Romania's 2009 IMF-EU stand-by program and the leu's adjustment

When the capital inflows that had financed Romania's boom reversed sharply after September 2008, the leu depreciated roughly 15% against the euro within months and risk spreads on Romanian debt spiked, forcing the National Bank of Romania to defend the currency and the banking system simultaneously. Governor Mugur Isarescu described the response, in a January 2010 account delivered to the Bank for International Settlements, as requiring unusually tight coordination between monetary policy, bank supervision, and a new multilateral financing package, since Romania's heavily foreign-owned banking sector meant a disorderly deleveraging could have triggered a much deeper collapse than the current account adjustment alone implied. In May 2009 Romania secured a two-year Stand-By Arrangement with the IMF worth roughly SDR 11.4 billion, backed by a further EUR 5 billion from the European Union and support from the World Bank, conditioned on fiscal consolidation and bank-sector safeguards. As pressure eased, the National Bank cut its policy rate by 400 basis points from its crisis peak down to 6.25% by 2010, allowing a gradual normalization once external financing stabilized.