"And you used to laugh at me when I told you about Balkanbehaviour... yesterday during the dinner with the PM-I in theStates I had to constantly explain him the situation in Romania andreassure him that we are not defaulting. Isarescu should give me amedal since he no longer has to pump even more money (to protectthe RON i.e.). All these American funds bet on the Romanian bondsover those in the West and are scared now."
This is the concrete effect of the political crisis in Bucharest onthe international financial markets as reflected in the e-mailmessage sent to a ZF journalist by a Romanian trader working for aninvestment bank in London.
Foreign players have no time to waste with the details of theBalkan behaviour on the political stage in Romania and the news ofa governmental coalition breaking apart equals a major warning signthat automatically induces reduction in exposures.
Premier Emil Boc rushed to discuss with the ambassadors of the EUcountries in Bucharest, PSD (Social Democrat Party) leader MirceaGeoana promised to call the IMF, but all that mattered to financialmarkets was that government had broken up.
The RON was heavy hit: despite NBR's interventions to containdepreciation, rates quickly reverted from 4.19 to 4.27 RON/EUR,while the Bucharest Stock Exchange remained in the red for thesecond day in a row on Friday. RON's and investors' losses totalledseveral hundred million euros in just one week.
The only anchor of foreign credibility Romania still has is theagreement with the IMF, as the financing from the World Bank and EUexpected until December depends on meeting its terms. A potentialslippage could induce a dramatic chain effect, from the countryrating downgrade, as the major financial rating agencies havealready warned, to the increase in the price of foreign loans andto the collapse of the RON.
The Danes at Danske Bank see the exchange rate at 4.40 RON inDecember and at 4.60 RON in March 2010, while ING believes that theNBR will have an increasingly hard time to protect the RON, withdim prospects of a new interest rate cut on November 3, because ofthe risk of derailing the agreement with the IMF.
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