Romania’s Chafing Chill Wind
Romanian bond issuance was doubled in January as authorities grappled with weeks of worker anti-austerity hostility amid record low temperatures and snowfall. The creaky coalition government may have to activate its IMF precautionary line and face another round of no-confidence votes as GDP growth could halve to 1 percent on slumping exports, 70 percent headed to the EU. The World Bank may chip in $1 billion in budget support tied to further privatization, labor and energy sector efforts as bank lending, dominated by foreign-owned units remains flat. Higher portfolio inflows will be needed to bridge the stubborn current account gap and were urged by famed Franklin Templeton equity fund managers hired to oversee listed state investment pools. The banking system is likewise under strain in Bulgaria which entered the EU at the same time as non-performing loans are 15 percent of the total. Greek parents own the biggest operations and regulators have tried to calm withdrawal fears by citing their continued profitability. A coal industry strike was settled as a minority stake in the state energy company is to go on the block by year-end. A sovereign Eurobond issues is slated for the coming months, and the country offers a precedent for GDP-linked paper that may feature in an eventual stinging private creditor “haircut” for Greece under negotiated non-default swap terms. The so-called Troika insists on a nominal 3.5 percent level coupon to promote debt sustainability as they mull a second bailout package before a steep looming March commercial repayment. They have however split on the possibility of the ECB absorbing losses under equal treatment practice, which the IMF has posed as a workout element. Athens even under caretaker technocrat rule has routinely missed key deficit and structural targets, and the Germans have floated the idea of an external fiscal overseer with new elections scheduled for April.
Peripheral bond panic is now entrenched in Portugal, which like Greece was in the emerging market category pre-euro, as 2-year yields were 20 percent before central bank buying. In an historic twist Brazilian investors and advisors have flocked there to share their experience and scout prospects. Angolan banks linked to its long-serving president have acquired assets as the incumbent may be closer to designating a successor after naming the state oil monopoly head as a key economic planner. The country entered an IMF program after the 2008 crisis, mirroring the path followed by Hungary which has reaffirmed second rescue intentions with dilution of financial supervisor consolidation plans despite Article IV report reference to “ambitious objectives” that may clash with the arrival of “adverse scenarios,” especially if mainstream political and policy tendencies are cast as enemies.
