Capital account deregulation, which would allow foreigners access to ROL deposits, could now be postponed by the Romanian authorities, owing to persistently high interest rates, which might prove attractive to speculative capital and upset the already fragile macroeconomic balance.
Postponement would allow ROL interest rates to be reduced without affecting the exchange rate and the declining rate of inflation.
Deregulation of the capital account in the first half of this year, initially scheduled for April, is one of the European Union requirements that came up during the negotiation process.
The International Monetary Fund (IMF) has requested that the Romanian authorities postpone the deregulation based on the belief that Romania is not yet prepared for such a move.
"We will see if we go ahead and liberalise the capital account this year. It will either happen by mid year or be postponed," said the Prime Minister, Calin Popescu-Tariceanu.
This is the second such statement made by the Prime Minister in the last two weeks. In his first statement he said a decision would be reached after consultations with NBR and Finance Ministry specialists.
The deregulation issue is currently being debated by the Romanian authorities and the IMF delegation, currently in Bucharest to discuss the macroeconomic situation and the impact of the flat-rate tax on the budget.
"NBR maintains the position already stated that the issues on the agenda for the talks with the IMF, which includes postponement of the capital account deregulation, will be presented publicly after being cleared up at the negotiation table," said Adrian Vasilescu, advisor to central bank governor Mugur Isarescu.
The upcoming deregulation of the capital account - one of the conditions of which is the elimination of restrictions on non-residents making ROL deposits - comes at a time of high interest rates on the ROL and a stable exchange rate, which would provide favourable conditions for inflows of speculative capital.
Deregulation would mean non-residents would benefit from higher yields by bringing euros into Romania, exchanging them for ROL and placing them in deposits or government securities.
As much as one billion euros are already thought to have entered Romania via special purpose investment vehicles last year for investment in government securities or banking deposits.
Gains of 15-25% in euros were possible last year thanks to the high rates of interest in ROL of over 15% per year on top of the appreciation of the ROL of nearly 10% in the last two months of last year. Internationally, yields on euros range from 4 to a maximum of 6%.
Speculative funds that capitalise on the gap between interest rates for ROL and international rates for the euro are set to reach two billion euros, which will only help the ROL strengthen further. Total inflows for this year are estimated at more than 8bn euros and come from money sent back by Romanians working abroad, foreign direct investment and speculative funds.
iulian.anghel@zf.ro
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