IMF, EU to unlock rescue package to Romania

(BUCHAREST) - The International Monetary Fund and the European Union on Wednesday announced they would unlock their rescue package to Romania and forecast a return to growth in the first quarter of 2010 for the recession-hit country.

"We are pleased to announce we have successfully completed discussions on review of (our) joint support programme," IMF mission chief Jeffrey Franks told reporters in Bucharest.

"We will present to the executive board in February a document allowing to proceed with next disbursements," he added.

The IMF will make available 2.3 billion euros in February while the EU will unlock 1.0 billion euros (1.4 billion dollars) in March.

In November, the IMF, EU and World Bank had put on hold any new disbursement of their 20-billion-euro package amid a political crisis that paralysed the Balkan country.

The move cAme as a severe blow for Romania whose economy is expected to shrink by seven percent in 2009 after 10 years of growth.

However, the formation of a stable centre-right government at the end of December and the approval of an austerity budget in mid-January, based on a 5.9 percent public deficit, against 7.3 percent of output in 2009, cleared the way for resuming disbursements, according to IMF and EU officials.

European Economic and Monetary Affairs Commissioner Joaquin Almunia commended "the Romanian authorities and the Romanian people for the efforts made during this global crisis to limit the deterioration of the budget deficit."

"This year should see a return to growth in the EU and in Romania but the effort needs to continue," he said in a statement.

"Some indicators suggest that growth may be resuming now, in the first quarter of 2010," the IMF mission chief told reporters.

The IMF forecast for 2010 puts growth at 1.3 percent. "2011 will see a return to reasonably high growth rates," Franks said.

On Tuesday, the IMF said the global economy was rebounding better than anticipated after two years of crisis but warned the recovery remained fragile.

Romanian economist Aurelian Dochia too called for a "cautious approach."

"Economic recovery in Romania very much depends on what will happen in the rest of Europe," he told AFP.

The major challenge facing authorities is to keep their commitments to international lenders on reforming the pension and the public-sector salary systems, he said.

"However, this reform has dragged on for months and has met fierce opposition from trade unions."

Unions fear it will lead to 100,000 job cuts among public servants and threaten to stage strikes in order to block it.

But Franks stressed Romania could not avoid cutting public spending, although the IMF was "flexible" enough to let it choose between axing jobs or trimming salaries.

"Romania cannot afford a Mercedes-type public sector, but rather a Dacia-type one," he said, in reference to the cheap car model produced locally by French group Renault.

Dochia moreover warned against a repetition of the "Greek scenario" if Romania's public debt would continue to grow, forcing the country to abandon investment projects in order to pay the swelling debt service.