A €1.5 bln foreign loan to pay state bonds

The foreign loan will lead to a temperate appreciation of the leu and a slight increase in loans, according to analysts.

The Ministry of Finance provided MONEY.ro with a list of monthly maturities that the state must honor in the last four months of this year. The largest amount, worth RON 6 bln (€1.43 bln), is due in October 2009.

“Due titles are not paid from the state budget. They are refinanced from new state loans or the obligation is terminated by using the amounts drawn from foreign currency loans,” representatives of the Ministry of Finance said.

Minister of Economy Adriean Videanu, talked about a €1.5 bln eurobond issue for the first time on The Money Channel on Monday, double the amount presented by the government to date.

“We will see at the time of the first eurobond issue, for which the Ministry of Finance is prepared with a value of between €700 million and €1.5 billion,” Videanu responded, when asked a question regarding the example of Hungary, which managed to attract a significant amount from the foreign market last month. The minister let this information out while trying to eliminate one of the 32 measures included in the Anti-crisis Program recently adopted by the ruling coalition - the measure referring to the increase in the share of the short-term domestic loan. The measure was not to the liking of Minister of Finance Gheorghe Pogea, and this is why it was removed from the program.

“We wanted to raise the share of the short and very short-term public debt this year, considering the IMF [International Monetary Fund] loan, which was to cover the budget deficit. And then we felt it necessary in the policy of the Ministry of Finance not to take out medium and long-term internal loans, so that we can leave the banking sector to consider much more actively lending in the real economy. We discussed increasing the share of the short-term loan today [Ed. n. yesterday] with the Minister of Finance, but he did not support this possibility. This is why we abandoned the measure,” Videanu said.

Financial advisor Bogdan Baltazar told MONEY.ro that such a strategy from the government will affect lending in the economy and the exchange rate, although the effects will be limited.

“Naturally, a shift of the state’s loans on the foreign market will lead to the easing of lending for companies and individuals. But the effect will be very limited, because we are actually dealing with low credit demand. With a lack of client solvency. Regarding the exchange rate, a new infusion of euro, which will be exchanged for lei, will lead to an appreciation of the national currency,” Baltazar added.

A eurobond issuance would be inexpensive for Romania at present. The credit default swap (CDS) in Romania plunged in the past few months, compared to the beginning of this year, reflecting an increase in the confidence of investors in the economy.