The leu needs €2-4 bln to overcome the crisis

“Two, three, four billion euro” is the necessary financing for the national currency to overcome the crisis, according to the central bank official, who added that he is considering taking out a loan through the government or the central bank which would solve the liquidity problems of companies.

The private sector must pay installments and interest worth €9.6 bln in 2009, but part of these loans will be extended, the Governor believes. However, for amounts which should be paid effectively, the degree coverage could amount to a mere 60 percent, due to capital entries significantly lower than forecasted exits, said Isarescu. The foreign debt of companies operating on the Romanian market has virtually exploded in the past few years, to €33.65 bln at the end of 2008, from €5.56 bln in 2003. This debt is shared by some 2,000 companies, representing 0.4 percent of total Romanian companies. However, according to Isarescu, the top ten companies have less than 20 percent of the total private debt, adding that the total government debt nears €40 billion, of which €24 bln are short-term debts.

If many companies with such debts are unable to extend their maturities, we can expect pressures on the exchange rate, financial blockage, and even economic recession, according to some economists.

“I do not think that the burden of debt will generate bankruptcies among companies. Still, there will be problems with refinancing because the Romanian market is generally closed and it is practically impossible for Romanian companies to obtain foreign loans. This means that Romania’s economy is heading for a “hard landing”. Also, it is very possible that the economy will go into recession in 2009,” Bartosz Pawlowski, Analyst for Emerging Markets at TD Securities in London, told Business Standard. In the case of banks, the Governor said that there is no problem related to liquidity or refinancing. Lenders own €10 billion of non-governmental debts, of which 87 percent are shared by the top ten players. “There is very high probability of extension, because most are part of a mother-daughter relationship. The extension will be total, if not supplementary, due to capital obligations of subsidiaries,” said BNR’s Governor.

Isarescu also confirmed the estimate by the Chairman of the Board of Directors and Chief Executive Officer of the Banca Romana de Dezvoltare (BRD) lender, Patrick Gelin, who said that liquidity is very high on the market. “There is a massive excess of liquidity. If there was a shortage, the leu would not depreciate. Of course some banks are facing a shortage, if they trade their lei and want to sit on euro on long positions, waiting for 4.7,” Isarescu said. BNR’s Governor recalled that the balance of state shares has doubled, reaching €25 mln, considering that in the past three months, between December and February, “we managed a good financing of the budget deficit, which would not have been possible without an infusion of liquidity.”