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The International Monetary Fund will visit Bucharest this week, a government official said on Monday, increasing speculation that Romania could join other eastern European states in requesting an economic rescue. President Traian Basescu planned to seek broad support in parliament on Monday for the kind of austerity measures seen as vital to any potential deal with the IMF.
Romania is battling a threat of recession and a potential financing crisis born of its heavy dependence on foreign cash. But the centre-left coalition government has been reluctant to confirm reports that it is in talks with the IMF for fear of alarming the public and sparking social unrest.
Deputy Prime Minister Dan Nica said a team of IMF experts would visit Bucharest to assess the economic situation and Romania's ability to tackle the crisis this week. The IMF last sent a mission in late January. "The fact that the IMF is coming again makes me believe that we are getting increasingly closer to a deal," said Nicolaie Alexandru-Chidesciuc, senior economist at ING Bank in Bucharest.
The government faces an uphill struggle to win domestic support for international aid, which will probably require deep cuts in social spending just months after it won parliamentary elections on a pledge to boost salaries and welfare payments.
No mass protests have taken place yet, unlike in other eastern European countries such as Latvia and Bulgaria, but Prime Minister Emil Boc is already under pressure from trade unions for cutting back public sector pay rises. "It will be an option for parliament, for Romanians, whether we fasten a safety belt (through external financing)," Basescu said late last week.
Romania has gone from being the European Union's fastest-growing economy last year, luring billions of euros in foreign investment, to one of its most vulnerable. Its external imbalances ballooned as firms and households amassed debt in euros, while unchecked private consumption and state spending failed to finance infrastructure and development.
Basescu, who faces a presidential election later this year, wants to ensure any potential budget cuts do not strain the ruling coalition between Boc's centrist grouping and its leftist coalition partner, the Social Democrat Party (PSD), which appears more reluctant to seek IMF involvement. "If people take to the streets and say they do not want to tighten the belt ... this is something that must be taken into account," presidential adviser Cristian Preda said.
Details about a potential package, its size or accompanying reform requirements are scant. Economists say it could be around 20 billion euros. Commentators say feuds within the uneasy coalition could have a negative impact on Basescu's re-election chances because of his close links with Boc's Democrat-Liberals (PD-L) and a history of strained relations with the PSD.
At the same time, Boc wants to build broad support for any IMF programme after protests over economic problems helped bring down governments in Latvia and Iceland. "The president wants to give the people a sense of involvement," said commentator Cristian Patrasconiu. Basescu was due to start speaking at 4 pm (1400 GMT).

Copyright Reuters, 2009

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