romanian economy.
Already, Romania's car and steel industries have been laying off thousands of workers in recent months as the economic crisis bites. The formerly booming real estate market has also plummeted in recent months.
The European Economic and Monetary Affairs Commissioner Joaquin Almunia said Wednesday he welcomed "the commitment by the Romanian authorities to implement a major program of economic adjustment aimed at bringing the economy on a sound and sustainable growth path."
The national currency, the leu has lost about 20 percent since Jan. 2008. Romania's central bank warned last month that it might need help to shore up its foreign currency reserves, which amounted to euro26.2 billion ($33.2 billion) in December.
