State budget needs €400 mln in 48 hours

Publish date: 06-11-2009
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The Ministry of Finance plans to issue bonds today worth €400 million, considering that the third loan tranche of the stand-by agreement with the International Monetary Fund (IMF) is no longer a sure thing.

"This is a procedure that the Ministry of Finance resorts to... it's a sort of insurance. They are proactive, this is a very good thing. The amount of 400 million is not very large for Romania. I believe they will obtain it. It depends on the cost," said Lucian Croitoru, Advisor to the Governor of the National Bank of Romania (BNR).

Analysts interviewed by Business Standard said that the interest could be relatively low, of 5.25 percent. "There is sufficient liquidity on the market. Banks that committed to their exposure in Romania have liquidity. What could they invest this in? Their mother banks, at 0.25 percent interest. I believe the Ministry of Finance will be able to borrow even more than €400 million. I believe that a fair price would be slightly above 5 percent, probably 5.3 percent, and includes the currency swap and the country risk," said the Chief Economist of Raiffeisen, Ionut Dumitru.

In order to get the €400 mln, the Ministry of Public Finance (MFP) will today launch a foreign currency-denominated state bond issue to mature in three years. A relatively similar operation took place in August, the Ministry placed, by public subscription, euro-denominated state bonds, with a 4-year maturity, worth €447 million at annual interest of 5.25 percent.

Economists say there will be enough liquidity on the market and the exchange rate will not be affected, as was the case with the August issue, when it fluctuated slightly at about RON 4.21/€1. Analyst Aurelian Dochia said there is sufficient liquidity on the Romanian market. "There should be no impact on the exchange rate because this money circulates within Romania. Usually, the exchange rate is affected when foreign transactions take place. However, there could be an indirect impact if investors see the Finance Ministry's loan as a signal. There will be a problem if the IMF postpones our tranche. Then, there could be an impact on the exchange rate, because MFP will have to borrow large amounts of money," said Dochia.

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