IMF, EU delay Romania loan amid political crisis

(BUCHAREST) - The International Monetary Fund (IMF) and the European Union said Friday they would delay the next instalments of a loan to Romania until a new government was formed, dealing a new blow to the heavily recession-hit economy.

"We will proceed to the next disbursement once the political situation is resolved," IMF head of mission Jeffrey Franks said during a press conference.

"We will continue discussions in coming days and are prepared to send a follow-up mission as soon as the situation allows it," he added.

Romania was expecting to draw 1.5 billion euros (2.24 billion dollars) from the IMF and 1 billion (1.5 billion dollars) from the EU of its 20-billion-euro loan in December. The loan was agreed earlier this year as Romania's finances plunged into a steep economic crisis.

But the political crisis in this ex-communist European Union member has dragged on for more than a month, delaying several reforms expected by financial institutions.

One of the principal conditions Romania must observe in order to get the next instalments is adoption of a draft 2010 budget based on a 5,9-percent deficit.

This however cannot be done unless a new government is sworn in.

"As soon as political incertainty is resolved and a draft budget is adopted, we can finalize our discussions and proceed to the next disbursement," EU representative Elena Flores said.

Franks said there was also some good news, as the Romanian economy is expected to fare "slightly better" than expected.

"Negative growth will be in the range of 7.5-8.0 percent in 2009, as compared to a previous estimate of 8.5 percent," he said.

"In 2010, we expect a weak positive growth, of 0.5 percent."

The delay in disbursements will add pressure on Romanian finances, as the country is experiencing growing difficulties to pay public-sector salaries and pensions.

But Nicolae Chidesciuc, chief economist at Dutch bank ING's Romania branch, said "this is going in the right direction (...) This is positive because reforms need to be implemented."

In a bid to resolve the political row, Basescu on Friday named Liviu Negoita, a member of the Liberal Democrat party (PDL), as prime minister.

On Wednesday, the opposition-dominated parliament refused to back a proposed cabinet led by economist Lucian Croitoru, named earlier as prime minister.

The country has been in political turmoil since October 1, when the Social Democrats left a coalition they had formed with the Liberal Democrats.