By Justyna Pawlak
BUCHAREST, Feb 19 (Reuters) - Romania looked set to pass an
austerity 2009 budget on Thursday while Hungarian bond yields
jumped more than 2 percentage points, as evidence mounted that
eastern Europe was struggling to find sources of financing.
Global economic woes have slashed sources of cash to fund
budget deficits, investment and domestic lending, crimping
economic growth across the region.
To prevent a financing crisis, the Romanian government put
in its budget plan a near freeze in state salaries and a sharp
cut in the fiscal deficit target to 2 percent of gross domestic
product (GDP) from more than 5 percent last year.
But economists say fiscal responsibility, after several
years of unrestrained wage growth, may not be enough to correct
Romania's external imbalances and ensure it has access to enough
cash to plug its vast current account deficit.
Underlining these concerns, Finance Minister Gheorghe Pogea
said external financing needs stood at 6-10 billion euros,
possibly forcing Bucharest to ask the European Union or the
International Monetary Fund for help.
Combined with the finance ministry's decision to reject all
bids at an auction of three-year bonds earlier on Thursday, his
comments signalled a growing difficulty in securing cash that
may push Romania to seek an outside rescue plan.
"This tender is a sign that an IMF/EU deal is more likely,"
said Nicolaie Alexandru-Chidesciuc, senior economist at ING Bank
in Bucharest.
Similar difficulties in finding affordable cash appeared in
Hungary, where yields jumped to 12.46 percent on 12-month bills
on Thursday, from 10.34 percent on Feb. 5, suggesting that
buyers had demanded hefty prices to invest in the region's
troubled economies.
Hungary has already secured a loan package from the IMF and
Brussels to shore up its crumbling finances and reassure markets
last year.
Bucharest is expected to decide later this month whether a
similar package is needed, although a senior government
coalition official told Reuters he was hesistant to back such
loans, fearing tough conditions from the IMF.
"My first option would be to resist an IMF agreement," said
Mircea Geoana, the leader of the ruling coalition's Social
Democrats and speaker of the Senate. "(But) we need external
financing. This is clear," he said.
EXPENSIVE MONEY
In the Czech Republic yields jumped sharply, with 13-week
bills now at 1.95 percent, compared with 1.79 percent on Jan.
29.
"It is more than fair to believe that foreign investors are
pushing for higher yields and they will continue to do that as
we are right in the middle of a severe depression in the
region," said Commerzbank analyst Luis Eduardo Costa in London.
In another sign that cash was getting scarce, the Romanian
government looked set to shelve multi-billion-euro plans to buy
fighter planes to bring its air force up to NATO standards this
year because of a lack of cash in the budget.
Bucharest came close to finalising a purchase last year with
government ministers saying a decision was only "weeks away" in
September, but it was put on hold after November's parliamentary
election gave power to a new centre-left cabinet.
Five aircraft were in the running for the deal estimated by
the previous centrist government to top 4 billion euros.
"Purchasing fighter jets this year is out of the question,"
Geoana said.
Evidence of economic woes mounted also in Poland, where
industrial output fell by almost 15 percent on the year in
January, exceeding the 4.4 percent decline in December.
Poland signalled it was likely to sell more euros to aid the
battered zloty currency, helping the unit and other regional
markets extend a two-day rebound on Thursday.
The zloty has fallen more than 12 percent against the euro
since the start of this year on regional woes.
Declines accelerated this week following reports from
ratings agencies and economists that the crisis will be worse
than previously expected in former communist Europe and that
imbalances there could cause problems for Western-owned banks.
All three major credit ratings agencies said this week that
the ratings of emerging European banks and their western owners
could suffer as recession bites.
The Austrian National Bank said on Thursday it is in
continuing contact with Austrian commercial banks which are
exposed to the emerging economies of Europe.
