LONDON (Dow Jones)—On the brink of collapse little more than a month ago, Eastern Europe looks to be turning a corner with substantial funding now on tap to help their economies ride the waves of this global crisis. For most of 2008, eastern Europe appeared to have been spared the worst of the global financial crisis. But economies in the region were heavily dependent on exports to western European consumers, and credit lines from western European banks.

But with the intensification of the financial crisis in the fourth quarter, the region suddenly appeared vulnerable to a decline in exports and a withdrawal of foreign investment.

Investors feared that the region would become the latest and most severely affected victim of the financial crisis, while policy makers appeared stunned into inaction by the rapidity of the change in the region’s prospects.

However, over the past five weeks confidence in the region has been bolstered by a series of initiatives that will make many billions of dollars available to countries that face difficulties.

In late February, the World Bank, the European Bank for Reconstruction and Development’s and the European Investment Bank pledged EUR24.5 billion in loans and equity investments over the coming two years to stabilize the banking systems of Central and Eastern Europe.

Then in mid-March, European Union leaders agreed to double the size of a bail out fund for eastern European members to EUR50 billion from EUR25 billion.

And the Group of 20’s decision Thursday to triple to $750 billion the resources available to the International Monetary Fund to help developing economies will make even more money available to countries in the region, should they need it.

"The sheer size of the injection means that fears of complete financial meltdown in Emerging Europe should start to abate and financial markets across the region are likely to bounce," said Neil Shearing, an emerging European economist at Capital Economics in London..

Although available to developing economies around the globe, the news of extra funding for the IMF is particularly positive for Central and Eastern European economies, said analysts at Danske Bank as a number of countries there are struggling with serious funding problems.

The IMF now has more than enough to cover the shortfall in Emerging Europe’s financing, thus averting the complete meltdown in the region so many feared was inevitable just a month ago.

"Newsflow in the last 48 hours is undeniably positive for the EEMEA (Eastern Europe, Middle East and Africa) outlook," said Martin Blum, head of EEMEA, economics and strategy at UniCredit in London.

Indeed, investors have already welcomed the news with the cost of insuring Eastern European sovereign debt against default having fallen sharply, a sign that risk sentiment towards the region has improved.

Poland’s five-year credit-default swap spread, a key measure of credit risk, has fallen to 217 basis points, the lowest level in nearly five months.

The cost of protection against a debt default by Hungary has also fallen sharply. According to data provider Markit, the country’s five-year CDS spread stood at 463 basis points Friday, which is over 40 basis points tighter on the day.

The price means it now costs around $462,000 a year to insure a notional $10 million of Hungarian bonds against default for five years, down from $503,000 it cost Thursday. A month ago it cost $584,000.

Eastern Europe has been one of worse hit area’s by the global credit crisis as economic activity has stalled sharply as credit grew scarce and export markets collapsed.

The IMF has already offered standby loans to help buoy public finances in Hungary, Romania, Latvia, Serbia, Ukraine and Belarus. Turkey is in talks with the IMF, while Lithuania and Croatia are among regional states that are widely expected to be mulling an IMF loan.

But while a financial meltdown seems to have been averted, the outlook for economic growth remains gloomy.

"The recession sweeping the region is set to deepen over the coming months," Capital Economic’s Shearing said.

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