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. Last Updated: 07/27/2016

IMF Delays Romanian Loan After Riots

WASHINGTON -- The International Monetary Fund, in a stopgap response to Romania's banking problems, said Tuesday it was delaying a decision on releasing cash by at least two days and would prolong an old loan by just one week due to "recent financial developments."

Spokeswoman Conny Lotze, speaking on the eve of a planned IMF board meeting to discuss extending the loan until February, said the one-week delay would give Romania time to work out what to do about its latest problems - the cessation of payments by a big unit trust and a run on a major bank.

"In view of recent financial developments in Romania, IMF management, at the authorities' request, has proposed to the executive board a one-week extension of the [loan] which is due to expire on May 31," she said.

"A board meeting is expected to be held within the extension period, possibly on Friday, June 2."

The delay "will allow time for the authorities to formulate their policy response to the recent developments in the financial system," Lotze added.

Romania has been waiting anxiously for the IMF board to meet because it hopes IMF approval of a nine-month extension of the $540 million loan will be viewed as a sign of confidence in its fragile economy.

The IMF had been expected to release a payment of some $110 million from the much-stalled loan, and IMF cash would open the door to additional credits from other lenders.

But investors dealt Romania's financial system a heavy blow this week after rumors that state-run Banca Comerciala Romana might face cash problems unleashed a flood of withdrawals by nervous depositors.

Prime Minister Mugur Isarescu urged Romanians Tuesday to retain their confidence in the bank and he rejected speculation that the currency or interest rates might come under pressure after the National Fund for Investment, or FNI, ceased payments last week.

"I assume my responsibility to assure you that the financial situation of Banca Comerciala Romana is solid beyond any doubts," Isarescu said in a televised address.

BCR president Nicolae Danila said his bank, which handles one-third of deposits in the banking system and is slated for sell-off later this year, was not facing shortages.

"BCR has no financial problems," Danila told a news conference. "We also have inflows from clients. BCR is a solid bank and its January to April net profit rose by 300 billion lei from the whole 1999 figure."

Isarescu, who visited Washington last week for talks with the IMF and the U.S. Treasury, said deposits in the banking sector and state bondholders benefited from state guarantees.

Horst K?hler, the new managing director of the IMF, said last week after his meeting with Isarescu that Romania deserved IMF support and he expected the IMF board to prolong Romania's existing credit.

"The country has a clear economic policy direction, and this is macroeconomic stability, reform, structural change, cutting subsidies, making the economic competitive and strengthening the private sector," he said.