The state needs at least 3.5 billion euros to cover the budgetdeficit from foreign funding in the last three months of the year,but because of the political crisis it might be forced to findother solutions and thus turn the local banks for money and to NBRfor support.
The dramatic effect of the Finance Ministry's return to thedomestic market as it did at the beginning of the year would be thedraining of the last available funds for lending to the privatesector and implicitly the significant increase in interests in RON,which have reverted to over 10% anyway.
The absence of a negotiation partner at the Victoria Palace(Government's HQ) made the IMF postpone the assessment on which the1.5 billion euro tranche scheduled for December depends, and thedelay in putting in place a new government is threatening the 1billion-euro tranche expected from the EU, as well. The politicalcrisis also put on hold the Finance Ministry's plan to sell about 1billion euros in eurobonds on the international market.
Adding these amounts up leads to a total of 3.5 billion euros thatthe budget will not be able to rely on as planned, so that expensesneed to be cut at the end of the year and other local financingalternatives need to be found. President Traian Basescu warns thatunless the new government is put in place soon, there is a riskthat either pensions and salaries will not be paid in full, orinvestments will not be paid.
"There is a risk of not getting the next tranche of the loan ifconditions are not met. I do not want this to happen," said thepremier appointed, Lucian Croitoru, who is trying to get supportfrom parties, even though he stands little chance of gainingthat.
The only option the Government has to get money is to turn to thedomestic market, but at much higher costs, analysts say.
"The financing solution can only be (found on the) domestic(market) and there are two ways for it: financing in RON or inforeign currency. Financing in RON, however, tends to becomeslightly more expensive even on short term given the currentpolitical crisis," believes Lucian Anghel, chief economist ofBCR.
Melania Hancila, Volksbank's chief economist, believes thatfinancing in foreign currency would be the better option.
"On short term, the state could get funding from the domesticmarket. The financing in foreign currency would be cheaperespecially since the NBR has cut minimal reserves lately, and mostof the money freed up is still in the banks' accounts."
She does not rule out the possibility that, depending on thenecessary amount, the central bank might cut minimal reservesagain, so that the Finance Ministry would absorb the money freed upthrough the already proven mechanisms. "Of course there is also theoption of NBR cutting minimal reserves in the last monetary policymeeting this year (November 3), so that the money freed up would goto a club loan," Hancila said. In July, eight banks granted to theGovernment such a loan worth 1.2 billion euros at a 5% yearlyinterest.
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