IMF sets aside total EUR 4.6bn for Romania

(WASHINGTON) - The IMF approved a new EUR 3.6 billion loan for cash-strapped Romania on Friday, and said it would make EUR 1 billion available from a previously-announced loan.

The Washington-based International Monetary Fund said the funds were designed to support ongoing reforms even if Bucharest had indicated it would use the EUR4.6 ($6.5) billion as a safety net.

"The authorities have informed the IMF that they intend to treat the new arrangement as precautionary and therefore do not plan to draw under it."

Just having the cash could help reassure investors that the country has the fiscal firepower to manage its debts if things turn sour -- lowering interest rates on bonds and other loans.

In May 2009, crisis-hit Romania obtained a two-year, EUR20-billion ($28-billion) lifeline from the IMF, the European Union and the World Bank in exchange for key reforms aimed at slashing public spending.

After years of steady expansion, Romania plunged into recession in 2009, and was forced to take a handout from the three institutions.

With the country's budget in tatters, the government slashed public wages and hiked taxes on goods, sales and services.

Romania was still in the grip of recession in 2010, when its economy shrank by 1.3 percent, according to official figures, but the IMF said Friday things were looking up.

"The fiscal and structural measures already implemented are yielding results. The economy has stabilized and growth is resuming," said John Lipsky, the deputy head of the fund.