Spain waits for crisis package to kick in

MADRID (Reuters) - Spain has used up fiscal room to support its economy and is waiting for a stimulus package and bank aid to boost credit supply and cushion an extreme downturn, Economy Secretary David Vegara said on Wednesday.

Spanish economic activity and job conditions will continue to deteriorate in 2009, and IMF and OECD forecasts for negative growth are reasonable, but Spaniards should soon feel the impact of government measures, Vegara told an economic seminar.

"Things take time, the amount of public resources dedicated should be felt in coming months," Vegara said.

Spain has spent its budget surplus on over 50 billion euros of tax breaks, low-cost loans and public works spending to head off what analysts forecast will be its worst recession in 50 years during 2009.

The government plans to buy up to 50 billion euros in bank assets, and provide 200 billion euros in bank debt issue guarantees, to boost financial sector liquidity, and Vegara urged banks to start lending again.

"If we are thinking of anything else, it's a recommendation to gain stability so the credit supply can continue to expand at a normal rate," Vegara said. "The money we've supplied to the financial sector should be felt in coming months."

The International Monetary Fund and the Organization for Economic Development and Cooperation forecast Spain's first contraction in annual growth in 16 years for 2009.

"To me it's reasonable, I always think the IMF and OECD do their work with first class technical groups," Vegara said when asked by a reporter about the estimates.

Spain's government currently forecasts 1 percent growth in 2009, and 1.6 percent in 2008, but will cut the forecasts before year end, Vegara said.

He saw no chance of deflation in Spain in 2009 but expected inflation to reach a very low level.

Vegara played down press reports he may replace Solbes as economy minister in a new year cabinet reshuffle by Spanish Prime Minister Jose Luis Rodriguez Zapatero.

"On bad information, I have no information," Vegara said.

(Reporting by Andrew Hay; Writing by Jason Webb; Editing by Victoria Main)