Yesterday, the IMF approved a $17.1 billion, 24-month SDR Stand-By-Arrangement for Romania, of which approximately $6.6 billion will be made available immediately and the remainder made available “in installments subject to quarterly reviews.” The IMF had announced in March its intention to provide financial assistance to Romania. The financial assistance will be used in part “to support an economic program designed by the Romanian authorities and intended to cushion the effects of the sharp drop in capital inflows while addressing the country’s external and fiscal imbalances and strengthening the financial sector.”

The IMF assistance will be combined “with other multilateral financial support to fill the country's 2009-2010 financing gap” to total approximately €19.9 billion. Specifically, Romania will receive aid from the European Union (€5 billion), the World Bank (€1 billion), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the International Finance Corporation (IFC) (which will contribute a combined €1 billion).

The Romanian government has “launched a comprehensive program to respond to the current challenges.” The program’s framework addresses the following three areas: “fiscal consolidation, banking reform, and reducing inflation to help restore financial stability.” In addition it seeks to combine “strong policy measures with sizable financial support.” Some of the key objectives of the program are the following:

reduce the present fiscal imbalance “to bring the deficit back under 3 percent of GDP by 2011”; sustain “adequate capitalization of banks and liquidity in domestic financial markets”; reduce inflation by year end “within the target range of the National Bank of Romania”; and obtain adequate sources of external financing and improve investor confidence.

Mr. John Lipsky, First Deputy Managing Director and Acting Chairman of the IMF, noted that, the “program, combined with significant external financial support, should ease short-term funding pressures and enhance medium-term economic prospects.” He also remarked that the multilateral assistance provided by the IMF, the EU, the World Bank and others “sends a strong signal of the international community’s confidence that, with the consistent implementation of the program, Romania will weather the current difficulties and emerge with a better-balanced and more flexible economy.”