Romania Holds Preliminary Talks With IMF On Aid

The central bank`s spokesman said deputy governor Cristian Popa was in Washington for talks with the Fund.

Romania has started preliminary discussions with the IMF on an aid deal to help patch up finances strained by global crisis and calm nervous markets, a source close to the talks said on Monday.

If a deal is reached, Romania could become the third European Union member to seek help from the International Monetary Fund as the global cash shortage spreads to eastern Europe, hitting economies highly dependent on foreign funding.

Since the crisis accelerated in October, Romania has turned from being the EU's fastest-growing economy to one of its most vulnerable as big hard currency debt and budget deficits fanned external imbalances.

It could be the next eastern European country in line for rescue by the IMF and the EU, in a deal similar to the multi-billion-euro packages won by Hungary and Latvia last year.

The central bank's spokesman said deputy governor Cristian Popa was in Washington for talks with the Fund, although he declined to say what the subject of discussions was. A source close to the talks said an aid deal was being discussed.

"Deputy governor Cristian Popa is in Washington these days after (having) ... been in Brussels," central bank spokesman Mugur Stet said. "He will have meetings, discussions and preliminary assessments with the Fund."

CALMING FEARS

No details were available about the potential size of the deal, although government officials say short-term financing needs amount to up to 10 billion euro ($12.6 billion), stemming mostly from corporate sector debt.

An aid package worth that amount or more should help underpin market sentiment, shaken by foreign investors' concerns that Romania may run out of money to finance debt and trade, economists said.

"We undoubtedly need money," said Nicolaie Alexandru-Chidesciuc, senior economist at ING Bank Romania.

The Romanian leu fell to record lows against the euro in January and the stock exchange has lost 80 percent of its value since the start of 2007.

Further declines in the leu could put more strain on borrowers with hard currency debt and destabilise the economy.

Bucharest's centre-left government has already approached the EU over possible financial aid.

After winning power on social spending promises in a November parliamentary election, the coalition is now struggling to slash state spending to meet the EU's deficit limits of 3 percent of GDP.

Unlike some of its neighbours, Romania has yet to face social unrest over the economic crisis but poverty and job losses may spark protests later in the year.

Many economists say Romania could slide into recession in 2009, after recording growth rates above 9 percent.